10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001

Commission File No. 0-14680

GENZYME CORPORATION
(Exact name of Registrant as specified in its Charter)

Massachusetts (State or other jurisdiction of incorporation or organization)	06-1047163 (IRS Employer Identification No.)
One Kendall Square Cambridge, Massachusetts (Address of principal executive office)	02139 (Zip Code)

(617) 252-7500

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Genzyme General Division Common Stock, $0.01 par value ("Genzyme General Stock")
Genzyme Biosurgery Division Common Stock, $0.01 par value ("Biosurgery Stock")
Genzyme Molecular Oncology Division Common Stock, $0.01 par value ("Molecular Oncology Stock")
Genzyme General Stock Purchase Rights
Biosurgery Stock Purchase Rights
Molecular Oncology Stock Purchase Rights

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K./ /

Aggregate market value of voting stock held by non-affiliates of the Registrant as of March 1, 2002: $9,831,069,513

Number of shares of Genzyme General Stock outstanding as of March 1, 2002: 213,370,702
Number of shares of Biosurgery Stock outstanding as of March 1, 2002: 39,562,675
Number of shares of Molecular Oncology Stock outstanding as of March 1, 2002: 16,762,920

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2001 Genzyme General, Genzyme Biosurgery and Genzyme Molecular Oncology Annual Reports are incorporated by reference into Parts I, II and IV of this Form 10-K. Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 30, 2002 are incorporated by reference into Part III of this Form 10-K.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K contains forward-looking statements, including statements regarding our:

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projected timetables for the preclinical and clinical development of, regulatory submissions and approvals for, and market introduction of, our products and services;



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estimates of the potential markets for our products and services, including the anticipated drivers for future growth;



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sales and marketing plans;



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assessments of competitors and potential competitors;



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estimates of the capacity of manufacturing and other facilities to support our products and services;



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expected future revenues, operations and expenditures;



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allocations of revenue expenses, liabilities and income tax benefits;



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maintenance of financial covenants contained in our credit facility;



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potential milestone payments to the former stockholders of Novazyme Pharmaceuticals, Inc.; and



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projected cash needs.

        These statements are subject to risks and uncertainties, and our actual results may differ significantly from those that are described in this report. These risks and uncertainties include:

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our ability to successfully complete preclinical and clinical development of our products and services;



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our ability to manufacture sufficient amounts of our products for development and commercialization activities;



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our ability to obtain and maintain adequate patent and other proprietary rights protection of our products and services and successfully enforce our proprietary rights;



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the scope, validity and enforceability of patents and other proprietary rights held by third parties and their impact on our ability to commercialize our products and services;



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the accuracy of our estimates of the size and characteristics of the markets to be addressed by our products and services, including growth projections;



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market acceptance of our products and services;



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our ability to identify new patients for our products and services;



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the accuracy of our information regarding the products and resources of our competitors and potential competitors;



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the content and timing of submissions to and decisions made by the Food and Drug Administration, commonly referred to as the FDA, and other regulatory agencies;



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the impact of the May 2001 expiration of orphan drug status for Cerezyme® and Ceredase® enzymes on our revenues from these products;



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the outcome of our ongoing discussions with the FDA in connection with our Biologics License Application submission for Fabrazyme™ enzyme;

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our ability to obtain reimbursement for our products and services from third-party payors, and the extent of such coverage;



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our ability to expand manufacturing capacity for Renagel® phosphate binder;



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our ability to optimize dosing and improve patient compliance with Renagel phosphate binder;



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our ability to manage inventories of Renagel phosphate binder;



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our ability to establish and maintain strategic license, collaboration and distribution arrangements;



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the continued funding of our joint ventures by our partners;



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our ability to successfully increase market penetration for Synvisc® viscosupplementation product as a treatment for osteoarthritis of the knee and to expand its use in other joints;



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our ability to increase market penetration in Europe for our Fabrazyme enzyme, Thyrogen® hormone and Renagel phosphate binder; and



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the possible disruption of our operations due to terrorist activities and armed conflict, including as a result of the disruption of operations of our subsidiaries and our customers, suppliers, distributors, couriers, collaborative partners, licensees and clinical trial sites.

        We have included more detailed descriptions of these risks and uncertainties in Exhibit 99.2, "Factors Affecting Future Operating Results," to this Annual Report on Form 10-K. We encourage you to read those descriptions carefully. We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements except as required by law.

NOTE REGARDING REFERENCES TO GENZYME DIVISIONS

        Throughout this Annual Report on Form 10-K, 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" refers to the board of directors of Genzyme Corporation. In addition, we refer to our three operating divisions as follows:

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Genzyme General Division = "Genzyme General;"



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Genzyme Biosurgery Division = "Genzyme Biosurgery;" and



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Genzyme Molecular Oncology Division = "Genzyme Molecular Oncology."

NOTE REGARDING INCORPORATION BY REFERENCE

        The Securities and Exchange Commission allows us to disclose important information to you by referring you to other documents we have filed with the SEC. The information that we refer you to is "incorporated by reference" into this Annual Report on Form 10-K. Please read that information.

NOTE REGARDING TRADEMARKS

        Genzyme®, Cerezyme®, Ceredase®, Thyrogen®, Fabrazyme®, N-geneous®, Contrast®, InSight®, AFP3®, AFP4®, GlyPro®, Pleur-evac®, Thora-Klex®, Tevdek®, Polydek®, Deklene®, SaphLITE®, Sepragel®, Seprafilm®, Carticel®, Epicel® and Snowden-Pencer® are registered trademarks of Genzyme. SAGE®, SPHERE™, NextStitch™, Sahara™, Immobilizer™, Sepra™, Sepramesh™ and Seprapack™ are trademarks of Genzyme. Renagel® is a registered trademark of GelTex Pharmaceuticals, Inc. Synvisc®, Hylaform®, Hylashield® and HsS® are registered trademarks and Hylashield Nite™ and Hylasine™ are

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trademarks of Genzyme Biosurgery Corporation. Focal® and FocalSeal® are registered trademarks of Focal, Inc. OSOM® is a registered trademark of Wyntek Diagnostics, Inc. AVONEX® is a registered trademark of Biogen, Inc. Interceed® is a registered trademark and Intergel™ is a trademark of Johnson & Johnson Corporation. Orthovisc® is a registered trademark of Anika Research, Inc. Hylagan® is a registered trademark of Sanofi-Synthelabo Inc. Co.don® AG is a registered trademark of Co.don® AG. Kabushiki Kaisha. Express® and Oasis® are registered trademarks of Atrium Medical Corporation. WelChol™ is a trademark of Sankyo Pharma, Inc. NKase™ is a trademark of Genentech, Inc. Aldurazyme™ is a trademark of BioMarin/Genzyme LLC. Replagal™ is a trademark of Transkaryotic Therapies, Inc. Foznal™ is a trademark of Shire Laboratories, Inc. Artz™ is a trademark of Seikagaku Kogyo. KM Mice™ is a trademark of Kirin Brewery Co., Ltd. Spraygel™ is a trademark of Confluent Surgical, Inc. Oxiplex™ is a trademark of FizoMed, Inc. Durolane™ is a trademark of Q-Med AB. Artrease™ is a trademark of Bio-Technology General Corp. Vevesca™ is a trademark of Oxford GlycoSciences plc.

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TABLE OF CONTENTS

		PAGE
PART I
ITEM 1.	BUSINESS	6
	Introduction	6
	Genzyme General—Products and Development Programs	6
	Genzyme Biosurgery—Products and Development Programs	14
	Genzyme Molecular Oncology—Technology Platforms and Development Programs	19
	Competition	23
	Patents, License Agreements and Trademarks	28
	Government Regulation	29
	Employees	33
	Financial Information Regarding Segment Reporting	33
	Research and Development Costs	33
	Sales by Geographic Area, Significant Customers and Products	33
ITEM 1A.	EXECUTIVE OFFICERS OF THE REGISTRANT	34
ITEM 2.	PROPERTIES	35
ITEM 3.	LEGAL PROCEEDINGS	38
PART II
ITEM 5.	MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	38
ITEM 6.	SELECTED FINANCIAL DATA	40
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	41
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	41
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	41
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	41
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	42
ITEM 11.	EXECUTIVE COMPENSATION	42
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	42
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	42
PART IV
ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K	43
	14(a)(1) Financial Statements	43
	14(a)(2) Financial Statement Schedules	44
	14(a)(3) Exhibits	44
	14(b) Reports on Form 8-K	45
	14(c) Exhibits	45

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PART I

ITEM 1.    BUSINESS

Introduction

        We are a biotechnology and human healthcare company that develops innovative products and provides services for major unmet medical needs. We were founded as a Delaware corporation in June 1981 and became a Massachusetts corporation in 1991. We currently have three operating divisions. Each of our divisions has a related series of common stock that is intended to reflect its value and track its financial performance. Our three divisions are:

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Genzyme General, which develops and markets therapeutic products and diagnostic products and services with an emphasis on genetic disorders and other chronic debilitating diseases with well-defined patient populations. Genzyme General Stock is listed on the Nasdaq National Market under the symbol "GENZ;"



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Genzyme Biosurgery, which develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedics and cardiothoracic markets. Biosurgery Stock is listed on the Nasdaq National Market under the symbol "GZBX;" and



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Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities. Molecular Oncology Stock is listed on the Nasdaq National Market under the symbol "GZMO."

        We allocate all of our products, services, programs, assets and liabilities among our divisions for purposes of financial statement presentation; however, Genzyme, the corporation, together with its subsidiaries, continues to own all of the assets and is responsible for all of the liabilities allocated to each of the divisions.

Genzyme General—Products and Development Programs

        Genzyme General is organized into two reportable segments—Therapeutics and Diagnostic Products. The Therapeutics segment focuses on developing and marketing products for genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and specialty therapeutics. The Therapeutics segment also includes the business of GelTex Pharmaceuticals, Inc., a wholly-owned subsidiary that we acquired in December 2000. GelTex is focused on developing non-absorbed polymer drugs that bind and eliminate targeted substances in the gastrointestinal tract and small-molecule pharmaceuticals consisting of novel polyamine analogues and metal chelators. The Diagnostic Products segment develops, markets and distributes in vitro diagnostic products. Outside of these reportable segments, Genzyme General also provides genetic diagnostic services, and develops, manufactures and sells pharmaceutical products that are used by other biotechnology and pharmaceutical companies in their research and development activities.

        In September 2001, we acquired Novazyme Pharmaceuticals, Inc., a developer of biotherapies for the treatment of lysosomal storage disorders. The business of Novazyme is included in our Therapeutics segment. In June 2001, we acquired Wyntek Diagnostics, Inc., a provider of high quality point of care rapid diagnostic tests for pregnancy and infectious diseases. The business of Wyntek is included in our Diagnostic Products segment.

Therapeutics

        Genzyme General's Therapeutics segment currently has five therapeutic products on the market and several other therapeutic products in varying stages of development. The chart set forth below

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provides summary information on Genzyme General's therapeutic products and clinical development programs as of March 1, 2002.

Product	Indication	Status	Licensor/Collaborator
Cerezyme® (imiglucerase for injection) and Ceredase® (alglucerase injection)	Type I Gaucher disease	Ceredase marketed since 1991; Cerezyme marketed since 1994; available in over 60 countries	None
Renagel® (sevelamer hydrochloride)	Reduction of serum phosphorus in patients with end-stage renal disease on hemodialysis	Marketed since 1998; approved in the U.S. in 1998, Israel in 1999, Europe in 2000, and Brazil in 2001; post-marketing phase 4 trials ongoing	None
		Phase 3 trial ongoing in Japan	Chugai Pharmaceutical Co., Ltd
Thyrogen® (thyrotropin alfa for injection)	Adjunctive diagnostic agent in the follow-up of patients with well-differentiated thyroid cancer	Marketed since 1998; Approved in U.S. in 1998, Puerto Rico in 1999, Europe, Israel and Brazil in 2000, and Canada in 2001; post-marketing phase 4 trial completed	National Institutes of Health; Sloan Kettering
Fabrazyme® (afgalsidase beta for injection)	Fabry disease	Marketed in Europe since 2001; BLA submitted to the FDA in June 2000; post-marketing phase 4 trial ongoing	Mt. Sinai School of Medicine
WelChol™ (colesevelam hydrochloride)	Reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia	Marketed in U.S. since 2000	Sankyo Pharma, Inc.
Aldurazyme™ (laronidase for injection)	MPS I	Phase 3 trial completed; BLA submission to the FDA and MAA submission to the EMEA planned for early 2002	BioMarin Pharmaceutical, Inc.*
AVONEX® (interferon beta 1-a)	Relapsing forms of multiple sclerosis	Phase 3 trial in Japan ongoing	Biogen, Inc.
GT160-246	Clostridium difficile colitis	Phase 2 trial ongoing	None
Alpha-glucosidase (transgenic product)	Pompe disease	Extension of a phase 2 trial ongoing	Pharming Group N.V.*
Alpha-glucosidase (CHO product)	Pompe disease	Phase 2 trial ongoing	Synpac (North Carolina), Inc.
DX-88	Hereditary angioedema	Phase 2 trial ongoing	Dyax Corp.*

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Thyrogen® (thyrotropin alfa for injection)	Goiter	Phase 2 trial ongoing	National Institutes of Health; Sloan Kettering
TGF-beta antagonists	Diffuse systemic scleroderma	Phase 1-2 trial ongoing	Cambridge Antibody Technology Ltd.*
Oral iron chelator	Iron overload disorders	Approval to commence phase 1 trials in Europe obtained	University of Florida

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If you would like information about this strategic collaboration, please read Note I, "Investments," to our consolidated financial statements, which is contained in Exhibit 13.1 to this Annual Report on Form 10-K (our "Consolidated Financial Statements") and incorporated into this discussion by reference.

        Additional details on Genzyme General's therapeutic products and late-stage development programs are set forth below.

        Cerezyme® (imiglucerase for injection)/Ceredase® (alglucerase injection).    Treatment with Cerezyme or Ceredase enzyme replacement therapy currently represents the only safe and effective treatment known to Genzyme that is available for Type I Gaucher disease, a lysosomal storage disorder. We began marketing Ceredase enzyme in 1991. Because production of Ceredase enzyme was subject to supply constraints, we developed Cerezyme enzyme, a recombinant form of human beta glucocerebrosidase, the enzyme that is deficient in Gaucher patients. Recombinant technology uses specially engineered cells to produce enzymes, or other substances, by inserting into cells of one organism the genetic material of a different species. In the case of Cerezyme enzyme, Chinese hamster ovary cells (or "CHO cells") are engineered to produce human beta glucocerebrosidase. We stopped producing Ceredase enzyme, except for small quantities, in 1998 after we converted substantially all of the patients who previously used Ceredase enzyme to Cerezyme enzyme.

        Genzyme General is marketing these products directly to physicians, hospitals and treatment centers worldwide through a highly trained sales force. This marketing effort is directed at identifying and initiating treatment for the estimated 5,000 to 10,000 Gaucher patients Genzyme believes exist worldwide. We distribute Cerezyme enzyme in over 60 countries worldwide. Our results of operations are highly dependent on sales of these products. Sales of Cerezyme and Ceredase enzymes totaled approximately $569.9 million in 2001, which represented approximately 51% of our consolidated product revenue in that year. Sales of these products totaled approximately $536.9 million, or 66% of our consolidated product revenues in 2000, and approximately $478.4 million, or 70% of our consolidated product revenues, in 1999.

        Renagel® (sevelamer hydrochloride).    Renagel phosphate binder capsules and tablets are used for the reduction of serum phosphorus in patients with end-stage renal disease on hemodialysis. There are an estimated 320,000 end-stage renal disease patients in the United States, approximately 95% of whom receive a phosphate control product. There are also an estimated 170,000 end-stage renal disease patients in Europe and 50,000 in Brazil. Genzyme General is marketing Renagel phosphate binder capsules and tablets in the United States, Europe and Brazil directly to nephrologists, renal dieticians and payors through a dedicated sales force. The launch of the tablet formulation in September 2000 was intended to help nephrologists manage patients into the normal serum phosphorus range. We began recording revenues from Renagel phosphate binder during the second quarter of 2000 under an amended distribution arrangement with GelTex, which we acquired in December 2000. Sales of Renagel phosphate binder totaled approximately $176.9 million, or 16% of our consolidated product revenues in 2001, and approximately $56.0 million, or 6% of our consolidated product revenues in 2000. Chugai

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Pharmaceutical Co., Ltd has rights to develop and market Renagel phosphate binder in Japan, China and other Pacific Rim countries.

        In the fourth quarter of 2001, Genzyme General completed its Treat-to-Goal study comparing Renagel phosphate binder to the standard calcium-based phosphate binders. The study was expected to last three years, but at the recommendation of its clinical investigators and its Renagel medical advisory board, Genzyme General elected not to pursue a two-year extension protocol because it felt the trial had met its objectives at one year. Genzyme General has completed enrollment for a 2,000-patient study initiated in 2001 and designed to evaluate the ability of the products to improve patient morbidity and mortality.

        Thyrogen® (thyrotropin alfa for injection).    Thyrogen hormone is an adjunctive diagnostic agent used in the follow-up of patients with well-differentiated thyroid cancer. It was developed by Genzyme General to allow patients to continue taking their thyroid hormone supplements while they are being screened for residual or recurring thyroid cancer, which helps patients avoid the debilitating effects of hypothyroidism. Genzyme General began marketing Thyrogen hormone in the United States in 1998 and pursues its marketing efforts through a direct sales force. In the United States, physicians order approximately 150,000 thyroglobulin tests and 30,000 radioiodine imaging whole body scans each year for thyroid cancer patients. Brazil has the highest incidence of thyroid cancer in the developed world, outside of the United States. Physicians order approximately 28,000 thyroglobulin tests and 12,000 radioiodine imaging whole body scans each year in Brazil for thyroid cancer patients. Biobrás S.A. exclusively distributes and markets the product in Brazil. Genzyme General began marketing Thyrogen hormone in Europe in August 2001, and plans to continue product launches in Europe on a country-by-country basis as pricing and reimbursement approvals are obtained. Physicians order approximately 110,000 thyroglobulin tests and 25,000 radioiodine imaging whole body scans each year in Europe for thyroid cancer patients. The product will be sold by Genzyme's existing specialty therapeutics sales force in Europe and through marketing partners in selected countries.

        Fabrazyme® (afgalsidase beta for injection).    Genzyme General is developing Fabrazyme enzyme, a recombinant form of the human enzyme alpha-galactosidase, as a treatment for Fabry disease. Fabry disease is a lysosomal storage disorder that is estimated to affect 1 in 40,000 males worldwide, with an estimated 5,000 patients worldwide. We filed for marketing approval for Fabrazyme enzyme in the United States and in Europe in 2000. In August 2001, we received marketing approval in Europe for Fabrazyme enzyme as a long-term enzyme replacement therapy in patients with a confirmed diagnosis of Fabry disease. Genzyme has launched Fabrazyme enzyme in 19 countries outside of the United States and plans to continue product launches on a country-by-country basis as pricing and reimbursement approvals are obtained. Fabrazyme enzyme is sold by Genzyme's existing Cerezyme sales force in Europe, which maintains close relationships with physicians who specialize in the treatment of genetic disorders.

        We submitted our BLA for Fabrazyme enzyme to the FDA in June 2000 and the FDA accepted our application for review under an accelerated approval mechanism. We received an initial complete response letter from the FDA in December 2000 and submitted our response to that letter in April 2001. On October 22, 2001, we received another complete response letter from the FDA related to our application to market Fabrazyme enzyme in the United States The letter specifies additional data and information the FDA requires to complete its review of our Biologics License Application (or "BLA") for Fabrazyme enzyme. We expect action on the United States regulatory submissions in 2002. In addition, Genzyme General initiated a phase 4 trial of Fabrazyme enzyme in January 2001, which is required under the FDA's accelerated approval mechanism. Please refer to our discussion on Fabrazyme enzyme under the heading "Competition" on page 22.

        WelChol™ (colesevelam hydrochloride).    GelTex received marketing approval for WelChol compound from the FDA in May 2000. WelChol compound is approved for administration alone or in

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combination with an HMG-CoA reductase inhibitor, also known as a "statin," as adjunctive therapy to diet and exercise for the reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia. While the risks of high cholesterol are well recognized, the condition remains significantly under-treated worldwide. An estimated 25 million Americans require drug therapy to achieve adequate reductions in cholesterol levels. However, only approximately 8 million Americans are receiving cholesterol-reducing drugs, and it is estimated that more than 60% of this population is not at their appropriate National Cholesterol Education Program LDL cholesterol goal. Worldwide, it is estimated that approximately one-third of the individuals who should be receiving cholesterol-reducing drugs are receiving therapy. Sankyo Pharma, Inc. has been marketing WelChol compound in the United States since its launch in September 2000.

        Aldurazyme™ (Laronidase for Injection).    Genzyme General and BioMarin Pharmaceutical, Inc. have formed a joint venture to develop Aldurazyme enzyme, a recombinant form of the human enzyme alpha-L-iduronidase, to treat a lysosomal storage disorder known as mucopolysaccharidosis I, or MPS I. Approximately 3,000 to 4,000 people in the developed world have been diagnosed with MPS I. The joint venture completed a confirmatory phase 3 trial in the third quarter of 2001 and plans to file for marketing approval in Europe and the United States in the first quarter of 2002, and in Canada in 2002.

        AVONEX® (Interferon-Beta 1a).    In September 1998, we entered into an agreement with Biogen, Inc. under which Genzyme General will, following regulatory approval, exclusively distribute AVONEX in Japan. AVONEX is Biogen's treatment for relapsing forms of multiple sclerosis. Genzyme General is managing the clinical development program for AVONEX in Japan and is working to obtain registration and reimbursement approvals for the product. Genzyme General expects to complete the phase 3 trial in Japan in the second quarter of 2002. Genzyme General estimates that there are 5,000 multiple sclerosis patients in Japan.

        GT 160-246 for C. Difficile Colitis.    The leading product currently in development at GelTex is a toxin binder for Clostridium difficile, also known as C. difficile. C. difficile is a major cause of antibiotic associated colitis, a condition common in hospitals and nursing homes. C. difficile is estimated to affect over 600,000 patients each year in the United States, resulting in prolonged hospital stays and increased costs, and is the cause of an estimated 5,000 deaths annually. In December 2001, Genzyme General launched a phase 2 trial of its polymer-based toxin binder for the treatment of C. difficile colitis following a successful pilot phase 2 study.

        Alpha-glucosidase.    Genzyme General is developing a potential therapy for Pompe disease. Pompe disease is a lysosomal storage disorder that is estimated to affect between 5,000 and 10,000 people worldwide. As part of its efforts to develop a safe and effective therapy for patients suffering with Pompe disease as quickly as possible, Genzyme General has devoted resources to the development of several potential therapies. Genzyme General is conducting an extension of the phase 2 trial of transgenically derived human alpha-glucosidase. Genzyme General does not intend to commercialize the transgenic product and plans to transition the patients currently enrolled in this trial to an alpha-glucosidase product produced in CHO cells as soon as practicable. It is conducting a phase 2 trial of a CHO-derived alpha-glucosidase product that it licensed from Synpac (North Carolina), Inc. Genzyme General plans to meet with the FDA to outline a plan for initiating additional clinical trials this year in infantile and delayed-onset Pompe patients and to discuss the regulatory pathway going forward.

        In connection with its efforts to develop a product for the treatment of Pompe disease, Genzyme General previously entered into two joint ventures with Pharming Group N.V—one for the development of the transgenically-derived product, and the other for the development of CHO-derived products. In August 2001, Pharming Group filed for receivership in order to seek protection from creditors. Thereafter, Genzyme General assumed full operational and financial responsibility for the development of CHO-derived products. In October 2001, we acquired Pharming Group's manufacturing

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facility in Geel, Belgium as part of Genzyme General's efforts to ensure the continued supply of the transgenically-derived product to patients enrolled in the ongoing study until they can be transitioned to a CHO-derived product. In December 2001, we entered into an agreement with Pharming Group to acquire all of its remaining assets related to the diagnosis and treatment of Pompe disease.

        Other Development Programs.    Genzyme General has several on-going preclinical and research programs. Genzyme General is developing an oral iron chelator for the treatment of iron overload disorders. It is conducting preclinical studies of a second generation Cerezyme enzyme product for Type I Gaucher disease. Genzyme General also is engaged in preclinical studies and research of small molecule products for multiple sclerosis, lysosomal storage diseases, polycystic kidney disease and cystic fibrosis, as well as gene therapies for AV shunt failure in renal dialysis, lysosomal storage diseases and other genetic diseases. Finally, Genzyme General is conducting preclinical studies of TGF-beta antagonists for renal and other diseases.

Diagnostic Products

        Genzyme General develops, markets and distributes in vitro diagnostic products with an emphasis on point of care products for the in-hospital and out of hospital rapid test segment, and clinical chemistry reagents and raw materials focused on the clinical laboratory. Sales in Europe and the United States are made primarily to diagnostic reagent and equipment manufacturers who, in turn, distribute the products under their own brand. In Japan, sales are primarily made to distributors. We have described some of Genzyme General's diagnostic products and development programs below.

        Cardiovascular Products.    Genzyme General sells reagents for the measurement of low-density lipoprotein cholesterol, or LDL-cholesterol and high density lipoprotein cholesterol, or HDL-cholesterol. Genzyme General's liquid N-geneous® LDL and liquid N-geneous HDL tests measure cholesterol levels directly without the imprecise labor intensive pretreatment methods that were previously used. These methods are also easily adapted to automated chemistry analyzers, through instrument applications Genzyme General develops as part of its value contribution to its partners. The N-geneous LDL cholesterol test was the first direct, liquid homogeneous LDL cholesterol test available for sale in the United States. Genzyme General is distributing both tests exclusively in the United Sates and Europe under an agreement with the manufacturer of the tests, Daiichi Pure Chemicals., Ltd., of Tokyo. In Asia and Japan, we hold co-exclusive distribution rights. In the primary markets we serve, Genzyme Diagnostics supports approximately 50% of the 150 to 200 million annual direct HDL and LDL cholesterol tests performed.

        GlyPro® Test.    Genzyme General's GlyPro test is a tool for monitoring diabetes. The GlyPro test measures glycated serum protein and provides an intermediate-term assessment of a patients average blood glucose control over the preceding two to three weeks.

        Diagnostic Intermediates.    Genzyme General produces intermediates such as diagnostic enzymes, substrates and specialty proteins for use in diagnostic kits. Complimentary to Genzyme Diagnostic's unique formulated reagents, the raw materials are formulated by Genzyme's OEM partners into finished reagents and used in mainframe clinical chemistry analyzers in the clinical lab. Currently, an example of Genzyme General's product line integration is in the area of pancreatic function, where Genzyme General provides enzymes, substrates and formulated reagents supported by patented methodologies for amylase and lipase determination to diagnostic kit manufacturers. Genzyme General is also a primary supplier of cholesterol enzymes used in testing for coronary heart disease.

        Qualitative Rapid Tests.    Genzyme General's qualitative rapid test portfolio expanded with the acquisition of Wyntek Diagnostics, Inc., in June 2001. In addition to private label products distributed to Genzyme General partners in the same fashion as Genzyme General distributes its products, Wyntek sales include the OSOM brand of pregnancy, Strep A and infectious mono rapid tests. Adding these

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products to the current Contrast® rapid tests for pregnancy, Strep A and infectious mononucleosis broadens Genzyme General's position as a premier supplier of rapid tests. Genzyme General also manufacturers the first combination rapid test for giardia and cryptosporidium, the two most common causes of intestinal, parasitic infection.

        Quantitative Rapid Tests.    Expanding on its rapid test product offerings, Genzyme General is developing cardiac, stroke and infectious disease quantitative point of care, rapid tests. We anticipate launching the cardiac point-of-care product in the second half of 2002. This product is expected to combine with Genzyme General's first instrument platform and to afford the footprint to offer other, quantitative point of care future products. Because heart disease is the leading cause of death in the United States, rapid identification and management of acute coronary syndromes at the point of care meets an important medical need. Genzyme General also is developing a stroke panel to aid in the management of stroke patients. Following FDA marketing clearance, Genzyme General intends to exclusively manufacture and sell the product worldwide. It is expected that, as a result of launch of the cardiac product, the stroke product will be Genzyme General's second quantitative panel, and will utilize the instruments already in place in the field. Stroke is the third leading cause of death in the United States, affecting approximately 700,000 people annually with a similar incidence in both Europe and Japan. Approximately 150,000 Americans die as a result of a stroke each year.

Other Genzyme General Products and Services

        Genzyme General derives revenues from other products and services not included in the Therapeutics or Diagnostic Products segments. Those revenues are derived primarily from the provision of genetic diagnostic services and the sale of pharmaceutical intermediates.

Genetic Services

        Genzyme General applies advanced biotechnology to develop and provide high quality, sophisticated genetic diagnostic services in the United States and Japan. These services are promoted through a direct sales force in the United States with testing provided by Genzyme General's U.S.-based clinical laboratories. Genzyme Japan services the Japanese market through a direct sales force, with testing services provided for Japan by Genzyme General's clinical laboratory in Santa Fe, New Mexico. Genzyme General employs over 120 board certified genetics professionals who interpret results and provide genetic counseling and support services to medical practitioners and their patients

        In December 2001, we reallocated certain intellectual property rights and licenses related to in vitro cancer diagnostics from Genzyme Molecular Oncology to Genzyme General. In exchange for the reallocation, Genzyme General paid to Genzyme Molecular Oncology $32 million in cash and undertook the obligation to pay an additional $1 million if a specified milestone is met. As a result of this transaction, Genzyme General now has in vitro diagnostic rights to cancer markers which have been identified, or may be identified during the next five years, through Genzyme Molecular Oncology's antigen discovery program. In addition, it has access to Genzyme Molecular Oncology's Serial Analysis of Gene Expression (SAGE™) database to identify diagnostic cancer markers, and options to diagnostic- related discoveries found through research collaborations with laboratories at The Johns Hopkins University and other institutions. Genzyme General also assumed exclusive rights to intellectual property for certain cancer-related genes and methods in the field of in vitro diagnostics.

        Genzyme General offers three types of genetic diagnostic services. We have described those services below.

        Cytogenetic Testing.    Most of Genzyme's cytogenetic testing is routine chromosome analysis done through karyotyping. Karyotyping is an analysis of the chromosomes in a single cell from one individual. Genzyme General's InSight® test utilizes Fluorescence In Situ Hybridization (FISH) technology to expand the capabilities of routine chromosome analysis in prenatal testing. It is used by

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cytogenetics laboratories and physicians as an adjunct to traditional chromosome analysis, and permits preliminary identification of the most frequently occurring numerical chromosomal abnormalities within 48 hours. Classical cytogenetic testing typically takes one to two weeks. Cytogenetic tests are routinely used to identify genetic abnormalities in pregnancy as well as hematologic cancers.

        Biochemical Testing.    Genzyme General offers both triple (AFP3®) & quad (AFP4®) marker prenatal genetic screening tests. Genzyme General's AFP4® advanced screening test has a higher detection rate and a lower false positive rate than the previous triple screen in assessing fetal risk of neural tube defects, Down Syndrome and Trisomy 18.

        DNA Testing.    Genzyme General's test menu includes over 20 DNA tests used in the screening and diagnosis of single gene disorders and hematological cancers. Genzyme General's CF87™ test screens for 87 genetic mutations associated with cystic fibrosis. In the third quarter of 2001, the American College of Obstetricians and Gynecologists (ACOG) issued new guidelines recommending that all Caucasian women who are pregnant and couples considering pregnancy be offered a genetic test to determine if they are carriers of cystic fibrosis. In anticipation of the ACOG recommendation, and in response to strong growth in its DNA testing business, Genzyme General doubled the capacity of its molecular diagnostics laboratory in Framingham, Massachusetts in 2001. In addition, it launched a comprehensive educational program geared toward helping health professionals in obstetrics advance their knowledge of cystic fibrosis and the issues presented by testing.

Pharmaceuticals

        Genzyme General develops, custom manufactures and sells pharmaceutical drug materials, specializing in synthetic peptides, amino acid derivatives, phospholipids and complex chemical products, which are used by pharmaceutical and biotechnology companies as active pharmaceutical ingredients, key intermediates/excipients or raw materials in their products. These pharmaceutical materials are sold through a direct sales force to customers around the world. In addition, we develop and license to companies new, innovative lipid-based drug delivery technologies for use in their product development programs. Genzyme General's multi-purpose chemical manufacturing facility located in Liestal, Switzerland has a range of manufacturing scale to support the pharmaceutical industry's drug development programs from the research phase through clinical trials and product commercialization.

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Genzyme Biosurgery—Products and Development Programs

        We created Genzyme Biosurgery in December 2000 by combining two of our former divisions, Genzyme Surgical Products and Genzyme Tissue Repair, and simultaneously acquiring Biomatrix, Inc. Genzyme Biosurgery is organized into three reportable segments—Orthopaedics, Cardiothoracic and Biosurgical Specialties. Its product and development program portfolio consists of biomaterials, biotherapeutics, cardiothoracic devices and sutures, as well as advanced devices for minimally invasive cardiovascular surgery. Genzyme Biosurgery's sales force markets products directly to physicians and hospital administrators throughout the United States and Europe. It also uses a network of distributors to sell certain products in the United States, Europe, Asia and Latin America.

        In October 2001, we sold our manufacturing facility in Pointe-Claire, Quebec, Canada. This facility was formerly used to manufacture Synvisc® (Hylan G-F20) viscosupplementation fluid, Hylaform® and Hylashield®. We had discontinued operations in the Spring of 2001 after transferring all Synvisc viscosupplementation fluid production to our Ridgefield, New Jersey facility.

        In November 2001, we sold the assets related to our Snowden-Pencer® surgical instrument product lines, and we are subleasing to the purchaser our manufacturing facility in Tucker, Georgia. The Snowden-Pencer product lines included primarily hand-held reusable surgical instruments and endoscopic instruments for use in general, plastic, gynecological and laparoscopic surgery.

Orthopaedics

        Synvisc® (hylan G-F20).    Synvisc viscosupplementation fluid is a hyaluronan-based biomaterial used to treat the pain and immobility associated with osteoarthritis of the knee. When injected into the knee joint, Synvisc viscosupplementation fluid supplements synovial fluid to restore lubrication and cushioning. Synvisc viscosupplementation fluid is approved in approximately 60 countries and is sold in more than 35 countries, both directly and through marketing and distribution agreements with major pharmaceutical companies, including Wyeth-Ayerst Laboratories in the United States, Germany, Portugal, Turkey and other countries.

        In 2001, a clinical study was conducted comparing Synvisc viscosupplementation treatment to intra-articular steroids with favorable results. We also initiated a next generation viscosupplementation program that will focus on a Synvisc product requiring fewer than three injections. Further in 2001, we evaluated data generated from a pilot clinical trial completed in Europe that studied Synvisc viscosupplementation fluid as a treatment for osteoarthritis of the hip. In 2002, we plan to file for European authorization to market Synvisc viscosupplementation fluid for treating osteoarthritis induced pain in the hip. We also plan to initiate a pivotal clinical trial for use of Synvisc viscosupplementation fluid to treat osteoarthritis of the hip in the United States, and to conduct clinical trials in Europe and possibly the United States to evaluate Synvisc in other joints such as the shoulder, ankle, and digits.

        Advanced Viscosupplementation Products.    Genzyme Biosurgery is continuing development of extension viscosupplementation products to treat the pain and immobility associated with osteoarthritis that are intended to provide patients with improved clinical benefits and ease of use. In 2002 we plan to initiate a pilot clinical trial to evaluate a product with such properties.

        Carticel® (autologous cultured chondrocytes).    Carticel chondrocytes are used to treat damaged articular cartilage in the knee. Genzyme Biosurgery employs a proprietary process to grow autologous, or a patient's own, cartilage cells (chondrocytes) for use in repairing damaged knee cartilage in patients who have had an inadequate response to a prior surgical procedure. The cells are implanted into the damaged area of the knee in a surgical procedure called autologous chrondrocyte implantation. Genzyme Biosurgery also sells biopsy kits and a variety of disposable instruments and sutures that are typically used in the implantation procedure. Carticel chondrocytes currently are marketed in the United States and are available in Europe.

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        Genzyme Biosurgery is conducting three confirmatory post-marketing studies of Carticel chondrocytes. The first study, which was completed in 2000 ahead of schedule, measured outcomes of patients included within Genzyme Biosurgery's registry during the last three years who did not respond to other treatments before being implanted with Carticel chondrocytes. Outcomes before and after implantation were compared. The second study is designed to compare the long-term clinical effect of treatment with Carticel chondrocytes to alternative treatments. Enrollment in this study, which consists of 104 patients, was completed in June 2001. Follow-up for these patients will take place for approximately four years. The final confirmatory study is an on-going animal study to evaluate the biological role of chondrocytes in the repair procedure.

        Genzyme Biosurgery markets Carticel chondrocytes to orthopedic surgeons in the United States and Europe directly and through distributors. Genzyme Biosurgery also trains orthopedic surgeons, collects and analyzes outcomes data through a registry, and assists physicians and patients in obtaining reimbursements from third-party payors. Approximately one-fourth of its 70-person United States sales and reimbursement staff is involved directly in claims processing and educating insurers about the appropriate uses of the product. Sales of Carticel chondrocytes are usually lower in the summer months as fewer operative procedures are typically performed during those months.

        Carticel® II Chondrocytes.    Carticel II chondrocytes, currently in development, is a next-generation product based on the development of a pre-formed autologous cartilage tissue implant. The implant is intended to allow the procedure to be performed less invasively. If it is successfully developed, Carticel II chondrocytes could significantly decrease the length of surgical and rehabilitation time for patients and may allow surgeons to treat larger and more complex cartilage defects. In connection with the development of Carticel II chondrocytes, Genzyme Biosurgery obtained an exclusive worldwide license in 2000 from Sentron Medical, Inc., for technology and related intellectual property rights that include autologous chondrocyte graft technology to produce cartilage tissue on a supporting membrane in vitro.

        Other Development Programs.    In addition to viscosupplementation treatment of osteoarthritis pain, Genzyme Biosurgery is conducting preclinical studies with a small molecule therapy that affects the progression of the cartilage degradation that causes osteoarthritis. Genzyme Biosurgery also is conducting basic research concerning the biology of cartilage and the cartilage repair process. The objective of this research is to further understand the mechanism of action of viscosupplementation and to ultimately develop more effective products for treating joint disease and to aid in cartilage repair. Genzyme Biosurgery is also committing resources to meet requirements specified by the FDA for validation of certain product manufacturing parameters.

Cardiothoracic

        Devices and Sutures.    Genzyme Biosurgery's products for traditional cardiothoracic surgery include a comprehensive portfolio of products, including fluid management (chest drainage) systems and sutures. Its line of fluid management systems consists primarily of self-contained, disposable chest drainage devices used to drain blood from the chest cavity following open-heart and lung surgery. Genzyme Biosurgery also sells autotransfusion devices that allow the collection of blood lost by the patient and its reinfusion postoperatively, which helps eliminate risks associated with blood transfusions. Genzyme Biosurgery's self-contained, disposable Pleur-evac® chest drainage unit, which was introduced in 1967, is a widely-used device that drains the thoracic cavity of blood and air following heart or lung surgery. Genzyme Biosurgery also sells a line of dry suction-controlled chest drainage and autotransfusion devices under the Sahara™ and Thora-Klex® brand names. Genzyme Biosurgery has entered into selling agreements for its chest drainage devices with Amerinet, Inc., Health Trust Purchasing Group, MedAssets, HSCA Inc. (a successor to Health Services Corporation of America) Novations, LLC, and Hospital Corporation of America, which are large hospital group purchasing organizations representing approximately 49% of the hospitals in the United States. Genzyme Biosurgery also markets sutures, including the Tevdek® and Polydek® valve sutures and Deklene®

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bypass sutures. In November 2000, Genzyme Biosurgery received FDA approval to launch NextStitch™ cardiovascular valve suture for use in heart-valve replacement surgery in the United States. NextStitch cardiovascular valve sutures incorporate two suture strands into each needle, which reduces the number of needle passes and thus improves the efficiency and reduces the trauma of valve suturing. Additionally, Genzyme Biosurgery sells aortic punches, which are used during coronary artery bypass graft surgery to make clean, round openings in the aorta prior to grafting.

        Minimally Invasive Cardiovascular Surgery Systems.    Genzyme Biosurgery markets products for minimally invasive cardiovascular surgery, with a focus on beating-heart surgery and vein harvesting. In beating-heart surgery, procedures are performed on the heart without stopping the heart and without the use of a heart/lung machine to circulate blood and supply oxygen. This allows surgeons to avoid the complications often associated with the use of heart/lung machines. In December 2001, Genzyme Biosurgery launched the fourth-generation of its Immobilizer™ System for beating-heart surgery. The Immobilizer System consists of a reusable retractor with disposable coronary artery stabilization device. Genzyme Biosurgery also introduced the next generation of its SaphLITE® system in August 2000. Genzyme Biosurgery's SaphLITE system is used to remove the saphenous vein from a patient's leg in a minimally-invasive procedure for use as a graft during a coronary artery bypass graft operation.

        Biomaterials.    Genzyme Biosurgery launched FocalSeal®-L surgical sealant in North America in 2000 for use in pulmonary procedures. FocalSeal-L surgical sealant is a biomaterial approved for use in preventing air leaks following surgery. FocalSeal®-L surgical sealant was developed by Focal, Inc., which we acquired in July 2001. Approximately 180,000 lung surgeries are performed in the United States annually, with almost all patients at risk for debilitating air leaks. Genzyme Biosurgery markets FocalSeal-L surgical sealant in North America through its existing sales force. In other parts of the world where it is approved for sale. Genzyme Biosurgery sells the product directly or markets it through distributors. Genzyme Biosurgery is conducting preclinical studies to evaluate the effectiveness of the FocalSeal-S polymer as a device for delivering a cardiac drug that reduces atrial fibrillation following open heart surgery.

        Biotherapeutics.    Genzyme Biosurgery is developing a gene therapy approach to ischemia, or inadequate circulation caused by blood vessel constriction or blockage, including both coronary artery disease (CAD) and peripheral arterial disease (PAD). Genzyme Biosurgery currently is conducting two phase 1 clinical trials to investigate the effect of HIF-1 alpha (hypoxia inducible factor-1), a proprietary gene, in stimulating angiogenesis, or new blood vessel growth. In preclinical studies, HIF-1 alpha has been shown to activate growth factors associated with angiogenesis. Enrollment of patients in the PAD phase 1 clinical trial has been completed, and Genzyme Biosurgery anticipates completing the study in 2002. Genzyme Biosurgery anticipates that its CAD phase 1 clinical trial will be completed in 2003. In addition, Genzyme Biosurgery is conducting research on other gene therapy approaches to congestive heart failure and restenosis.

        Genzyme Biosurgery also is developing a cell therapy approach to repair damaged heart tissue following a heart attack. It plans to file an IND application in 2002 and launch a multi-center phase 1 clinical trial in the second half of 2002.

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Biosurgical Specialties

        Biomaterials.    Genzyme Biosurgery has an extensive line of biomaterial products on the market and in development for the general, plastic and cardiovascular surgery markets, including its Sepra™ products. Genzyme Biosurgery sells its biomaterial products in the United States and Europe primarily through its own sales force, and in Japan and the rest of the world through distributors.

        The chart set forth below provides summary information on certain of Genzyme Biosurgery's biomaterial products and development programs as of March 1, 2002.

Product	Indication	Status
Seprafilm® Adhesion Barrier	Reduction of the incidence, extent and severity of postoperative adhesions after abdominal/pelvic surgery.	Approved and marketed in the U.S. and Europe since 1996, in Canada and Israel since 1997, and in Japan since 1998. Phase 4 clinical trial in the U.S. ongoing to assess reduction of small bowel obstructions.
Seprafilm® II Adhesion Barrier	Reduction of the incidence, extent and severity of postoperative adhesions after abdominal/pelvic surgery.	Approved and marketed in Europe since 1999. Pivotal clinical trial in the U.S. ongoing.
CV Seprafilm II	Reduction of incidence, extent and severity of postoperative adhesions after cardiac surgery.	Approved and marketed in Europe since 1998.
Sepramesh™ Biosurgical Composite	Soft tissue deficiency repair, such as hernia repair.	Approved and marketed since 2000 in the U.S., Europe and Canada.
Seprapack™ bioresorbable Nasal Packing and Sinus Stent	Space occupying stent and reduction of incidence, extent and severity of adhesions after sinus surgery.	Available for sale in the U.S. in 2002.
Sepragel® Sinus bioresorbable Nasal Packing and Sinus Stent	Space occupying stent and reduction of incidence, extent and severity of adhesions after sinus surgery.	Available for sale in the U.S. and Europe in 2002.
Hylaform®	Facial wrinkle and tissue augmentation.	Approved in Europe in 1995; approved in Canada, Israel and Chile in 1997, in Argentina in 1998 and in Australia and China in 1999. U.S. clinical trial expected to commence in 2002.
Hylaform® Plus	Larger facial wrinkle and tissue repair and augmentation.	Approved in Europe in 2001; approved in Canada in 2002. U.S. clinical trial expected to commence in 2002.
Hylaform® Fineline	Smaller facial wrinkle and tissue repair and augmentation.	Approved in Europe in 2001; approved in Canada in 2002. U.S. clinical trial expected to commence in 2002.
Hylashield®, Hylashield Nite™ and HsS®	Ease pain caused by dry-eye and facilitate ophthalmic surgical procedures.	Approved in Canada and Europe since 1996.
Sepragel® Spine	Reduction of incidence, extent and severity of adhesions after spinal surgery.	Clinical trial expected to commence in 2002.
Sepragel® Adhesion Barrier	Reduction of incidence, extent and severity of adhesions after laproscopic pelvic surgery.	In preclinical development.
Sepramesh™ II Biosurgical Compositer	Soft tissue deficiency repair, such as hernia repair.	In preclinical development.

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        The "Sepra products" are aimed at preventing or reducing adhesions (scar tissue) following surgery. These products are based on hyaluronan, which is a substance that is naturally created in the body to lubricate and protect tissue. Genzyme Biosurgery previously developed the Sepra products on behalf of Genzyme Development Partners, L.P., referred to as GDP, and marketed the products in the United States and Canada on behalf of Genzyme Ventures II, our joint venture with GDP.  In 2001, we purchased all of the outstanding limited partnership interests in GDP for approximately $25.7 million in cash, plus royalties payable over ten years on sales of certain Sepra products in the U.S, Canada and Europe. GDP and Genzyme Ventures II have both been dissolved and Genzyme Biosurgery now develops and markets the Sepra products. Royalties are currently being paid to the former limited partners of GDP on sales of Seprafilm, Seprafilm II, CV Seprafilm II, Sepramesh, Seprapack and Sepragel Sinus.

        Seprafilm adhesion barrier is a bioresorbable membrane of modified hyaluronan that is used to separate tissue surfaces while the normal tissue repair process takes place. It is the only product approved by the FDA that is clinically proven to reduce the incidence, extent and severity of postsurgical adhesions in the abdomen and pelvis. There are approximately 4 million abdominal and pelvic procedures performed annually in the United States.

        To build further clinical evidence of the safety and effectiveness of Seprafilm adhesion barrier, Genzyme Biosurgery is conducting a 22-center phase 4 clinical trial to evaluate the use of Seprafilm adhesion barrier for the reduction of adhesion related postoperative bowel obstruction following abdominal and pelvic surgery. A total of 1,791 patients were enrolled in this study. The study will track patient outcomes for two years after surgery. At the end of 2001, all patients had at least one year of postoperative experience. The study is expected to be completed at the end of 2003. In 2001, Genzyme Biosurgery received Japanese marketing approval and reimbursement authorization for the use of Seprafilm adhesion barrier in patients with colorectal cancer.

        Seprafilm II adhesion barrier is a modified form of Seprafilm adhesion barrier designed to have increased plasticity, improved handling and increased ease of use. Seprafilm II adhesion barrier currently is marketed in Europe, Canada and other countries for use in open and laproscopic abdominal and pelvic surgery to reduce the incidence, extent and severity of postoperative adhesions. A 12-14 center, 120 patient pivotal study of Seprafilm II adhesion barrier in abdominal surgery was initiated in the United States in 2001. Enrollment is expected to be completed in 2002.

        Genzyme Biosurgery obtained clearance to market Sepragel Sinus and Seprapack bioresorbable nasal packing and sinus stents to prevent adhesions and control minimal bleeding after sinus surgery, in 2001 in the United States and in 2000 in Europe. Genzyme Biosurgery estimates that annually approximately 360,000 patients worldwide could be helped by one or both of these products. In 2001, we entered into a partnership with Gyrus® ENT LLC, for the exclusive worldwide distribution of Sepragel Sinus and Seprapack bioresorbable nasal packing and sinus stents as well as other potential hyaluronan-based ear, nose and throat specialty applications. Genzyme Biosurgery and Gyrus plan to launch Sepragel Sinus and Seprapack bioresorbable nasal packing and sinus stents in Europe in 2002.

        Genzyme Biosurgery has been marketing Sepramesh biosurgical composite, a polypropylene mesh that is coated with modified hyaluronan for use in hernia repair, in the United States, Europe and Canada since 2000.

        Hylaform is a hyaluronan-based biomaterial used to correct facial wrinkles and provide tissue augmentation by injection directly into the dermal tissue. It is part of the portfolio of products based on hyaluronan that we acquired through our acquisition of Biomatrix. This product is distributed by Inamed Corporation in Europe, Canada, Japan, Australia, Israel and other designated countries. Inamed also has the exclusive distribution rights to Hylaform in the United States, subject to the completion of a United States clinical trial and FDA approval. In 2001 we agreed to expand our existing relationship with Inamed. Under our new agreement, which we anticipate will become effective

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in early 2002, Inamed will also distribute Hylaform® Plus and Hylaform® Fineline, closely associated products to Hylaform, in and outside the United States, and will also fund the Hylaform clinical trial in the United States, which is expected to commence in 2002.

        Epicel® (cultured epidermal autografts).    Genzyme Biosurgery's Epicel skin grafts are cultured autologous skin cells used for permanent skin replacement for patients with severe burns. Epicel skin grafts were first introduced in 1987. These epidermal grafts are grown from a patient's own skin cells and, therefore, are not rejected by the patient's immune system. Most burn wounds involving less than 60% body surface area are covered with conventional skin grafts within the three to four weeks it currently takes to grow skin grafts produced using the Epicel skin grafts process. The primary candidates for Epicel skin grafts are the approximately 1,500 patients each year in the United States who survive burn injuries covering more than 60% of their body surface area. Genzyme Biosurgery markets Epicel skin grafts to burn centers in the United States and parts of Europe through its own direct sales force and in Japan through a distributor. Sales of Epicel skin grafts fluctuate from quarter to quarter depending on a number of unpredictable factors, including the number and survival rate of severe burn patients prior to treatment with Epicel skin grafts.

        FocalSeal®-S Neurosurgical Sealant.    FocalSeal-S neurosurgical sealant has been approved for sale in Europe since November 1999, and, prior to Focal's termination of its distribution agreement with Ethicon Inc., a division of Johnson & Johnson, in April 2001, was distributed under the trade name AdvaSeal-S by Ethicon. Genzyme Biosurgery is evaluating the potential for a clinical trial in the United States to study FocalSeal-S neurosurgical sealant. In conjunction with Exactech, Inc., preclinical work is also taking place to evaluate the effectiveness of the FocalSeal-S polymer for use in human derived bone grafting applications. Further pre-clinical studies are on-going to evaluate the FocalSeal-S polymer as a device for facilitating the implantation of other human derived and synthetic orthopedic biomaterials.

Genzyme Molecular Oncology—Technology Platforms and Development Programs

        Genzyme Molecular Oncology is developing a new generation of cancer therapeutics based upon the growing understanding of the molecular basis of cancer. It believes that these therapeutics have the potential to treat multiple types of cancer, minimize toxicity and side effects, and complement both existing and novel therapies. Genzyme Molecular Oncology supplements its internal resources through collaborations with some of the world's preeminent scientists and clinicians in the field of cancer.

Technology Platforms

        Antigen Discovery.    Genzyme Molecular Oncology has built a proprietary, state-of-the-art platform for the discovery of antigens—molecular markers in tumor cells that enable the body's immune system to recognize and respond to these cells as "foreign". The power of this platform is its ability to combine antigen identification, optimization and validation in one step—this enables Genzyme Molecular Oncology to rapidly and efficiently incorporate antigens into novel antigen-specific peptide- and gene-based cancer vaccines and generate antibodies which recognize that antigen. Genzyme Molecular Oncology expanded its antigen discovery capabilities in 2001 through the development of a proprietary technology that allows for the efficient identification of relevant targets for antibody-based therapies.

        The primary focus of Genzyme Molecular Oncology's internal program is on antigens which stimulate a cellular immune response against tumors by using vaccines to present tumor-specific antigens to the immune system. During 2001, the first United States patent covering optimized antigen fragments (peptides) discovered using Genzyme Molecular Oncology's antigen discovery platform was issued, and Genzyme Molecular Oncology is conducting preclinical studies on these peptides in preparation for the initiation of clinical studies.

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        In addition to using its antigen discovery platform for its internal programs, Genzyme Molecular Oncology has used it to enter into strategic partnerships. During 2001, Genzyme Molecular Oncology identified and submitted multiple antigens under its antigen discovery and licensing arrangement with Purdue Pharma L.P. Under this arrangement, Purdue may select up to 20 cancer antigens for use with its proprietary delivery platforms. Genzyme Molecular Oncology retains all rights to these antigens for use in its gene, cell, protein and peptide-based therapeutics, as well as all rights to antigens not selected by Purdue.

        Building on the success of its antigen discovery platform, Genzyme Molecular Oncology has expanded its antigen discovery technologies into the field of infectious disease. In January 2001, it entered into an HIV antigen discovery and research collaboration with Dr. Bruce Walker of Massachusetts General Hospital. Dr. Walker is analyzing optimized novel peptides discovered by Genzyme Molecular Oncology that may be used as HIV vaccines. Given Genzyme Molecular Oncology's focus on cancer therapeutics, it will likely outlicense the right to develop and commercialize product candidates arising from this collaboration.

        SAGE™ Technology.    Genzyme Molecular Oncology's patented SAGE (Serial Analysis of Gene Expression) technology is a 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. The SAGE technology detects and quantifies expression of novel as well as known genes and, because of its high efficiency and sensitivity, the SAGE technology can detect genes expressed at low levels. Some of the uses of the SAGE technology 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. Genzyme Molecular Oncology enhances the power of the SAGE technology through software and bioinformatics development, technology improvements, database expansion and the integration of the SAGE technology with other genomics tools, such as microarrays.

        Genzyme Molecular Oncology has used the SAGE technology to analyze the most prevalent types of cancer and corresponding normal tissue and also has access to SAGE data generated in the laboratories of Drs. Bert Vogelstein and Kenneth Kinzler at The Johns Hopkins University. Genzyme Molecular Oncology has accumulated from its proprietary analyses, its collaborators, and the Cancer Genome Anatomy Project at the National Cancer Institute a database of over seven million SAGE gene sequence identification tags, representing over 125,000 unique transcripts.

        Genzyme Molecular Oncology also employs the SAGE technology extensively in its own drug discovery and development efforts to identify genes that are functionally relevant. In its cancer vaccine program, Genzyme Molecular Oncology combines the SAGE technology with other proprietary tools to identify tumor-associated antigens. In the field of anti-angiogenesis, Genzyme Molecular Oncology is using the SAGE technology to dissect the biological pathways resulting in angiogenesis and to explore and understand the mechanism of action of drug candidates discovered in functional assays.

        Genzyme Molecular Oncology also uses the SAGE technology and its proprietary SAGE database to generate revenues through licenses and database collaborations. It has granted rights to Celera Genomics and Compugen Ltd. to market the SAGE database to customers on a revenue-sharing basis, and to Invitrogen Corporation to market reagent kits that enable the use of the SAGE technology.

Development Programs

        Genzyme Molecular Oncology is developing products primarily focused on vaccines that aim to treat cancer by stimulating the body's immune system to fight tumor cells, and anti-angiogenic drugs that treat cancer by preventing the formation and development of blood vessels that tumors require for

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growth or by targeting tumor vasculature. The following chart describes the status of Genzyme Molecular Oncology's development programs as of March 1, 2002:

Program		Type(s) of Cancer	Status
Cancer Vaccines
	Dendritic/tumor cell fusion vaccines (chemical process)	Breast Melanoma Kidney	Phase 1-2 trial enrollment complete Phase 1-2 trial complete* Phase 1-2 trial complete*
	Dendritic/tumor cell fusion vaccines (electrofusion process)	Melanoma Kidney	IND filed IND filed
	Melan-A/MART-1 and gp100 antigen-specific cancer vaccines	Melanoma (ex vivo) Melanoma (in vivo)	Phase 1-2 trial complete* Phase 1-2 trial ongoing
	SPHERE™ peptides	Multiple indications	Preclinical
	NY-ESO-1 antigen	Multiple indications	Preclinical
Angiogenesis Inhibitors
	TEM antibodies	Multiple indications	Research
	Small molecules	Multiple indications	Research

*

Patient enrollment and treatment are complete, with data analysis ongoing.

Cancer Vaccines

        Genzyme Molecular Oncology believes that the most successful cancer vaccines will be those that activate a cellular immune response directed at the tumor. Its program features two types of investigational vaccines for generating a tumor-specific cellular immune response:

•

where specific tumor antigens are not known, a cell therapy product is created by using a technique that fuses the patient's own tumor cells with dendritic cells, the specialized immune system cells that present antigens to T cells (the immune system's cellular response to disease), which may allow for the selective recognition and destruction of the patients' tumor cells; and



•

where specific tumor antigens have been identified as targets of the cellular immune response, Genzyme Molecular Oncology uses gene-based or peptide-based tumor vaccines.

        Genzyme Molecular Oncology believes that both of these vaccine types should provide clinical benefit and have commercial potential. Genzyme Molecular Oncology believes, however, that antigen-specific vaccines provide the greater long-term opportunity and that over time, as Genzyme Molecular Oncology identifies more tumor-associated antigens, it will be able to develop off-the-shelf vaccines that are based on the specific antigens present in the patients' tumors.

Patient-Specific Cancer Vaccines

        During 2001, progress continued on the three clinical trials of the patient-specific cancer vaccine Genzyme Molecular Oncology is supporting at the Dana-Farber Cancer Institute and the Beth Israel Deaconess Medical Center in Boston. These vaccines are referred to as "fusion vaccines" because the product is made by fusing the patient's own tumor cells with dendritic cells, which are potent stimulators of the immune system.

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        In May 2001, Genzyme Molecular Oncology entered into an exclusive license agreement with BruCells, S.A./N.V. for technology developed by a consortium of investigators at the Université Libre de Bruxelles and the Vrije Universiteit Brussel around the fusion vaccines. This license, together with intellectual property licensed from the Dana-Farber Cancer Institute, provides Genzyme Molecular Oncology with a leading patent position around the fusion vaccines. Genzyme Molecular Oncology is also supporting research at BruCells relating to these vaccines.

        Breast Cancer Fusion Vaccine.    A phase 1-2 trial of the fusion vaccine for the treatment of metastatic breast cancer was initiated in September 1999, with a chemical process being used to fuse the patient's tumor cells with dendritic cells isolated from that patient. The end points for this trial are safety, immunologic response and clinical response. This trial is fully enrolled and Genzyme Molecular Oncology expects that data analysis will be completed in 2002. The principal investigator presented preliminary data from this trial in December 2001. Out of nine patients treated with the vaccine, one patient showed a nearly complete clinical response as well as an immunologic response to the tumor following vaccination. Two patients demonstrated stable disease for six months, and in a majority of patients treated for whom immunologic data are available, there was a response. Certain mild, non-serious adverse events were reported, as well as one possibly-related serious adverse event.

        Melanoma and Kidney Cancer Fusion Vaccines.    Patient enrollment and treatment were completed in early 2002 on phase 1-2 clinical trials of the fusion vaccine in both advanced melanoma and advanced renal cell carcinoma (kidney cancer). Both of these trials employed a chemical process for fusing the tumor and dendritic cells. Data analysis for these trials are ongoing and will be completed in 2002. Genzyme Molecular Oncology also anticipates initiating two additional fusion vaccine trials in the coming months. These trials, also in advanced melanoma and advanced kidney cancer, have been designed based on the methods used by an academic group in Germany for which promising clinical data were published and are supported by extensive preclinical data generated at Genzyme Molecular Oncology. The methods used in these trials differ in two principal respects from the earlier trials—first, the dendritic cell component of the vaccine will be derived from a source other than the patient to test the hypothesis that the immune response will be enhanced by the presence of donor cells, and second, the cells will be fused using an electrical, rather than chemical, process. The comparison of these two sets of trials will help guide the further development of the fusion vaccines.

Antigen-Specific Cancer Vaccines

        Melan-A/MART-1 and gp100 Antigen-Specific Vaccines.    Genzyme Molecular Oncology's work in cancer vaccines began several years ago through a collaboration with Dr. Steven Rosenberg at the National Cancer Institute in which two phase 1 clinical trials were conducted. 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 directly to the patient (in vivo) alone or in conjunction with recombinant interleukin-2. The results from these early clinical studies suggested that the adenoviral vectors were well tolerated since no serious adverse events associated with the adenovirus were reported. In addition, a small but notable number of patients treated in this trial showed clinically significant tumor regression.

        Following additional preclinical work that optimized delivery of the adenoviral vectors, Genzyme Molecular Oncology initiated a phase 1-2 trial in melanoma patients at Massachusetts General Hospital/Dana-Farber Partners CancerCare. This trial involves isolating and expanding dendritic cells from the patient and combining these cells with adenoviral vectors encoding the Melan-A/MART-1 and gp100 genes outside of the patient (ex vivo). The gene-modified dendritic cells are then administered to the patient as a vaccine. Genzyme Molecular Oncology has completed patient enrollment and treatment in this trial, and data analysis is ongoing. The principal investigator presented preliminary data from this trial in December 2001. Fourteen of the 20 patients treated demonstrated some clinical or immunologic response, with two patients having a measurable clinical response and a third evidencing stable disease. Some non-serious related adverse events were reported, and asymptomatic changes to the retina were the only reported treatment-related serious adverse events.

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        Genzyme Molecular Oncology initiated an additional phase 1-2 melanoma trial of adenoviral vectors encoding the Melan-A/MART-1 and gp100 tumor antigens in late 2000. In this trial, the vaccine is delivered to the patient intradermally, where large populations of dendritic cells reside. Genzyme Molecular Oncology is assessing safety with this in vivo vaccine delivery approach and monitoring patients' immune responses in order to elucidate whether direct, in vivo vaccine delivery warrants later-stage clinical development. Enrollment in this trial is nearly complete and Genzyme Molecular Oncology expects safety and immunologic data from this study in 2002.

        SPHERE™ Peptide Vaccines.    Genzyme Molecular Oncology has identified numerous proprietary peptides through its antigen discovery program. It is currently evaluating these peptides for multiple cancer indications in preclinical studies, and plans to file its first Investigational New Drug application for a phase 1 trial using its SPHERE peptides in melanoma.

        NY-ESO-1 Antigen-Specific Vaccines.    NY-ESO-1 is an antigen expressed in a subset of a number of different tumor types, including breast cancer, melanoma and lung cancer. Genzyme Molecular Oncology is engaged in preclinical development to support a phase 1-2 trial for NY-ESO-1-positive tumors, which would be performed in collaboration with the Ludwig Institute for Cancer Research.

Angiogenesis Inhibitors

        Genzyme Molecular Oncology is pursuing multiple approaches to anti-angiogenesis, which is the treatment of cancer by cutting off the blood supply that tumors need to survive or by targeting the tumor vasculature. In 2000, Genzyme Molecular Oncology's collaborators at The Johns Hopkins University used the SAGE technology to identify 46 tumor endothelial markers (TEMs), or genes involved in the growth of tumor blood vessels. Genzyme Molecular Oncology believes that some of these genes will yield targets for the development of cancer therapeutics. Progress in the anti-angiogenesis program in 2001 included cloning and characterizing the novel TEMs, validating their expression in different tumor types, initiating patterns analysis to assess their functions, and profiling the impact of various antiangiogenesis drugs on the TEMs and differentiated patterns of expression.

        In November 2001, Genzyme Molecular Oncology formed a strategic antibody collaboration around the TEMs with the pharmaceutical division of Kirin Brewery Co., Ltd. of Japan. The collaboration is focused on the development and commercialization of fully human monoclonal antibodies to be used as therapies in the areas of antiangiogenesis and vascular-targeted cancer drug delivery. Product candidates will be generated by immunizing KM Mice™—Kirin's proprietary breed of transgenic mice—with those TEMs that are both expressed on the cell surface and validated as antibody targets.

Competition

        We are engaged in segments of the human healthcare products industry that are extremely competitive. Our competitors in the United States and elsewhere are numerous and include major pharmaceutical, surgical device and biotechnology companies. Some of these competitors may have more extensive research and development, regulatory, manufacturing and production capabilities. Some competitors may have greater financial resources. These companies may succeed in developing products that are more effective than any that we have or may develop and may also prove to be more successful than we are in producing and marketing products and services. In addition, technological advances or different approaches developed by one or more of our competitors may render our products obsolete, less effective or uneconomical. Each of our products and services faces different competitive challenges, and we have described many of them below.

        Cerezyme and Ceredase Enzymes.    Genzyme General is aware of companies that have initiated efforts to develop competitive products for the treatment of Gaucher disease. Oxford GlycoSciences

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plc, for example, is developing Vevesca™ (OGT 918), a small molecule drug candidate for the treatment of Gaucher disease. OGT 918 has been granted orphan drug status in the United States for treatment in Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Gaucher disease. In 2001, Oxford GlycoSciences submitted a Marketing Authorisation Application (MAA) to the European Agency for the Evaluation of Medicinal Products (EMEA), as well as a new drug application (NDA) to the FDA for OGT 918 for the oral treatment of Type 1 Gaucher disease. Other competitors could develop competitive products based on protein replacement therapy, small molecule or gene therapy approaches. Genzyme General believes that its proprietary production techniques give it a number of advantages over potential competitors using protein replacement therapy for the treatment of Gaucher disease. In addition, gene therapy approaches are still in experimental stages. Genzyme General believes that the principal factors that will affect competition for Cerezyme and Ceredase enzymes will be clinical effectiveness and absence of adverse side effects.

        Renagel Phosphate Binder.    Phosphate binders are currently the only available treatment for hyperphosphatemia. There are several phosphate binders available or under development. A prescription calcium acetate preparation is currently the only other product approved in the United States for the control of elevated phosphorus levels in patients with chronic kidney failure and on hemodialysis. Other products used as phosphate binders include over-the-counter calcium- and aluminum-based antacids and dietary calcium supplements. The doses necessary for calcium acetate and calcium carbonate, the most commonly used agents, to achieve adequate reductions in phosphate absorption can lead to constipation and patient noncompliance. In addition, calcium therapy requires frequent monitoring because its use can cause hypercalcemia. Aluminum hydroxide is more effective at lower doses than calcium acetate or calcium carbonate, but it is infrequently used because aluminum absorbed from the intestinal tract accumulates in the tissues of patients with chronic kidney failure, causing aluminum-related osteomalacia, anemia and dialysis dementia. Genzyme General is aware of one other company, Shire Pharmaceuticals, Inc., that is developing a phosphate binder for the treatment of hyperphosphatemia in patients with chronic renal failure. Shire licensed this product, Foznal™, from AnorMed, Inc. and has filed for marketing approval in Europe and is expected to file for approval in the United States in early 2002.

        WelChol Compound.    Products are currently available that address many of the needs of the cholesterol-reduction market. These products include other bile acid sequestrants, HMG-CoA reductase inhibitors, fibric acid derivatives and niacin-based products. In 2001, sales of HMG-CoA reductase inhibitors represented more than 95% of the market for cholesterol-reducing drugs sold in the United States. U.S. sales of HMG-CoA reductase inhibitors were estimated at $11.0 billion in 2001. The most widely prescribed bile acid sequestrant in the United States is WelChol compound.

        Fabrazyme Enzyme.    Genzyme General is aware of other companies developing products for the treatment of Fabry disease. Transkaryotic Therapies Inc., submitted its application for marketing approval for its Replagal™ product for Fabry disease to the FDA approximately one week before we submitted our application for Fabrazyme enzyme. If Transkaryotic Therapies or any other company receives FDA approval for a Fabry disease therapy with orphan drug designation before we receive FDA approval for Fabrazyme enzyme, the Orphan Drug Act may preclude us from selling Fabrazyme enzyme in the United States for up to seven years. Similarly, we submitted our application for marketing approval of Fabrazyme enzyme with the European Agency for the Evaluation of Medicinal products (EMEA) within a short time of Transkaryotic Therapies' filing. In August 2001, we received EMEA marketing approval for Fabrazyme enzyme and Transkaryotic Therapies' product received EMEA marketing approval for Replagal. Both products have been granted 10 years exclusivity protection in Europe. We currently are involved in litigation with Transkaryotic Therapies related to its product. For more information about this litigation, you should read the section of this Annual Report on Form 10-K entitled "Item 3. Legal Proceedings."

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        Other Lysosomal Storage Disorders.    Genzyme General is aware of other companies and institutions that are researching and developing enzyme replacement therapies, small molecules and gene therapies for lysosomal storage disorders. These include products for Fabry, Pompe, MPS-I and other lysosomal storage disorders Genzyme General and its collaborative partners are currently pursuing.

        Diagnostic Products.    Genzyme General acts as a primary supplier of enzymes and substrates, and generally does not compete with its customers in the sale of complete diagnostic kits. The market in the diagnostic products industry is mature and competition is based on price, reliability of supply and the purity and specific activity of products.

        Genetic Diagnostic Services.    The United States market for prenatal cytogenetic and biochemical testing is divided among approximately 500 laboratories, many of which offer both types of testing. Of this total group, less than 20 laboratories market their services nationally. Genzyme General believes that the industry as a whole is still quite fragmented, with the top 20 laboratories accounting for approximately 50% of market revenues. Genzyme General estimates that it accounts for approximately 10% of the total. Genzyme General believes, however, that the industry will experience increasing consolidation as smaller laboratories face the challenges of more complex and stringent regulation. In 2000, the Secretary of Health and Human Services Advisory Committee on Genetic Testing published recommendations for increased oversight by the Centers for Disease Control and the FDA for all genetic testing. This committee continues to meet and discuss potential regulatory changes, but no additional formal recommendations have been issued. If increased oversight occurs and it is similar to that of the current non-genetic diagnostic products, it will require systems and expertise not normally found in small clinical laboratories.

        Competitive factors in the genetic diagnostics services business generally include reputation of the laboratory, range of services offered, pricing, convenience of sample collection and pick-up, quality of analysis and reporting and timeliness of delivery of completed reports. Genzyme General believes that its research and development program, which has enabled it to develop and introduce testing services based on new technology, and its active sales and marketing force have played significant roles in the growth of its genetic diagnostics services business.

        Fluid Management Systems and Sutures.    The principal methods by which Genzyme Biosurgery competes in the fluid management and sutures markets are:

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continued innovative product development;



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the performance and breadth of its product lines;



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brand name recognition;



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sales force training; and



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educational services, including sponsorship of training programs in advanced surgical techniques.

        Its chief competitors in the fluid management field are Atrium Medical Corporation and Sherwood-Davis & Geck, a division of Tyco International, Ltd. We have initiated a lawsuit against Atrium related to its chest drainage systems. For more information about this litigation, you should read the section of this Annual Report on Form 10-K entitled "Item 3. Legal Proceedings." U.S. Surgical Corporation, a division of Tyco, and the Ethicon division of Johnson & Johnson are Genzyme Biosurgery's primary competitors in the cardiovascular sutures field.

        Minimally Invasive Cardiovascular Surgery.    Genzyme Biosurgery faces competitors in the minimally invasive cardiovascular surgery field. Our most significant competitors are Guidant Corporation and Medtronic, Inc. The products of each company contain technology advantages that will be addressed by product improvements to our products that we expect to launch in 2002. Several other major surgical

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products companies also compete in the minimally invasive cardiovascular surgery field, including U.S. Surgical, a division of Tyco, and the Cardiovations division of Johnson & Johnson.

        Therapies for Ischemic Heart Disease.    Ischemic heart disease often results from coronary atherosclerosis, which can cause partial or complete occlusion of the coronary arteries supplying blood to heart muscle. Angiogenesis is a novel approach under development to form or enhance collateral blood vessels to potentially increase perfusion to ishemic areas and reduce the symptoms caused by ischemia. Genzyme Biosurgery envisions potential competition in this area from Collateral Therapeutics, Inc. and GenVec, Inc. as both companies are advancing proprietary angiogenic agents through early stages of clinical development.

        Therapies for Peripheral Arterial Disease.    Genzyme Biosurgery is aware of a number of companies and research institutions that are developing or considering the development of gene or protein therapies for the treatment of peripheral arterial disease. These angiogenic therapies are being developed to bypass diseased vessels and to improve blood flow to ischemic regions, thus, relieving exertional symptoms and potentially diminishing the risk of limb loss or death for patients with peripheral arterial disease. Genzyme Biosurgery envisions potential competition in this area from Aventis, Inc., Collateral Therapeutics, Inc., GenVec, Inc., and Valentis, Inc. as each of these companies are advancing angiogenic agents through clinical development.

        Therapies for Congestive Heart Failure.    Genzyme Biosurgery is aware of a number of companies and research institutions that are developing or considering the development of novel devices, small molecules, gene therapies, tissue regeneration utilizing cell therapies and other biotherapeutic approaches for the medical management of congestive heart failure patients. Genzyme Biosurgery has active programs to develop both gene and cell therapies for the treatment of heart failure. Genzyme Biosurgery envisions potential competition in the gene therapy area from Collateral Therapeutics, Inc. and GenVec, Inc. as both companies are advancing proprietary angiogenic agents through early stages of clinical development. Genzyme Biosurgery is aware of a number of companies and institutions that are developing or considering the development of tissue engineering products for the treatment of congestive heart failure. Since the formation of scar tissue, a consequence of myocardial infarction, is one of the causes of congestive heart failure, tissue regeneration in these areas may provide significant benefit to the congestive heart failure patient. Competitive activities include programs for heart muscle regeneration utilizing autologous skeletal muscle cells, autologous bone marrow derived stromal cells and embryonic stem cells. Among a number of organizations, Genzyme Biosurgery is aware of product development efforts in cell therapy at Diacrin, Inc., BioHeart, Inc., Geron, Inc., Cardion, AG, and Osiris Therapeutics, Inc., and preclinical work taking place at a number of academic institutions. These organizations may develop products or technologies that could directly compete with products and technology currently under development at Genzyme Biosurgery.

        Sepra Products.    Genzyme Biosurgery believes that its technology, expertise, and proprietary manufacturing processes in developing and producing hyaluronan-based materials will give it a competitive advantage in the marketing of the Sepra products. Its anti-adhesion products may face significant competition, however, from other products based on hyaluronan as well as from other products and changes in surgical techniques that may obviate the use of hyaluronan. Genzyme Biosurgery believes that the principal factor that will affect competition in this area is acceptance of the product by surgeons, which depends, in large part, upon product performance, safety and price.

        Seprafilm adhesion barrier does not have significant direct competition in the colorectal surgery field. Ethicon markets Interceed, an anti-adhesion barrier that may have properties similar to the Seprafilm product, but is indicated only for selected gynecological indications. Interceed® has been shown to lose its anti-adhesion properties in the presence of blood. Lifecore Biomedical, Inc. and Ethicon's Intergel™ product, a gel-based anti-adhesion product, is marketed in the United States and Europe. Gliatech, Inc. has completed pivotal clinical trials of Adcon-A and Adcon-P, which are

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designed to limit adhesions after abdominal and pelvic surgery. Life Medical Sciences, Inc. is developing REPEL for gynecological surgery and REPEL-CV for cardiovascular surgery. These adhesion barrier membranes are in early clinical trials. Confluent Surgical, Inc. has completed a pilot clinical trial in the United States of Spraygel™, and anti-adhesion product for laproscopic gynological surgery. Sprayagel is approved for sale in Europe. FizoMed, Inc. has initiated pivotal trials for two Oxiplex™ anti-adhesion products following pelvic and spinal surgery.

        Synvisc Viscosupplementation Fluid.    Current competition for Synvisc viscosupplemetation fluid consists primarily of products based on earlier technology, including Hylagan®, produced by Fidia S.p.A. and marketed in the United States by Sanofi-Synthelabo, Orthovisc®, produced by Anika Therapeutics, Inc. and Artz™, a Japanese product marketed in Japan and Europe and sold in the United States by Smith & Nephew Orthopedics under the name Supartz™. In 2001, two potential competitive products emerged: Durolane™, manufactured by Q-Med AB, and Arthrease™, manufactured by Bio-Technology General Corp. and distributed by the DuPuy Orthopaedics division of Johnson & Johnson. Both products received European marketing authorization in 2001, but have yet to be fully launched in Europe. Q-Med is conducting a phase 3 clinical trial of Durolane in the United States. Bio-Technology General has filed a PMA for Arthrease in the United States. Durolane and Arthrease are produced by bacterial fermentation, as opposed to Synvisc viscosupplementation fluid, which is derived from chicken combs. Further, the treatment protocol for Durolane is a single injection, as compared to Synvisc viscosupplementation fluid's three injection regiment. Production via bacterial fermentation and treatment with a reduced number of injections may represent competitive advantages for these products if they are approved and launched in competition with Synvisc viscosupplementation fluid. Genzyme Biosurgery is aware of various other viscosupplementation products on the market, or in development, but is unaware of any other products that, like Synvisc viscosupplementation fluid, have the physical properties of viscosity, elasticity or molecular weight that are comparable to the physical properties of healthy synovial fluid.

        Carticel Chondrocytes.    Genzyme Biosurgery is aware of three other companies, Verigen, Inc. (Denmark), co.don® AG (Germany) and Fidia S.p.A (Italy) that have competitive cell based therapies for cartilage repair in Europe. In addition, Genzyme Biosurgery knows of three other companies, Advanced Tissue Sciences, Inc., in conjunction with Smith & Nephew PLC, Integra LifeSciences Corp. and LifeCell Corp., which are engaged in research on cultured cartilage products. Further, a surgical technique known as osteochondral grafting may be competitive to Carticel chondrocytes. This procedure, which can be performed arthroscopically, involves transferring plugs of low weight bearing cartilage and bone to the area of a defect. Smith & Nephew, Arthrex, Inc. and Johnson & Johnson Company have instrumentation systems for use in treating small cartilage defects in the knee that are competitive to the Carticel implantation procedure.

        Epicel Skin Grafts.    Genzyme Biosurgery is the only commercial provider of cultured skin grafts for permanent skin replacement for burn patients in the United States. However, Genzyme Biosurgery may face competition from companies using other approaches to culture skin tissue. Integra Lifesciences Corp. is marketing a collagen-based dermal replacement product for severely burned patients. This product will still require a skin graft from the patient or Epicel skin grafts to close a full-thickness wound, and therefore will not compete directly with Epicel skin grafts. Advanced Tissue Sciences, Inc. has received approval for a temporary wound covering for burns. Organogenesis, Inc. has submitted a PMA in the United States for a product to be used for the closure of venous stasis ulcers. LifeCell Corp. currently has freeze-dried enzymatically processed human cadaver dermis on the market.

        Cancer.    Competition in the field of cancer therapeutics is intense. Genzyme Molecular Oncology faces, and will continue to face, significant competition from organizations such as large pharmaceutical and biotechnology companies, universities, government agencies and other research institutions. Competition can arise from the use of the same or similar technologies as those currently used or

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contemplated to be used by Genzyme Molecular Oncology, as well as from existing therapies. Any or all of these may be more effective or less expensive than those developed by Genzyme Molecular Oncology.

        Genzyme Molecular Oncology relies on its collaborators for support in some of its cancer research and development programs and intends to rely on these partners for preclinical evaluation, clinical development and marketing of its potential products and services. Its partners may develop technologies or products that are competitive with those that Genzyme Molecular Oncology is developing. Genzyme Molecular Oncology's product candidates, therefore, may be subject to competition with a potential product under development by one of its partners.

Patents, License Agreements and Trademarks

        In general, we pursue a policy of obtaining patent protection both in the United States and in selected foreign countries for subject matter we consider patentable and important to our business. In addition, a portion of our proprietary position is based upon patents that we have licensed from others either through collaboration or traditional license agreements, including patents relating to:

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Fabrazyme enzyme;



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Thyrogen hormone;



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Aldurazyme enzyme;



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AVONEX (Interferon-beta 1a);



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alpha-glucosidase;



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acid sphingomyelinase;



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autologous chondrocyte graft technology;



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DX-88;



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small molecules for lysosomal storage disorders;



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TGF-beta antagonists;



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HIF-1 alpha;



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autologous cell therapy for heart disease;



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NextStitch sutures;



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Epicel skin grafts;



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SAGE technology;



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fusion vaccines;



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viral and non-viral gene therapy technology;



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drug delivery technology; and



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various cancer related genes.

These collaboration and license agreements generally require us to share profits with our collaborative partners or pay royalties to our licensors upon commercialization of products covered by the licensed technology. Generally, patents issued in the United States are effective for:

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the longer of 17 years from the date of issue or 20 years from the effective filing date of the corresponding patent application if filed prior to June 8, 1995; and

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20 years from the filing date for patent applications filed after June 8, 1995.

In some cases, the patent term can be extended to recapture a portion of the term lost during FDA regulatory review. The duration of foreign patents varies in accordance with applicable local law.

        We also rely on trade secrets, proprietary know-how and continuing technological innovation to develop and maintain a competitive position in our product areas. We require our employees, consultants and corporate partners who have access to our proprietary information to sign confidentiality agreements.

        Our patent position and proprietary technology are subject to certain risks and uncertainties. We have included information about these risks and uncertainties under the subheading "Factors Affecting Future Operating Results" in the following sections:

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"Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" in the 2001 Genzyme General Annual Report;



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"Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" in the 2001 Genzyme Biosurgery Annual Report; and



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"Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations" in the 2001 Genzyme Molecular Oncology Annual Report.

        We encourage you to read these sections, which we are incorporating into this discussion by reference.

        Our products and services are sold around the world under brand-name trademarks and service marks. Trademark protection continues in some countries as long as the mark is used; in other countries, as long as its registered. Registrations generally are for fixed, but renewable, terms. We consider our registered trademarks Genzyme®, Cerezyme®, Ceredase®, Thyrogen®, Fabrazyme®, Renagel®, N-geneous®, Contrast®, OSOM®, InSight®, AFP3®, AFP4®, GlyPro®, Insight®, N-geneous®, Synvisc®, Pleur-evac®, Thora-Klex®, Tevdek®, Polydek®, Deklene®, Hylaform®, Hylagel®, Hylashield®, HsS®, SaphLITE®, Seprafilm®, Sepragel®, Carticel®, Epicel®, Focal® and FocalSeal®, together with our trademarks, Aldurazyme™, Hylashield Nite™, Hylasine™, SAGE™, SPHERE™, Sahara™, NextStitch™, Immobilizer™, Sepra™, Sepramesh™ and Seprapack™, in the aggregate, to be of material importance to our business.

Government Regulation

        Regulation by governmental authorities in the United States and other countries is a significant factor in the development, manufacture and commercialization of our products and services.

FDA Regulation

        We expect that most of our products and services will require approval of the FDA and corresponding agencies in other countries before they can be marketed. In the United States, the FDA classifies products as either "devices," "drugs" or "biologics." Products that do not achieve their principal intended purpose through chemical action within or on the body and which are not dependent upon being metabolized by the patient's body in order to be effective are classified by the FDA as "devices" while other products are classified as "drugs" or "biologics."

        The activities required before drugs or biologics may be marketed in the United States include:

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preclinical laboratory tests, in vitro and in vivo preclinical studies and formulation and stability studies;

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the submission to the FDA of an application for human clinical testing, which is known as an Investigational New Drug application;



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adequate and well controlled human clinical trials to demonstrate the safety and effectiveness of the drug or biologic;



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the submission of a New Drug Application for a drug or a Biologic License Application for a biologic; and



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the approval by the FDA of the New Drug Application or Biologic License Application.

        As part of product approval, the manufacturer of a drug or biologic product will have to undergo a pre-approval Good Manufacturing Practices inspection from the FDA. Since any approval granted by the FDA is both site and process specific, any material change by a company in the manufacturing process, equipment or location necessitates additional FDA review and approval.

        Products that are classified as devices also require FDA clearance or approval prior to marketing. Devices are classified as Class I, II or III, depending upon the information available to assure their safety and effectiveness. In general, Class I devices are devices whose safety and effectiveness can be reasonably assured through general controls, while Class II devices are devices whose safety and effectiveness can reasonably be assured through specific controls. Class III devices are life sustaining, life supporting or implantable devices or new devices that have been found not to be substantially equivalent to legally marketed devices. The steps required for approval of a Class III device include:

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preclinical laboratory tests and in vitro and in vivo preclinical studies;



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the submission to the FDA and approval of an Investigational Device Exemption application to allow initiation of clinical testing;



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human clinical studies to prove safety and effectiveness of the device;



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the submission of a Pre-Marketing Application; and



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the approval by the FDA of the Pre-Marketing Application.

Typically, clinical testing of devices involves initial testing to evaluate safety and feasibility and expanded trials to collect sufficient data to prove safety and effectiveness. In addition, the procedures and the facilities used to manufacture the device are subject to review and approval by the FDA.

        A Class I or Class II device that is proven to be substantially equivalent to a device marketed prior to May 28, 1976, when government regulations for devices were first introduced, can be marketed after clearance of a 510(k) application rather than the filing of an Investigational Device Exemption application and a Pre-Marketing Approval application. The 510(k) application must contain a description of the device, its methods of manufacture and quality control procedures and the results of testing to demonstrate that the device is substantially equivalent to the device already marketed.

        In May 1996, the FDA published a new guidance document that provided for the regulation of products such as Carticel chondrocytes that use manipulated autologous structural cells. Genzyme Biosurgery estimates that it could take eight years for any competitor to complete a study of this nature that would demonstrate the clinical efficacy of its proposed treatment. In August 1997, the FDA granted Genzyme Biosurgery a Biologic License Application for Carticel chondrocytes.

        Epicel skin grafts are regulated as a combined biologic device under the jurisdiction of the Devices Center (CDRH) of the FDA. In November 1998, FDA granted Humanitarian Use Device designation to Epicel skin grafts for the treatment of deep dermal or full thickness burns comprising a total body surface area of greater than or equal to 30% and in congenital giant pigmented nevus patients. In February 1999, we submitted a Humanitarian Device Exemption (HDE) application for Epicel. Approval of this application by FDA would allow us to market Epicel skin grafts under the

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Humanitarian Device regulations. Because the Epicel manufacturing process utilizes a murine (mouse) cell line as a feeder layer for the human keratinocytes, the FDA also regulates Epicel as a xenotransplant product. The FDA will require us to archive samples of: patient baseline blood; each lot of Epicel; and the murine cells used in the manufacturing process. In addition, we will be required to inform potential Epicel skin graft patients that murine cells are used in the manufacturing process and that all patients treated with Epicel will be deferred indefinitely from donating blood, blood products or other tissues. Our HDE application is still under review by FDA.

        The time and expense required to perform the clinical testing necessary to obtain FDA approval can far exceed the time and expense of the research and development initially required to create the product. Even after initial FDA approval has been obtained, we could be required to conduct further studies to provide additional data on safety or to gain approval for the use of a product as a treatment for additional clinical indications. In addition, use of these products during testing and after marketing approval has been obtained could reveal side effects which, if serious, could delay, impede or prevent marketing approval, limit uses, force a recall of the product or expose us to product liability claims.

Regulation Outside of the United States

        For marketing outside the United States, we are subject to foreign regulatory requirements governing human clinical testing and marketing approval for our products. These requirements vary by jurisdiction, differ from those in the United States and may require us to perform additional preclinical or clinical testing whether or not we have obtained FDA approval. The amount of time required to obtain necessary approvals may be longer or shorter than that required for FDA approval. In many foreign countries, pricing and reimbursement approvals are also required.

        Our initial focus for obtaining marketing approval outside the United States is typically Europe. European Union Regulations and Directives generally classify health care products either as medicinal products or medical devices. For medicinal products, marketing approval may be sought using either the centralized procedure of the Committee for Proprietary Medicinal Products (CPMP) of the EMEA or the decentralized, mutual recognition process. The centralized procedure, which is mandatory for most biotechnology derived products, results in a recommendation in all member states, while the European Union multi-state process involves country by country approval. European Union regulations for products classified as medical devices have been implemented for some devices. Devices such as our Sepra products must receive market approval through a centralized procedure, where the device receives a CE Mark allowing distribution to all member states of the European Union. For those devices where European Union regulations have not been implemented, marketing approval must be obtained on a country by country basis. The CE mark certification requires us to receive International Standards Organization certification for each facility involved in the manufacture or distribution of the device. This certification comes only after the development of an all inclusive quality system, which is reviewed for compliance to International Quality Standards by a licensed "Notified Body" working within the European Union. After certification is received a product dossier, which attests to the product's compliance with European Union directive 93/42/ECC for medical devices, is reviewed. Only after this review is a CE Mark granted.

        Autologous products are specifically exempt from the European Device Directive and Pharmaceutical Directive promulgated by the European Union. Therefore, each European country is free to impose its own regulations on the marketing of these products. Genzyme Biosurgery has been informed that Sweden intends to regulate these products and will require use of a clinical protocol to use Carticel chondrocytes until we receive an approved license for Carticel chondrocytes. In September 1997, the Spanish national health system approved Carticel chondrocytes for use by public hospitals, representing the first broad approval of the product by a reimbursement authority in Europe. Genzyme Biosurgery is assessing the regulatory requirements for commercialization of Carticel chondrocytes in Japan.

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Other Government Regulation

        Good Manufacturing Practices.    All facilities and manufacturing techniques used for the manufacture of products for clinical use or for sale must comply with applicable FDA regulations governing the production of pharmaceutical products known as "Good Manufacturing Practices."

        Orphan Drug Act.    The Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases and conditions affecting fewer than 200,000 persons in the United States at the time of application for orphan drug designation. The first developer to receive FDA marketing approval for an orphan drug is entitled to a seven-year exclusive marketing period in the United States for that product. However, a drug that the FDA considers to be clinically superior to, or different from, another approved orphan drug, even though for the same indication, is not barred from sale in the United States during the seven-year exclusive marketing period.

        Legislation periodically has been introduced to change the Orphan Drug Act to shorten the period of automatic market exclusivity and to allow marketing rights to simultaneous developers of a drug. We cannot be sure whether the Orphan Drug Act will be amended or, if amended, what effect the changes would have on us. We believe that the commercial success of our products that have received Orphan Drug designations, will depend more significantly on their safety and effectiveness, and on the price relative to competitive or alternative treatments, than on the exclusivity afforded by the Orphan Drug Act. Additionally, these products may be protected by patents and other means.

        European Orphan Medicinal Products Regulation.    The European Medicinal Products Regulation, which was enacted in 2001, provides incentives to manufacturers to develop and market products for the treatment of rare diseases and conditions affecting fewer than 5 out of 10,000 persons in the European Union. The first designated product approved by the European Commission for a specific rare disorder will receive market exclusivity in the European Union for a period of ten years, reducible to 6 years if at that time the criteria for granting orphan designation are no longer fulfilled. However, if the EMEA considers another product to be clinically superior to, or different from, an earlier approved orphan medicinal product, it will not be barred from sale in the European Union.

        Regulation of Diagnostic Services.    The Clinical Laboratories Improvement Act provides for the regulation of clinical laboratories by the U.S. Department of Health and Human Services. Regulations promulgated under the act affect our genetics laboratories. In 2000, the Secretary of Health and Human Services Advisory Committee on Genetic Testing published recommendations for increased oversight by the Centers for Disease Control and the FDA for all genetic testing.. This committee continues to meet and discuss potential regulatory changes, but no additional formal recommendations have been issued.

        Regulation of Gene Therapy Products.    In addition to FDA requirements, the National Institutes of Health has established guidelines providing that transfers of recombinant DNA into human subjects at NIH laboratories or with NIH funds must be approved by the NIH Director. The NIH has established the Recombinant DNA Advisory Committee to review gene therapy protocols. We expect that all of our gene therapy protocols will be subject to review by the Recombinant DNA Advisory Committee. In the United Kingdom, our gene therapy protocols will be subject to review by the Gene Therapy Advisory Committee.

        Tissue and Organ Bank Laws.    A federal criminal statute prohibits the transfer of any human organ for valuable consideration for use in human transplantation, but permits recovery of reasonable costs associated with transplant activities. This statute has not been applied to Carticel chondrocytes or Epicel skin grafts. Some states have laws requiring the licensure of tissue and organ banks and laws governing the sale of human organs and the safety and efficacy of drugs, devices and biologics, including skin. These state laws could be interpreted to apply to Genzyme Biosurgery's production and distribution of cultured tissue products. Provisions in some states' statutes prohibit the receipt of

32

valuable consideration in connection with the sale of human tissue by a tissue bank, but permit licensed tissue banks, including companies, to recover their reasonable costs associated with human tissue sales. The application of these or other regulations to Genzyme Biosurgery could result in significant expense to Genzyme Biosurgery, limit reimbursement for Genzyme Biosurgery's services and otherwise materially adversely affect Genzyme Biosurgery's results of operations.

        Other Laws and Regulations.    Our operations currently are, or may be in the future, subject to various federal, state and local laws, regulations and recommendations relating to data protection, safe working conditions, laboratory and manufacturing practices and the purchase, storage, movement, use and disposal of hazardous or potentially hazardous substances used in connection with our research work and manufacturing operations, including radioactive compounds and infectious disease agents. Although we believe that our safety procedures comply with the standards prescribed by federal, state and local regulations, the risk of contamination, injury or other accidental harm cannot be eliminated completely. In the event of an accident, we could be held liable for any damages that result and any liabilities could exceed our resources.

Employees

        As of December 31, 2001, we had approximately 5,200 employees, including all of our consolidated subsidiaries and excluding Genzyme Transgenics Corporation. None of our employees are covered by collective bargaining agreements. We consider our employee relations to be excellent.

Financial Information Regarding Segment Reporting

        We have provided the information required by Item 101(b) of Regulation S-K in Note Q., "Segment Information," to our Consolidated Financial Statements in the 2001 Genzyme General Annual Report set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.

Research and Development Costs

        We have provided the information required by Item 101(c)(1)(xi) of Regulation S-K in Part II, Item 8 "Financial Statements and Supplementary Data" and specifically in the Genzyme Corporation and Subsidiaries Consolidated Statements of Operations and in Note M., "Research and Development Agreements," to our Consolidated Financial Statements in the 2001 Genzyme General Annual Report set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.

Sales by Geographic Area, Significant Customers and Products

        We have provided the information required by Items 101(c)(1)(i) and (vii) and 101(d) of Regulation S-K in the 2001 Genzyme General Annual Report under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" and in Note Q., "Segment Information," to our Consolidated Financial Statements set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.

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ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT

        The following people are our current executive officers:

Name	Age	Title
Henri A. Termeer	56	Chairman of the Board; President; and Chief Executive Officer
Earl M. Collier, Jr.	54	Executive Vice President; President, Genzyme Biosurgery
Zoltan A. Csimma	60	Senior Vice President, Human Resources
Richard A. Moscicki, M.D.	50	Chief Medical Officer; Senior Vice President, Clinical, Medical and Regulatory Affairs
Alan E. Smith, Ph.D	56	Chief Scientific Officer; Senior Vice President, Research
G. Jan van Heek	52	Executive Vice President, Therapeutics, Genetics and Pharmaceuticals
Peter Wirth	51	Chief Legal Officer; Executive Vice President, Corporate Development, Genzyme Molecular Oncology, GelTex and Legal; Clerk
Michael S. Wyzga	47	Chief Financial and Accounting Officer; Senior Vice President, Finance

        Mr. Termeer has served as our President and a Director since October 1983, as Chief Executive Officer since December 1985 and as Chairman of the Board since May 1988. For ten years prior to joining us, Mr. Termeer worked for Baxter Travenol Laboratories, Inc., a manufacturer of human health care products. Mr. Termeer is a director of ABIOMED, Inc., AutoImmune Inc., Diacrin, Inc. and Genzyme Transgenics Corporation, and a trustee of Hambrecht & Quist Healthcare Investors and Hambrecht & Quist Life Sciences Investors.

        Mr. Collier joined us in January 1997 as Senior Vice President, Health Systems, and served as Executive Vice President, Surgical Products and Health Systems from July 1997 until June 1999. He served as President of Genzyme Surgical Products from June 1999 until December 2000. Mr. Collier was also responsible for Genzyme Tissue Repair from December 1999 to December 2000. In December 2000, Mr. Collier became President of Genzyme Biosurgery, which was formed through the combination of Genzyme Surgical Products and Genzyme Tissue Repair with Biomatrix, Inc. Prior to joining us, Mr. Collier was President of Vitas HealthCare Corporation (formerly Hospice Care Incorporated), a provider of health care services, from October 1991 until August 1995. Prior to that, Mr. Collier was a partner in the Washington, D.C. law firm of Hogan & Hartson, which he joined in 1981.

        Mr. Csimma joined us in July 2000 as Senior Vice President, Human Resources. Prior to joining us, he served as Vice President, Human Resources of Wyeth Ayerst Research, a pharmaceutical research organization, from August 1998 to July 2000. During that time, Mr. Csimma also served as Site Head, Genetics Institute, for Wyeth Ayerst. From May 1988 to August 1998, he served as Vice President, Human Resources and Operations of Genetics Institute, Inc., a biotechnology company, which was integrated into Wyeth Ayerst in March 1998.

        Dr. Moscicki joined us in March 1992 as Medical Director, became Vice President, Medical Affairs in early 1993 and was named Vice President, Clinical, Medical and Regulatory Affairs in

34

December 1993. In September 1996 he became Senior Vice President, Clinical, Medical and Regulatory Affairs and Chief Medical Officer. Since 1979, he has also been a physician staff member at the Massachusetts General Hospital and a faculty member at the Harvard Medical School.

        Dr. Smith joined us in August 1989 as Senior Vice President, Research and became Chief Scientific Officer in September 1996. Prior to joining us, he served as Vice President—Scientific Director of Integrated Genetics, Inc. from November 1984 until its acquisition by us in August 1989. From October 1980 to October 1984, Dr. Smith was head of the Biochemistry Division of the National Institute for Medical Research, Mill Hill, London, England, and from 1972 to October 1980 he was a member of the scientific staff at the Imperial Cancer Research Fund in London, England.

        Mr. van Heek joined us in September 1991 as General Manager of our wholly-owned subsidiary, Genzyme, B.V., and became a corporate Vice President and President of our therapeutics business unit in December 1993. From September 1996 through July 1997, he served as Group Senior Vice President, Therapeutics and from July 1997 through December 1999 served as Executive Vice President, Therapeutics and Genzyme Tissue Repair. Since January 2000, he has served as Executive Vice President, Therapeutics and Genetics, with responsibility for our therapeutics and genetics business units and international operations. He also is responsible for our pharmaceuticals business. Prior to joining us, Mr. van Heek was Vice President/General Manager of the Fenwal Division of Baxter Healthcare Corporation.

        Mr. Wirth joined us in January 1996 and has served as Executive Vice President and Chief Legal Officer since September 1996. Mr. Wirth has responsibility for Genzyme's corporate development and legal activities, Genzyme Molecular Oncology and our GelTex Pharmaceuticals subsidiary. From January 1996 to September 1996, Mr. Wirth served as Senior Vice President and General Counsel. Mr. Wirth was a partner of Palmer & Dodge LLP, a Boston, Massachusetts law firm, from 1982 through September 1996. Mr. Wirth remains of counsel to Palmer & Dodge LLP.

        Mr. Wyzga joined us in February 1998 as Vice President and Corporate Controller, served as Senior Vice President, Corporate Controller and Chief Accounting Officer since January 1999, and as Senior Vice President, Finance and Chief Financial Officer since July 1999. Prior to joining us, from February 1997 to February 1998, Mr. Wyzga served as Chief Financial Officer of Sovereign Hill Software, Inc., a software company. From November 1995 to February 1997, he served as Vice President of Finance and Chief Financial Officer of CACHELINK Corporation, a client/server software company. From October 1994 to November 1995 Mr. Wyzga served as Vice President of Finance for Lotus Development Corporation and he also served from August 1993 to October 1994 as Director of Plans and Controls and from April 1991 to August 1993 as Manager of Plans and Controls for Lotus.

ITEM 2. PROPERTIES

        Our operations are conducted in manufacturing, warehousing, pilot plant, clinical laboratories, and research and office facilities that are located principally in:

•

the United States;



•

the United Kingdom;



•

the Netherlands;



•

Belgium;



•

Canada;



•

Switzerland; and



•

Germany.

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        We lease all of our properties except for certain properties in:

•

Geel, Belgium;



•

Coventry, Connecticut;



•

Haverhill and West Malling, England;



•

Boston, Massachusetts;



•

Fall River, Massachusetts;



•

Framingham, Massachusetts;



•

Ridgefield, New Jersey;



•

Santa Fe, New Mexico;



•

Liestal, Switzerland. and



•

Waterford, Ireland (land subject to 999 year leasehold)

        Our principal properties are:

•

for Genzyme General, our manufacturing facilities for the large-scale production of our therapeutic proteins and diagnostic products, and our genetic diagnostic facilities; and



•

for Genzyme Biosurgery, our manufacturing facilities for the large-scale production of sutures, medical devices and biomaterials, including Synvisc viscosupplementation fluid and Seprafilm adhesion barrier, and our cell processing facilities for Carticel chondrocytes and Epicel skin grafts.

        Our selling and marketing activities are concentrated at facilities we have leased in Cambridge, Massachusetts and in the Netherlands. We conduct our research and development activities primarily at our laboratory facilities in the United States.

        Leases for our facilities contain typical commercial lease provisions including renewal options, rent escalators and tenant responsibility for operating expenses. We believe that we have or are in the process of developing or acquiring adequate manufacturing capacity to support our requirements for the next several years.

Genzyme General

Therapeutics

        In October 1996, we received FDA approval to manufacture Cerezyme enzyme at our multi-product manufacturing facility at Allston Landing in Boston, Massachusetts. This facility, which we own and which contains extensive sterile filling capacity, is built on land that we hold under a 60-year lease.

        We manufacture a portion of our supply requirements for sevelamer hydrochloride for use in Renagel phosphate binder capsules and tablets, in our facilities in Haverhill, England. In 2001 we began construction on a manufacturing facility in Waterford, Ireland for use in manufacturing the tablet formulation of Renagel phosphate binder and began expansion of our Haverhill manufacturing operations. The Haverhill expansion is expected to include the introduction of Renagel phosphate binder tablet-making facilities and the construction of two new large-scale plants for the production of sevelamer hydrochloride, the active ingredient in Renagel phosphate binder.

        We manufacture Thyrogen hormone under Good Manufacturing Practices conditions in our small-scale manufacturing facility in Framingham, Massachusetts and final drug product at Allston Landing in Boston, Massachusetts.

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        In connection with our acquisition of GelTex in December 2000, we assumed leases for office and laboratory space in Waltham, Massachusetts. In connection with our acquisition of Novazyme in September 2001, we assumed leases for office and laboratory space in Oklahoma City, Oklahoma and office space in Princeton, New Jersey.

        In October 2001 we acquired a protein manufacturing facility currently under construction and a pilot plant that is currently used to produce transgenic human alpha-glucosidase, both located in Geel, Belgium.

Diagnostic Products

        Genzyme General's diagnostic test kits and reagents are produced in manufacturing facilities in San Carlos, California, San Diego, California, Cambridge, Massachusetts and Russelsheim, Germany.

        We produce diagnostic enzymes and other fermentation products in a multi-purpose fermentation facility in Maidstone, England and a protein purification plant in West Malling, England. In 1997, we completed construction of a new fermentation facility and warehousing facility in West Malling, England.

Other Genzyme General Products and Services

        Our genetic testing business primarily conducts operations in clinical laboratory and administrative facilities we own in Framingham, Massachusetts and Santa Fe, New Mexico, and facilities that we lease in Yonkers, New York, Tampa, Florida and Orange, California.

        We use a multi-use pharmaceutical facility in Liestal, Switzerland to produce peptides, amino acid derivatives, phospholipids and custom manufactured products.

Genzyme Biosurgery

        We have manufacturing capacity at two facilities in the United Kingdom to produce commercial quantities of hyaluronan powder for our Sepra brand products. We produce Seprafilm bioresorbable membrane, CV Seprafilm II adhesion barrier, Sepramesh biosurgical composite, and Seprapack bioresorbable nasal packing at commercial scale from the hyaluronan powder in our manufacturing facility in Framingham, Massachusetts.

        In July 1996, we acquired or assumed the leases for certain office, laboratory and manufacturing facilities in Fall River, Massachusetts, Coventry, Connecticut, Tucker, Georgia and Luebeck, Germany for use in manufacturing and warehousing our surgical products. As part of our divestiture of the Snowden-Pencer product lines in 2001, we are subleasing the lease of our Tucker, Georgia facility to the purchaser of the business.

        Production for Carticel chondrocytes and Epicel skin grafts occurs primarily in our cell processing facilities in Cambridge, Massachusetts. The facility has the capacity to provide Carticel chondrocytes to approximately 5,000 patients per year.

        In connection with our acquisition of Biomatrix in December 2000, we assumed leases for office and laboratory space in Ridgefield, New Jersey. We also acquired a manufacturing facility in Ridgefield, New Jersey that is used to manufacture Synvisc viscosupplementation product and other hyaluronan-based products.

        In connection with our acquisition of Focal in June 2001, we assumed a lease for office, laboratory and manufacturing space in Lexington, Massachusetts.

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Genzyme Molecular Oncology

        Genzyme Molecular Oncology conducts research and development activities in facilities we own in Framingham, Massachusetts.

ITEM 3. LEGAL PROCEEDINGS

        We filed a lawsuit on July 25, 2000 seeking injunctive relief and damages against Transkaryotic Therapies, Inc. in the U.S. District Court in Wilmington, Delaware for patent infringement resulting from Transkaryotic Therapies' manufacture and use of Replagal, its enzyme replacement therapy for Fabry disease. The suit alleges infringement of U.S. Patent No. 5,356,804, which we exclusively licensed from Mount Sinai School of Medicine. The patent is directed to methods of making alpha-galactosidase in mammalian cells, as well as the genetically engineered cells themselves. On September 19, 2000, Transkaryotic Therapies filed a lawsuit against Genzyme and Mount Sinai School of Medicine in U.S. District Court in Boston, Massachusetts seeking declaratory judgments that the manufacture, use and sale of Replagal does not infringe the patent we licensed from Mount Sinai and that the Mount Sinai patent is invalid. On March 7, 2001, Transkaryotic Therapies moved to transfer the Massachusetts litigation to the U.S. District Court in Delaware for consolidation with the Delaware action we had initiated. On February 20, 2002, the U.S. District Court entered summary judgement in favor of TKT. We appealed that decision to the U.S. Court of Appeals on March 20, 2002.

        On November 14, 2000, we filed a lawsuit seeking injunctive relief and damages against Atrium Medical Corporation for patent infringement based on Atrium's manufacture and sale of its Express® and Oasis® chest drainage devices. Our lawsuit, filed in the U.S. District Court in Delaware, alleges infringement of U.S. Patent Nos. 4,544,370, 4,715,856, 4,747,844, 4,822,346 and 4,889,531. These patents are directed to chest drainage devices that include, among other features, dry suction technology and/or dry seal technology.

        As a result of our acquisition of Biomatrix, Inc. in December 2000, we became involved in lawsuits that were previously filed against Biomatrix. On July 21 and August 7, 15 and 30, 2000, class action lawsuits requesting unspecified damages were filed in the U.S. District Court in New Jersey against Biomatrix and two of its officers and directors, Endre A. Balazs and Rory B. Riggs. In these actions, the plaintiffs seek to certify a class of all persons or entities who purchased or otherwise acquired Biomatrix common stock during the period between July 20, 1999 and April 25, 2000. The plaintiffs allege, among other things, that the defendants failed to accurately disclose information relating to Synvisc viscosupplementation fluid during the period between July 20, 1999 and April 25, 2000, and assert causes of action under the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated under the Exchange Act. In April 2001, we filed a Motion to Dismiss the lawsuit, which is still pending before the Court.

        On March 14, 2001, Genentech, Inc. filed a complaint against us in U.S. District Court in Delaware seeking declaratory judgments that the manufacture, use and sale of TNKase™ does not infringe our U.S. Patent No. 5,344,773, and that Genentech therefore does not owe us royalties under a license agreement we entered into with Genentech in 1992. Genentech is also seeking declaratory judgments that they have not breached the license agreement, and that the claims of our patent are invalid. The parties are conducting discovery and a trial date currently is scheduled for January 21, 2003.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        We have three series of common stock:

•

Genzyme General Stock;

38

•

Biosurgery Stock; and



•

Molecular Oncology Stock.

These stocks are intended to reflect the value and track the performance of our Genzyme General, Genzyme Biosurgery and Genzyme Molecular Oncology divisions. All three stocks are traded on the over-the-counter market and prices are quoted on The Nasdaq National Market™ system under the symbols "GENZ," "GZBX" and "GZMO."

        On June 28, 1999, we distributed to the holders of record of Genzyme General Stock on June 14, 1999, 0.17901 of a share of Surgical Products Stock for each share of Genzyme General Stock held. Surgical Products Stock began trading on June 28, 1999. On December 18, 2000, we created Biosurgery Stock in connection with the formation of Genzyme Biosurgery, which we formed through the combination of the businesses of Genzyme Surgical Products and Genzyme Tissue Repair and the acquisition of Biomatrix. The last day of trading for Surgical Products Stock and Tissue Repair Stock was December 18, 2000. On December 19, 2000, we exchanged 0.6060 of a share of Biosurgery Stock for each share of Surgical Products Stock and 0.3352 of a share of Biosurgery Stock for each share of Tissue Repair Stock. Biosurgery Stock began trading on December 19, 2000.

        On June 1, 2001, we effected a two-for-one stock split by distributing to the holders of record of Genzyme General Stock on May 24, 2001, one new share of Genzyme General Stock for each share of Genzyme General Stock held. Genzyme General Stock sale amounts set forth in the table below have been adjusted to reflect this split.

        As of March 1, 2002, there were 2,492 stockholders of record of Genzyme General Stock, 6,977 stockholders of record of Biosurgery Stock and 2,311 stockholders of record of Molecular Oncology Stock.

39

        The following table sets forth, for the periods indicated, the high and low sale price for each series of Genzyme stock as reported by Nasdaq.

			High		Low
Genzyme General Stock
	2001
		First Quarter	$	47.75	$	34.34
		Second Quarter		64.00		42.49
		Third Quarter		59.89		39.61
		Fourth Quarter		61.64		43.37
	2000:
		First Quarter	$	31.75	$	19.84
		Second Quarter		30.38		20.19
		Third Quarter		38.25		28.44
		Fourth Quarter		51.88		30.81
Biosurgery Stock
	2001
		First Quarter	$	9.13	$	5.43
		Second Quarter		8.40		3.95
		Third Quarter		8.30		3.49
		Fourth Quarter		6.62		3.84
	2000:
		Fourth Quarter (beginning December 19, 2000)	$	11.75	$	7.69
Molecular Oncology Stock
	2001
		First Quarter	$	12.19	$	6.63
		Second Quarter		16.00		6.99
		Third Quarter		13.45		6.88
		Fourth Quarter		10.15		7.05
	2000:
		First Quarter	$	40.00	$	5.34
		Second Quarter		19.50		8.88
		Third Quarter		16.27		6.75
		Fourth Quarter		17.13		8.63

        We have never paid any cash dividends on any series of our common stock and we do not anticipate paying cash dividends in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

        We incorporate our Selected Financial Data into this section by reference from:

•

the 2001 Genzyme General Annual Report under the headings "Genzyme Corporation—Selected Financial Data" and "Genzyme General—Combined Selected Financial Data;"



•

the 2001 Genzyme Biosurgery Annual Report under the heading "Genzyme Biosurgery—Combined Selected Financial Data;" and



•

the 2001 Genzyme Molecular Oncology Annual Report under the heading "Genzyme Molecular Oncology—Combined Selected Financial Data."

40

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        We incorporate our Management's Discussion and Analysis of Financial Condition and Results of Operations into this section by reference from:

•

the 2001 Genzyme General Annual Report under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations—Genzyme Corporation and Subsidiaries" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Genzyme General;"



•

the 2001 Genzyme Biosurgery Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations—Genzyme Biosurgery;" and



•

the 2001 Genzyme Molecular Oncology Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations—Genzyme Molecular Oncology."

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We incorporate our Quantitative and Qualitative Disclosures About Market Risk by reference into this section from the section entitled "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—New Accounting Pronouncements," "—Market Risk," "—Interest Rate Risk," "—Foreign Exchange Risk," and "—Equity Price Risk" included in Exhibit 13.1 to this Annual Report on Form 10-K, which is included in the 2001 Genzyme General Annual Report, 2001 Genzyme Biosurgery Annual Report and 2001 Genzyme Molecular Oncology Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        We incorporate the financial statements filed as part of this Annual Report on Form 10-K into this section by reference from:

•

the Consolidated Financial Statements of Genzyme Corporation and Subsidiaries and notes thereto included in Exhibit 13.1 to this Annual Report on Form 10-K;



•

the Combined Financial Statements of Genzyme General and notes thereto included in Exhibit 13.2 to this Annual Report on Form 10-K;



•

the Combined Financial Statements of Genzyme Biosurgery and notes thereto included in Exhibit 13.3 to this Annual Report on Form 10-K; and



•

the Combined Financial Statements of Genzyme Molecular Oncology and notes thereto included in Exhibit 13.4 to this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        During the period from January 1, 2001 to the filing date of this Annual Report on Form 10-K, no independent accountant who was previously engaged as the principal accountant to audit our financial statements has resigned, indicated that it has declined to stand for re-appointment after the completion of the current audit or was dismissed.

41

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        We incorporate information regarding our directors and executive officers into this section by reference from the section entitled "Executive Officers of the Registrant" in Part I, Item 1A of this Annual Report on Form 10-K and the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the proxy statement for our 2002 annual meeting of stockholders.

ITEM 11. EXECUTIVE COMPENSATION

        We incorporate information regarding the compensation of our directors and executive officers into this section by reference from the sections entitled "Election of Directors," "Director Compensation" and "Executive Compensation" in the proxy statement for our 2002 annual meeting of stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        We incorporate information regarding the ownership of our securities by our directors, executive officers and 5% stockholders into this section by reference from the section entitled "Stock Ownership" in the proxy statement for our 2002 annual meeting of stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        We incorporate information regarding transactions with related parties into this section by reference from the section entitled "Certain Transactions" in the proxy statement for our 2002 annual meeting of stockholders.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)(1). FINANCIAL STATEMENTS

        We are incorporating the following financial statements (and related notes) of Genzyme General and Genzyme Corporation and subsidiaries into this section by reference from the 2001 Genzyme General Annual Report:

		Page*
Genzyme Corporation and Subsidiaries
	Consolidated Statements of Operations—For the Years Ended December 31, 2001, 2000 and 1999	GCS-56
	Consolidated Balance Sheets—December 31, 2001 and 2000	GCS-58
	Consolidated Statements of Cash Flows—For the Years Ended December 31, 2001, 2000 and 1999	GCS-59
	Consolidated Statements of Stockholders' Equity—For the Years Ended December 31, 2001, 2000 and 1999	GCS-61
	Notes to Consolidated Financial Statements	GCS-64
	Report of Independent Accountants	GCS-132
Genzyme General
	Combined Statements of Operations—For the Years Ended December 31, 2001, 2000 and 1999	GG-40
	Combined Balance Sheets—December 31, 2001 and 2000	GG-41
	Combined Statements of Cash Flows—For the Years Ended December 31, 2001, 2000 and 1999	GG-42
	Notes to Combined Financial Statements	GG-44
	Report of Independent Accountants	GG-79

*

References are to page numbers in the 2001 Genzyme General Annual Report. The financial statements (and related notes) are incorporated by reference from the 2001 Genzyme General Annual Report included in Exhibits 13.1 and 13.2 to this Annual Report on Form 10-K.

        We are incorporating the following financial statements (and related notes) of Genzyme Biosurgery into this section by reference from the 2001 Genzyme Biosurgery Annual Report:

		Page*
Genzyme Biosurgery
	Combined Statements of Operations—For the Years Ended December 31, 2001, 2000 and 1999	GBS-30
	Combined Balance Sheets—December 31, 2001 and 2000	GBS-31
	Combined Statements of Cash Flows—For the Years Ended December 31, 2001, 2000 and 1999	GBS-32
	Notes to Combined Financial Statements	GBS-33
	Report of Independent Accountants	GBS-55

*

References are to page numbers in the 2001 Genzyme Biosurgery Annual Report. The financial statements (and related notes) are incorporated by reference from the 2001 Genzyme Biosurgery Annual Report included in Exhibit 13.3 to this Annual Report on Form 10-K.

43

        We are incorporating the following financial statements (and related notes) of Genzyme Molecular Oncology into this section by reference from the 2001 Genzyme Molecular Oncology Annual Report:

		Page*
Genzyme Molecular Oncology
	Combined Statements of Operations—For the Years Ended December 31, 2001, 2000 and 1999	GMO-15
	Combined Balance Sheets—December 31, 2001 and 2000	GMO-16
	Combined Statements of Cash Flows—For the Years Ended December 31, 2001, 2000 and 1999	GMO-17
	Notes to Combined Financial Statements	GMO-18
	Report of Independent Accountants	GMO-32

*

References are to page numbers in the 2001 Genzyme Molecular Oncology Annual Report. The financial statements (and related notes) are incorporated by reference from the 2001 Genzyme Molecular Oncology Annual Report included in Exhibit 13.4 to this Annual Report on Form 10-K.

(A)(2). FINANCIAL STATEMENT SCHEDULES

        The schedule listed below for Genzyme Corporation and Subsidiaries is filed as part of this Annual Report on Form 10-K and is incorporated into this section by reference:

		Page*
Genzyme Corporation and Subsidiaries
	Schedule II—Valuation and Qualifying Accounts	GCS-133

*

Reference is to a page number in the Genzyme Corporation and Subsidiaries Consolidated Financial Statements or notes thereto included in Exhibit 13.1 to this Annual Report on Form 10-K.

        All other schedules are omitted as the information required is inapplicable or the information is presented in (i) the Genzyme Corporation and Subsidiaries Consolidated Financial Statements or notes thereto, (ii) the Genzyme General Combined Financial Statements or notes thereto, (iii) the Genzyme Biosurgery Combined Financial Statements or notes thereto or (iv) the Genzyme Molecular Oncology Combined Financial Statements or notes thereto.

(A)(3). EXHIBITS

        The exhibits are listed below under Part IV, Item 14(c) of this Annual Report on Form 10-K.

44

(B). REPORTS ON Form 8-K

        On October 9, 2001, we filed a Current Report on Form 8-K dated September 26, 2001 to announce the completion of our acquisition of Novazyme Pharmaceuticals, Inc.

(C). EXHIBITS

EXHIBIT NO.	DESCRIPTION
*2—	Agreement and Plan of Merger, dated as of August 6, 2001, among Genzyme Corporation, Rodeo Merger Corp. and Novazyme Pharmaceuticals, Inc. Filed as Exhibit 2.1 to Genzyme's Form 8-K filed on August 22, 2001.
*3.1—	Restated Articles of Organization of Genzyme, as amended. Filed as Exhibit 3 to Genzyme's Form 8-K filed on June 6, 2001.
*3.2—	By-laws of Genzyme, as amended. Filed as Exhibit 3.2 to Genzyme's Form 10-Q for the quarter ended September 30, 1999.
*4.1—	Second Amended and Restated Renewed Rights Agreement dated as of December 18, 2000 between Genzyme and American Stock Transfer & Trust Company. Filed as Exhibit 4 to Genzyme's Registration Statement on Form 8-A filed on December 19, 2000.
*4.2—	Certificate of Adjustment. Filed as Exhibit 5 to Amendment No. 1 to Genzyme's Registration Statement on Form 8-A filed on June 6, 2001.
*4.3—	Warrant Agreement between Genzyme and Comdisco, Inc. Filed as Exhibit 10.22 to a Form 10 of PharmaGenics, Inc. (File No. 0-20138).
*4.4—	Indenture, dated as of May 8, 2001, between Genzyme and State Street Bank and Trust Company, as Trustee, including the Form of debenture. Filed as Exhibit 4.1 to Genzyme's Form 8-K filed on May 11, 2001.
*4.5—	Registration Rights Agreement, dated as of May 3, 2001, among Genzyme, Credit Suisse First Boston Corporation, Goldman, Sachs & Co. and Salomon Smith Barney Inc. Filed as Exhibit 4.2 to Genzyme's Form 8-K filed on May 11, 2001.
*4.6—	Biomatrix, Inc. 6.9% Convertible Subordinated Note due May 14, 2003. Filed as Exhibit 4.1 to Genzyme's Form 8-K filed on January 2, 2001.
*4.7—	Warrant to purchase common stock issued by Novazyme Pharmaceuticals, Inc. (f/k/a Targeted Therapy, Inc.). Filed as Exhibit 4.1 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*4.8—	Securities Purchase Agreement, dated as of April 17, 2001 and amended on September 26, 2001, by and among Novazyme Pharmaceuticals, Inc. and several purchasers. Filed as Exhibit 4.2 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.1—	Leases by Whatman Reeve Angel Limited to Whatman Biochemicals Limited dated May 1, 1981. Filed as Exhibit 10.12 to Genzyme's Registration Statement on Form S-1 (File No. 33-4904).
*10.2—	Lease dated as of September 15, 1989 for 95-111 Binney Street, Cambridge, Massachusetts between Genzyme and the Trustees of the Cambridge East Trust. Filed as Exhibit 10.2 to Genzyme's Form 10-K for 1992. First amendment of lease dated February 28, 1994. Filed as Exhibit 10.2 to Genzyme's Form 10-K for 1993.

45

*10.3—	Lease dated December 20, 1988 for Building 1400, One Kendall Square, Cambridge, Massachusetts between Genzyme and the Trustees of Old Binney Realty Trust, as amended by letters dated December 20, 1988, January 19, 1989 and January 31, 1989. Filed as Exhibit 10.18 to Genzyme's Form 10-K for 1988. Addendum dated September 20, 1991 to Lease for Building 1400, One Kendall Square, Cambridge, Massachusetts. Filed as Exhibit 19.1 to Genzyme's Form 10-Q for the quarter ended September 30, 1991. Addenda dated August 2, 1990 and April 6, 1993 to Lease for Building 1400, One Kendall Square, Cambridge, Massachusetts. Filed as Exhibit 10.3 to Genzyme's Form 10-K for 1993.
*10.4—	Lease dated December 20, 1988 for Building 700, One Kendall Square, Cambridge, Massachusetts between Genzyme and Trustees of Old Kendall Realty Trust, as amended by letters dated December 20, 1988 and January 31, 1989. Filed as Exhibit 10.19 to Genzyme's Form 10-K for 1988.
*10.5—	Lease dated September 30, 1985 for 51 New York Avenue, Framingham, Massachusetts. Filed as Exhibit 10.8 to Genzyme's Form 10-K for 1990. Amendment No. 1, dated October 11, 1990, and Amendment No. 2, dated May 12, 1993, to lease for 51 New York Avenue, Framingham, Massachusetts. Filed as Exhibit 10.5 to Genzyme's Form 10-K for 1993.
*10.6—	Lease dated April 30, 1990 for 64 Sidney Street, Cambridge, Massachusetts between BioSurface Technology, Inc. ("BioSurface") and Forest City 64 Sidney Street, Inc. Filed as Exhibit 10.22 to BioSurface's Registration Statement on Form S-1 (File No. 33-55874).
*10.7—	Sublease Lease dated May 22, 1992 for three buildings at 74-84 New York Avenue, Framingham, Massachusetts between Genzyme and Prime Computer, Inc. Filed as Exhibit 10.7 to Genzyme's Form 10-K for 1993.
*10.8—	Lease dated May 22, 1992 for three buildings at 74-84 New York Avenue, Framingham, Massachusetts between Genzyme and Mark L. Fins, David J. Winstanley and Bruce A. Gurall, tenants in common. Filed as Exhibit 10.8 to Genzyme's Form 10-K for 1993.
*10.9—	Lease dated June 1, 1992 for land at Allston Landing, Allston, Massachusetts between Allston Landing Limited Partnership and the Massachusetts Turnpike Authority. Filed as Exhibit 10.9 to Genzyme's Form 10-K for 1993.
*10.10—	Underlease for Block 13 building at Kings Hill Business Park West Malling Kent among Rouse and Associates Block 13 Limited, Genzyme (UK) Limited and Genzyme. Filed as Exhibit 10.11 to Genzyme's Registration Statement on Form 8-B dated December 31, 1991, filed on March 2, 1992.
*10.11—	Lease dated November 12, 1998 for Metrowest Place, 15 Pleasant Street Connector, Framingham, Massachusetts, between Consolidated Group Service Company Limited Partnership and Genzyme. Filed as Exhibit 10.11 to Genzyme's Form 10-K for 1998.
*10.12—	Agreement of Lease, dated April 18, 1996, between Ridgefield Associates and Biomatrix. Filed as Exhibit 10.3 to Biomatrix's Form 10-Q for the quarter ended June 30, 1996 (File No. 0-19373).**
*10.13—	Lease dated August 28, 2000 for Building D, Cambridge Research Park, Cambridge, Massachusetts, between Genzyme and Kendall Square LLC. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended September 30, 2000.**
*10.14—	Lease dated August 4, 2000 for 11 Pleasant Street Connector, Framingham, Massachusetts between Genzyme and Fafard Real Estate Development Corp. Filed as Exhibit 10.2 to Genzyme's Form 10-Q for the quarter ended September 30, 2000.
*10.15—	Lease Agreement dated February 28, 1997, between GelTex Pharmaceuticals, Inc. ("GelTex") and J.F. White Properties, Inc. Filed as Exhibit 10.16 to GelTex's Annual Report on Form 10-K for 1996 (File No. 0-26872).

46

*10.16—	Purchase and Sale Agreement between Barry L. Solar and Robert L. Solar as Trustees of 211 Second Avenue Realty Trust and GelTex Pharmaceuticals, Inc., dated as of July 26, 1999. Filed as Exhibit 10.4 to GelTex's Form 10-Q for the quarter ended June 30, 1999 (File No. 0-26872).
*10.17—	Agency Agreement, dated October 21, 1998, between First Security Bank, N.A. and GelTex. Filed as Exhibit 10.1 to GelTex's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 0-26872).
*10.18—	Lease Agreement, dated October 21, 1998, between First Security Bank, N.A. and GelTex. Filed as Exhibit 10.2 to GelTex's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 0-26872).
*10.19—	Partnership Purchase Agreement dated as of November 20, 2000 between Genzyme, Genzyme Development Corporation II, Genzyme Development Partners, L.P. ("GDP") and each Class A Limited Partner of GDP. Filed as Exhibit 10.24 to Genzyme's Form 10-K for 2000.
*10.20—	Technology License and Supply Agreement dated as of September 8, 1989 between Imedex and Genzyme. Filed as Exhibit 10.30 to Genzyme's Form 10-K for 1990.**
*10.21—	1998 Director Stock Option Plan, as amended. Filed as Exhibit 10.28 to Genzyme's Form 10-K for 2000.
*10.22—	2001 Equity Incentive Plan. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended June 30, 2001.
*10.23—	1999 Employee Stock Purchase Plan. Filed as Exhibit 10.24 to Genzyme's Form 10-K for 1999.
*10.24—	1996 Directors' Deferred Compensation Plan. Filed as Exhibit 99.1 to Genzyme's Form S-8 dated August 8, 1997 (File No. 333-33251).
*10.25—	Executive Employment Agreement dated as of January 1, 1990 between Genzyme and Henri A. Termeer. Filed as Exhibit 10.32 to Genzyme's Form 10-K for 1990.
*10.26—	Form of Severance Agreement between Genzyme and certain senior executives, together with schedule identifying the provisions applicable to each executive. Filed as Exhibit 10.33 to Genzyme's Form 10-K for 1990. Current schedule identifying the executives filed herewith.
*10.27—	Form of Indemnification Agreement between Genzyme and certain senior executives, together with schedule identifying the provisions applicable to each executive. Filed as Exhibit 10.34 to Genzyme's Form 10-K for 1990. Current schedule identifying the executives filed herewith.
*10.28—	Executive Employment Agreement dated as of January 1, 1996 between Genzyme and Peter Wirth. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended March 31, 1996.
*10.29—	Consulting Agreement dated December 14, 1998 between Genzyme and Charles L. Cooney, Ph.D. Filed as Exhibit 10.30 to Genzyme's Form 10-K for 1998.
*10.30—	Consulting Agreement dated December 31, 1998 between Genzyme and Robert J. Carpenter. Filed as Exhibit 10.31 to Genzyme's Form 10-K for 1998.
*10.31—	Consulting Agreement dated July 1, 1998 between Genzyme and Henry E. Blair. Filed as Exhibit 10.32 to Genzyme's Form 10-K for 1998.
*10.32—	Technology Transfer Agreement between Genzyme and Genzyme Transgenics Corporation ("GTC") dated as of May 1, 1993. Filed as Exhibit 2.1 to the Registration Statement on Form S-1 of GTC (File No. 33-62872).
*10.33—	Research and Development Agreement between Genzyme and GTC dated as of May 1, 1993. Filed as Exhibit 10.1 to the Registration Statement on Form S-1 of GTC (File No. 33-62872).

47

*10.34—	Services Agreement between Genzyme and GTC dated as of May 1, 1993. Filed as Exhibit 10.2 to the Registration Statement on Form S-1 of GTC (File No. 33-62872).
*10.35—	Series A Convertible Preferred Stock Purchase Agreement between Genzyme and GTC dated as of May 1, 1993. Filed as Exhibit 10.5 to the Registration Statement on Form S-1 of GTC (File No. 33-62872).
*10.36—	Second Amended and Restated Convertible Debt Agreement dated as of December 28, 1998 by and between Genzyme and GTC. Filed as Exhibit 10.37 to Genzyme's Form 10-K for 1998 (File No. 0-21794).
*10.37—	Amended and Restated Credit Agreement dated December 14, 2000 among Genzyme and those of its subsidiaries party thereto, Fleet National Bank, as Administrative Agent. Filed as Exhibit 99.2 to Genzyme's Form 8-K Filed on January 2, 2001.
*10.38—	Contract Manufacturing Agreement between GelTex and The Dow Chemical Company. Filed as Exhibit 10.17 to GelTex's Form 10-Q for the quarter ended March 31, 1997 (File No. 0-26872).**
*10.39—	License Agreement between GelTex and Nitto Boseki Co., Ltd., dated as of June 9, 1997. Filed as Exhibit 10.21 to GelTex's Form 10-Q for the quarter ended June 30, 1997 (File No. 0-26872).**
*10.40—	Supply Agreement dated as of November 9, 1999 by and between Salsbury Chemicals, Inc. and GelTex. Filed as Exhibit 10.32 to GelTex's Form 10-K for 1999 (File No. 0-26872).
*10.41—	Collaboration Agreement dated September 4, 1998 among Genzyme, BioMarin Pharmaceutical, Inc. ("BioMarin") and BioMarin/Genzyme LLC. Filed as Exhibit 10.24 to BioMarin's Registration Statement on Form S-1 (File No. 333-77701).**
*10.42—	Purchase Agreement dated September 4, 1998 between Genzyme and BioMarin. Filed as Exhibit 10.25 to BioMarin's Registration Statement on Form S-1 (File No. 333-77701).
*10.43—	Operating Agreement of BioMarin/Genzyme LLC. Filed as Exhibit 10.30 to BioMarin's Registration Statement on Form S-1 (File No. 333-77701).
*10.44—	United States Licensing Agreement dated February 7, 1997 between Biomatrix and American Home Products Corporation ("AHP"). Filed as Exhibit 10.1 to the Biomatrix's Form 10-Q for the quarter ended March 31, 1997.**
10.45—	International Licensing Agreement dated February 7, 1997 between Biomatrix and AHP, as amended. Filed herewith.**
10.46—	Supply Agreement dated February 7, 1997 between Biomatrix and AHP, as amended. Filed herewith.**
10.47—	Trademark License Agreement dated February 7, 1997 between Biomatrix and AHP, as amended. Filed herewith.**
*10.48—	Contract for Sale, dated June 25, 2001, for the premises located at the Industrial Development Authority Industrial Park, Waterford County, Dublin, Ireland, (comprised in folio 4141L County Waterford) by and between Luxottica Ireland Limited and Genzyme Ireland Limited (f/n/a Gosfend Limited). Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.49—	Lease, dated September 3, 1990, for the land located at the Industrial Development Authority Industrial Park, Waterford Country, Dublin, Ireland (comprised in folio 4917 & 324IF County Waterford) by and between the Industrial Development Authority and Bausch & Lomb Ireland. Filed as Exhibit 10.2 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.

48

*10.50—	Deed of Transfer, dated July 2, 2001, between Luxottica Ireland Limited and Genzyme Ireland Limited, related to the Lease dated September 3, 1990 for the premises located at the Industrial Development Authority Industrial Park, Waterford, Dublin, Ireland (comprised in folio 4141L County Waterford). Filed as Exhibit 10.3 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.51—	Contract for Sale, dated August 2, 2001, for the land located at the Industrial Development Authority Industrial Park, Waterford County, Dublin, Ireland (comprised in folio 4917 County of Waterford) by the Industrial Development Agency (Ireland) and Genzyme Ireland Limited. Filed as Exhibit 10.4 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.52—	Lease, dated August 24, 2001, for the land located at the Industrial Development Authority Industrial Park, Waterford County, Dublin, Ireland (comprised in folio 4917 County of Waterford) by the Industrial Development Agency (Ireland) and Genzyme Ireland Limited. Filed as Exhibit 10.5 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.53—	License and Collaboration Agreement, dated as of September 27, 2000, between Cambridge Antibody Technology Limited and Genzyme Corporation. Filed as Exhibit 4.7 to Cambridge Antibody's Registration Statement on Form 20-F/A, dated June 5, 2001 (File No. 000-3116).**
*10.54—	Collaboration Agreement, dated October 1, 1998, between Genzyme and Dyax Corp. Filed as Exhibit 10.25 to the Dyax's Registration Statement on Form S-1 (File No. 333-37394).**
13.1—	Portions of the 2001 Genzyme General Annual Report incorporated by reference into Parts I, II and IV of this Form 10-K. Filed herewith.
13.2—	Portions of the 2001 Genzyme General Annual Report incorporated by reference into Parts I, II and IV of this Form 10-K. Filed herewith.
13.3—	Portions of the 2001 Genzyme Biosurgery Annual Report incorporated by reference into Parts I, II and IV of this Form 10-K. Filed herewith.
13.4—	Portions of the 2001 Genzyme Molecular Oncology Annual Report incorporated by reference into Parts I, II and IV of this Form 10-K. Filed herewith.
21—	Subsidiaries of Genzyme. Filed herewith.
23—	Consent of PricewaterhouseCoopers LLP. Filed herewith.
*99.1—	Management and Accounting Policies Governing the Relationship of Genzyme Divisions. Filed as Exhibit 3 to Genzyme's Registration Statement on Form 8-A filed on December 19, 2000 (File No. 333-31548).
99.2—	Factors Affecting Future Operating Results. Filed herewith.

*

Indicates exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference. Exhibits filed with Forms 10-K, 10-Q, 8-K, 8-A, 8-B or Schedule 14A of Genzyme Corporation were filed under Commission File No. 0-14680.

**

Confidential treatment has been granted for the deleted portions of Exhibits 10.12, 10.13, 10.20, 10.38, 10.39, 10.40, 10.41, 10.44, 10.45, 10.46, 10.47, 10.53 and 10.54.

EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

        Exhibits 10.21 through 10.31 above are management contracts or compensatory plans or arrangements in which our executive officers or directors participate.

49

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GENZYME CORPORATION
DATED: APRIL 1, 2002	By:	/s/  MICHAEL S. WYZGA Michael S. Wyzga Senior Vice President, Finance and Chief Financial Officer

        Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Name	Title	Date
/s/  HENRI A. TERMEER Henri A. Termeer	Director and Principal Executive Officer	April 1, 2002
/s/  MICHAEL S. WYZGA Michael S. Wyzga	Principal Financial and Accounting Officer	April 1, 2002
/s/  CONSTANTINE E. ANAGNOSTOPOULOS Constantine E. Anagnostopoulos	Director	April 1, 2002
/s/  DOUGLAS A. BERTHIAUME Douglas A. Berthiaume	Director	April 1, 2002
/s/  HENRY E. BLAIR Henry E. Blair	Director	April 1, 2002
/s/  ROBERT J. CARPENTER Robert J. Carpenter	Director	April 1, 2002
/s/  CHARLES L. COONEY Charles L. Cooney	Director	April 1, 2002
/s/  VICTOR J. DZAU Victor J. Dzau	Director	April 1, 2002
/s/  CONNIE MACK III Connie Mack III	Director	April 1, 2002

50

QuickLinks

DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
PART II
PART III
PART IV
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
SIGNATURES

EX-10.26

                                                                   EXHIBIT 10.26

                    SCHEDULE TO EXECUTIVE SEVERANCE AGREEMENT

     The following is a list of our senior executive officers who are party to
an Executive Severance Agreement, the form of which was filed as Exhibit 10.33
to our Form 10-K for 1990:

                                Mara G. Aspinall;
                                 Mark Bamforth;
                              Earl M. Collier, Jr.;
                                Zoltan A. Csimma;
                              Thomas J. DesRosier;
                               Richard H. Douglas;
                                David D. Fleming;
                               James A. Geraghty;
                               John V. Heffernan;
                            Elliot D. Hillback, Jr.;
                                Alison F. Lawton;
                                Gail J. Maderis;
                               John M. McPherson;
                               C. Ann Merrifield;
                              Richard A. Moscicki;
                              Donald E. Pogorzelski
                                 Alan E. Smith;
                               Sandford D. Smith;
                                Peter T. Traynor;
                               Christine van Heek;
                              G. Jan van Heek; and
                                Michael S. Wyzga.

We are a party to Executive Severance Agreements with the executive officers
named above, under which payments will be made under certain circumstances
following a Change of Control of the Company (as defined in the Executive
Severance Agreements). The Executive Severance Agreements provide that in the
event the officer's employment is terminated by the Company without Cause (as
defined) or by the officer for Good Reason (as defined) following a Change of
Control, the Company will make a lump sum severance payment to the officer of up
to two times annual salary and bonus. Upon such termination, the Executive
Severance Agreements also provide for (i) a cash payment equal to the additional
retirement benefit which would have been earned under the Company's retirement
plans if employment had continued for two years following the date of
termination, (ii) participation in the life, accident and health insurance plans
of the Company for such period except to the extent such benefits are provided
by a subsequent employer and (iii) in certain circumstances, legal costs and
expenses associated with such termination.

EX-10.27

                                                                   EXHIBIT 10.27

                      SCHEDULE TO INDEMNIFICATION AGREEMENT

     The following is a list of the current directors and senior executive
officers of Genzyme Corporation who are party to an Indemnification Agreement,
the form of which was filed as Exhibit 10.34 to our Form 10-K for 1990:

                         Constantine E. Anagnostopoulos;
                                Mara G. Aspinall;
                                 Mark Bamforth;
                             Douglas A. Berthiaume;
                                 Henry E. Blair;
                              Robert J. Carpenter;
                              Earl M. Collier, Jr.;
                               Charles L. Cooney;
                                Zoltan A. Csimma;
                              Thomas J. DesRosier;
                               Richard H. Douglas;
                                 Victor J. Dzau;
                                David D. Fleming;
                                James A. Geraghty;
                            Elliott D. Hillback, Jr.;
                                Alison F. Lawton;
                                 Evan M. Lebson;
                                  Roger Louis;
                                Connie Mack III;
                                Gail J. Maderis;
                               John M. McPherson;
                               C. Ann Merrifield;
                              Richard A. Moscicki;
                             Donald E. Pogorzelski;
                                 Alan E. Smith;
                               Sandford D. Smith;
                                Henri A. Termeer
                                Peter T. Traynor;
                               Christine van Heek;
                                G. Jan van Heek;
                                Peter Wirth; and
                                Michael S. Wyzga

EX-10.45

                                                                   EXHIBIT 10.45

*Confidential portions have been omitted and filed separately with the
 Commission.

                         INTERNATIONAL LICENSE AGREEMENT

     THIS AGREEMENT is made as of the 7th day of February 1997 by and between
BIOMATRIX, INC., a Delaware corporation, having its principal office at 65
Railroad Avenue, Ridgefield, New Jersey 07657, U.S.A. ("Biomatrix") and AMERICAN
HOME PRODUCTS CORPORATION, a Delaware corporation having its principal office at
Five Giralda Farms, Madison, New Jersey 07990, U.S.A., acting through its
unincorporated Wyeth-Ayerst Laboratories division (such entities are together
defined herein as "Wyeth").

     WHEREAS, Biomatrix is engaged in the development and manufacture of the
Products (as hereinafter defined);

     WHEREAS, Wyeth desires to enter into an exclusive (except as provided
herein) license to market and sell Products and Extended Products (as
hereinafter defined) in the Territory (as hereinafter defined), and Biomatrix is
willing to grant such rights to Wyeth;

     WHEREAS, on the terms and subject to the conditions set forth in the Supply
Agreement (as hereinafter defined), Wyeth desires to purchase from Biomatrix,
and Biomatrix desires to sell to Wyeth, Wyeth's requirements of Products and
Extended Products in the Territory; and

     WHEREAS, as of the date hereof, Biomatrix and Wyeth are entering into the
U.S. Agreement (as defined below), the Supply Agreement (as defined below) and
the Trademark Agreement (as defined below);

     NOW, THEREFORE, in consideration of the premises and of the mutual
covenants of the parties hereto, it is hereby agreed as follows:

     1. DEFINITIONS. In this Agreement, the following words and expressions
shall have the following meanings:

     1.1. "Additional Period" shall mean that term as defined in Section 3.1.

     1.2. "Affiliate" shall mean, with respect to any party, any Person that,
directly or indirectly, is controlled by, controls or is under common control
with such party, but only for so long as such relationship exists.

     1.3. "Applicable Currency" shall mean, with respect to a country in the
Territory, the lawful currency of such country.

                                       -1-


     1.4. "Commercial Sale" means that sales by Wyeth or its Affiliates to
non-affiliated third-party purchasers shall have commenced with defined prices
and are supported by normal sales promotion activities.

     1.5. "Competing Product" shall mean any

                                        *

     1.6. "Confidential Information" shall mean that term as defined in Section
7.1.

     1.7. "Contract Quarter" shall mean, with respect to a country in the
Territory, the three (3) month period commencing on the first day of the first
fiscal quarter beginning immediately after the Launch Date in such country
(unless the Launch Date is the first day of a fiscal quarter, in which case the
first Contract Quarter shall commence on such day) and ending on the last day of
the fiscal quarter and each fiscal quarter thereafter throughout the term of
this Agreement.

     1.8. "Contract Year" shall mean, with respect to a country in the
Territory, the twelve (12) month period commencing on the first day of the first
fiscal quarter beginning immediately after the Launch Date in such country
(unless the Launch Date is the first day of a fiscal quarter, in which case the
first Contract Year shall commence on such day) and each separate successive
twelve (12) month period thereafter.

     1.9. "Development Program" shall mean the development program as set forth
in the U.S. Agreement.

     1.10. "Effective Date" shall mean the date of this Agreement.

     1.11. "Employment Costs" shall mean, with respect to any employee of
Biomatrix, for any period, the aggregate amount of

                                        *

     1.12. "Extended Product" shall mean

                                        *

     1.13. "Field" shall mean the

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                       -2-


     1.14. "Improvements" shall mean

                                        *

     1.15. "Initial Product" shall mean hylan gel-fluid 20 (hylan G-F 20)
Synvisc currently approved as a device with a CE mark for the intra-articular
treatment by viscosupplementation of osteoarthritis of the knee, to be supplied
in pre-filled syringes packaged ready for use, complying with Product Approvals
in the Territory as a device.

     1.16. "Initial Product Specifications" shall mean the specifications for
the Initial Product set forth in Exhibit A, as such specifications may be
modified from time to time by agreement of the parties to reflect Improvements.

     1.17. "Launch Date" shall mean, with respect to a country in the Territory,
the date of national introduction for commercial sale of the Product by Wyeth or
an Affiliate of Wyeth in such country.

     1.18. "Net Revenues" shall mean for a specified period the total gross
invoice price received from the sale of all Products and Extended Products by
Wyeth and its Affiliates in the Territory during such period to non-Affiliated
wholesalers, hospitals, retail pharmacies, patients and other third party
purchasers,

                                        *

Such amounts shall be determined from the books and records of Wyeth and its
Affiliates maintained in accordance with generally accepted accounting
principles, consistently applied.

     1.19. "Non-competition Period" shall mean the period commencing on the
Effective Date and continuing until

                                        *
thereafter.

     1.20. "Patents" shall mean Letters Patent, or similar statutory rights
relating to any Products (including any continuation-in-part, continuation or
division thereof or substitute thereof), and patent applications which are
pending as of the Effective Date, in each case as set forth in Exhibit B hereto,
together with any supplementary or complementary protection certificates
therefor if and when such are granted.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                       -3-


     1.21. "Person" or "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization or a government or any
agency or political subdivision thereof.

     1.22. "Product Approvals" shall mean, for any country in the Territory,
those regulatory approvals required for importation, promotion, pricing,
marketing and sale of a Product or Extended Product in such country.

     1.23. "Product(s)" shall mean the Initial Product, together with any
Improvements (as defined in Section 1.14) to the Initial Product.

     1.24. "Product Specialist" shall mean that term as defined in Section 8.10.

     1.25. "Reimbursement Approvals" shall mean any and all governmental and
other approvals necessary in any country in the Territory for the buyer of
Products or Extended Products to claim reimbursement for the purchase of the
Products or Extended Products from private or public health insurance
organizations in such country.

     1.26. "Region" shall mean any one of the following groups of countries:

                                        *

     1.27. "Supply Agreement" shall mean the Supply Agreement of even date
herewith by and between Biomatrix (or one of its Affiliates) and Wyeth (or one
of its Affiliates) as the same may be amended, supplemented, modified or
restated and as in effect from time to time, and any replacement supply
agreement with respect to Products and Extended Products by and between
Biomatrix (or one of its Affiliates) and Wyeth (or one of its Affiliates).

     1.28. "Territory" shall mean all of the countries set forth under Section
1.26 above, subject to adjustment as set forth in Section 2.1(d).

     1.29. "Trademarks" shall mean (i) the trademark Synvisc(R) and each other
mark, trademark or service mark described on Exhibit B hereto, and (ii) any
other marks, trademarks or service marks, as may be agreed upon in writing from
time to time by the parties hereto for use by Wyeth in connection with the
promotion, marketing and sale of the Product under this Agreement.

     1.30. "Trademark Agreement" shall mean the Trademark License Agreement of
even date herewith by and between Biomatrix and Wyeth as the same may be
amended, supplemented, modified or restated and as in effect from time to time,
and any replacement Trademark License Agreement by and between Biomatrix and
Wyeth.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                       -4-



     1.31. "Unit" shall mean, with respect to the Initial Product, a 2.0ml
syringe of the Initial Product.

     1.32. "U.S. Agreement" shall mean the agreement of even date herewith by
and between Biomatrix and Wyeth relating to the marketing of Products and
Extended Products in the United States, as the same may be amended,
supplemented, modified or restated and as in effect from time to time.

     1.33. "U.S. Dollars" and "US$" shall mean the lawful currency of the United
States of America.

     2. GRANT OF RIGHTS; ACCEPTANCE; EXCLUSIVITY; CERTAIN PAYMENTS.

     2.1. Grant of License. (a) Subject to the terms and conditions hereinafter
set forth, Biomatrix hereby grants to Wyeth an exclusive (except as to
Biomatrix's right to promote, market and sell the Products and Extended Products
as set forth in Sections 2.3 and 8.10) license (without the right to appoint
sub-licensees, sub-agents or subdistributors) under the Patents to import,
promote, market, offer for sale and sell Products and Extended Products for use
in the Field within the Territory. Such Products and Extended Products shall be
packaged and supplied by Biomatrix or an Affiliate of Biomatrix to Wyeth
pursuant to the Supply Agreement.

     (b) Except as specifically provided to the contrary herein, the foregoing
license shall not be construed (i) to effect any sale of proprietary Biomatrix
technology, (ii) to grant any license relating to Biomatrix's proprietary
methods of formulating, fabricating and manufacturing the Products and Extended
Products, (iii) to grant Wyeth any rights in or to the use of any proprietary
technology or Patents, or Trademarks of Biomatrix by implication or otherwise.
During the term of this Agreement Wyeth shall neither seek customers for the
Products or Extended Products outside the Territory, nor establish any branch or
maintain any distribution facilities outside the Territory for the promotion,
marketing, sale or distribution of Products or Extended Products outside the
Territory.

     (c) It is understood by the parties that through the Development Program
Improvements and Extended Products may be developed. The parties agree that the
provisions relating to the Development Program are hereby incorporated into this
Agreement and any rights relating to Improvements and Extended Products under
the Development Program shall be incorporated into this Agreement.

     (d) The parties agree that Wyeth shall develop during the

                                        *

period immediately following the Effective Date business plans for the
marketing and sale of Products in the Middle East Region and the ECE Region, and
during the

                                        *

period following the Effective Date a business plan for the marketing and
sale of Products in Spain. After the delivery of such business plans to
Biomatrix:

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                       -5-


                                        *

     2.2. Acceptance of Obligations;

                                        *

     (a) Wyeth hereby accepts the license granted in section 2.1 above and
hereby agrees to use

                                        *

(as defined below), at all times during the term of this Agreement, to import,
promote, market, offer for sale and sell the Products and Extended Products in
the Territory.

                                        *

Wyeth shall promote the sale of Products and Extended Products through its sales
force, which shall receive training and support and have skills and resources
commensurate with those of Wyeth's sales force for other products which are of a
similar nature as the Products and Extended Products. Wyeth has no authority to
appoint any subagent, subdistributor, or other person to promote the sale of the
Products or Extended Products or to otherwise perform any of Wyeth's obligations
hereunder and agrees to refrain from using any such subagents, subdistributors
or other persons.

     (b) Subject to delivery to Wyeth by Biomatrix of Wyeth's (i) launch
quantities as set forth on Exhibit C to the Supply Agreement and (ii)

                                        *

of the First Contract Year sample quantities of the Initial Product, each
ordered in accordance with the terms of this Agreement and the Supply Agreement,
the Launch Date with respect to each country in the Territory

                                        *

of the later of (i) Effective Date or (ii) Product Approval date.

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                       -6-


     2.3. Conversion to Co-promotion or Co-exclusive License.

     (a) Failure to Meet

                                        *

Sales Goals. In the event that Wyeth's cumulative Net Revenues from sales of
Products in the

                                        *
with respect to any Region set forth on Exhibit C shall fail to exceed the
                                        *
set forth opposite such Region on Exhibit C, then Biomatrix may, at its option,
elect to co-promote the Products and Extended Products or any Improvement in
such Region either itself (or through an Affiliate) or with a designee (a
"Designee") selling for Wyeth's account. Such co-promotion may be either on a
fixed cost reimbursement or performance/incentive basis as agreed upon by the
parties. Biomatrix shall make any such elections within

                                        *
after delivery to Wyeth of a notice of any such failure to meet such

                                        *

The parties agree that they will in good faith adjust such amounts on Exhibit C
if Wyeth can demonstrate that parallel imports of Products or other factors such
as competitive products being introduced, lower than anticipated reimbursed
price approval and other material external market factors had a material adverse
impact on its ability to achieve such amounts in any such Region. If Biomatrix
elects to convert this Agreement to a co-promotional arrangement with respect to
one or more Regions pursuant to the provisions of this Section 2.3, then
Biomatrix (or an Affiliate) or its Designee shall be compensated as follows:

                                        *

If Biomatrix elects to co-promote the Products and Extended Products in any
Region, then Biomatrix (or an Affiliate) or its Designee may co-promote under
the Trademark in such Region.

     (b) Failure to Meet Marketing Plan Goals. In the event that Wyeth's Net
Revenue from sales of Products in any Region in the Territory during the

                                        *
shall fail to exceed,

                                        *
of the projected Net Revenue set forth in the marketing plan prepared in
accordance with Section 8.8 for such Region, then Biomatrix may elect (i) to
co-promote the Products and Extended Products under the Trademark for Wyeth's
account itself (or through an Affiliate) in such Region, and/or appoint one
Designee (other than Wyeth or any of its Affiliates) in such Region, or (ii) to
convert Wyeth's license rights in such Region to co-exclusive and co-market the
Products and Extended Products itself (or through an Affiliate) in such Region,
and/or appoint one Designee (other than Wyeth or any of its Affiliates) in such
Region, under a trademark that is not similar to the Trademark.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                       -7-


Biomatrix shall make any such election with respect to any such Region within

                                        *

with respect to such Region. If Biomatrix elects to co-promote the Products or
Extended Products itself (or through an Affiliate or Designee) with respect to
one or more Regions pursuant to the provisions of this Section 2.3(b), then
Biomatrix (or an Affiliate or Designee) shall be compensated on one of the
following bases:

                                        *

If Biomatrix elects to convert Wyeth's rights in such Region(s) to co-exclusive
and co-market the Products and Extended Products ) (or through an Affiliate)
itself or in conjunction with a Designee with respect to one or more Regions
pursuant to the provisions of this Paragraph 2.3(b), then neither party shall
have any financial obligations to the other in connection with any sales by
Biomatrix (or an Affiliate) or its Designee under such co-marketing arrangement
(other than any obligations under the Supply Agreement and/or the Trademark
Agreement).

     2.4 [RESERVED]

     2.5. Development Payments. As an inducement for and in consideration of the
agreement of Biomatrix to actively participate in and support the Development
Program as set forth in Section 6 of the U.S. Agreement, Wyeth hereby agrees to
make the following non-refundable payments to Biomatrix:

     (a) On the Effective Date Wyeth shall pay Biomatrix the amount of Four
Million U.S. Dollars ($4,000,000).

     (b)

                                        *

payable within five (5) days of

                                        *

     (c)

                                        *

payable within five (5) days after the last day of the month in which

                                        *
in the Territory exceed

                                        *
in the aggregate.

     2.6. Payments. In consideration for its license rights hereunder Wyeth will
compensate Biomatrix for the use of its Trademarks, and the Patent and know-how
components of the Products as follows:

     (a) Initial Term. During the Initial Term (as defined in the Supply
Agreement), Wyeth will pay Biomatrix for Products according to the provisions of
the Supply Agreement.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                       -8-


     (b) Exclusive Additional Period. During any Additional Period in which

                                        *

Wyeth will pay Biomatrix for Products for sale in such country according to the
provisions of the Supply Agreement

                                        *

     (c)

                                        *

     2.7. Nature of Payments. Each of the payments referred to in Sections 2.4,
2.5 and 2.6 hereof are independent of each other payment hereunder and shall not
be deemed satisfied by the making of any other payment hereunder. All payments
to be made pursuant to Sections 2.5 and 2.6 or under the Supply Agreement shall
be made in U.S. Dollars. Net Revenues denominated in an Applicable Currency used
in determining whether a payment is due shall be converted to U.S. Dollars in
accordance with Section 4.

     2.8. Operations and Expenses. Except as otherwise set forth in this
Agreement, the operations of Wyeth under this Agreement are subject to the sole
control and management of Wyeth. Wyeth shall be responsible for all of its own
expenses and employees. Wyeth shall provide, at its own expense, such office
space and facilities, and hire and train such personnel, as may be required to
carry out its obligations under this Agreement. Wyeth agrees that it shall incur
no expense chargeable to Biomatrix, except as may be specifically authorized in
advance in writing in each case by Biomatrix.

     2.9 Independent Purchaser and Seller. Neither party shall be considered an
agent or legal representative of the other party for any purpose, and neither
party nor any director, officer, agent or employee thereof shall be, or be
considered, an agent or employee of the other party. Neither party is granted
nor shall exercise the right or authority to assume or create any obligation or
responsibility, including without limitation contractual obligations and
obligations based on warranties or guarantees, on behalf of or in the name of
the other party.

     3. TERM AND TERMINATION.

     3.1. Term.

     (a) Initial Term. Unless this Agreement is sooner terminated in accordance
with the provisions of this Agreement, this Agreement shall commence on the
Effective Date and shall end with respect to Products, on a country-by-country
basis, on the later to

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                       -9-


occur of (i) the

                                        *

of the Launch Date in such country or (ii) the date of the expiration of the
last to expire of the Patents in such country (the "Initial Term"); provided,
however, that payments on account of the Trademark Royalty under Section 2.6(c)
shall continue at all times when Wyeth is utilizing the Trademark under the
terms set forth in the Trademark Agreement.

     (b) Additional Periods. This license shall be renewable following the
expiration of the Initial Term for further additional

                                        *

under the provisions of either Section 2.6(b) or Section 2.6(c) (each such
additional term, an "Additional Period"). The parties shall agree in writing
upon whether the Additional Period shall be

                                        *

at least

                                        *

prior to the commencement of any such Additional Period. Biomatrix shall
continue to supply Products,

                                        *

as mutually agreed, until such time as Wyeth elects not to renew this license.

     3.2.

                                        *

     3.3. Insolvency. This Agreement may be immediately terminated by either
party, upon giving written notice to the other party, in the event that the
other party shall become insolvent or be declared bankrupt by a court of
competent jurisdiction or shall be the subject of any reorganization (other than
a corporate reorganization effected in the ordinary course of business and not
arising out of any insolvency) or winding up, receivership or dissolution,
bankruptcy or liquidation proceeding, or any proceeding or action similar to one
or more of the above, in which case termination shall be effective upon such
written notice. The failure of either party to give notice of termination upon
obtaining knowledge of any such event shall not be interpreted as a waiver of
such party's rights under this Section 3.3, and such party reserves the right to
exercise any such rights at any time after the occurrence of any such event.

     3.4. Breach. This Agreement may be terminated by either party if the other
party shall commit a material breach of any provision hereof and shall not cure
such breach within

                                        *

after a written notice by the other party to cure the breach; provided, that in
the case of a payment breach such cure period shall be equal to

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -10-


after written notice.

                                        *

     3.5.

                                        *

     3.6. Certain Rights Upon Termination. Upon termination of this Agreement
for any reason whatsoever, other than pursuant to Section 3.1,

         (a) Biomatrix shall have the unrestricted right to review, access, use
and permit others to review, access and use, either directly or by
cross-reference or incorporation or otherwise, all information, data,
investigations, preclinical and clinical protocols (including without
limitation, marketing information and information relating to laboratory, animal
and human studies), and related regulatory approvals pertaining to the Products
(the "Information") which are possessed or controlled by Wyeth or any of its
Affiliates, or which Wyeth or any of its Affiliates has a right to review,
access or use. Wyeth unconditionally agrees promptly to take any action and to
execute and deliver to Biomatrix any documents or instruments reasonably
requested by Biomatrix to permit Biomatrix to make full use of such unrestricted
rights In addition, Wyeth agrees that it shall, upon the request of Biomatrix,
immediately inform all relevant regulatory authorities that Wyeth is no longer a
licensee of the Products and shall take all action and execute and deliver all
documents and instruments necessary in order to transfer all Product Approvals,

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -11-


Reimbursement Approvals and price approvals and other relevant documents
relating to the Products to Biomatrix or any Person designated by Biomatrix.

     (b) Notwithstanding the provisions of Section 3.6(a), both parties in good
faith shall take whatever action necessary to clarify the relationship between
Wyeth and Biomatrix during an Additional Period.

     3.7. Effects of Termination.

     (a) Subject to Wyeth's rights set forth in Section 3.2(a), upon termination
of this Agreement for any reason, other than pursuant to Section 3.1, Wyeth
shall discontinue using the Trademarks or making any representations regarding
its status as a licensee of Biomatrix and shall cease conducting any activities
with respect to the marketing, promotion, sale or distribution of the Products
in the Territory and shall take such action as is necessary to terminate Wyeth's
registration as Biomatrix's licensee with any governmental authority.

     (b) Termination of this Agreement shall not affect obligations of either
party that may have accrued prior to the effective date of termination or any
obligation specifically stated to survive termination. Except to the extent
limited by Section 3.8, termination of this Agreement shall be in addition to,
and shall not be exclusive of or prejudicial to, any other grounds for
termination or rights or remedies at law or in equity which either party may
have on account of any default of the other party.

     3.8. Waiver. Wyeth and Biomatrix hereby waive, to the extent they are able
to do so under applicable law, any statutory rights they may have or acquire
under the laws of any country in the Territory in respect of the termination of
the relationship established hereby pursuant to the terms hereof, and agree that
the rights available to them hereunder in the event of such termination are
adequate and reflect the agreement of the parties. Neither Wyeth nor Biomatrix
nor any of their respective Affiliates shall have any right to claim any
indemnity for goodwill or loss thereof, lost profits, loss of prospective
compensation, expenditures, investments, leases or any type of commitment made
in connection with the business of such party in reliance on the existence of
this Agreement or any damages arising from the termination of this Agreement by
the other party in accordance with the terms hereof.

     4. PAYMENTS; EXCHANGE RATE.

     (a) All payments hereunder shall be made in U.S. Dollars and at the
exchange rates set forth in this Section 4. Payments to Biomatrix shall be wired
to an account in a bank designated by Biomatrix and the costs of any such
remittance shall be borne by Wyeth.

                                      -12-


     (b) All amounts denominated in an Applicable Currency shall be converted to
U.S. Dollars using the consistently applied method of conversion utilized by
Wyeth at the corporate level for financial reporting purposes, which method
shall be in accordance with generally accepted accounting principles.

     5. WITHHOLDING. All payments to be made by Wyeth under this Agreement shall
be made in full, free and clear of and without any deduction of or withholding
for or on account of any taxes levied in any country of the Territory or
elsewhere; provided that if Wyeth shall be required by law to make any deduction
or withholding from any payment to Biomatrix then:

     (i) Wyeth shall ensure that such deduction or withholding does not exceed
the minimum legal liability therefor;

     (ii) at least thirty (30) days prior to the first deduction or withholding,
Wyeth shall notify Biomatrix thereof, and the parties shall negotiate in good
faith adjustments to the payments hereunder in order to minimize or eliminate
such deduction or withholding, provided that the total payments by Wyeth shall
not increase; and

     (iii) Wyeth shall forward to Biomatrix such documentary evidence as may be
available in respect of each deduction, withholding or payment together with
each payment or promptly thereafter.

     6. COMPETING PRODUCTS.

     6.1. Non-competition by Wyeth. In recognition of the rights granted by
Biomatrix to Wyeth and the other obligations of Biomatrix hereunder, Wyeth
agrees that it shall not, directly or indirectly (alone or with others), and it
shall ensure that its Affiliates shall not, directly or indirectly (alone or
with others), during the Non-competition Period, manufacture, sell, market,
distribute or promote a Competing Product in the Territory;

                                        *
If Wyeth

                                        *

Wyeth agrees that (a) it shall not expand the market where it sells such
Competing Product into any country in the Territory in which such Competing
Product is not currently sold at the time of any such acquisition and (b) Wyeth
shall

                                        *

Wyeth acknowledges and agrees that, in the event of a breach or threatened
breach by Wyeth of its obligations under this Section 6.1, Biomatrix will have
no adequate remedy at law, and accordingly shall be entitled to injunctive or

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -13-


other appropriate equitable remedies against such breach or threatened breach in
addition to any other remedies which Biomatrix may have.

     6.2.

                                        *

     7. CONFIDENTIAL INFORMATION; PUBLIC ANNOUNCEMENTS.

     7.1. Confidential Information. All information acquired by either party
(the "Recipient") from the other party or any of its Affiliates (the
"Discloser") during the term of this Agreement or prior to the Effective Date,
relating directly or indirectly to the

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -14-


present or potential business, operations, corporate, technical or financial
situation of the Discloser, or to manufacturing know-how, patents, data, test
results, techniques, processes, procedures, raw materials, dealer, supplier and
customer lists, the Information described in Section 3.5, pre-clinical and
clinical protocols or any improvements thereof of the Discloser ("Confidential
Information") is confidential, and shall be held in trust by the Recipient for
the exclusive benefit of the Discloser. Unless otherwise agreed to in writing by
the Discloser, the Recipient shall not at any time, either during or subsequent
to the term of this Agreement, use for itself (other than in accordance with the
terms of this Agreement) or any other Person, or disclose or divulge to any
Person, other than to those of its employees and advisors and Affiliates who
require the same for the purposes hereof and who are bound by the same
obligations of confidentiality, non-disclosure and non-use as set forth herein,
any Confidential Information or any other confidential or proprietary
information of the Discloser of which the Recipient may acquire knowledge;
provided, however, that the confidentiality, non-disclosure and non-use
provisions contained in this Section 7.1 shall not apply to any information or
data to the extent that the Recipient:

     (i) shall demonstrate by written evidence that such information or data is
known generally to persons in the trade through no act or omission of the
Recipient or any of its Affiliates;

     (ii) is required by any government authority to disclose such information
or data, including without limitation for the purposes of obtaining and
maintaining any Product Approvals under this Agreement; or

     (iii) shall demonstrate by its written records that such information or
data was disclosed to or created by it or its Affiliates on a non-confidential
basis from a source other than the Discloser or its Affiliates and that such
disclosure or creation did not constitute a breach of any applicable
confidentiality obligations.

All Confidential Information shall be immediately returned to the Discloser upon
termination of this Agreement, along with any copies, reproductions, digests,
abstracts or the like of all or any part thereof in the Recipient's possession
or under the Recipient's control, and upon such return any computer entries or
the like relating thereto shall, to the extent legally permissible, be
destroyed. The Recipient shall then attest to the Discloser in writing as to the
return and/or destruction of the Confidential Information. Such return (and
destruction) will not affect the Recipient's obligations hereunder, which shall
survive indefinitely or, if a definite period is required under applicable law,
until five (5) years after termination or expiration of this Agreement.
Notwithstanding anything herein to the contrary, the provisions of this Section
7.1 shall be subject to Biomatrix's rights under Section 3.5.

     7.2. Public Announcement. Except as shall be necessary for governmental
notification purposes or to comply with applicable laws and regulations, and
except as

                                      -15-


otherwise agreed to by the parties hereto in writing, the parties agree to keep
the existence of this Agreement, and the transactions contemplated hereby,
strictly confidential. The parties shall agree upon the text of an initial
public announcement relating to the transactions contemplated by this Agreement
as soon as possible after the Effective Date. Any subsequent public
announcements regarding this Agreement or the transactions contemplated herein
shall also be agreed upon in writing between the parties prior to any release
thereof.

     8. INTELLECTUAL PROPERTY; AGREEMENT PRODUCT MARKING; PROMOTIONAL
INFORMATION; REGULATORY MATTERS.

     8.1. PATENTS. (a) Biomatrix shall be responsible, at its cost and expense,
for prosecuting to issuance in the Territory all patent applications, for filing
and prosecuting all patent reissues and reexaminations, for applying for and
obtaining any Supplementary Protection Certificates, and for paying all
annuities, on all patents, and all such applications and patents shall
constitute Patents under this Agreement.

     (b) Upon request of Wyeth, Biomatrix shall provide Wyeth with a copy of the
prosecution file wrapper histories of each patent and application constituting
Patents under this Agreement.

     8.2. Trademarks. The Trademark Agreement sets forth the terms and
conditions of Wyeth's use of the Trademarks. Upon termination of this Agreement,
all rights set forth herein with respect to the Trademarks shall terminate and
the rights and obligations set forth in the Trademark Agreement shall govern the
use of the Trademarks.

     8.3. Notice of Infringement. Each party hereto agrees to notify the other
in writing promptly (but not later than thirty (30) days) after obtaining
knowledge of any infringements or imitations of the Trademarks or Patents by
third parties. Further, Wyeth agrees to notify Biomatrix immediately after it
becomes aware that any of the Products or Extended Products sold in the
Territory are thereafter sold or transported outside the Territory.

     8.4. Labelling and Promotional Materials. Wyeth shall provide Biomatrix
with labelling masters, instructions, specifications and copies of all
marketing, labelling and promotional material it intends to use relating to the
Products or Extended Products. All such labelling, packaging and promotional
material that include claims or items impacting regulatory approvals shall be
consistent with all relevant regulatory requirements and shall be reviewed by
Biomatrix and shall be subject to its written approval prior to use. All other
major promotional materials for launches and subsequent promotions shall be
provided by Wyeth to Biomatrix within a reasonable time prior to their use in
order to allow Biomatrix to comment on such materials. Wyeth shall provide
Biomatrix with all other promotional materials as promptly as practicable.

                                      -16-


     8.5. Legend. Subject to applicable laws and regulations in the Territory,
all relevant packaging and promotional material for the Products and Extended
Products used or sold by Wyeth shall contain (i) all applicable markings needed
to keep the Trademarks enforceable throughout the Territory as specified in
writing by Biomatrix to Wyeth, and (ii) a legend which shall be displayed in a
reasonably conspicuous manner on all packaging of such Products and Extended
Products containing the corporate identification logo of Biomatrix in at least
equal prominence as that of Wyeth, and indicating that such Product or Extended
Product has been developed and manufactured by Biomatrix, Inc., and its
affiliates, 65 Railroad Avenue, Ridgefield, New Jersey, 07657 U.S.A. or similar
statement in such form as is consistent with Biomatrix's practices in
distributing the Agreement Product through other distribution arrangements in
other territories.

     8.6. Promotional Support.

     (a) Samples. Wyeth will be allowed to purchase up to a maximum of

                                        *

respectively, solely for the purposes of promotion of the Initial Product in the
Territory. Biomatrix agrees to sell such samples to Wyeth for a price equal to

                                        *

for each such Unit.

     (b) Exchange of Information. Biomatrix and Wyeth shall provide to each
other on an ongoing basis and without charge (to the extent not prevented by law
or contract from doing so) all marketing, medical, scientific and other
information relating to the Products and Extended Products (including summary
data from studies, clinical trials and the like as well as information regarding
adverse events associated with the use of the Products and Extended Products),
the proceedings of all symposia on the Products and Extended Products and all
promotional information that is available to such party relating to the Products
and Extended Products. In addition, Biomatrix and Wyeth shall provide each other
with access to such primary data and information in its possession as the other
may reasonably request regarding the results of the studies contained in such
summary data referred to above. Each party shall have the right to use the
marketing, promotional, medical, scientific and other information of the other
party as long as such use is not restricted or limited by any other provision in
this Agreement.

     (c) Reference to Viscosupplementation and Biomatrix. Subject to applicable
laws and regulations in the Territory, Wyeth shall ensure that all trade
literature, publications and promotional materials relating to the Products and
Extended Products produced by or on behalf of Wyeth or any of its Affiliates
shall, in a reasonably conspicuous manner, refer to viscosupplementation. In
major promotional materials, and other material where appropriate, Wyeth shall
in a reasonably conspicuous manner reference that the concept and the name
viscosupplementation have been conceived and introduced by the founders of
Biomatrix. The product positioning for the Initial Product shall be the same as
is currently used by Biomatrix, as redefined from time to time by Biomatrix
based upon current and new scientific, medical or marketing information
obtained.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -17-


     8.7. Customer Service. In connection with sales of Products and Extended
Products in the Territory, Wyeth shall carry out, at its expense, all order
entry, sales reporting, accounts receivable and collections and costs related
thereto.

     8.8. Marketing Plan. Three months prior to the end of the

                                        *

Agreement Year, Wyeth shall prepare at its own expense and deliver to Biomatrix
a
                                        *
forecast of its sales of Products and Extended Products in the Territory on a
Region by Region basis (the "Marketing Plan") setting forth (i) its projections
of Net Revenues for each country in the Territory for each of the

                                        *

(ii) its projected marketing efforts in the Territory during such

                                        *

period, and its projections of the cost thereof, and (iii) its projected
marketing mix. Wyeth shall prepare the Marketing Plan in good faith and shall
use Commercially Reasonable Efforts in such preparation.

     8.9. Development, Marketing and Sales Steering Committee. The parties shall
establish a development, marketing and sales steering committee (the
"Committee") comprised of three (3) voting representatives designated by each
party. The Committee will be administered by a chairman appointed from the
members, alternating yearly among representatives of Biomatrix and Wyeth. The
Committee will meet at least twice annually, or more often if necessary as
requested by either party, and written minutes of each meeting shall be kept. In
addition to any specific powers granted to the Committee in this Agreement and
the Supply Agreement, the Committee shall oversee the continued development of
the Improvements and Extended Products with respect to label extensions, product
reimbursement approvals, the marketing and sale of the Products and Extended
Products, and the development of promotional programs and the preparation of
marketing studies. The Committee shall not have the authority to change the
responsibilities of the parties under this Agreement. Decisions of the Committee
shall be made by consensus (a majority of the members designated by each party).
The Committee will have no control over the marketing and sales budget of either
party. If, after a period of thirty (30) days (or earlier at the election of
either party), a matter is still not resolved, it shall be referred to the CEO
of Biomatrix and the Executive Officer of American Home Products Corporation
responsible for its global pharmaceutical operations, or their designees, to
resolve in a period of thirty (30) days through good faith discussions, or if
still unresolved, to promptly agree upon a binding third party dispute
resolution mechanism intended to promptly and fairly resolve the matter in
dispute. The Committee will have no control over the marketing, sales or
development budget of either party.

     8.10. Co-Promotion.

                                        *

Biomatrix shall hire and train as employees of Biomatrix (at Wyeth's expense)

                                        *

sales representatives for

                                        *

active in marketing and sale of the Products (the "Product Specialists"). The
Product Specialists shall co-promote the

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -18-


Products and Extended Products in cooperation with Wyeth's marketing and sales
force in accordance with marketing plans approved by the Committee. All sales of
the Products in the Territory made by the Product Specialists during the term
hereof shall be

                                        *

Beginning in the

                                        *

Biomatrix shall have the right to require that the Product Specialists be
permitted to market, promote and sell other products manufactured by Biomatrix
for the account of Biomatrix. Subject to applicable

                                        *

laws, Biomatrix shall consider for employment current employees of Wyeth as
Product Specialists. Biomatrix shall have the right to assign up to a total of

                                        *

of the Product Specialists under this Agreement and the U.S. Agreement toward
the promotion of Products and Extended Products

                                        *

     8.11. Customer Lists. Wyeth shall maintain a master customer list
containing relevant information on sales of the Products and shall deliver
copies of such list to Biomatrix on a quarterly basis for Germany, Spain,
Portugal, Austria and Greece or promptly on the request of Biomatrix but not
more than annually with respect to other countries in the Territory.

     8.12 Product Vigilance System. Wyeth shall be responsible for maintaining
medical device vigilance systems, as established for the Products and Extended
Products by applicable regulatory requirements, and shall promptly provide
Biomatrix with notice of all product related events and complaints, including
medical complaints. The parties shall develop a mutually agreed procedure to
comply with regulatory requirements and the policies of each party. Biomatrix
shall be solely responsible for processing, analyzing and, if necessary,
reporting medical complaints to regulatory authorities. Wyeth shall provide all
necessary support to Biomatrix for carrying out such activities.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -19-


     8.13.

                                        *

     8.14. Compliance. Wyeth shall, at its expense, obtain any and all import
licenses that may be necessary to permit the sale by Biomatrix and the purchase
by Wyeth of the Products and Extended Products hereunder, obtain such approvals
from the banking and other governmental authorities in the Territory for payment
of all amounts due hereunder to Biomatrix in U.S. Dollars, and comply with any
and all governmental laws, regulations, and orders that may be applicable to
Wyeth by reason of its execution of this Agreement including any requirement to
be registered as the Biomatrix's reseller of products with any governmental
authority, and including all laws, regulations or orders that govern or affect
the ordering, export, shipment, import, sale (including government procurement),
delivery, or redelivery of Products and Extended Products in the Territory.
Wyeth shall furnish Biomatrix with such documentation as Biomatrix may request
to confirm Wyeth's compliance with this Section 8.14 and agrees that it shall
not engage in any course of conduct that, in Biomatrix's reasonable belief,
would cause Biomatrix to be in violation of the laws of any jurisdiction.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -20-


     8.15. Local Laws. Each party shall notify the other party of the existence
and content of any provision of law in the Territory or any other applicable law
that conflicts with any provision of this Agreement at the time of its execution
or thereafter.

     8.16. Questionable Payments. Wyeth shall not, directly or indirectly, in
the name of, on behalf of, or for the benefit of Biomatrix offer, promise or
authorize to pay, or pay any compensation or give anything of value to, any
official, agent or employee of any government or governmental agency, or to any
political party or officer, employee or agent thereof in connection with the
promotion or sale of Products and Extended Products.

     9. SUPPLY OF PRODUCTS. The Supply Agreement sets forth the terms and
conditions for sale of Products by Biomatrix (or its Affiliates) to Wyeth.

     10. INDEMNIFICATION; LIMITATION ON LIABILITY

     10.1. Indemnification from Wyeth. Subject to the provisions of Section
10.3, Wyeth shall defend, indemnify and hold Biomatrix and its Affiliates and
their respective directors, officers, agents and employees harmless from and
against any and all liabilities, claims, damages and expenses (including without
limitation actual court costs and reasonable attorneys' fees regardless of
outcome) resulting from or arising out of or in connection with:

                                        *

     10.2. Indemnification from Biomatrix. Subject to the provisions of Section
10.3, Biomatrix shall defend, indemnify and hold Wyeth and its Affiliates and
their respective directors, officers, agents and employees harmless from and
against any and all liabilities, claims, damages and expenses (including without
limitation actual court costs and reasonable attorneys' fees regardless of
outcome) resulting from or arising out of or in connection with:

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -21-


                                        *

     10.3. Limitation on Liability.

     NOTWITHSTANDING ANY PROVISION TO THE CONTRARY IN SECTIONS 10.1 AND 10.2
ABOVE, OR ANY OTHER PROVISION OF THIS AGREEMENT OR THE SUPPLY AGREEMENT, IN NO
EVENT (INCLUDING THE FAULT, NEGLIGENCE OR STRICT LIABILITY OF EITHER PARTY)
SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY, INCLUDING
ANY PURCHASER OF PRODUCTS OR EXTENDED PRODUCTS, FOR INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES OTHER THAN TO THE EXTENT NECESSARY
TO REIMBURSE SUCH OTHER PARTY FOR DAMAGES ACTUALLY PAID TO A NON-AFFILIATED
THIRD PARTY, PROVIDED THAT SUCH DAMAGES ARE OTHERWISE COVERED BY THE PROVISIONS
OF SECTION 10.1 OR SECTION 10.2, AS THE CASE MAY BE.

     10.4 Indemnification Procedure. The party claiming indemnification
("Indemnitee"), after being advised of any assertions of any such third party
claims or suits or upon the bringing or filing of such claims or suits by any
third party against the Indemnitee, shall promptly notify the party from which
indemnification is sought ("Indemnitor") thereof; provided, that the failure to
promptly notify shall not affect the Indemnitor's obligations hereunder except
to the extent the Indemnitor is prejudiced by the delay in notification. The
Indemnitee shall permit the Indemnitor's attorneys to handle and control the
defense of such claims or suits at the Indemnitor's cost. The Indemnitee shall
co-operate with the Indemnitor in the defense of such claims or suits. The
parties agree that there shall be no settlements, whether agreed to in court or
out of court, without the prior written consent of the Indemnitor.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -22-


     11. REPRESENTATIONS OF BIOMATRIX. Biomatrix represents, warrants and
covenants as follows:

     11.1. Biomatrix is a corporation duly organized and validly existing under
the laws of the state of Delaware with the full power to conduct its affairs as
currently conducted and contemplated hereunder. All necessary action has been
taken to enable it to execute and deliver this Agreement and perform its
obligations hereunder.

     11.2. This Agreement is a valid and binding obligation of Biomatrix
enforceable in accordance with its terms. Biomatrix has the unencumbered right
to enter into this Agreement and to fulfill its duties hereunder. It is not and
will not become a party to any agreement in conflict herewith. Accordingly,
Biomatrix has the right to grant Wyeth the exclusive license granted hereunder
in the Territory in accordance with the terms of this Agreement and such grant
will not constitute a breach of any existing contractual or other arrangements
between Biomatrix and any Affiliated or non-Affiliated third party, nor shall it
infringe on the rights of any Affiliated or non-Affiliated third party.

     11.3. No approval, consent, order, authorization or license by, giving
notice to or taking any other action with respect to, any governmental or
regulatory authority is required in connection with the execution and delivery
of this Agreement by Biomatrix and the performance by Biomatrix of its
obligations hereunder, other than the Product Approvals contemplated herein.

     12. REPRESENTATIONS OF WYETH. Wyeth represents, warrants and covenants as
follows:

     12.1. Wyeth is a corporation duly organized and validly existing under the
laws of the State of Delaware with the full power to conduct its affairs as
currently conducted and contemplated hereunder. All necessary action has be en
taken to enable it to execute and deliver this Agreement and perform its
obligations hereunder.

     12.2. This Agreement is Wyeth's valid and binding obligation enforceable in
accordance with its terms. Wyeth has the unencumbered right to enter into this
Agreement and to fulfill its obligations hereunder. It is not and will not
become a party to any agreement in conflict herewith. Accordingly, Wyeth has the
right to act as the exclusive licensee of the Products and Extended Products in
the Territory in accordance with the terms of this Agreement and the performance
of its obligations hereunder will not constitute a breach of any existing
contractual or other arrangements between Wyeth and any Affiliated or
non-Affiliated third party, nor shall it infringe the rights of any Affiliated
or non-Affiliated third party.

     12.3. No approval, consent, order, authorization or license by, giving
notice to or taking any other action with respect to any governmental or
regulatory authority is required in connection with the execution and delivery
of this Agreement by Wyeth and

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -23-



the performance by Wyeth of its obligations hereunder, other than the Product
Approvals contemplated herein.

     13. INSURANCE. (a) Biomatrix shall maintain comprehensive general liability
insurance coverage including products liability with a minimum limit of not less
than

                                        *

     (b) Wyeth warrants that it is self-insured for the first

                                        *

of product liability exposure on an annual aggregate basis and purchases excess
insurance above such self-insurance amount.

     14. INFRINGEMENT. Each of Wyeth and Biomatrix will promptly notify the
other party in writing of any infringement of a Patent or Trademark or the
know-how or unauthorized disclosure or use of any Confidential Information, of
which it becomes aware in the Territory. Biomatrix shall have the exclusive
right at its own cost to take all legal action in the Territory it deems
necessary or advisable to eliminate or minimize the consequences of such
infringement of a Patent or Trademark or the know-how in the Territory. For the
purpose of taking any such legal action, Biomatrix shall have the right, to use
the name of Wyeth and/or any Affiliate of Wyeth as plaintiff, either solely or
jointly in accordance with the applicable rules of procedure. Wyeth shall
promptly furnish Biomatrix with whatever written authority may be required in
order to enable Biomatrix to use Wyeth's name in connection with any such legal
action, and shall otherwise cooperate fully and promptly with Biomatrix in
connection with any such action. All proceeds realized upon any judgment or
settlement regarding such action shall belong exclusively to Biomatrix.

     15. REGULATORY ACTIVITIES.

     15.1. GENERAL.

     (a) Approvals.

     (i) Biomatrix shall, at its cost, be solely responsible for maintaining the
Initial Product Product Approvals in all countries in the Territory where the
Initial Product is approved as of the Effective Date.

     (ii) Wyeth shall, at its cost, obtain and maintain Product Approvals in all
countries in the Territory except those approvals described in Section
15.1(a)(i). All such Product Approvals are subject to Biomatrix's rights under
section 15.1(b).

     (iii) Wyeth shall, at its cost, obtain and maintain all Reimbursement
Approvals in each country in the Territory, subject to Biomatrix's rights under
Section 15.1(b).

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -24-


     (b) Review by Biomatrix. Biomatrix shall be entitled to assist in
developing the strategy and content of all applications for Product Approvals
and Reimbursement Approvals and the content of all such applications shall be
subject to Biomatrix's prior written approval. All Product and Reimbursement
Approvals shall be held as the exclusive property of and in the name of
Biomatrix except to the extent that applicable law requires that such approvals
be held in the name of Wyeth, or unless otherwise agreed in writing by the
parties. Any filings for reimbursement or regulatory approval in the Territory
shall be subject to the prior written approval of each of the parties.

     (c) Mutual support. Wyeth and Biomatrix shall provide reasonable advice and
assistance to each other as may be necessary to obtain and maintain Product
Approvals and, if applicable, satisfactory Reimbursement Approvals for Products
in the Territory.

     (d) Transfer of approvals. In the event that the Product Approvals and the
Reimbursement Approvals (if any) relating to any Product or Extended Product in
any country in the Territory is in the name of Wyeth or any of its Affiliates,
it shall be transferred to Biomatrix immediately upon termination of the
Agreement.

     (e) Reporting on Agreement Product. During the term of this Agreement, each
party shall immediately notify the other in writing in the event that such party
becomes aware of any failure of the Products or Extended Products to comply with
any of the requirements therefor specified in any Product Approval.

     (f) Ongoing information exchange. Each party shall keep the other advised
of regulatory interactions, activities and correspondence and the registration
status of Products on a quarterly basis, except that matters requiring more
immediate attention shall be communicated as soon as practicable.

     15.2. CLINICAL TRIALS; PUBLICATION OF RESULTS.

                  (a) Wyeth shall be responsible, at its own cost, for
conducting and managing any clinical trials which may be required in order to
obtain or maintain Product Approvals and Reimbursement Approvals in the
Territory; provided that the protocols for all such clinical trials shall be
subject to Biomatrix's prior written approval and Biomatrix shall have the right
to audit the performance of any such clinical studies.

                                        *

         (b) Wyeth shall provide the completed data resulting from all clinical
trials conducted in accordance with this Section 15.2 to Biomatrix, and
Biomatrix shall be allowed to assist in analysis of the completed data and in
preparing the final reports relating to such clinical trial data. Biomatrix and
its Affiliates shall be free to use the results of any or all such clinical
trials in the promotion, marketing and product licensing of Products and
Extended Products outside the Territory. The results of any such studies

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -25-


will not be published or publicized in any way without the prior written
approval of Biomatrix.

     16. FURTHER ASSURANCES. The parties hereto agree to execute such further or
other documents and assurances as are necessary from time to time in order to
give effect to the provisions of this Agreement.

     17. ASSIGNMENT. The rights and obligations of the parties hereto shall
inure to the benefit of and shall be binding upon the authorized successors and
permitted assigns of each party. Neither party may, without the prior written
consent of the other party, take any of the following actions (collectively
referred to hereby as an "Assignment"): (i) assign or transfer its rights or
obligations under this Agreement, (ii) license or sublicense any of its rights
or obligations under this Agreement, or (iii) designate another person to
perform all or part of its obligations under this Agreement or have all or part
of its rights and benefits under this Agreement; provided, however, that a party
may make Assignments to Affiliates of such party or to a successor, by merger or
acquisition; and provided, further that in the case of an Assignment to an
Affiliate the assigning party shall promptly notify the other party in writing
of such Assignment and shall remain liable (both directly and as guarantor) with
respect to all obligations so assigned and the other party will not be in a
direct contractual relationship with such Affiliate. In the event of any
permitted Assignment or in the event that an Affiliate of either party shall
exercise rights and/or perform obligations hereunder pursuant to the terms of
this Agreement, the assignee or Affiliate, as the case may be, shall
specifically assume and be bound by the provisions of the Agreement by executing
and agreeing to an assumption agreement satisfactory to the other party hereto.

     18. GOVERNING LAW; INJUNCTIVE RELIEF.

     (a) This Agreement and the respective rights and obligations of the parties
shall be governed by and construed in accordance with the internal and
substantive laws of the State of New Jersey, United States of America (without
regard to principles of conflicts of laws). The parties hereby agree that the
United Nations Convention on Contracts for the International Sale of Goods shall
not apply to this Agreement or any other document contemplated hereby. In the
event of any dispute touching or concerning this Agreement, the parties hereby
agree to submit such dispute to their respective chief executive officers or
their designees by notice delivered in accordance with the provisions of Section
23 hereof. Each of the parties agrees that any suit relating to this Agreement
may be brought in the courts of the State of New Jersey or any federal court
sitting therein and consents to the non-exclusive jurisdiction of such court and
service of process in any such suit being made by mail at the address specified
in Section 23. Each party hereby waives any objection that it may now or
hereafter have to the venue of any such suit or any such court or that such suit
is brought in an inconvenient court.

                                      -26-



     (b) Each of the parties hereto acknowledges and agrees that damages will
not be an adequate remedy for any material breach or violation of this Agreement
if such material breach or violation would cause immediate and irreparable harm
(an "Irreparable Breach"). Accordingly, in the event of a threatened or ongoing
Irreparable Breach, each party hereto shall be entitled to seek, in any state or
federal court in the State of New Jersey, equitable relief of a kind appropriate
in light of the nature of the ongoing threatened Irreparable Breach, which
relief may include, without limitation, specific performance or injunctive
relief; provided, however, that if the party bringing such action is
unsuccessful in obtaining the relief sought, the moving party shall pay the
non-moving party's reasonable costs, including attorney's fees, incurred in
connection with defending such action. Such remedies shall not be the parties'
exclusive remedies, but shall be in addition to all other remedies provided in
this Agreement.

     19. SEVERABILITY. In the event that any provision of this Agreement shall
be held by a court of competent jurisdiction or by any governmental body to be
invalid or unenforceable, such provision shall be deemed severable and the
remaining parts and provisions of this Agreement shall remain in full force and
effect.

     20. FORCE MAJEURE. Each of the parties shall be excused from the
performance of its obligations hereunder in the event such performance is
prevented by force majeure, and such excuse shall continue as long as the
condition constituting such force majeure continues. For the purpose of this
Agreement, force majeure is defined as contingencies beyond the reasonable
control of either party, including, without limitation, acts of God, judicial or
regulatory action, war, civil commotion, destruction of production facilities or
materials by fire, earthquake or storm and labor disturbances (whether or not
any such labor disturbance is within the power of the affected party to settle)
or unavailability of supply materials. The party affected by force majeure shall
provide the other party with full particulars thereof as soon as it becomes
aware of the same (including its best estimate of the likely extent and duration
of the interference with its activities), and will use its reasonable endeavors
to overcome the difficulties created thereby and to resume performance of its
obligations as soon as practicable.

     21. INTEREST. Any overdue amounts payable by either party hereunder shall
bear interest compounded monthly at the prime lending rate for U.S. Dollars
published from time to time in The Wall Street Journal plus

                                        *

per annum, or, if lower, the highest rate permissible by applicable law, from
the due date until the date of payment.

     22. NO PARTNERSHIP OR AGENCY. This Agreement and the relations hereby
established by and between Biomatrix and Wyeth do not constitute a partnership,
joint venture, agency or contract of employment between them.

     23. NOTICES. All communications in connection with this Agreement shall be
in writing and sent by postage prepaid first class mail, courier, or telefax,
and if relating to

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -27-


default, late payment or termination, by certified mail, return receipt
requested, telefax or courier, addressed to each party at the address above, in
the case of Biomatrix, Attn: Chief Executive Officer, with a copy to: Justin P.
Morreale, Esq., Bingham, Dana & Gould LLP, 150 Federal Street, Boston,
Massachusetts 02110, U.S.A., and in the case of Wyeth, 555 East Lancaster
Avenue, St. Davids, Pennsylvania 19087, Attn: Senior Vice President, Global
Business Development, with a copy to American Home Products Corporation, 5
Giralda Farms, Madison, New Jersey 07990, U.S.A., Attn: Senior Vice President
and General Counsel or to such other address as the addressee shall last have
designated by notice to the communicating party. The date of giving any notice
shall be the date of its actual receipt.

     24. EU REGULATIONS. It is the intention of the parties hereto that this
Agreement shall at all times qualify for the exemption from the provisions of
Article 85(1) of the Treaty of Rome dated 25 March, 1957, as amended, which
either (a) is available under EEC Regulation Number 1983/83, or (b) may
otherwise be available under any other regulations or successor regulation
thereto. In the event that any provision of this Agreement is deemed to violate
the conditions for qualifying for the exemption, set out in whichever of those
regulations may be in effect at the relevant time, or if any such regulation is
amended after the date of this Agreement so as to cause this Agreement to fail
to qualify for the exemption, the parties hereto agree that they will, as soon
as it is practicable to do so, enter into good faith negotiations to amend this
Agreement as necessary in order to re-qualify for the exemption or notify the
Agreement.

     25.

                                        *

     26. SURVIVAL. The provisions of Sections 3.2, 3.5, 3.6, 3.7, 7.1, 7.2, 8.2,
10.1, 10.2, 10.3, 10.4 and 15.1(d) of this Agreement shall survive the
termination or expiration of this Agreement (as the case may be) and shall
remain in full force and effect. The provisions of this Agreement that do not
survive termination or expiration hereof (as the case may be) shall,
nonetheless, be controlling on, and shall be used in construing and interpreting
the rights and obligations of the parties hereto with regard to, any dispute,
controversy or claim which may arise under, out of, or in connection with this
Agreement.

     27. MISCELLANEOUS. This Agreement, the International License Agreement, the
Supply Agreement and the Trademark Agreement together set forth the entire
agreement between the parties with respect to the transactions and arrangements
contemplated hereby and supersede all prior oral or written arrangements between
the parties. This Agreement may be modified or amended only by a written
instrument executed and delivered by both parties. None of the provisions of
this Agreement shall be deemed to have been waived by any act or acquiescence on
the part of either party except by an instrument in writing signed and delivered
by the party executing the waiver. This Agreement may be executed in several
identical counterparts, each of which shall be an original, but all of which

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -28-


constitute one instrument, and in making proof of this Agreement it shall not be
necessary to produce or account for more than one such counterpart. The English
language version of this Agreement shall govern and control any translations of
the Agreement into any other language. References herein to Sections and
Exhibits are to Sections of and Exhibits to this Agreement. The title of this
Agreement and the section headings contained herein are for convenience of
reference only and shall not define or limit the provisions hereof.

                           [signature page to follow]

                                      -29-


     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.

                                  AMERICAN HOME PRODUCTS CORPORATION

                                  BY:      /s/ Fred Hassan
                                  ---------------------------------
                                  Name:   Fred Hassan
                                  Title: Executive Vice President

                                  BIOMATRIX, INC.


                                  /s/ Endre A. Balazs
                                  ----------------------------------
                                  Endre A. Balazs
                                  Chief Executive Officer

                                      -30-


                                    EXHIBITS

                              
Exhibit A                  -        Initial Product Specifications

Exhibit B                  -        Patents and Trademarks

Exhibit C                  -        Minimum

                                        *
                                    Net Revenues



           *Confidential portions have been omitted and filed separately with
            the Commission.



                                    EXHIBIT A

                         Initial Product Specifications

                    EUROPEAN AGREEMENT PRODUCT SPECIFICATIONS
                           SPECIFICATION OF SYNVISC(R)
                                 (HYLAN G-F 20)

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                    EXHIBIT B

                             Patents and Trademarks

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                    EXHIBIT C

                                     Minimum
                                        *
                                  Net Revenues

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                               FIRST AMENDMENT TO

                         INTERNATIONAL LICENSE AGREEMENT

     This FIRST AMENDMENT (this "Amendment Agreement"), is made as of June 13,
2000 (the "Amendment Effective Date"), by and between Biomatrix, Inc.
("Biomatrix") and American Home Products Corporation, acting through its
unincorporated Wyeth-Ayerst Laboratories division (together "Wyeth") to amend
that certain International License Agreement, dated as of February 7, 1997, by
and between Biomatrix and Wyeth (the "International License Agreement")

     WHEREAS, Biomatrix and Wyeth entered into the International License
Agreement by which Biomatrix granted to Wyeth a license to sell Biomatrix'
proprietary product Synvisc in various countries outside the United States and
now the parties wish to amend certain provisions of the International License
Agreement;

     NOW, THEREFORE, in consideration of the mutual promised contained in this
Agreement, and intending to be legally bound thereby, the parties hereto agree
as follows:

     1.   Capitalized terms used in this Amendment Agreement and not otherwise
          defined shall have the meanings ascribed to such terms in the
          Internationa1 License Agreement.

     2.   Section 1.26 of the International License Agreement is hereby deleted
          in its entirety.

          Section 1.28 of the International License is hereby deleted in its
          entirety and replaced with the following:

          1.28 "Territory" shall mean the following countries: Germany, Greece,
          Portugal, Turkey, Poland and Czech Republic.

     3.   Section 2.1(d) of the International License Agreement is hereby
          deleted in its entirety.

     4.   Section 2.2(b) of the International License Agreement is
          hereby amended by deleting the words "(other than Spain)" and by
          deleting the following sentence in its entirety:

          "The Launch Date with respect to Spain, if Spain remains as a country
          in this Agreement pursuant to Section 2.1(d), shall occur within six
          months after the parties mutually approve the business plan for Spain
          as set forth in Section 2.1(d)."

          Sections 2.3(a) and 2.3(b) of the International License Agreement are
          hereby amended by deleting the word, "Region" throughout and replacing
          therefor the word "country" in each instance.

     5.   Section 2.5(c) of the International License Agreement is hereby
          deleted in its entirety.

     6.   Pursuant to Section 3.2 of the International License Agreement,
          Biomatrix agrees to repurchase inventory of the Product specifically
          designated for sale in the Relinquished Countries (as defined below)
          at a price equal to the price actually paid by Wyeth; provided that no
          such inventory with an expiration date of less than one year from the
          date hereof shall be repurchased by Biomatrix. Wyeth agrees to
          promptly transfer such inventory to such location as designated by
          Biomatrix at Biomatrix' cost and Wyeth agrees to allow Biomatrix or
          its designee to distribute all such Product in its current packaging
          for a period of up to one year.

     7.   Section 3.5(b) of the International License Agreement is hereby
          deleted in its entirety and replaced with the following:



          (b)  if such termination notice is with respect to one or more
               countries selected from Germany, Greece, Portugal and Turkey,
               then Biomatrix may, upon notice to Wyeth, immediately terminate
               this Agreement with respect to any or all of such countries
               (provided that this shall not apply with respect to Germany upon
               a termination in any other such country); and if such termination
               notice is made with respect to either Poland or Czech Republic
               then Biomatrix may, upon notice to Wyeth, immediately terminate
               this Agreement with respect to the other such country.

     8.   Section 8.8 of the International License Agreement is hereby amended
          by deleting the words "on a Region by Region basis".

     9.   Section 8.10 of the International License Agreement is hereby amended
          by deleting the last sentence in its entirety.

     10.  Section 8.11 of the International License Agreement is hereby amended
          by deleting the words "Spain" and "Austria" therefrom.

     11.  Section 15.1(a)(ii) of the International License Agreement is amended
          by adding the following sentence: "Wyeth may register Product(s) in
          Poland as a drug."

     12.  EXHIBIT B to the International License Agreement is hereby deleted in
          its entirety and replaced with EXHIBIT B attached hereto.

     13.  EXHIBIT C to the International License Agreement is hereby amended to
          remove all references to the Relinquished Countries (as defined below)
          and to the Total ECE Region.

     14.  As of the date of this Amendment Agreement, Wyeth shall discontinue
          using the Trademarks or making any representations regarding its
          status as a licensee of Biomatrix and shall cease conducting any
          activities with respect to the marketing, promotion, sale or
          distribution of the Products in Austria, Spain, Hungary, Slovakia,
          Bulgaria, Croatia, Yugoslavia, Slovenia, Romania, Egypt, Bahrain,
          Kuwait, Oman, Qatar, United Arab Emirates, Yemen, Iran, Iraq, Jordan,
          Lebanon, Syria and Saudi Arabia (the "RELINQUISHED COUNTRIES") and
          shall take such action as is necessary to terminate Wyeth's
          registration as Biomatrix's licensee with any governmental authority
          in the Relinquished Countries. Wyeth agrees that it shall not,
          directly or indirectly (alone or with others), and it shall ensure
          that its Affiliates shal1 not, directly or indirectly (alone or with
          others), for a period of twenty-four (24) months after the date of
          this Amendment Agreement, manufacture, sell, market, distribute or
          promote a Competing Product in any Relinquished Country. For the
          avoidance of doubt, as OF the date of this Amendment Agreement, Wyeth
          shall cease all sales of Products in the Relinquished Countries.

     15.  With respect to each of the Relinquished Countries, Wyeth shall
          promptly transfer or cause to be transferred to Biomatrix the
          following items relating to any product or Extended Product in any
          Relinquished Country and in the name of Wyeth or any of its
          Affiliates: all Product Approvals, Reimbursement Approvals, import
          licenses, instructions, specifications, records of medical device
          vigilance systems and clinical trials, records of any regulatory
          interactions, activities, correspondence or other communications, and
          marketing, labeling, packaging and promotional material, customer
          lists and history of orders of Products in each such Relinquished
          Country. To the extent that any clinical trials or other activities
          are ongoing within any Relinquished County as of the date of this
          Amendment Agreement, Wyeth will use its reasonable efforts s to
          transition such activity to Biomatrix or its designee in a manner
          which would allow the activity to be continued without material
          interruption Wyeth shall remit to Biomatrix all labeling masters,

                                       -2-


          instructions, specifications, and copies of all marketing, labeling
          and promotional materials used or intended for use in relation to
          Products in the Relinquished Countries.

     16.  Wyeth represents, warrants and covenants with respect to the
          Relinquished Countries that (a) no recall of a Product in any country
          in the Territory is warranted for medical or safety purposes, (b)
          Wyeth has complied in all material respects with all governmental
          laws, regulations, and orders, including all laws, regulations or
          orders that govern or affect the ordering, export, shipment, import,
          sale (including government procurement), delivery, or redelivery of
          Products and Extended Products, (c) Wyeth has not, directly or
          indirectly, in the name of, on behalf of, or for the benefit of
          Biomatrix offered, promised or authorized to pay, or paid any
          compensation or given anything of value to, any official, agent or
          employee of any government or governmental agency, or to any political
          party or officer, employee or agent thereof in connection with the
          promotion or sale of Products and Extended Products, and (d) to the
          best of Wyeth's knowledge, there has been no failure of the Products
          or Extended Products to comply with any of the requirements therefor
          specified in any Product Approval

     17.  To the extent that there are any returns of any Product sold by Wyeth
          in any Relinquished Country after the date of this Amendment
          Agreement, Biomatrix shall have no obligation to take back or make any
          reimbursement for any such returns and Wyeth shall be solely
          responsible for any returns of Product sold by Wyeth or its
          sub-licensees or delegees in any Relinquished Country.

     18.  For a period of three months after the date of this Amendment
          Agreement, Wyeth shall maintain a customer service office and staff
          that will receive telephone and other inquiries relating to Products
          and refer all such inquiries to Biomatrix or its designee. Thereafter,
          Wyeth will cooperate with Biomatrix to complete an orderly transition
          of customer service for the Products in the Relinquished Countries.

     19.  This Amendment Agreement and the respective rights and obligations of
          the parties shall be governed and construed in accordance with the
          internal and substantive laws of the State of New Jersey, United
          States of America (without regard to principles of conflicts of laws).
          This Amendment Agreement may be executed in several identical
          counterparts, each of which shall be an original, but all of which
          constitute one instrument, and in making proof of this Agreement it
          shall not be necessary to produce or account for more than one such
          counterpart.

     20.  Except as specifically modified hereby, the International License
          Agreement shall remain unmodified and in full force and effect. Any
          liabilities and obligations of either party arising prior to the date
          of this Amendment Agreement shall remain in full force and effect.

                                       -3-


     IN WITNESS WHEREOF, the parties hereto have executed this Amendment
Agreement as an instrument under seal as of the date first above stated.

                                 BIOMATRIX, INC.

                                 By: /s/ Endre A. Balazs
                                    -----------------------
                                 Name: Endre A. Balazs
                                 Title: Chief Executive Officer

                                 AMERICAN HOME PRODUCTS CORPORATION

                                 By: /s/ Egon E. Berg
                                    -----------------------
                                 Name: Egon E. Berg
                                 Title: Vice President

                                       -4-


                                    EXHIBIT B

                             PATENTS AND TRADEMARKS

I.   SYNVISC RELATED GERMAN PATENTS

     A.   Biocompatible Viscoelastic Gel Slurries, Their Preparation and Use

          EP 0466 300 (De 691 29 391), will expire 4/22/2011

     B.   Chemically Modified Hyaluronic Acid and Method of Recovery. Thereof
          from Animal Tissues

          Patent No. 36 07 897; expires 3/10/2006

          Patent No. 35 45 191; expires 3/10/2006

          Patent No. 36 45 226; expires 3/10/2006; and

          European Patent No. P 38 52 992 (Germany); expires 11/29/2008

     C.   Cross-Linked Gels of Hyaluronic Acid and Products Containing Such Gels

          Patent No. 35 20 008; expires 6/4/2005

          Patent No. 85 46 811; expires 6/4/2005

     D.   Water Insoluble Preparation of Hyaluronic Acid

          Patent No. P 34 34 082; expires 9/17/2004

          Patent No. P 34 34 104; expires 9/17/2004

                                       -5-


II.  Synvisc(R)



     COUNTRY           REGISTRATION NO.          TERM        EXPIRATION DATE
     -------           ----------------          ----        ---------------
                                                    
     Germany           1,110,922                 10 Yrs.     December 20, 1996

                       (Renewal)                 10 Yrs.     December 20, 2006

     Greece            127,446                   10 Yrs.     March 17, 2008

     [CTM              Ser. No. 000338731        PENDING]

     Turkey            180724                    10 Yrs.     January 30,2007

     Portugal          314081                    10 Yrs.     September 4, 2006

     Poland            Being Filed / Pending

     Czech Republic    Being Filed / Pending     10 Yrs.     February 24, 2007


                                       -6-

EX-10.46

                                                                   EXHIBIT 10.46

*Confidential portions have been omitted and filed separately with the
 Commission.

                                SUPPLY AGREEMENT

     THIS AGREEMENT is made as of the 7th day of February 1997 by and between
BIOMATRIX, INC., a Delaware corporation, having its principal office at 65
Railroad Avenue, Ridgefield, New Jersey 07657, U.S.A. ("Biomatrix") and American
Home Products Corporation, a Delaware corporation having its principal office at
Five Giralda Farms, Madison, New Jersey 07940, U.S.A, acting on behalf of itself
and its unincorporated and wholly-owned Wyeth-Ayerst Laboratories division
("Wyeth").

     WHEREAS, Biomatrix and Wyeth have entered into a certain License Agreement
dated as of the 7th day of February 1997 with respect to Products (as
hereinafter defined) in the United States of America and its possessions (as
amended from time to time, the "US Agreement");

     WHEREAS, Biomatrix and Wyeth have entered into a certain International
License Agreement dated as of the 7th day of February 1997 with respect to
Products in certain countries in Europe and the Middle East (as amended from
time to time, the "International Agreement" and, together with the US Agreement,
the "License Agreements"); and

     WHEREAS, Wyeth desires to purchase from Biomatrix Wyeth's requirements of
the Products in the Territory (as defined below), and Biomatrix is willing to
supply such requirements upon the terms and conditions set forth herein;

     NOW, THEREFORE, in consideration of the premises and of the mutual
covenants of the parties hereto, it is hereby agreed as follows:

     1. DEFINITIONS. In this Agreement, the following words and expressions
shall have the following meanings:

     1.1. "Affiliate" shall mean, with respect to any party, any Person that,
directly or indirectly, is controlled by, controls or is under common control
with such party, but only for so long as such relationship exists.

     1.2. "Applicable Currency" shall mean, with respect to a country in the
Territory, the lawful currency of such country.

     1.3. "Contract Quarter" shall mean for any country in the Territory the
three (3) month period commencing on the first day of the first fiscal quarter
beginning immediately after the Launch Date in such country, (unless the Launch
Date is the first day of a fiscal quarter, in which case the first Contract
Quarter

                                      -1-


shall commence on such day) and ending on the last day of the fiscal quarter and
each fiscal quarter thereafter throughout the term of this Agreement.

     1.4. "Contract Year" shall mean, with respect to a country in the
Territory, the twelve (12) month period commencing on the first day of the first
fiscal quarter beginning immediately after the date of the first commercial sale
(the "Launch Date") of the Initial Product in such country (unless such Launch
Date is the first day of a fiscal quarter, in which case the first Contract Year
shall commence on such day) and each separate successive twelve (12) month
period thereafter.

     1.5. "Effective Date" shall mean the date of this Agreement.

     1.6. "Extended Product" shall mean any Extended Product (as defined in the
U.S. Agreement.

     1.7. "Formula Price Percentage" shall mean that term as defined in Section
4.1(c).

     1.8. "Improvements" shall mean extensions of the label claims for the
Initial Product, including new dosage and presentation forms and packaging
improvements for the Initial Product, within the Field.

     1.9. "Initial Product" shall mean hylan gel-fluid 20 (hylan G-F 20) Synvisc
currently approved as a device with a CE mark for the intra-articular treatment
by viscosupplementation of osteoarthritis of the knee, to be supplied in
pre-filled syringes packaged ready for use complying with applicable product
approvals as a device.

     1.10. "Initial Product Specifications" shall mean the specifications for
the Initial Product set forth on Exhibit A in each of the International and U.S.
License Agreements.

     1.11. "Initial Term" shall mean that term as defined in Section 2.1.

     1.12. "Long Range Forecast" shall mean that term as defined in Section 5.1.

     1.13. "Manufacturing Costs" shall mean the

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                       -2-



                                        *

     1.14. "Minimum Price" shall mean that term as defined in Section 4.1(b).

     1.15. "Net Revenues" shall mean for a specified period the total gross
invoice price received from the sale of all Units by Wyeth and its Affiliates in
the Territory during such period to non-Affiliated wholesalers, hospitals,
retail pharmacies, patients and other third party purchasers,

                                        *

Such amounts shall be determined from the books and records of Wyeth and its
Affiliates maintained in accordance with generally accepted accounting
principles, consistently applied.

     1.16. "Patents" shall mean Letters Patent or similar statutory rights
relating to any Product (including any continuation-in-part, continuation or
division thereof or substitute thereof), patent applications which are pending
as of the Effective Date, patent term extensions and Supplementary Protection
Certificates, in each case as set forth on Exhibit B hereto, together with any
supplementary or complementary protection certificates therefor if and when such
are granted.

     1.17. "Person" or "person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization or a government or any
agency or political subdivision thereof.

     1.18. "Per Unit Formula Price" shall mean that term as defined in Section
4.1(c).

     1.19. "Product(s)" shall mean the Initial Product, together with any
Improvements (as defined in Section 1.8) to the Initial Product.

     1.20. "Region" shall mean any one of the following groups of countries

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -3-


     1.21. "Syringe" shall mean a pre-package 2.0 ml syringe of the Product.

     1.22. "Supply Forecast" shall mean that term as defined in Section 5.2.

     1.23. The "Supply Price" in effect at any time shall mean the supply price
per unit of a Product or Extended Products to be paid by Wyeth under this
Agreement for resale in the Territory, as determined at such time in accordance
with the provisions of Section 4.1 or, as the case may be, Section 4.2 hereof.

     1.24. "Territory" shall mean, collectively, the Territory as defined in the
US License Agreement and the Territory as defined in the International License
Agreement.

     1.25. "Trademarks" shall mean (i) the trademark Synvisc(R) and each other
mark, trademark or service mark described on Exhibit B hereto, and (ii) any
other marks, trademarks or service marks, as may be agreed upon in writing from
time to time by the parties hereto for use by Wyeth in connection with the
promotion, marketing and sale of the Products and Extended Products under this
Agreement.

     1.26. "Treatment Pack" shall mean a quantity of the Initial Product
sufficient for one treatment course, consisting of three Syringes.

     1.27. "Unit" shall mean, with respect to the Initial Product, a 2.0 ml
syringe of the Initial Product.

     1.28. "U.S. Dollars" and "US$" shall mean the lawful currency of the United
States of America.

     2. TERM AND TERMINATION.

     2.1. Term. Unless this Agreement is sooner terminated in accordance with
its provisions, the initial term of this Agreement shall, on a
country-by-country basis commence on the Effective Date and shall end, with
respect to Products or Extended Products, as applicable, on

                                        *

(the "Initial Term"). Thereafter, this Agreement shall continue until terminated
by either party in accordance with its provisions.

     2.2. Termination.

     (a) Breach. This Agreement may be terminated by either party if the other
party shall commit a material breach of any provision hereof and shall not cure
such breach within

                                        *

after a written notice by the other party to

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -4-


cure the breach; provided, that in the case of a payment breach such cure period
shall be equal to

                                        *

after written notice.

                                        *

     (b) Insolvency. This Agreement may be immediately terminated, whether
during the Initial Term or any Additional Period (as defined below), by either
party, upon giving written notice to the other party, in the event that the
other party shall become insolvent or be declared bankrupt by a court of
competent jurisdiction or shall be the subject of any reorganization (other than
a corporate reorganization effected in the ordinary course of business and not
arising out of any insolvency) or winding up, receivership or dissolution,
bankruptcy or liquidation proceeding, or any proceeding or action similar to one
or more of the above, in which case termination shall be effective upon such
written notice. The failure of either party to give notice of termination upon
obtaining knowledge of any such event shall not be interpreted as a waiver of
such party's rights under this Section 2.2(b), and such party reserves the right
to exercise any such rights at any time after the occurrence of any such event.

     3. SUPPLY OF PRODUCT.

     3.1. Initial Term. (a) During the Initial Term, on a country-by-country
basis, Biomatrix agrees to sell, or to cause an Affiliate to sell, Product to
Wyeth, on the terms and subject to the conditions set forth herein, for resale
by Wyeth within a given country in the Territory, and Wyeth shall obtain the
Product for resale in the Territory only from Biomatrix or such Affiliate of
Biomatrix.

     (b) The parties agree that Extended Products shall be encompassed within
the terms of this Agreement as it relates to Products. The parties agree that
there shall be

                                        *

relating to any such Extended Products and that the Minimum Prices and Transfer
Prices applicable to any such Extended Products would be substantially
equivalent to

                                        *

In addition,

                                        *

The parties agree to negotiate in good faith with respect to the establishment
of the Initial Term and Additional Periods, Minimum Purchases, and any other
necessary terms relating to the manufacture and sale of Extended Products which
are not contemplated in this Agreement,

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -5-


     (c) If the supply of Products becomes non-exclusive with respect to a
country pursuant to Section 2.3(a) of the US Agreement or International
Agreement then the Supply Pricing for Products for such country shall be
determined in accordance with Section 4.2(b).

     3.2. Additional Periods.

     (a) Within

                                        *

prior to the end of each Initial Term and each Additional Period (as defined
below), the parties shall mutually determine in writing whether the supply of
Product during any

                                        *

period following the Initial Term (each an "Additional Period") shall be on an
exclusive basis (i.e. a decision with respect to

                                        *

must be made prior to the commencement of

                                        *

and decision with respect to

                                        *

must be made prior to the commencement of

                                        *

     (b) If any Additional Period supply arrangement is determined

                                        *

then Biomatrix shall supply Wyeth exclusively and Wyeth shall purchase all of
its requirements for the Product for such country from Biomatrix.

     (c)

                                        *

     3.3 Production Capacity. (a) Biomatrix and its Affiliates shall use
commercially reasonable efforts to ensure that they shall have the manufacturing
capacity to produce quantities of Products in amounts equal to

                                        *

     (b) Biomatrix shall prepare and deliver to Wyeth a Management Plan within
thirty (30) days after the Effective Date. The Management Plan shall describe in
reasonable detail the

                                        *

Thereafter, Biomatrix shall prepare and deliver to Wyeth not less than quarterly
commencing with the quarter ending March 31, 1997,

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -6-


                                        *

     (c)

                                        *

        4. PRICE AND PAYMENT.

     4.1 Supply Price During Initial Term.

     (a) Transfer Price. On a country-by-country basis, the "Transfer Price" per
Syringe for sales of the Initial Product

                                        *

     (b) Minimum Price. The "Minimum Price" for the

                                        *

     (c) Formula Price Percentage. The Formula Price Percentage in the Initial
Term and thereafter will be as follows:

     (i) Initial Term Formula Price Percentage. The "Formula Price Percentage"
applicable during the Initial Term shall be determined according to the
following formula for sales of the Products (and Extended Products):

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -7-


                                        *

     (ii) Post Initial Term Formula Price Percentage. The "Formula Price
Percentage" applicable during any Contract Year after the Initial Term shall be
determined according to the following Formula for sales of the Products (and
Extended Products):

                                        *

     (iii) The "Per Unit Formula Price" for any period shall equal

                                        *

- ----------

*/ As used in this table "Annual Net Revenues" shall be based on U.S. dollar
equivalents using the exchange rates determined in accordance with - Section 15.

**/ Rates set forth in this table are marginal rates.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -8-


     (d) Annualized Formula Price Percentage Calculation. Within

                                        *

after the close of each Contract Quarter of the Initial Term after the first
Contract Year, the

                                        *

for such Contract Quarter shall be determined. The annualized Formula Price
Percentage applicable to any Contract Quarter of the Initial Term after the
first Contract Year shall be determined by

                                        *

     (e) Reconciliation of Transfer Price and Per Unit Formula Price.

        (i)  Quarterly Reconciliation. Within *

             after the close of each Contract Quarter, the parties shall
calculate the extent to which the

                                        *

             for such Contract Quarter exceeds or is below the Transfer Price
paid by Wyeth for the Units used in calculating

                                        *

             with respect to such Contract Quarter. A reconciling adjustment
which equals

                                        *

             shall be made and paid by the appropriate party within

                                        *

             thereafter.

        (ii) Annual Reconciliation. Within

                                        *

             after the close of each Contract Year, the parties shall calculate
the extent to which the

                                        *

             for such Contract Year exceeds or is below the Transfer Price paid
by Wyeth for the Units used in calculating

                                        *

             with respect to such Contract Year. A reconciling adjustment which
equals

                                        *

             shall be made and paid by the appropriate party within

                                        *

             thereafter.

     (f) Supply Price. On a Contract Year basis, the Supply Price per Syringe
due to Biomatrix from Wyeth during the Initial Term shall be

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -9-


     4.2 Supply Price During the Additional Period.

     (a) If Supply is Exclusive. During any Contract Year following the Initial
Term in which the supply of the Product is required to be exclusive to Wyeth,
the Supply Price shall be

                                        *

     (b) If Supply is Non-Exclusive. (i) If Biomatrix determines

                                        *

to convert the supply of Product to a non-exclusive arrangement in a country,
then the parties shall mutually agree in writing upon a price for Product for
such country which shall not be greater than the

                                        *

(ii)

                                        *

prior to the commencement of any such Contract Year setting forth

                                        *

Wyeth shall be obligated to

                                        *

of Products from Biomatrix. At any time during a non-exclusive supply period
that the Percentage Amount is

                                        *

     4.3 Currency of Payments. All payments by Wyeth to Biomatrix for the
purchase of Products or Extended Products hereunder shall be made in U.S.
Dollars at the exchange rate set forth in Section 15.2 hereof within

                                        *

of the invoice date relating thereto.

     4.4 Reporting by Wyeth.

     (a) Monthly reports. Within

                                        *

following the end of each calendar month in each Agreement Year, Wyeth shall
submit to Biomatrix written reports detailing (i) the Units and value of Wyeth's
and its Affiliates' Unit sales and (ii) Net Revenues of the Products and
Extended Products during the immediately preceding calendar month in a manner
consistent with Wyeth's internal sales reporting.

     (b) Yearly reports. Within

                                        *

following the end of each Contract Year, Wyeth shall submit to Biomatrix written
reports detailing Wyeth's and its Affiliates' sales of the Products and Extended
Products during the immediately preceding Contract Year, which reports shall set
forth the Net Revenues from Products and Extended Products in each country in
the Territory from sales during the applicable year to third party purchasers
who are not

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -10-


Affiliates of Wyeth, and the aggregate number of Units sold in the Territory
during the applicable Contract Year.

     5. SUPPLY FORECASTS; MINIMUM PURCHASES; RECORDS AND AUDITS.

      5.1 Forecasts. Exhibit C attached hereto sets forth

                                        *

sales forecasts for sales of Units of Products in each country in the Territory
for each of the

                                        *

Contract Years.  Within

                                        *

after the expiration of each of the

                                        *

during any Contract Year, Wyeth shall provide to Biomatrix a forecast of Units
of Products and Extended Products in each country in the Territory for the

                                        *

period (including a year-by-year breakdown) following the delivery of such
report. Such forecasts shall be prepared by Wyeth in good faith, using
reasonable assumptions applicable to each country in the Territory, regarding
the patient population, market penetration, competition, product label and the
price to third parties resulting from Reimbursement Approvals (as defined in the
License Agreements) in the countries in the Territory. Each such sales forecast
described above is referred to herein as a "Long Range Forecast." Such Sales
Forecast may be

                                        *

     5.2 Supply Forecasts. Within

                                        *

after the expiration of each Contract Quarter Wyeth shall provide to Biomatrix
an updated

                                        *

supply forecast (the "Supply Forecast") and the

                                        *

shall be consistent with the firm purchase orders previously delivered pursuant
to Section 7, provided that commencing in

                                        *

after the U.S. Launch Date Biomatrix's obligation to supply Products under the
Supply Forecasts shall not increase

                                        *

The Supply Forecast shall supersede the Long Range Forecast for any applicable
period.

     5.3 Minimum Purchases. Wyeth hereby agrees that

                                        *

it shall purchase

                                        *

no less than

                                        *

for Syringes in each Region in the Territory as set forth on Exhibit C as of the
Effective Date.

     5.4

                                       *

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -11-


                                        *

     5.5 Records and Audits. Wyeth shall maintain books of account with respect
to its sales of the Products and Extended Products in each country in the
Territory. Biomatrix shall have the right, not more than once during each
calendar year, to have an independent accountant selected and retained by
Biomatrix to inspect and examine such books of Wyeth during regular business
hours for the purpose of verifying the statements of the aggregate Net Revenues
resulting from sales of Products and Extended Products and determining the
correctness of the Formula Price Percentages and Per Unit Formula Prices. The
cost of each such audit shall be borne by Biomatrix unless a material error is
discovered in the course of such audit, in which case the cost shall be borne by
Wyeth. As used herein, a "material" error is one which results in an
underpayment to Biomatrix greater than five percent (5%) actually due. Any
additional payments required as a result of such inspection and examination
shall be immediately paid to Biomatrix and shall bear interest from the date
such amount would otherwise have been paid until the date of actual payment at
the rate per annum set forth in Section 23 hereof.

     6. SHIPMENT AND DELIVERY. Biomatrix shall arrange for shipment and
invoicing to Wyeth of Product and Extended Products ordered by Wyeth via common
carrier,

                                        *

Wyeth shall pay all customs duties, sales taxes and other governmental charges
relating to the importation and sale of Product and Extended Products, and shall
have all responsibility for storing and clearing Product and Extended Products
through customs and for all other importation requirements. No VAT or customs
duty number shall be assigned to any Product or Extended Products without the
prior written consent of Biomatrix.

     7. FIRM ORDERS. Wyeth shall submit a firm purchase order setting forth the
quantities, delivery date and shipping instructions with respect to each
shipment of Product or Extended Product, such purchase orders to be received by
Biomatrix at least

                                        *

prior to the requested delivery date. Such firm purchase orders shall be for
quantities of Product or Extended Product equal to

                                        *

Wyeth shall not submit

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -12-


any purchase order for fewer than

                                        *

Treatment Packs of Products or Extended Products.

     8. RISK OF LOSS. Biomatrix shall bear all risk of loss, or damage to, all
units of Products and Extended Products until such Products and Extended
Products have been delivered to the port of entry within the Territory. Wyeth
shall bear all risk of loss of, or damage to, all units of Products after
delivery by Biomatrix to the port of entry.

     9. ACCEPTANCE. Biomatrix shall complete a certificate of analysis for each
product batch contained in a shipment to Wyeth in accordance with the test
requirements set forth in the applicable Product Specifications. Biomatrix shall
include each certificate of analysis with the respective shipment to Wyeth.
Should Wyeth notify Biomatrix within

                                        *

of the receipt of any shipment of Product or Extended Product that such Product
or Extended Product does not conform to the applicable Product Specifications
therefor, Biomatrix and Wyeth agree to consult with each other in order to
resolve the discrepancy between each other's determinations regarding any
possible defect. If such consultation does not resolve the discrepancy, the
parties agree to nominate a reputable independent laboratory, acceptable to both
parties, that shall carry out tests on representative samples taken from such
shipment, and the results of such tests shall be binding on the parties, and the
party whose determination was in error as determined by such laboratory shall
pay all costs associated with such testing. Biomatrix shall at its expense
replace any such shipment to the extent that it does not conform to applicable
Product Specifications. All defective Units shall be returned to Biomatrix at
the address set forth above, accompanied or preceded by a reasonably detailed
statement of the claimed defect or non-conformity and proof of date of purchase,
and packed and shipped according to instructions provided by Biomatrix. The
shipping costs of any such returned Units shall be borne by Biomatrix, unless
such Units are determined not to be defective under the terms of this Agreement,
in which case such shipping costs shall be borne by Wyeth.

     10. PURCHASE ORDERS. The provisions of this Agreement shall prevail over
any inconsistent statement or provisions contained in any document related to
this Agreement passing between the parties hereto including, but not limited to,
any purchase order, acknowledgment, confirmation or notice.

     11. LIMITED WARRANTY; LIMITATION ON LIABILITY; INDEMNIFICATION.

     11.1 Limited Warranty. Biomatrix represents and warrants that each Product
and Extended Product supplied to Wyeth hereunder shall:

     (i) conform to the applicable Product Specifications; and

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -13-


     (ii) be manufactured, labeled, packaged and tested (while in the possession
or control of Biomatrix) in accordance with applicable laws and regulations in
the respective countries in Territory relating tothe manufacture, labeling,
packaging and testing of the Product or Extended Product.

     THE FOREGOING WARRANTY IS THE SOLE AND EXCLUSIVE WARRANTY GIVEN BY
BIOMATRIX WITH RESPECT TO PRODUCTS AND EXTENDED PRODUCTS, AND BIOMATRIX GIVES
AND MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
OTHER THAN THE FOREGOING. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NO
IMPLIED WARRANTY OF MERCHANTABILITY, NO IMPLIED WARRANTY OF FITNESS FOR ANY
PARTICULAR PURPOSE, AND NO IMPLIED WARRANTY ARISING BY USAGE OF TRADE, COURSE OF
DEALING OR COURSE OF PERFORMANCE IS GIVEN OR MADE BY BIOMATRIX OR SHALL ARISE BY
OR IN CONNECTION WITH ANY SALE OR PROVISION OF PRODUCTS OR EXTENDED PRODUCTS BY
BIOMATRIX, OR WYETH'S USE OR SALE OF PRODUCT, OR BIOMATRIX'S AND/OR WYETH'S
CONDUCT IN RELATION THERETO OR TO EACH OTHER. NO REPRESENTATIVE OF BIOMATRIX IS
AUTHORIZED TO GIVE OR MAKE ANY OTHER REPRESENTATION OR WARRANTY OR TO MODIFY THE
FOREGOING WARRANTY IN ANY WAY.

     The limited warranty set forth in this Section 11 does not apply to any
non-conformity of Products or Extended Products resulting from (a) repair,
alteration, misuse, negligence, abuse, accident, mishandling or storage in an
improper environment by any party other than Biomatrix, or (b) use, handling,
storage or maintenance other than in accordance with Product Specifications.

     Biomatrix's sole obligation with respect to Units of Products or Extended
Products which do not meet the warranty contained herein is limited to
replacement of such Units of the Products or Extended Products, provided that
such Units of Products or Extended Products are returned to Biomatrix in the
manner set forth in Section 9, and only if, as determined by the procedures set
forth in Section 9, such Units of Products or Extended Products are determined
to have been defective under the terms of this Agreement.

     11.2. Limitation on Liability. BIOMATRIX'S LIABILITY, AND THE EXCLUSIVE
REMEDY, IN CONNECTION WITH THE SALE OR USE OF PRODUCTS OR EXTENDED PRODUCTS
(WHETHER BASED ON CONTRACT, NEGLIGENCE, BREACH OF WARRANTY, STRICT LIABILITY OR
ANY OTHER LEGAL THEORY), SHALL BE STRICTLY LIMITED TO BIOMATRIX'S OBLIGATIONS AS
SPECIFICALLY AND EXPRESSLY PROVIDED IN THIS SECTION 11 AND THE LIMITED
INDEMNITIES SET

                                      -14-


FORTH IN SECTION 11.3. EXCEPT AS SPECIFICALLY PROVIDED IN THIS SECTION 11 AND IN
SUCH LIMITED INDEMNITIES, BIOMATRIX SHALL HAVE NO LIABILITY, OBLIGATION OR
RESPONSIBILITY OF ANY KIND, IN ANY WAY OR TO ANY EXTENT, FOR ANY DAMAGES,
LOSSES, COSTS, EXPENSES OR LIABILITIES FOR ANY REPRESENTATION OR WARRANTY OF ANY
KIND WITH RESPECT TO PRODUCTS OR EXTENDED PRODUCTS OR THE PERFORMANCE THEREOF,
OR ARISING IN ANY WAY IN CONNECTION WITH THE PURCHASE OR USE OR INABILITY TO USE
PRODUCTS OR EXTENDED PRODUCTS EVEN IF BIOMATRIX HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. IN NO EVENT WHATSOEVER SHALL BIOMATRIX HAVE ANY
LIABILITY, OBLIGATION OR RESPONSIBILITY FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES ARISING IN ANY WAY IN
CONNECTION WITH PRODUCTS OR EXTENDED PRODUCTS OR THEIR SALE OR USE.

     11.3 Indemnification.

     (a) Biomatrix shall indemnify and hold Wyeth and its officers, directors,
shareholders, agents and employees harmless against any and all liability,
damage, loss, cost or expense resulting from any third party claim made or suit
brought against Wyeth or such persons to the extent such claim

                                        *

Upon the filing of any such claim or suit, Wyeth shall immediately notify
Biomatrix thereof, and shall permit Biomatrix at its cost to handle and control
such claim or suit. Wyeth shall have the right to participate in the defense of
such claim or suit at its own expense.

     (b) Wyeth shall indemnify and hold Biomatrix and its officers, directors,
shareholders, agents and employees harmless against any and all liability,
damage, loss, cost or expense resulting from any third party claim made or suit
brought against Biomatrix or such persons to the extent such claim

                                        *

Upon the filing of any such claim or suit, Biomatrix shall immediately notify
Wyeth thereof and shall permit Wyeth at its cost to handle and control such
claim or suit. Biomatrix shall have the right to participate in the defense of
such claim or suit at its own expense.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -15-


                                        *

     13. LICENSING AND COMPLIANCE; NOTICES; INSPECTION. (a) Wyeth shall, at its
expense, obtain any and all import licenses that may be necessary to permit the
sale by Biomatrix and the purchase by Wyeth of Products or Extended Products
hereunder, comply with all registration requirements in the Territory and comply
with any and all governmental laws, regulations, and orders that may be
applicable to Wyeth by reason of its execution of this Agreement including all
laws, regulations or orders that govern or affect the ordering, shipment,
import, sale (including government procurement), delivery, or redelivery of
Products and Extended Products in the Territory. Wyeth shall furnish Biomatrix
with such documentation as Biomatrix may request to confirm Wyeth's compliance
with this Section 13 and agrees that it shall not engage in any course of
conduct that, in Biomatrix's reasonable belief, would cause Biomatrix to be in
violation of the laws of any jurisdiction.

     (b) The manufacturing standards and ingredients for Products will conform
to U.S. Pharmacopoeia Standards, where applicable. All other methods shall be
suitably validated according to acceptance by the FDA, for the approved

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -16-


PMA for Synvisc, or where applicable, according to the standards accepted by the
notified body for the CE mark in the European Economic Area.

     (c) Wyeth shall have the right, on reasonable prior notice to Biomatrix, to
inspect Biomatrix's manufacturing, packaging and storage facilities used in the
manufacture, packaging, storage, testing, shipping and receiving of Products and
Extended Products and their components and any Person conducting any such
inspection shall be bound by the confidentiality provisions of Section 7 of the
U.S. Agreement and Section 8 of the International Agreement.

     14. LOCAL LAWS. Each party shall notify the other party of the existence
and content of any provision of law in the Territory or any other applicable law
that conflicts with any provision of this Agreement at the time of its execution
or thereafter.

     15. PAYMENTS; EXCHANGE RATE.

     15.1 Payments. All payments hereunder shall be made in U.S. Dollars and at
the exchange rates set forth in Section 15.2 and paid within

                                        *

unless otherwise agreed by the parties. Payments to Biomatrix shall be wired to
an account in a bank designated by Biomatrix and the costs of any such
remittance shall be borne by Wyeth.

     15.2 Exchange Rate. All amounts denominated in an Applicable Currency shall
be converted to U.S. Dollars using the consistently applied method of conversion
utilized by Wyeth at the corporate level for financial reporting purposes.

     16. WITHHOLDING. All payments to be made by Wyeth under this Agreement
shall be made in full, free and clear of and without any deduction of or
withholding for or on account of any taxes levied in any country of the
Territory or elsewhere; provided that if Wyeth shall be required by law to make
any deduction or withholding from any payment to Biomatrix then:

     (i) Wyeth shall ensure that such deduction or withholding does not exceed
the minimum legal liability therefor;

     (ii) at least thirty (30) days prior to the first deduction or withholding,
Wyeth shall notify Biomatrix thereof, and the parties shall negotiate in good
faith adjustments to the payments hereunder in order to minimize or eliminate
such deduction or withholding, provided that the total payments by Wyeth shall
not increase; and

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -17-


     (iii) Wyeth shall forward to Biomatrix such documentary evidence as may be
available in respect of each deduction, withholding or payment together with
each payment or promptly thereafter.

     17. QUESTIONABLE PAYMENTS. Wyeth shall not, directly or indirectly, in the
name of, on behalf of, or for the benefit of Biomatrix offer, promise or
authorize to pay, or pay any compensation or give anything of value to, any
official, agent or employee of any government or governmental agency, or to any
political party or officer, employee or agent thereof in connection with the
promotion or sale of Products or Extended Products.

     18. FURTHER ASSURANCES. The parties hereto agree to execute such further or
other documents and assurances as are necessary from time to time in order to
give effect to the provisions of this Agreement.

     19. ASSIGNMENT. The rights and obligations of the parties hereto shall
inure to the benefit of and shall be binding upon the authorized successors and
permitted assigns of each party. Neither party may, without the prior written
consent of the other party, take any of the following actions (collectively
referred to herein as an "Assignment"): (i) assign or transfer its rights or
obligations under this Agreement, (ii) license or sublicense any of its rights
or obligations under this Agreement, or (iii) designate another person to
perform all or part of its obligations under this Agreement or have all or part
of its rights and benefits under this Agreement; provided, however, that a party
may make Assignments to Affiliates of such party or to a successor, by merger,
and provided, further that in the case of an Assignment to an Affiliate the
assigning party shall promptly notify the other party in writing of such
Assignment and shall remain liable (both directly and as guarantor) with respect
to all obligations so assigned. In the event of any permitted Assignment or in
the event that an Affiliate of either party shall exercise rights and/or perform
obligations hereunder pursuant to the terms of this Agreement, the assignee or
Affiliate, as the case may be, shall specifically assume and be bound by the
provisions of the Agreement by executing and agreeing to an assumption agreement
satisfactory to the other party hereto.

     20. GOVERNING LAW; INJUNCTIVE RELIEF.

     20.1 Governing Law and Dispute Resolution. This Agreement and the
respective rights and obligations of the parties shall be governed by and
construed in accordance with the internal and substantive laws of the State of
New Jersey, United States of America (without regard to principles of conflicts
of laws). The parties hereby agree that the United Nations Convention on
Contracts for the International Sale of Goods shall not apply to this Agreement
or any other document contemplated hereby. In the event of any dispute touching
or concerning this Agreement, the parties hereby agree to submit such dispute to
their respective chief

                                      -18-


executive officers or their designees by notice delivered in accordance with the
provisions of Section 25 hereof. Each of the parties agrees that any suit
relating to this Agreement may be brought in the courts of the State of New
Jersey or any federal court and service of process in any such suit being made
by mail at the address specified in Section 25. Each party hereby waives any
objection that it may now or hereafter have to the venue of any such suit or any
such court or that such suit is brought in an inconvenient court.

     20.2 Injunctive Relief. Each of the parties hereto acknowledges and agrees
that damages will not be an adequate remedy for any material breach or violation
of this Agreement if such material breach or violation would cause immediate and
irreparable harm (an "Irreparable Breach"). Accordingly, in the event of a
threatened or ongoing Irreparable Breach, each party hereto shall be entitled to
seek, in any state or federal court in the State of New Jersey, equitable relief
of a kind appropriate in light of the nature of the ongoing threatened
Irreparable Breach, which relief may include, without limitation, specific
performance or injunctive relief; provided, however, that if the party bringing
such action is unsuccessful in obtaining the relief sought, the moving party
shall pay the non-moving party's reasonable costs, including attorney's fees,
incurred in connection with defending such action. Such remedies shall not be
the parties' exclusive remedies, but shall be in addition to all other remedies
provided in this Agreement.

     21. SEVERABILITY. In the event that any provision of this Agreement shall
be held by a court of competent jurisdiction or by any governmental body to be
invalid or unenforceable, such provision shall be deemed severable and the
remaining parts and provisions of this Agreement shall remain in full force and
effect.

     22. FORCE MAJEURE. Each of the parties shall be excused from the
performance of its obligations hereunder in the event such performance is
prevented by force majeure, and such excuse shall continue as long as the
condition constituting such force majeure continues. For the purpose of this
Agreement, force majeure is defined as contingencies beyond the reasonable
control of either party, including, without limitation, acts of God, judicial or
regulatory action, war, civil commotion, destruction of production facilities or
materials by fire, earthquake or storm and labor disturbances (whether or not
any such labor disturbance is within the power of the affected party to settle).
The party affected by force majeure shall provide the other party with full
particulars thereof as soon as it becomes aware of the same (including its best
estimate of the likely extent and duration of the interference with its
activities), and will use its best endeavors to overcome the difficulties
created thereby and to resume performance of its obligations as soon as
practicable.

     23. INTEREST. Any overdue amounts payable by either party hereunder shall
bear interest compounded monthly at the prime lending rate for U.S. Dollars

                                      -19-


published from time to time in The Wall Street Journal plus

                                        *

per annum, or, if lower, the highest rate permissible by applicable law, from
the due date until the date of payment.

     24. NO PARTNERSHIP OR AGENCY. This Agreement and the relations hereby
established by and between Biomatrix and Wyeth do not constitute a partnership,
joint venture, agency or contract of employment between them.

     25. NOTICES. All communications in connection with this Agreement shall be
in writing and sent by postage prepaid first class mail, courier, or telefax,
and if relating to default, late payment or termination, by certified mail,
return receipt requested, telefax or courier, addressed to each party at the
address above, in the case of Biomatrix, Attn: Chief Executive Officer, with a
copy to: Justin P. Morreale, Esq., Bingham, Dana & Gould LLP, 150 Federal
Street, Boston, Massachusetts 02110, U.S.A., and in the case of Wyeth, 555 East
Lancaster Avenue, St. Davids, Pennsylvania 19087, Attn: Senior Vice President,
Global Business Development, with a copy to American Home Products Corporation,
Five Giralda Farms, Madison, New Jersey 07990, Attn: Senior Vice President and
General Counsel or to such other address as the addressee shall last have
designated by notice to the communicating party. The date of giving any notice
shall be the date of its actual receipt.

     26. EU REGULATIONS. It is the intention of the parties hereto that this
Agreement shall at all times qualify for the exemption from the provisions of
Article 85(1) of the Treaty of Rome dated 25 March 1957, as amended, which
either (a) is available under EEC Regulation Number 1983/83, or (b) may
otherwise be available under any other regulations or successor regulation
thereto. In the event that any provision of this Agreement is deemed to violate
the conditions for qualifying for the exemption, set out in whichever of those
regulations may be in effect at the relevant time, or if any such regulation is
amended after the date of this Agreement so as to cause this Agreement to fail
to qualify for the exemption, the parties hereto agree that they will, as soon
as it is practicable to do so, enter into good faith negotiations to amend this
Agreement as necessary in order to re-qualify for the exemption or notify the
Agreement.

     27. SURVIVAL. The provisions of Sections 11 and 12 of this Agreement shall
survive the termination or expiration of this Agreement (as the case may be) and
shall remain in full force and effect. The provisions of this Agreement that do
not survive termination or expiration hereof (as the case may be) shall,
nonetheless, be controlling on, and shall be used in construing and interpreting
the rights and obligations of the parties hereto with regard to, any dispute,
controversy or claim which may arise under, out of, or in connection with this
Agreement.

           *Confidential portions have been omitted and filed separately with
            the Commission.

                                      -20-


     28. MISCELLANEOUS. This Agreement, the Trademark License Agreement and the
License Agreements set forth the entire agreement between the parties with
respect to the transactions and arrangements contemplated hereby and thereby and
supersede all prior oral or written arrangements between the parties. This
Agreement may be modified or amended only by a written instrument executed and
delivered by both parties. None of the provisions of this Agreement shall be
deemed to have been waived by any act or acquiescence on the part of either
party except by an instrument in writing signed and delivered by the party
executing the waiver. This Agreement may be executed in several identical
counterparts, each of which shall be an original, but all of which constitute
one instrument, and in making proof of this Agreement it shall not be necessary
to produce or account for more than one such counterpart. The English language
version of this Agreement shall govern and control any translations of this
Agreement into any other language. References herein to Sections and Exhibits
are to Sections of and Exhibits to this Agreement. The title of this Agreement
and the section headings contained herein are for convenience of reference only
and shall not define or limit the provisions hereof.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.

AMERICAN HOME PRODUCTS                          BIOMATRIX, INC.
 CORPORATION

By: /s/ Fred Hassan                             By: /s/ Endre A. Balazs
    ----------------------------                -----------------------
Name:  Fred Hassan                              Name:  Endre A. Balazs
Title: Executive Vice President                 Title: Chief Executive Officer

                                      -21-


                                    EXHIBITS

Exhibit A    -    Initial Product Specifications

Exhibit B    -    Patents and Trademarks

Exhibit C    -    Long Range Forecast

                                    SCHEDULES

1.13         -    Manufacturing Costs



                                    EXHIBIT A

                         Initial Product Specifications

                      U.S. AGREEMENT PRODUCT SPECIFICATIONS

                           SPECIFICATION OF SYNVISC(R)
                                 (HYLAN G-F 20)



                               
Test                              Specifications
- ----                              --------------


                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                                                       EXHIBIT A

                    EUROPEAN AGREEMENT PRODUCT SPECIFICATIONS

                           SPECIFICATION OF SYNVISC(R)
                                 (HYLAN G-F 20)



                               
Test                              Specifications
- ----                              --------------


                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                    EXHIBIT B

                             Patents and Trademarks

I.   SYNVISC RELATED UNITED STATES PATENTS

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                        Exhibit B Patents and Trademarks

I.   SYNVISC RELATED GERMAN, SPANISH AND AUSTRIAN PATENTS(1)/

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                    EXHIBIT C

                         UNIT (SINGLE SYRINGE) FORECAST

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                  SCHEDULE 1.13

     ALLOCATION AND COSTS NOT DIRECTLY ASSOCIATED WITH, BUT RELATED TO, THE
                  PRODUCTION OF PRODUCT AND EXTENDED PRODUCTS.

                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                                        *

           *Confidential portions have been omitted and filed separately with
            the Commission.



                               FIRST AMENDMENT TO

                                SUPPLY AGREEMENT

     This FIRST AMENDMENT (this "Supply Amendment Agreement"), is made as of
June 13, 2000 (the "Amendment Effective Date"), by and between Biomatrix, Inc.
("Biomatrix") and American Home Products Corporation, acting through its
unincorporated Wyeth-Ayerst Laboratories division (together "Wyeth") to amend
that certain Supply Agreement, dated as of February 7, 1997, by and between
Biomatrix and Wyeth (the "Supply Agreement").

     WHEREAS, Biomatrix and Wyeth entered into the Supply Agreement by which
Biomatrix agreed to supply Wyeth with its requirements of certain products and
now the parties wish to amend certain provisions of the Supply Agreement;

     NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement, and intending to be legally bound thereby, the parties hereto agree
as follows:

     1.   Capitalized terms used in this Supply Amendment Agreement and
          not otherwise defined shall have the meanings ascribed to such terms
          in the Supply Agreement.

     2.   Section 1.20 of the Supply Agreement is hereby deleted in its
          entirety.

     3.   Section 1.24 of the Supply Agreement is hereby deleted in its entirety
          and replaced with the following:

          1.24 "Territory shall mean the following countries: Germany, Greece,
               Portugal, Turkey, Poland and Czech Republic."

     4.   Section 5.3 of the Supply Agreement is hereby amended by deleting the
          words "in each Region".

     5.   Section 5.4 of the Supply Agreement is hereby amended by deleting the
          words "in each Region", and the words "as it applies to such Region".

     6.   EXHIBIT B to the Supply Agreement is hereby deleted in its entirety
          and replaced with EXHIBIT B attached hereto.

     7.   EXHIBIT C to the Supply Agreement is hereby amended to remove
          all references to the Relinquished Countries (as defined in the First
          Amendment to International License Agreement between Biomatrix and
          Wyeth of even date herewith), and the row for "Other".

     8.   This Supply Amendment Agreement and the respective rights and
          obligations of the parties shall be governed and construed in
          accordance with the internal and substantive laws of the State of New
          Jersey, United States of America (without regard to principles of
          conflicts of laws). This Supply Amendment Agreement may be executed in
          severa1 identical counterparts, each of which shall be an original,
          but all of which constitute one instrument, and in making proof of
          this Agreement it shall not be necessary to produce or account for
          more than one such counterpart.

     9.   Except as specifically modified hereby, the Supply Agreement shall
          remain unmodified and in full force and effect.



     IN WITNESS WHEREOF, the parties hereto have executed this Supply Amendment
Agreement as an instrument under seal as of the date first above stated.

               BIOMATRIX, INC.

               By:    /s/ Endres A. Balazs
                   -----------------------------
               Name:  Endre A. Balazs
               Title: Chief Executive Officer

               AMERICAN HOME PRODUCTS CORPORATION

               By:    /s/ Egon E. Berg
                   ------------------------------
               Name:  Egon E. Berg
               Title: Vice President

                                      -2-


                                    EXHIBIT B

                             PATENTS AND TRADEMARKS

I.   SYNVISC RELATED UNITED STATES PATENTS

     A.   Biocompatible Viscoelastic Gel Slurries, Their Preparation and Use

          Patent No. 5,143,724; expires 7/9/2010

          Patent No. 5,246,698; expires 12/20/2011

          Patent No. 5,399,351; expires 6/24/2013

     B.   Chemically Modified Hyaluronic Acid and Method of Recovery Thereof
          from Animal Tissues

          Patent No. 4,713,448; expires 3/12/2005

          Patent No. 5,099,011; expires 3/12/2005

     C.   Cross-Linked Gels of Hyaluronic Acid and Containing Such Gels

          Patent No. 4,582,865; expires 12/6/2004

          Patent No. 4,636,524; expires 12/6/2004

          Patent No. 4,605,691; expires 12/6/2004

II.  SYNVISC RELATD GERMAN PATENTS

     A.   Biocompatible Viscoelastic Gel Slurries, Their Preparation and Use

          Pending European Patent Application No. 91303606.7; filed 4/22/91

          designating Germany; when issued, will expire 4/22/2011

     B.   Chemically Modified Hyaluronic Acid and Method of Recovery Thereof
          from Animal Tissues

          Patent No. 36 07 897; expires 3/10/2006

          Patent No. 35 45 191; expires 3/10/2006

          Patent No. 36 45 226; expires 3/10/2006; and

          European Patent No. P 38 52 992 (Germany); expires 11/29/2008



     C.   Cross-Linked Gels of Hyaluronic Acid and Products Containing Such Gels

          Patent No. 35 20 008; expires 6/4/2005

          Patent No. 35 46 811; expires 6/4/2005

     D.   Water Insoluble Preparation of Hyaluronic Acid

          Patent No. P 34 34 082; expires 9/17/2004

          Patent No. P 34 34 104; expires 9/17/2004

III.     SYNVISC(R)



         COUNTRY           REGISTRATION NO.        TERM       EXPIRATION DATE
         -------           ----------------        ----       ---------------
                                                     
         United States     1,418,125               20 Yrs.    November 25, 2006

         Germany           1,110,922               10 Yrs.    December 20, 1996

                           (Renewal)               10 Yrs.    December 20, 2006

         Greece            127,446                 10 Yrs.    March 17, 2008

         [CTM              Ser. No. 000338731            PENDING]

         Turkey            180724                  10 Yrs.    January 30, 2007

         Portugal          314081                  10 Yrs     September 4, 2006

         Poland            Being Filed/Pending

         Czech Republic    Being Filed/Pending     10 Yrs.    February 24, 2007


                                       -2-

EX-10.47

                                                                   EXHIBIT 10.47

*Confidential portions have been omitted and filed separately with the
Commission.

                           TRADEMARK LICENSE AGREEMENT

     THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") is made as of this 7th
day of February, 1997 by and between Biomatrix, Inc., a Delaware corporation
having its principal place of business at 65 Railroad Avenue, Ridgefield, New
Jersey, U.S.A. ("Biomatrix"), and American Home Products Corporation, a Delaware
corporation having its principal place of business at Five Giralda Farms,
Madison, New Jersey 07940, U.S.A., acting through its unincorporated
Wyeth-Ayerst Laboratories division (such entities are together defined herein as
"Wyeth").

     WHEREAS, Biomatrix and Wyeth are parties to that certain International
License Agreement (the "International License Agreement") and United States
License Agreement (the "U.S. License Agreement"), each dated as of February 7,
1997 (together, the "License Agreements"), pursuant to which (i) Biomatrix
agreed to sell and license to Wyeth, and Wyeth agreed to purchase and license
from Biomatrix, Products (as defined in the License Agreements) and Extended
Products and (ii) Biomatrix granted to Wyeth the right and license to use
certain trademarks owned by Biomatrix in any promotional materials used by Wyeth
to market the Products and Extended Products, all on the terms and conditions
set forth in the License Agreements;

     WHEREAS, Biomatrix is the owner of rights in, and the goodwill associated
with, the Trademark (as defined below); and

     WHEREAS, Biomatrix and Wyeth desire to enter into this Agreement for
purposes of licensing Wyeth to use the Trademark in the Territory (as defined in
each of the License Agreements, respectively).

     NOW, THEREFORE, the parties hereto agree as follows:

        1. DEFINITIONS; RULES OF INTERPRETATION

        1.1 Definitions. Unless otherwise specifically provided herein, all
defined terms herein shall have the meanings ascribed them in the License
Agreements in effect on the effective date of this Agreement. For purposes of
this Agreement, the term "Trademark" shall mean (i) the trademark "Synvisc(R)"
and each other mark, trademark or service mark described on Exhibit A hereto,
and (ii) any other marks, trademarks or service marks as may be agreed upon in
writing from time to time by the parties hereto for use by Wyeth in connection
with the promotion, marketing and sale of Products and Extended Products.

                                       -1-


        1.2 Rules of Interpretation.

          (a) All definitions (whether set forth herein or by reference) shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. All references herein to Sections shall be
deemed references to Sections of this Agreement unless the context otherwise
requires.

          (b) In the event that any of the terms or provisions of this Agreement
shall be in conflict with or be inconsistent with any of the terms or provisions
of the License Agreements, the terms and provisions of this Agreement shall
govern.

        2. GRANT OF LICENSE; ROYALTY.

        2.1 License. Subject to the terms and conditions of this Agreement,
Biomatrix grants to Wyeth, and Wyeth accepts from Biomatrix, the exclusive,
right and license (without the right to sublicense), for the term of this
Agreement, to use and display, and Wyeth shall use and display, the Trademark
solely in connection with the sale, distribution, marketing, advertising and
promotion of Products and Extended Products in the Field in the Territory. Wyeth
agrees that it shall not use the Trademark at any time outside the Territory or
use any Trademark for any products other than the Products and Extended Products
within the Territory, or for any other purpose except as provided herein.

        2.2 Limitation of Rights. Wyeth shall have the right to use the
Trademark only in the manner and to the extent specifically permitted by this
Agreement. Biomatrix retains all rights not expressly granted to Wyeth in this
Agreement. If Wyeth's license to sell Products or Extended Products terminates
with respect to any country in the Territory then Wyeth's rights to use the
Trademark and all other product specific logos, slogans and other intangibles
used by Wyeth or its Affiliates in association with the sale of Products and
Extended Products (including all registrations relating thereto) shall terminate
with respect to such country and, subject to Wyeth's sell-out rights with
respect to inventory, Wyeth shall (i) immediately with respect to such country
cease using the Trademark and any such logos, slogans, and marketing rights of
Biomatrix or any imitations thereof and (ii) immediately execute and deliver to
Biomatrix any documents or instruments reasonably requested by Biomatrix to give
full effect to the provisions of this Section 2.2.

        2.3 Royalty. In consideration of the license granted to Wyeth in Section
2.1, Wyeth agrees to pay royalties to Biomatrix as follows:

          (a) Wyeth shall pay to Biomatrix royalties in an amount equal to

                                        *

               *Confidential portions have been omitted and filed separately
                with the Commission.

                                       -2-


                                        *

          (b) The amount of royalties due hereunder shall be computed quarterly.
Within

                                        *

after the close of each calendar quarter, Wyeth shall pay to Biomatrix in cash
the royalties owed hereunder with respect to such quarter. Each such payment
shall be accompanied by a statement describing in reasonable detail the
calculation of the amount of the accompanying royalty payment.

                                        *

          (c) All royalty payments shall be made in U.S. Dollars. The amount of
Net Revenues paid in another currency shall be converted into U.S. Dollars in
accordance with Section 4 of the International License Agreement.

          2.4. Intangibles. Biomatrix shall have exclusive ownership rights to
the Trademark and all other product specific logos, slogans and other
intangibles relating to the Products and Extended Products possessed or
controlled by Wyeth or any of its Affiliates.

          3. TERM AND TERMINATION. Unless earlier terminated pursuant to this
Paragraph 3, this Agreement shall continue in force, on a country-by-country
basis,

                                        *

Notwithstanding the foregoing, this Agreement may be terminated by Biomatrix at
any time upon written notice thereof to Wyeth upon the occurrence of any of the
following:

               (a) Breach of any duty or obligation of Wyeth hereunder not cured
within

                                        *

after receipt of written notice thereof from Biomatrix;

               (b) Termination of each of the International License and U.S.
License by Biomatrix as a result of Wyeth's breach;

               (c) Termination of each of the International License and U.S.
License by Wyeth;

               (d) Institution by Wyeth of bankruptcy, insolvency, liquidation
or receivership proceedings, or proceedings for reorganization under bankruptcy
or comparable laws;

               (e) Institution against Wyeth of any of the proceedings listed in
(d) above, the effectiveness of which is not stayed or dismissed within sixty
(60) days after such institution;

*Confidential portions have been omitted and filed separately with the
Commission.

                                       -3-


               (f) Wyeth's making of a general assignment for the benefit of
creditors; and

               (g) Wyeth's failure to use the Trademark for a material amount of
time in connection with material amounts of sales of Products or Extended
Products.

          4. EFFECTS OF TERMINATION.

          Wyeth shall not have, and hereby waives, any claim for lost profits or
goodwill relating to the termination of this Agreement. Upon the expiration or
termination of this Agreement, Wyeth shall (i) immediately discontinue all use
of the Trademark, its component parts or any colorable imitations thereof, by
itself or in combination with any other words, letter, symbols or designs and
all other logos, slogans, marketing rights and other intangibles (or any
imitations thereof) relating to the Products or Extended Products and (ii)
immediately take all necessary action and execute and deliver to Biomatrix any
documents and instruments reasonably requested by Biomatrix to give full effect
to the provisions of this Section 4, including without limitation those
necessary to remove Wyeth as a registered user and/or a recorded licensee of the
Trademark.

                                        *

Thereafter, Biomatrix shall have the right, but not the obligation,

                                        *

The termination of this Agreement shall not affect any obligation accruing prior
to such termination. In the event that Wyeth fails promptly upon written request
by Biomatrix to comply with any of its agreements in this Section 4, Wyeth
hereby irrevocably consents to Biomatrix's taking any action necessary to give
effect to such agreements.

          5. QUALITY CONTROL

          Throughout the term of this Agreement, Wyeth shall maintain the
quality of products manufactured, sold or distributed under the Trademark at
least at the level of quality maintained for products currently sold and
distributed under the Trademark. Any products sold under the Trademark shall be
made strictly to the same specifications as the Product and/or Extended Product
made by Biomatrix under the Supply Agreement between Biomatrix and Wyeth dated
as of February 7, 1997. If any product sold under the Trademark is not
manufactured by Biomatrix, at least

                                        *

prior to use or distribution thereof, Wyeth shall deliver to Biomatrix for
inspection, testing and/or review samples of product to be sold and all new, or
changes to existing, product signs, labels, packaging materials, advertising and
other materials bearing the Trademark; and Wyeth shall not offer for sale, sell,
distribute or use any such new or changed product or materials without
Biomatrix's express prior written approval. Biomatrix' approval

                                        *

In order to determine Wyeth's compliance with this Paragraph 5, Biomatrix or its
authorized representative may inspect and/or test, at reasonable times and

*Confidential portions have been omitted and filed separately with the
Commission.

                                       -4-


under reasonable circumstances, all uses of the Trademark by Wyeth and all
underlying goods. Each product produced or distributed hereunder shall comply
with all applicable laws and regulations and shall conform in all respects to
the sample of such product approved by Biomatrix hereunder. In the event of any
nonconformity or any deterioration in the quality of a product sold under the
Trademark (as determined by Biomatrix in good faith), Biomatrix may, in addition
to other available remedies, by written notice to Wyeth, require that such
product be immediately withdrawn from the market and Wyeth shall promptly cause
such withdrawal.

          6. INTELLECTUAL PROPERTY

          6.1 Use and Display of the Trademarks. Wyeth shall use and display the
Trademark in a conspicuous manner in connection with all Products and Extended
Products. Without limiting the generality of the foregoing:

               (a) Wyeth shall include in all advertising and promotional
material created by or for Wyeth in which the Trademark appears such legends,
markings, and notices (such as "TM" or "(R)" superscript, as appropriate) as
required or permitted by any foreign, federal, state or local law or
regulations.

               (b) Subject to applicable laws and regulations in the Territory,
Wyeth shall ensure that all trade literature, publications and promotional
materials relating to any product sold under the Trademark shall specify the
concept of viscosupplementation and that such concept has been conceived and
introduced by Biomatrix.

               (c) Wyeth shall not use the Trademark or any marks confusingly
similar thereto (i) in connection with any goods or services other than products
made to the specifications for the Products or Extended Products or (ii) as part
of or in connection with the legal name of any Person or the tradename of any
Person;

               (d) Wyeth shall not have the right to use any variation of the
Trademark without Biomatrix's written approval (which approval shall be in
Biomatrix's sole discretion) and, in the event that Biomatrix approves the use
of any variation of a Trademark, such approved variation shall become a
Trademark owned by Biomatrix and governed by the terms of this Agreement;

               (e) Wyeth shall not use the Trademark with any other trademark or
tradename, other than Wyeth's standard "house mark," without Biomatrix's prior
written approval (which approval shall not be unreasonably withheld).

          6.2 Ownership and Maintenance of Trademark. Biomatrix expressly
reserves the sole and exclusive ownership of the Trademark and all rights
relating thereto. Wyeth hereby acknowledges that Biomatrix is the sole and
exclusive owner of the

                                       -5-


Trademark. Wyeth shall not question or otherwise challenge, either directly or
indirectly, during the term of this Agreement or after its termination or
expiration, Biomatrix's ownership of, and rights in, the Trademark and the
goodwill associated therewith or the validity of this Agreement. All use of the
Trademark by Wyeth shall inure to the benefit of Biomatrix. Upon Biomatrix's
request, whether during or after the term of this Agreement, Wyeth shall provide
necessary samples and information to permit Biomatrix to effect trademark or
service mark registrations and execute and deliver to Biomatrix any documents
required by Biomatrix to confirm Biomatrix's ownership of the Trademark. Wyeth
shall not at any time, either during or after the term of this Agreement, apply
to register the Trademark, or any mark confusingly similar thereto, as a
trademark or service mark anywhere in the world. The parties shall execute a
short form Trademark license agreement to the extent that it is necessary to
record the Trademark license hereunder in any country in the Territory where
Biomatrix deems such recordation to be necessary or desirable.

          6.3 No Assignment. It is understood and agreed that nothing in this
Agreement will be deemed in any way to constitute an assignment by Biomatrix of
the Trademark or of the goodwill associated therewith, or to give Wyeth any
right, title, or interest in and to the Trademark or the goodwill associated
therewith (except the right to make use thereof as herein provided).

          6.4 Infringements by Third Parties. Wyeth shall notify Biomatrix
promptly of any use by any Person of the Trademark or a mark similar to the
Trademark. Biomatrix in its sole discretion shall decide whether or how to
proceed against a third party infringer. Wyeth shall cooperate fully with
Biomatrix in connection with the prosecution of any claim against any such third
party infringer. If requested by Biomatrix, Wyeth shall join with Biomatrix, at
Biomatrix's expense, in any such action as Biomatrix in its sole discretion may
deem advisable, provided, however, that Wyeth shall have no right to take any
action with respect to the Trademark without Biomatrix's prior written approval,
which approval may be withheld in Biomatrix's sole discretion. The proceeds of
any settlement of, or recovery from, any such action shall belong entirely to
Biomatrix. If Biomatrix declines in writing to bring any action against an
alleged third party infringer, Wyeth may proceed and will bear all expenses of
the action. If necessary for Wyeth to proceed, Biomatrix shall join with Wyeth,
at Wyeth's expense. The proceeds of any settlement of, or recovery from, any
such action initiated by Wyeth shall belong entirely to Wyeth.

          7. INDEMNIFICATION

          7.1 Indemnification by Biomatrix. Biomatrix agrees to defend,
indemnify and hold harmless Wyeth from and against any and all claims of third
parties and liabilities, judgments, penalties, losses, costs, damages and
expenses resulting therefrom, arising from infringement claims by third parties
by reason of

                                        *

In the event of any such claim, upon written request by Biomatrix, Wyeth shall
immediately cease and desist from any and all further use or display of the
Trademark.

            *Confidential portions have been omitted and filed separately with
            the Commission.

                                       -6-


          7.2 Indemnification by Wyeth. Wyeth agrees to defend, indemnify and
hold harmless Biomatrix from and against any and all claims of third parties and
liabilities, judgments, penalties, losses, costs, damages and expenses resulting
therefrom, arising by reason of

                                        *

          7.3 Procedures for Indemnification. With respect to any claims falling
within the scope of the foregoing indemnifications:

               (a) Each party agrees to notify the other promptly and in writing
of such claims, and to keep the other fully advised with respect to such claims
and the progress of any legal actions relating thereto in which the other party
is not a participant.

               (b) Biomatrix shall have the sole right to undertake and control
the defense and settlement of any claims relating to the ownership or validity
of the Trademark or of any pending application or registration of the Trademark.
Wyeth shall cooperate fully with Biomatrix in connection with the defense of any
such claims brought by third parties. If requested by Biomatrix, Wyeth shall
join with Biomatrix, at Biomatrix's expense, in any such action as Biomatrix in
its sole discretion shall deem advisable.

               (c) Wyeth shall have the right to participate at its own expense
in the defense of any claim instituted against it, and, if it does so
participate, it shall not have the right to recover against Biomatrix the costs
and expenses (including its attorneys' fees) of its participation in such suit.

               (d) In the event that a party assumes the defense of a claim
against the other party, the party assuming the defense shall not enter into any
compromise or settlement of the claim without the prior written consent of the
other party, which consent shall not be unreasonably withheld.

          8. MISCELLANEOUS PROVISIONS

         8.1 Assignment. The rights and obligations of the parties hereto shall
inure to the benefit of and shall be binding upon the authorized successors and
permitted assigns of each party. Neither party may, without the prior written
consent of the other party, take any of the following actions (collectively
referred to herein as an "Assignment"): (i) assign or transfer its rights or
obligations under this Agreement, (ii) license or sublicense any of its rights
or obligations under this Agreement, or (iii) designate another person to
perform all or part of its obligations under this Agreement or have all or part
of its rights and benefits under this Agreement; provided, however, that a party
may make Assignments to Affiliates of such party or to a successor, by merger,
and provided, further that in the case of an Assignment to an Affiliate the
assigning party shall promptly notify the other party in writing of such

         *Confidential portions have been omitted and filed separately with the
         Commission.

                                       -7-


Assignment and shall remain liable (both directly and as guarantor) with respect
to all obligations so assigned. In the event of any permitted Assignment or in
the event that an Affiliate of either party shall exercise rights and/or perform
obligations hereunder pursuant to the terms of this Agreement, the assignee or
Affiliate, as the case may be, shall specifically assume and be bound by the
provisions of the Agreement by executing and agreeing to an assumption agreement
satisfactory to the other party hereto.

          8.2 Governing Law; Specific Performance. (a) This Agreement and the
respective rights and obligations of the parties shall be governed by and
construed in accordance with the internal and substantive laws of the State of
New Jersey, United States of America (without regard to principles of conflicts
of laws). The parties hereby agree that the United Nations Convention on
Contracts for the International Sale of Goods shall not apply to this Agreement
or any other document contemplated hereby. In the event of any dispute touching
or concerning this Agreement, the parties hereby agree to submit such dispute to
their respective chief executive officers or their designees by notice delivered
in accordance with the provisions of Section 8.6 hereof. Each of the parties
agrees that any suit relating to this Agreement may be brought in the courts of
the State of New Jersey or any federal court and service of process in any such
suit being made by mail at the address specified in Section 8.6. Each party
hereby waives any objection that it may now or hereafter have to the venue of
any such suit or any such court or that such suit is brought in an inconvenient
court.

     (b) Injunctive Relief. Each of the parties hereto acknowledges and agrees
that damages will not be an adequate remedy for any material breach or violation
of this Agreement if such material breach or violation would cause immediate and
irreparable harm (an "Irreparable Breach"). Accordingly, in the event of a
threatened or ongoing Irreparable Breach, each party hereto shall be entitled to
seek, in any state or federal court in the State of New Jersey, equitable relief
of a kind appropriate in light of the nature of the ongoing threatened
Irreparable Breach, which relief may include, without limitation, specific
performance or injunctive relief; provided, however, that if the party bringing
such action is unsuccessful in obtaining the relief sought, the moving party
shall pay the non-moving party's reasonable costs, including attorney's fees,
incurred in connection with defending such action. Such remedies shall not be
the parties' exclusive remedies, but shall be in addition to all other remedies
provided in this Agreement.

          8.3 Section Headings. References herein to sections and Exhibits are
to sections and Exhibits to this Agreement. The title of this Agreement and the
section headings contained herein are for convenience of reference only and
shall not define or limit the provisions hereof.

          8.4 Severability. If any term, provision, covenant or condition of
this Agreement is declared to be invalid, void or unenforceable, the remainder
of the provisions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.

                                       -8-


          8.5 Waiver. The failure of either party to require the performance of
any provision of this Agreement by the other party shall not be deemed a waiver
and shall not deprive the party of its full right to require such performance in
the particular instance or at any other time. Any waiver must be in writing
executed by the waiving party.

          8.6 Notices. All communications in connection with this Agreement
shall be in writing and sent by postage prepaid first class mail, courier, or
telefax, and if relating to default, late payment or termination, by certified
mail, return receipt requested, telefax or courier, addressed to each party at
the address above, in the case of Biomatrix, Attn: Chief Executive Officer, with
a copy to: Justin P. Morreale, Esq., Bingham, Dana & Gould LLP, 150 Federal
Street, Boston, Massachusetts 02110, U.S.A., and in the case of Wyeth, 555 East
Lancaster Avenue, St. Davids, Pennsylvania 19087, Attn: Senior Vice President,
Global Business Development, with a copy to American Home Products Corporation,
Five Giralda Farms, Madison, New Jersey 07990, Attn: Senior Vice President and
General Counsel or to such other address as the addressee shall last have
designated by notice to the communicating party. The date of giving any notice
shall be the date of its actual receipt.

          8.7 No Agency or Franchise. This Agreement and the relations hereby
established by and between Biomatrix and Wyeth do not constitute a partnership,
joint venture, agency, franchise or contract of employment between them.

          8.8 Complete Agreement. This Agreement, the Supply Agreement and the
License Agreements embody all of the terms and conditions of the agreement
between the parties with respect to the matters set forth herein and supersedes
any and all prior or contemporaneous agreements, representations, understandings
or discussions of any kind between the parties.

          8.9 Modifications. This Agreement may not be modified or amended
except by writing which refers specifically to this Agreement signed on behalf
of both parties by their duly authorized officers.

          8.10 Other Documents The parties agree to implement this Agreement by
executing or causing to be executed such additional documents and agreements as
may be necessary to fully protect the Trademark and effectively carry out the
terms of this Agreement in accordance with applicable laws and regulations.

          8.11 EU REGULATIONS. It is the intention of the parties hereto that
this Agreement shall at all times qualify for the exemption from the provisions
of Article 85(1) of the Treaty of Rome dated 25 March 1957, as amended, which
either (a) is available under EEC Regulation Number 1983/83, or (b) may
otherwise be available under any other regulations or successor regulation
thereto. In the event that any provision of this Agreement is deemed to violate
the conditions for qualifying for the exemption, set out in whichever of those
regulations may be in effect at the relevant time, or if any such regulation is
amended after the date of this Agreement so as to cause this Agreement to fail
to qualify

                                       -9-


for the exemption, the parties hereto agree that they will, as soon as it is
practicable to do so, enter into good faith negotiations to amend this Agreement
as necessary in order to re-qualify for the exemption or notify the Agreement.

          THE PARTIES HERETO, intending to be legally bound, have duly executed
this Agreement on the date first written above.

AMERICAN HOME PRODUCTS CORPORATION


By: /s/ Fred Hassan
  -----------------------------

Title: Executive Vice President
   ----------------------------

BIOMATRIX, INC.

By: /s/ Endre A. Balazs
  ----------------------------
Title: Chief Executive Officer
   ---------------------------

                                      -10-


                                    Exhibit A

                                    Trademark

                                        *

          *Confidential portions have been omitted and filed separately with the
           Commission.

                                      -11-


                                           
          Country    Registration No.        Term             Expiration Date
          -------    ----------------        ----             ---------------

          

                                        *

          *Confidential portions have been omitted and filed separately with the
           Commission.

                                      -12-


                               FIRST AMENDMENT TO

                           TRADEMARK LICENSE AGREEMENT

     This FIRST AMENDMENT (this "Trademark Amendment Agreement"), is made as of
June 13, 2000 (the "Amendment Effective Date"), by and between Biomatrix, Inc.
("Biomatrix") and American Home Products Corporation, acting through its
unincorporated Wyeth-Ayerst Laboratories division (together "Wyeth") to amend
that certain Trademark License Agreement, dated as of February 7, 1997, by and
between Biomatrix and Wyeth (the "Trademark License Agreement').

     WHEREAS, Biomatrix and Wyeth entered into the Trademark License Agreement
by which Biomatrix granted to Wyeth a license to use certain trademarks owned by
Biomatrix and now the parties wish to amend certain provisions of the Trademark
License Agreement;

     NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement, and intending to be legally bound thereby, the parties hereto agree
as follows:

     1.   Capitalized terms used in this Trademark Amendment Agreement
          and not otherwise defined shall have the meanings ascribed to such
          terms in the Trademark License Agreement.

     2.   EXHIBIT A to the Trademark License Agreement is hereby deleted in its
          entirety and replaced with EXHIBIT A attached hereto.

     3.   Wyeth agrees promptly to take all such actions as may be required to
          notify any and all government agencies in any Relinquished Countries
          (as defined in the First Amendment to International License Agreement
          between the parties of even date herewith) that Wyeth is no longer a
          distributor of Products and to cause all registrations of the
          Trademark in the name of Wyeth or any affiliate of Wyeth to be
          transferred to Biomatrix or its designee

     4.   This Trademark Amendment Agreement and the respective rights and
          obligations of the parties shall be governed and construed in
          accordance with the internal and substantive laws of the State of New
          Jersey, United States of America (without regard to principles of
          conflicts of laws). This Trademark Amendment Agreement may be executed
          in several identical counterparts, each of which shall be an original,
          but all of which constitute one instrument, and in making proof of
          this Agreement it shall not be necessary to produce or account for
          more than one such counterpart.

     5.   Except as specifically modified hereby, the Trademark License
          Agreement shall remain unmodified and in full force and effect.



     IN WITNESS WHEREOF, the parties hereto have executed this Trademark
Amendment Agreement as an instrument under seal as of the date first above
stated.

                 BIOMATRIX, INC.

                 By: /s/ Endre A. Balazs
                    ---------------------------
                 Name:  Endre A. Balazs
                 Title: Chief Executive Officer

                 AMERICAN HOME PRODUCTS CORPORATION

                 By: /s/ Egon E. Berg
                    ---------------------------
                 Name:  Egon E. Berg
                 Title: Vice President

                                       -2-


                                    EXHIBIT A

                                    TRADEMARK

SYNVISC(R)



COUNTRY           REGISTRATION NO.       TERM                 EXPIRATION DATE
- -------           ----------------       ----                 ---------------
                                                     
United States     1,418,125              20 Yrs.              November 25, 2006

Germany           1,l10,922              10 Yrs.              December 20, 1996

                  (Renewal)              10 Yrs.              December 20, 2006

Greece            127,446                10 Yrs.              July 12, 2005

CTM               Ser. No. 000338731     Published for Opposition

Turkey            180724                                      January 30, 2007

Portugal          314081                 10 Yrs.              September 4, 2006

Poland            170,078                Registration Fee Paid. To issue shortly

Czech Republic    209,939                10 Yrs.              February 24, 2007

EX-13.1

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EXHIBIT 13.1

FINANCIAL STATEMENTS
GENZYME CORPORATION AND SUBSIDIARIES

	Page No.
Consolidated Selected Financial Data	GCS-2
Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations	GCS-10
Consolidated Statements of Operations—For the Years Ended December 31, 2001, 2000 and 1999	GCS-56
Consolidated Balance Sheets—December 31, 2001 and 2000	GCS-58
Consolidated Statements of Cash Flows—For the Years Ended December 31, 2001, 2000 and 1999	GCS-59
Consolidated Statements of Stockholders' Equity—For the Years Ended December 31, 2001, 2000 and 1999	GCS-61
Notes to Consolidated Financial Statements	GCS-64
Report of Independent Accountants	GCS-132

GCS-1

GENZYME CORPORATION

CONSOLIDATED SELECTED FINANCIAL DATA

        These selected financial data have been derived from our audited consolidated financial statements. You should read the following information in conjunction with our audited consolidated financial statements and related notes contained elsewhere in this annual report. These selected financial data may not be indicative of our future financial condition due to the risks and uncertainties described under the caption "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results" below.

        We have three series of common stock—Genzyme General Division common stock, which we refer to as "Genzyme General Stock," Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," and Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock." We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specified subset of our business operations and its allocated assets, rather than operations and assets of our entire company. The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to those corresponding divisions are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from that division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to each series of stock are based on the income or losses attributable to each corresponding division, we provide financial statements and management's discussion and analysis for the corporation and each of our divisions to aid investors in evaluating our performance and the performance of each of our divisions.

        While each tracking stock is designed to reflect a division's performance, it is common stock of Genzyme Corporation and not of a division. Our divisions are not separate companies or legal entities, and therefore do not and cannot issue stock. Holders of tracking stock have no specific rights to assets allocated to the corresponding division. We continue to hold title to all of the assets allocated to the corresponding division and are responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to any division. Holders of each tracking stock, as common stockholders are, therefore, subject to the risks of investing in the businesses, assets and

GCS-2

liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of each tracking stock would only have the rights of common stockholders in the combined assets of Genzyme.

        In November 2001, we sold the Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery, for $15.9 million in net cash. The purchaser acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a carrying value of approximately $41.0 million net cash at the time of the sale. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery in connection with this sale. We also recorded a related tax benefit of $4.7 million in our consolidated financial statements.

        On September 26, 2001, we acquired all of the outstanding capital stock of Novazyme Pharmaceuticals, Inc., a privately-held company engaged in the development of biotherapies for the treatment of lysosomal storage disorders, or LSDs, for an initial payment of approximately 2.6 million shares of Genzyme General Stock valued at $110.6 million. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products for the treatment of LSDs that employ certain of Novazyme's technologies. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme common stock on an as-converted basis. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Novazyme are included in our consolidated financial statements and the combined financial statements of Genzyme General from the date of acquisition.

        On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock that we had not previously acquired. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock, valued at approximately $9.5 million, as consideration. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Accordingly, the results of operations of Focal are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from the date of acquisition.

        On June 1, 2001, we acquired Wyntek Diagnostics, Inc., a privately-held company, engaged in the business of developing and manufacturing products for rapid testing for infectious disease and pregnancy, for $65.0 million of cash. We accounted for the acquisition as a purchase and allocated it to Genzyme General. Accordingly, the results of operations of Wyntek are included in our consolidated financial statements and the combined financial statements of Genzyme General from the date of acquisition.

        In January 2001, we acquired the outstanding Class A limited partnership interests in Genzyme Development Partners, L.P. (GDP), a limited partnership engaged in developing, producing and commercializing Sepra products, for an aggregate of $25.7 million plus royalties on sales of certain Sepra products for ten years. In August 2001, we purchased the remaining outstanding GDP limited partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus additional royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as

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purchases and allocated them to Genzyme Biosurgery. Accordingly, the results of operations of GDP are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

        On December 18, 2000, we acquired Biomatrix, Inc., a publicly-held company engaged in the development and manufacture of viscoelastic biomaterials for use in orthopaedic and other medical applications for an aggregate purchase price of $482.4 million. At the time of the merger, we created Genzyme Biosurgery as a new division. We re-allocated the businesses of two of our then-existing divisions—Genzyme Surgical Products and Genzyme Tissue Repair—to Genzyme Biosurgery and allocated the acquired businesses of Biomatrix to Genzyme Biosurgery. As a result of this transaction, we amended our charter to create Biosurgery Stock and eliminate Surgical Products Stock and Tissue Repair Stock. Each outstanding share of, or option to purchase, Surgical Products Stock was converted into the right to receive 0.6060 of a share of, or option to purchase, Biosurgery Stock and each outstanding share of, or option to purchase, Tissue Repair Stock was converted into the right to receive 0.3352 of a share of, or option to purchase, Biosurgery Stock. We accounted for the acquisition as a purchase and, accordingly, the results of operations of Biomatrix are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from the date of acquisition.

        On December 14, 2000, we acquired GelTex Pharmaceuticals, Inc., a publicly-held company engaged in developing therapeutic products based on polymer technology, for an aggregate purchase price of approximately $1.1 billion, of which we paid $515.2 million in cash and approximately 15.8 million in shares of Genzyme General Stock valued at $491.2 million. We accounted for the acquisition as a purchase and allocated it to Genzyme General. Accordingly, the results of operations of GelTex are included in our consolidated financial statements and the combined financial statements of Genzyme General from the date of acquisition.

        As part of the acquisition of GelTex, we acquired all of GelTex's ownership interest in RenaGel LLC, our joint venture with GelTex. Prior to the acquisition of GelTex, we accounted for our investment in RenaGel LLC under the equity method of accounting. These summary financial statements reflect the consolidation of RenaGel LLC into our financial statements and account for our purchase of GelTex's 50% interest in the joint venture using the purchase method of accounting.

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CONSOLIDATED STATEMENTS OF OPERATIONS DATA

				For the Years Ended December 31,
				2001			2000			1999			1998			1997
				(Amounts in thousands)
Revenues:
	Net product sales			$	1,110,254		$	811,897		$	683,482		$	613,685		$	529,927
	Net service sales				98,370			84,482			79,448			74,791			67,158
	Revenues from research and development contracts:
		Related parties			3,279			509			2,012			5,745			8,356
		Other			11,727			6,432			7,346			15,114			3,400
			Total revenues		1,223,630			903,320			772,288			709,335			608,841
Operating costs and expenses:
	Cost of products sold				307,425			232,383			182,337			211,076			206,028
	Cost of services sold				56,173			50,177			49,444			48,586			47,289
	Selling, general and administrative(1)				424,640			264,551			242,797			215,203			200,476
	Research and development (including research and development related to contracts)				264,004			169,478			150,516			119,005			89,558
	Amortization of intangibles				121,124			22,974			24,674			24,334			17,245
	Purchase of in-process research and development(2)				95,568			200,191			5,436			—			7,000
	Charge for impaired asset(3)				—			4,321			—			—			—
		Total operating costs and expenses			1,268,934			944,075			655,204			618,204			567,596
Operating income (loss)					(45,304	)		(40,755	)		117,084			91,131			41,245
Other income (expenses):
	Equity in net loss of unconsolidated affiliates				(35,681	)		(44,965	)		(42,696	)		(29,006	)		(12,258	)
	Gain on affiliate sale of stock(4)				212			22,689			6,683			2,369			—
	Gain (loss) on investments in equity securities(5)				(25,996	)		15,873			(3,749	)		(6	)		—
	Minority interest				2,259			4,625			3,674			4,285			—
	Gain (loss) on sale of product line(6)				(24,999	)		—			8,018			31,202			—
	Other(7)				(2,205	)		5,188			14,527			—			(2,000	)
	Investment income				50,504			45,593			36,158			25,055			11,409
	Interest expense				(37,133	)		(15,710	)		(21,771	)		(22,593	)		(12,667	)
		Total other income (expenses)			(73,039	)		33,293			844			11,306			(15,516	)
Income (loss) before income taxes					(118,343	)		(7,462	)		117,928			102,437			25,729
Benefit from (provision for) income taxes					2,020			(55,478	)		(46,947	)		(39,870	)		(12,100	)
Net income (loss) before cumulative effect of change in accounting principle				$	(116,323	)	$	(62,940	)	$	70,981		$	62,567		$	13,629
Cumulative effect of change in accounting principle, net of tax(8)					4,167			—			—			—			—
Net income (loss)				$	(112,156	)	$	(62,940	)	$	70,981		$	62,567		$	13,629

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CONSOLIDATED STATEMENTS OF OPERATIONS DATA (Continued)

		For the Years Ended December 31,
		2001			2000			1999			1998			1997
		(Amounts in thousands, except per share amounts)
Net income (loss) per share:
Allocated to Genzyme General Stock(9,10,11,13,14):
	Net income before cumulative effect of change in accounting principle	$	3,879		$	85,956		$	142,077		$	133,052		$	76,642
	Cumulative effect of change in accounting principle, net of tax		4,167			—			—			—			—
	Genzyme General net income		8,046			85,956			142,077			133,052			76,642
	Genzyme Surgical Products net loss		—			—			(27,523	)		(49,856	)		(29,740	)
	Tax benefit allocated from Genzyme Biosurgery		24,593			28,023			26,994			34,330			27,778
	Tax benefit allocated from Genzyme Molecular Oncology		11,904			7,476			7,812			3,527			2,755
	Net income allocated to Genzyme General Stock	$	44,543		$	121,455		$	149,360		$	121,053		$	77,435
Net income per share of Genzyme General Stock:
	Basic:
	Net income per share before cumulative effect of change in accounting principle	$	0.20		$	0.71		$	0.90		$	0.77		$	0.51
	Per share cumulative effect of change in accounting principle(8)		0.02			—			—			—			—
	Net income per share allocated to Genzyme General Stock	$	0.22		$	0.71		$	0.90		$	0.77		$	0.51
	Diluted:
	Net income per share before cumulative effect of change in accounting principle	$	0.19		$	0.68		$	0.85		$	0.74		$	0.49
	Per share cumulative effect of change in accounting principle(8)		0.02			—			—			—			—
	Net income per share allocated to Genzyme General Stock	$	0.21		$	0.68		$	0.85		$	0.74		$	0.49
Weighted average shares outstanding:
	Basic		202,221			172,263			166,185			158,127			153,061
	Diluted		211,176			179,366			186,456			171,643			157,850
Allocated to Biosurgery Stock(10,12):
	Genzyme Biosurgery net loss	$	(145,170	)	$	(87,636	)
	Allocated tax benefit		18,189			448
	Net loss allocated to Biosurgery Stock	$	(126,981	)	$	(87,188	)
	Net loss per share of Biosurgery Stock—basic and diluted	$	(3.34	)	$	(2.40	)
	Weighted average shares outstanding		37,982			36,359
Allocated to Molecular Oncology Stock(10,13):
	Net loss	$	(29,718	)	$	(23,096	)	$	(28,832	)	$	(19,107	)	$	(19,578	)
	Net loss per share of Molecular Oncology Stock—basic and diluted	$	(1.82	)	$	(1.60	)	$	(2.25	)	$	(3.81	)	$	(4.64	)
	Weighted average shares outstanding		16,350			14,446			12,826			5,019			3,929
Allocated to Surgical Products Stock (10,12,14):
	Net loss				$	(54,748	)	$	(20,514	)
	Net loss per share of Surgical Products Stock—basic and diluted				$	(3.67	)	$	(1.38	)
	Weighted average shares outstanding					14,900			14,835
Allocated to Tissue Repair Stock(10,12):
	Net loss				$	(19,833	)	$	(30,040	)	$	(40,386	)	$	(45,984	)
	Net loss per share of Tissue Repair Stock—basic and diluted				$	(0.69	)	$	(1.26	)	$	(1.99	)	$	(3.07	)
	Weighted average shares outstanding					28,716			23,807			20,277			14,976

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CONSOLIDATED BALANCE SHEET DATA

	December 31,
	2001		2000		1999		1998		1997
	(Amounts in thousands)
Cash and investments	$	1,121,258	$	639,640	$	652,990	$	575,729	$	246,341
Working capital		566,798		559,652		592,249		417,116		350,822
Total assets		3,935,745		3,318,100		1,787,282		1,688,854		1,295,453
Long-term debt, capital lease obligations and convertible debt(15)		852,555		685,137		295,702		387,993		171,181
Stockholders' equity		2,609,189		2,175,141		1,356,392		1,172,535		1,012,050

        There were no cash dividends paid.

(1)

Selling, general and administrative expenses for 2001 include $27.0 million of charges resulting from Pharming Group N.V.'s decision to file for and operate under a court supervised receivership.

(2)

Charges for in-process research and development were incurred in connection with the following acquisitions:

•

2001—$86.8 million from the acquisition of Novazyme and $8.8 million from the acquisition of Wyntek;

•

2000—$118.0 million from the acquisition of GelTex and $82.1 million from the acquisition of Biomatrix;

•

1999—$5.4 million from the acquisition of Peptimmune, Inc.; and

•

1997—$7.0 million from the acquisition of PharmaGenics, Inc.

(3)

Represents a charge to write off abandoned equipment at our Springfield Mills manufacturing facility in the United Kingdom.

(4)

During 2000, in accordance with our policy pertaining to affiliate sales of stock, we recorded gains of $22.7 million relating to public offerings of common stock by our unconsolidated affiliate, Genzyme Transgenics Corporation. In 2001, 1999, and 1998 our gain on affiliate sale of stock represents the gain on our investment in Genzyme Transgenics as a result of Genzyme Transgenics' various issuance's of additional shares of its common stock.

(5)

Loss on investments in equity securities in 2001 includes a charge of $8.5 million to write off our investment in Pharming Group, N.V., a charge of $11.8 million to write down our investment in Cambridge Antibody Technology Group plc and a $4.5 million charge to write down our investment in Targeted Genetics Corporation. We wrote down these investments because we considered the decline in their fair value to be other than temporary. In 2000, we recorded gains of $16.4 million upon the sale of a portion of our investment in Genzyme Transgenics common stock and $7.6 million relating to our investment in Celtrix Pharmaceuticals, Inc. when it was acquired in a stock-for-stock transaction. In 2000, we also recorded a charge of $7.3 million to write down our investment in Focal common stock.

(6)

Loss on sale of product line of $25.0 million in 2001 represents the loss related to the sale of our Snowden-Pencer line of surgical instruments in the fourth quarter of 2001. Gain on sale of product line in 1999 includes $7.5 million for the payment of a note receivable that we received as partial

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consideration for the sale of Genetic Design, Inc. to Laboratory Corporation of America in 1996, and $0.5 million relating to the sale of our immunochemistry business assets to an operating unit of Sybron Laboratory Products Corp. Gain on sale of product line of $31.2 million in 1998 relates to the sale of our research products business assets to Techne Corporation.

(7)

Other income in 2000 includes a $5.1 million payment received in connection with the settlement of a lawsuit. Other income in 1999 includes the receipt of a $14.4 million payment associated with the termination of our agreement to acquire Cell Genesys, Inc., net of acquisition related expenses.

(8)

On January 1, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative-effect adjustment of $4.2 million, net of tax, in our consolidated statements of operations to record the fair value of certain warrants held on January 1, 2001.

(9)

Until the distribution of Surgical Products Stock on June 28, 1999, Genzyme Surgical Products' losses were included in the determination of income allocated to Genzyme General Stock.

(10)

To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Genzyme General Stock is defined in our charter as the net income or loss of Genzyme General determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies. Earnings attributable to Biosurgery Stock and Molecular Oncology Stock are defined similarly and, therefore, are based on the net income or loss of the corresponding division.

(11)

Reflects the two-for-one split of Genzyme General Stock on June 1, 2001.

(12)

We created Genzyme Biosurgery on December 18, 2000. Prior to this date, the operations allocated to Genzyme Biosurgery were included in the operations allocated to our then-existing divisions Genzyme Surgical Products and Genzyme Tissue Repair and as of that date, the operations of Genzyme Surgical Products and Genzyme Tissue Repair ceased. Net loss per share of Biosurgery Stock for 2000 is calculated using the net loss allocated to Biosurgery Stock for the period December 19, 2000 through December 31, 2000 and the weighted average shares of Biosurgery Stock outstanding during the same period. Loss per share data are not presented for Genzyme Biosurgery for the period from January 1, 2000 to December 18, 2000 or for the years ended December 31, 1999, 1998 and 1997 as there were no shares of Biosurgery Stock outstanding during those periods.

(13)

We created Genzyme Molecular Oncology on June 18, 1997. Prior to this date, Genzyme Molecular Oncology's losses were included in the determination of income allocated to Genzyme General. Net loss per share of Molecular Oncology Stock for 1997 is calculated using the net loss allocated to Genzyme Molecular Oncology for the period June 18, 1997 through December 31, 1997 and the weighted average shares outstanding during the same period. Loss per share data are not presented for Genzyme Molecular Oncology for the period from January 1, 1997 to June 17, 1997, as there were no shares of Molecular Oncology Stock outstanding during that period.

(14)

We created Genzyme Surgical Products on June 28, 1999. Prior to this date, the operations of Genzyme Surgical Products were included in the operations allocated to Genzyme General and, therefore, in the net income allocated to Genzyme General Stock. Loss per share data are not presented for Genzyme Surgical Products for the years ended December 31, 1997 and 1998 or for

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the period from January 1, 1999 to June 28, 1999, as there were no shares of Surgical Products Stock outstanding during those periods.

(15)

Long-term debt, capital lease obligations and convertible debt: at December 31, 2001 consists primarily of $575.0 million in principal of our 3% convertible subordinated debentures due May 2021, a $25.0 million capital lease obligation and $234.0 million in principal drawn under our credit facility; at December 31, 2000 consists primarily of $250.0 million in principal of our 5¹/4% convertible subordinated notes, $368.0 million of debt drawn under our revolving credit facility, and a $25.0 million capital lease obligation; at December 31, 1999 and 1998 consists primarily of $250.0 million in principal of 5¹/4% convertible subordinated notes; and at December 31, 1997 consists primarily of $118.0 million outstanding under a revolving credit facility.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME CORPORATION
AND SUBSIDIARIES' FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

        This discussion contains forward-looking statements. Actual results could differ materially from those anticipated by the forward-looking statements due to the risks and uncertainties described under the caption "Factors Affecting Future Operating Results" below. You should consider carefully each of these risks and uncertainties in evaluating our financial condition and results of operations. We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements except as required by law.

        We are a biotechnology company that develops innovative products and services for significant unmet medical needs. We have three operating divisions:

•

Genzyme General, which develops and markets:



•

therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and other specialty therapeutics;



•

diagnostic products, with a focus on in vitro diagnostics; and



•

other products and services, such as genetic testing services and pharmaceutical drug materials;



•

Genzyme Biosurgery, which develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedic and cardiothoracic markets; and



•

Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        We have three series of common stock—Genzyme General Division common stock, which we refer to as "Genzyme General Stock," Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock" and Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock." We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specific subset of our business operations and its allocated assets, rather than operations and assets of our entire company. The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to those corresponding divisions are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

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        We prepare our consolidated financial statements in accordance with generally accepted accounting principles. We present financial information and accounting policies specific to the corporation and our operating divisions in the accompanying consolidated financial statements. Note A., "Summary of Significant Accounting Policies," to our accompanying consolidated financial statements contains a summary of our accounting policies.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from that division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to each series of stock are based on the income or losses attributable to each corresponding division, we include financial statements and management's discussion and analysis for the corporation as well as for each of our divisions to aid investors in evaluating our performance and the performance of each of our divisions. You should read this discussion and analysis of our financial position and results of operations in conjunction with those consolidated financial statements and related notes, which are included in this annual report.

        While each tracking stock is designed to reflect a division's performance, it is common stock of Genzyme Corporation and not of a division. Our divisions are not separate companies or legal entities and therefore do not and cannot issue stock. Holders of tracking stock have no specific rights to assets allocated to the corresponding division. Genzyme Corporation continues to hold title to all of the assets allocated to each division and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to any division. Holders of each tracking stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of each tracking stock would only have the rights of common stockholders in the combined assets of Genzyme.

Disposition

        In November 2001, we sold the Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovasclar surgery, for $15.9 million in net cash. The purchaser acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a net carrying value of approximately $41.0 million at the time of the sale. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery in connection with this sale. We also recorded a related tax benefit of $4.7 million in our consoldiated financial statements.

Acquisitions

        In September 2001, we acquired all of the outstanding capital stock of Novazyme Pharmaceuticals, Inc., a privately-held developer of biotherapies for the treatment of lysosomal storage disorders, or LSDs, for an initial payment of approximately 2.6 million shares of Genzyme General Stock, valued at $110.6 million. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two

GCS-11

additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products for the treatment of LSDs that employ certain of Novazyme's technologies. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme common stock on an as-converted basis. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Novazyme are included in our consolidated financial statements and the combined financial statements of Genzyme General from September 26, 2001, the date of acquisition.

        In June 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock that we had not previously acquired. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as consideration, valued at approximately $9.5 million. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Accordingly, the results of operations of Focal are included in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery from June 30, 2001, the date of acquisition.

        In June 2001, we acquired all of the outstanding capital stock of privately-held Wyntek Diagnostics, Inc. for $65.0 million in cash. Wyntek is a provider of high quality point of care rapid diagnostic tests for pregnancy and infectious diseases. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Wyntek are included in our consolidated financial statements and in the combined financial statements of Genzyme General from June 1, 2001, the date of acquisition.

        In January 2001, we acquired the outstanding Class A limited partnership interests in Genzyme Development Partners, L.P. (GDP), a limited partnership engaged in developing, producing and commercializing Sepra products, for an aggregate of $25.7 million in cash plus royalties on sales of certain Sepra products for ten years. In August 2001, we purchased the remaining outstanding GDP limited partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, the results of operations of GDP are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

        In December 2000, we acquired Biomatrix, Inc., a public company engaged in the development and commercialization of viscoelastic products made of biological polymers called hylans for use in therapeutic medical applications and skin care for an aggregate purchase price of $482.4 million. We accounted for the acquisition as a purchase. Immediately prior to the acquisition, we combined two of our operating divisions, Genzyme Surgical Products and Genzyme Tissue Repair, to form a new division called Genzyme Biosurgery. We allocated the acquired assets and liabilities of Biomatrix to Genzyme Biosurgery. The combination of Genzyme Surgical Products and Genzyme Tissue Repair to form Genzyme Biosurgery did not result in any adjustments to the book values of the net assets of the divisions because they remained divisions of the same corporation. We present the financial statements of Genzyme Biosurgery as though the divisions had been combined for all periods presented, and include the operations of Biomatrix in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery from the date of acquisition.

        In connection with the formation of Genzyme Biosurgery, we created Genzyme Biosurgery Stock. Biosurgery Stock is designed to track the performance of our Genzyme Biosurgery division. We converted each outstanding share of Surgical Products Stock into 0.6060 of a share of Biosurgery Stock, and each outstanding share of Tissue Repair Stock into 0.3352 of a share of Biosurgery Stock. We

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converted all outstanding options to purchase Surgical Products Stock and Tissue Repair Stock into options to purchase Biosurgery Stock at the applicable conversion rate.

        In December 2000, we acquired GelTex, a public company engaged in developing therapeutic products based on polymer technology, for an aggregate purchase price of approximately $1.1 billion, which we paid $515.2 million in cash and 15.8 million in shares of Genzyme General Stock, valued at $491.2 million. We accounted for the acquisition as a purchase and allocated it to Genzyme General. Accordingly, the results of operations of GelTex are included in the combined financial statements of Genzyme General from December 14, 2000, the date of acquisition. As part of the acquisition of GelTex, we acquired GelTex's interest in RenaGel LLC, our joint venture with GelTex. Our consolidated financial statements and the combined financial statements of Genzyme General reflect the consolidation of RenaGel LLC from the date of acquisition of GelTex. Prior to the acquisition of GelTex, we accounted for our investment in RenaGel LLC under the equity method of accounting.

CRITICAL ACCOUNTING POLICIES

        The preparation of consolidated financial statements under generally accepted accounting principles requires us to make certain estimates and judgements that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in our financial statements. Our actual results could differ from these estimates under different assumptions and conditions.

        We believe that the following critical accounting policies affect the more significant judgements and estimates used in the preparation of our consolidated financial statements:

•

Policies Relating to Tracking Stocks;



•

Revenue Recognition;



•

Inventories;



•

Long-Lived Assets;



•

Asset Impairments; and



•

Marketable Securities Impairments.

Policies Relating to Tracking Stocks

Earnings per Share

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from that division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. However, subject to its fiduciary duties, our board of directors can, at its discretion, change the methods of allocating earnings to each series of common stock. We intend to allocate earnings using our current methods for the foreseeable future.

        If our board of directors decides to change the current method of allocating our earnings, or if we issue a new series or redeem an existing series of common stock, the earnings attributable to each series of our common stock could be materially different. Such a change could have an adverse impact on the earnings attributable to one or more series of our common stock, and the impact could be significant.

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Allocation of Revenue, Expenses, Assets, and Liabilities

        Our charter sets forth which operations and assets were initially allocated to each division and states that going forward the division will also include all business, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between our divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        Allocations to our divisions are based on one of the following methodologies:

        —specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to that division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to that division;

        —actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the service is performed on a cost basis. Such charges are generally based on direct labor hours;

        —proportionate usage—costs incurred which benefit more than one division are allocated based on management's estimate of the proportionate benefit each division receives. Such costs include facilities, legal, finance, human resources, executive and investor relations; or

        —board directed—programs and products, both internally developed and acquired, are allocated to divisions by the board of directors. The board also allocates long-term debt and strategic investments.

        Any future changes that our board of directors may make to the methods for allocating revenue, expenses, assets, and liabilities among our divisions could materially change the results of operations or the financial condition of a division.

Income Tax Allocation Policy

        If at the end of any fiscal quarter, 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 other divisions in proportion to their taxable income without any compensating payments or allocation to the division generating the benefit. Genzyme Biosurgery and Genzyme Molecular Oncology have not yet generated taxable income, and thus have not had the ability to use any projected annual tax benefits. Genzyme General has generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology. Consistent with our policy, we have allocated the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology to Genzyme General without making any compensating payments or allocations to the division that generated the benefit.

        We anticipate that the losses of Genzyme Biosurgery and Genzyme Molecular Oncology will decline in the future. As these losses decline, the tax benefits allocated from these divisions to

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Genzyme General will also decline. In addition, if our board of directors decided to change our tax allocation policy, it could reduce the tax benefits allocated to any division that is profitable at the time the change becomes effective, and reduce the earnings allocated to the associated series of tracking stock. Currently, Genzyme General is our only profitable division.

        Deferred tax assets and liabilities can arise from purchase accounting that relate to a division that does not satisfy the realizability criteria of SFAS No. 109, "Accounting for Income Taxes." Such deferred tax assets and liabilities are allocated to the division to which the acquisition was allocated. As a result, the periodic changes in the deferred tax assets and liabilities do not result in a tax expense or benefit to that division. However, the change in the deferred tax asset or liability is added to division net income for purposes of determining net income allocated to a tracking stock. If our board of directors modified the policy for allocating changes in these assets and liabilities, the income attributable to each series of tracking stock could be materially different.

Revenue Recognition

        We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, and title and risk of loss have passed to the customer. We recognize revenue from service sales when we have finished providing the service. We recognize revenue from research and development contracts over the term of the applicable contract and as we incur costs related to that contract. We recognize non-refundable, up-front license fees over the related performance period or at the time we have no remaining performance obligations.

        We receive royalties related to the manufacture, sale or use of our products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following quarter. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize revenue upon receipt of royalty statements from the licensee.

        The timing of product shipments and receipts can have a significant impact the amount of revenue recognized in a period. Also, some of our products are sold through distributors. Revenue could be adversely affected if distributor inventories increased to an excessive level. If this were to happen, we could experience reduced purchases in subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand, or expiration. We have invested in significant resources to track channel inventories in order to prevent distributor inventories from increasing to excessive levels.

        The risks and uncertainties regarding future revenue include our ability to manufacture sufficient amounts of our products. For example, we are currently dependent on third party manufacturers for the majority of the production of the raw material used in the production of Renagel phosphate binder as well as the tableting and capsulating process for Renagel finished goods. At the same time, we are rapidly expanding our worldwide manufacturing infrastructure in order to meet the projected demand for Renagel phosphate binder and all other products that are currently in our pipeline.

        We record allowances for product returns, and for any applicable third party contractual allowances, rebates, or discounts. These allowances are recorded as reductions of revenue. These allowances require us to make significant judgments and estimates, which could require adjustments in the future. Such adjustments could have a material effect on our reported revenues.

        We do not recognize revenue unless collectibility is reasonably assured. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

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Inventories

        We value inventories at cost or, if lower, fair value. We determine cost using the first-in, first-out method. We analyze our inventory levels quarterly and write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements. Inventory with a life in excess of its shelf life is disposed of and the related costs are written off. If actual market conditions are less favorable than those projected by management, additional inventory writedowns may be required.

        We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If a product is not approved for sale, it would result in the write-off of the inventory and a charge to earnings.

Long-Lived Assets

        In the ordinary course of our business, we incur substantial costs to purchase and construct property, plant and equipment. The treatment of costs to purchase or construct these assets depends on the nature of the costs and the stage of construction. Costs incurred in the initial design and evaluation phase, such as the cost of performing feasibility studies and evaluating alternatives, are charged to expense. Qualifying costs incurred in the committed project planning and design phase, and in the construction and installation phase, are capitalized as part of the cost of the asset. We stop capitalizing costs when an asset is substantially complete and ready for its intended use. Determining the appropriate period during which to capitalize costs, and assessing whether particular costs qualify for capitalization, requires us to make significant judgments. These judgments can have a material impact on our reported results.

        For products we expect to be commercialized, we capitalize the cost of validating new equipment for the underlying manufacturing process. We begin capitalization when we consider the product to have demonstrated technological feasibility, and end capitalization when the asset is substantially complete and ready for its intended use. Costs capitalized include incremental labor and direct material, and incremental fixed overhead and interest. Determining whether to capitalize validation costs requires judgment, and can have a significant impact on our reported results. Also, if we were unable able to successfully validate the manufacturing process for any future product, we would have to write-off to current operating expense any validation costs that had been capitalized during the unsuccessful validation process. To date, all of our manufacturing process validation efforts have been successful.

        We generally depreciate plant and equipment using the straight-line method over its estimated economic life, which ranges from 3 to 10 years. Determining the economic lives of plant and equipment requires us to make significant judgments that can materially impact our operating results. For certain specialized manufacturing plant and equipment, we use the units-of-production depreciation method. The units-of-production method requires us to make significant judgments and estimates, including estimates of the number of units that will be produced using the assets. There can be no assurance that our estimates are accurate. If our estimates require adjustment, it could have a material impact on our reported results.

        In accounting for acquisitions, we allocate the purchase price to the fair value of the acquired tangible and intangible assets, including acquired in-process research and development (IPR&D). This requires us to make several significant judgments and estimates. For example, we generally estimate the value of acquired intangible assets and IPR&D using a discounted cash flow model, which requires us to make assumptions and estimates about, among other things:

•

the time and investment that will be required to develop products and technologies;

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•

our ability to develop and commercialize products before our competitors develop and commercialize products for the same indications;



•

revenues that will be derived from the products; and



•

appropriate discount rates to use in the analysis.

        Use of different estimates and judgments could yield materially different results in our analysis, and could result in materially different asset values and IPR&D charges.

        As of December 31, 2001, there were approximately $1.5 billion of net intangible assets on our consolidated balance sheet. We amortize acquired intangible assets using the straight-line method over their estimated economic lives, which range from 1.5 to 40 years. Determining the economic lives of acquired intangible assets requires us to make significant judgment and estimates, and can materially impact our operating results.

Asset Impairments

        We periodically evaluate long-lived assets for potential impairment under SFAS 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of." We perform these evaluations whenever events or changes in circumstance suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•

a significant change in the manner in which an asset is used;



•

a significant decrease in the market value of an asset;



•

a significant adverse change in the Company's business or its industry; and



•

a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If we believe an indicator of potential impairment exists, we test to determine whether the impairment recognition criterion of SFAS No. 121 has been met. In evaluating long-lived assets for potential impairment, we make several significant estimates and judgments, including:

•

determining the appropriate grouping of assets at the lowest level for which cash flows are available;



•

estimating future cash flows associated with the asset or group of assets; and



•

determining an appropriate discount rate to use in the analysis.

        Use of different estimates and judgements could yield materially different results in our analysis, and could result in significantly different asset impairment charges.

        Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives. Unlike SFAS No. 121, goodwill impairment tests performed under SFAS No. 142 do not involve an initial test comparing the projected undiscounted cash flows to the carrying amount of the goodwill. Instead, SFAS No. 142 requires that goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value.

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        We will perform transitional impairment tests under SFAS No. 142 in 2002 for the $792.3 million of goodwill recorded as of December 31, 2001. For all of our acquisitions, various analysis, assumptions, and estimates were made at the time of acquisition specifically regarding product development, market conditions, and cash flows that were used to determine the valuation of goodwill and intangibles. The possibility exists that those estimates could prove to be inaccurate, which could result in an impairment of goodwill. Also, because the goodwill impairment test required by SFAS No. 142 is different than the test we had been required to perform under SFAS No. 121, transitional impairment tests performed under SFAS No. 142 may yield different results than previous tests performed under SFAS No. 121. This charge would be recorded as an expense to the income statement at the time of impairment. We anticipate that our goodwill impairment test in 2002 will result in an impairment loss recognition of between $80 million and $90 million, related mainly to our cardiothoracic reporting unit. This charge will be reflected in our consolidated statements of operations and the combined statements of operations for Genzyme Biosurgery for the quarter ended March 31, 2002.

Marketable Securities Impairments

        We invest in marketable securities as part of our strategy to align ourselves with technologies and companies that fit with Genzyme's future strategic direction. Most often we will collaborate on scientific programs and research with the issuer of the marketable securities. On a quarterly basis we review the fair market value of these marketable securities in comparison to historical cost.

        If the fair market value of a marketable security is less than our carrying value, we consider all available evidence in assessing when and if the value of the investment can be expected to recover to at least its historical cost. This evidence would include:

•

continued positive progress in the issuer's scientific programs;



•

ongoing activity in our collaborations with the issuer;



•

a lack of any other substantial company-specific adverse events causing declines in value; and



•

overall financial condition and liquidity of the issuer of the securities.

        If our review indicates that the decline in value is "other than temporary," we write-down our investment to the then current market value and record an impairment charge to our statements of operations. The determination of whether an unrealized loss is "other than temporary" requires significant judgment, and can have a material impact on our reported results.

RESULTS OF OPERATIONS

        The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.

Revenues

		2001		2000		1999		01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Product revenue		$	1,110,254	$	811,897	$	683,482	37	%	19	%
Service revenue			98,370		84,482		79,448	16	%	6	%
	Total product and service revenue		1,208,624		896,379		762,930	35	%	17	%
Research and development revenue			15,006		6,941		9,358	116	%	(26	)%
	Total revenues	$	1,223,630	$	903,320	$	772,288	35	%	17	%

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Product Revenue

        We derive product revenue from sales by Genzyme General of therapeutic, diagnostic and other products, including Cerezyme enzyme and Renagel phosphate binder, and sales by Genzyme Biosurgery of cardiothoracic, orthopaedics and biosurgical specialties, including Seprafilm adhesion barrier.

			2001		2000		1999		01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
			(Amounts in thousands, except percentage data)
Genzyme General:
	Therapeutics		$	772,297	$	600,304	$	488,705	29	%	23	%
	Diagnostic products			76,858		61,469		57,971	25	%	6	%
	Other			49,576		28,254		24,825	75	%	14	%
Genzyme Biosurgery:
	Cardiothoracic			69,118		76,406		77,966	(10	)%	(2	)%
	Orthopaedics			83,373		4,159		—	1,905	%	N/A
	Biosurgical specialties			59,032		41,305		34,015	43	%	21	%
		Total product revenues	$	1,110,254	$	811,897	$	683,482	37	%	19	%

2001 As Compared to 2000

Genzyme General—Therapeutics

        The increase in Therapeutics product revenue in 2001 was primarily due to increased sales of Renagel phosphate binder, which is used to reduce serum phosphorus levels in patients with end-stage renal disease on dialysis, and continued growth in sales of Cerezyme enzyme for the treatment of Type I Gaucher disease. We began recording revenues from Renagel phosphate binder during the second quarter of 2000 under an amended distribution arrangement with GelTex, which we acquired in December 2000. Prior to this amendment, revenues from Renagel phosphate binder were recorded by RenaGel LLC, our joint venture with GelTex, and were $8.0 million for the three month period ended March 31, 2000.

        Sales of Renagel phosphate binder for the year ended December 31, 2001 as compared to December 31, 2000 include sales of capsules and the 800 mg tablet formulation. We launched the tablet formulation in the United States during the third quarter of 2000. In the first quarter of 2001, the higher-than-anticipated demand for the 800 mg tablet formulation and certain production constraints resulted in a temporary shortage of this dosage form of Renagel phosphate binder. Patients taking the 800 mg tablets were shifted to an equivalent dose of 400 mg Renagel tablets or 403 mg Renagel capsules while we built an inventory of 800 mg tablets to support our re-launch of this dosage form in June 2001. Despite the temporary shortage of the 800 mg tablet formulation, sales of Renagel phosphate binder increased significantly in the year ended December 31, 2001 in comparison to the same period of 2000 due to accelerating adoption of the product by nephrologists, as evidenced by significant increases in both renewal prescriptions and new prescriptions. To support the increased demand for Renagel phosphate binder, we are in the process of expanding our manufacturing capacity in both Ireland and the United Kingdom. Renagel is sold primarily through a wholesale distribution channel. It is important for us to manage wholesaler inventory levels. Excess wholesaler inventory levels could lead to product returns due to overstocking, low end-user demand, or expiration. Our objective is to manage wholesale inventory levels to 4-6 weeks by the end of 2002.

        The steady growth in sales of Cerezyme enzyme for the year ended December 31, 2001 as compared to December 31, 2000 was primarily attributable to our continued identification of new Gaucher disease patients worldwide, coupled with significant investment in our global infrastructure

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that has continued to increase international sales of this product. Additionally, we continue to market Ceredase enzyme for the treatment of Gaucher disease, although we have successfully converted virtually all Gaucher disease patients to a treatment regimen using Cerezyme enzyme.

        Our results of operations are highly dependent on sales of Cerezyme enzyme and a reduction in revenue from sales of this product would adversely affect its results of operations. Revenue from Cerezyme enzyme would be impacted negatively if competitors developed alternative treatments for Gaucher disease and the alternative products gained commercial acceptance. We are aware of companies that have initiated efforts to develop competitive products. Oxford Glycosciences plc, for example, is developing Vevesca (OGT 918), a small molecule drug candidate for the treatment of Gaucher disease. OGT 918 has been granted orphan drug status in the United States for treatment in Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Gaucher disease. In 2001, Oxford Glycosciences submitted a Marketing Authorisation Application (MAA) to the European Agency for the Evaluation of Medicinal Products (EMEA), as well as a new drug application (NDA) to the FDA for OGT 918 for the oral treatment of type 1 Gaucher disease. Other companies may attempt to develop competitive products in the future. Although orphan drug status for Cerezyme enzyme, which provided us with exclusive marketing rights for Cerezyme enzyme in the United States, expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme enzyme until 2010 and the composition of Cerezyme enzyme as made by that process until 2013. The expiration of market exclusivity and orphan drug status in May 2001 will likely subject Cerezyme enzyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue.

        The following table provides information regarding the change in sales of our Gaucher disease therapies as a percentage of total product revenue during the periods presented:

		2001			2000			01/00 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Sales of Cerezyme/Ceredase enzymes		$	569,887		$	536,868		6	%
	% of total product revenue		51	%		66	%

        Although sales of our Gaucher disease therapies continue to increase, the decline as a percentage of total product revenue is a trend we expect will continue in the future. We expect that growth in the sales of Renagel phosphate binder will continue to increase, driven primarily by the accelerating adoption of the product by nephrologists worldwide.

        The continued growth in sales of Renagel phosphate binder will be dependent on several factors, including:

•

our ability to successfully expand manufacturing capacity;



•

our ability to manufacture sufficient quantities to meet demand; and



•

acceptance by the medical community of Renagel phosphate binder as the preferred treatment for elevated serum phosphorus levels in dialysis patients.

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        The following table provides information regarding the change in sales of Renagel phosphate binder as a percentage of total product revenue during the periods presented:

		2001			2000			01/00 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Sales of Renagel phosphate binder		$	176,921		$	47,891		269	%
	% of total product revenue		16	%		6	%

        Other therapeutics revenue for each period includes sales of Thyrogen hormone, which is an adjunctive diagnostic tool for well-differentiated thyroid cancer. Revenue for Thyrogen hormone increased 36% to $18.7 million for the year ended December 31, 2001 as compared to the year ended December 31, 2000 due primarily to increased market penetration. Additionally, Thyrogen hormone was launched in Europe in the fourth quarter of 2001 as a result of a positive opinion rendered in September 2001 by the Committee for Proprietary Medicinal Products of the European Medicines Evaluation Agency, which was necessary for commercial introduction of the product. Other therapeutics revenue also increased due to increased sales of Fabrazyme enzyme in Europe.

Genzyme General—Diagnostic Products

        Diagnostic products revenue for the year ended December 31, 2001 as compared to December 31, 2000 was due primarily to increased sales of infectious disease testing products and HDL and LDL cholesterol testing products. Also contributing to the increase for the year ending December 31, 2001 as compared to December 31, 2000 was the addition of sales of point of care rapid diagnostic tests for pregnancy and infectious diseases that we obtained through our June 2001 acquisition of Wyntek. Diagnostic product revenue also included royalties on product sales by Techne Corporation's biotechnology group.

Genzyme Biosurgery

        For Genzyme Biosurgery, cardiothoracic products include fluid management (chest drainage) systems, surgical closures, biomaterials, and instruments for conventional and minimally invasive cardiac surgery. The decrease in cardiothoracic product revenue in 2001 as compared to 2000 was due to decreased sales of chest drainage systems resulting from competitive pricing pressures in that market as well as our withdrawal from certain commodity suture lines in Europe. The decrease was offset, in part, by the continued growth in sales of minimally invasive cardiac surgery products and the sales revenue from FocalSeal-L surgical sealant. We added FocalSeal-L surgical sealant to the cardiothoracic product category in the third quarter of 2000 pursuant to a distribution and marketing agreement with Focal which, prior to our acquisition of Focal in June 2001, provided us with exclusive distribution rights for this product in North America.

        The orthopaedics product revenue increased in 2001 as compared to 2000 primarily due to the sales of Synvisc viscosupplementation product, which we added to the orthopaedics product category in December 2000 through our acquisition of Biomatrix.

        The increase in biosurgical specialties product revenue in 2001 as compared to 2000 was due primarily to increases in sales of Seprafilm bioresorbable membrane and Sepramesh biosurgical composite. An increase in sales of products sold to original equipment manufacturers and sales generated from Hylaform and skin care products, which were added to the biosurgical specialties product category in December 2000, also contributed to the overall increase in biosurgical specialties product revenue. The increase in sales was partially offset by the decrease in sales of instruments for plastic surgery due to the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001.

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2000 As Compared to 1999

Genzyme General—Therapeutics

        The increase in our product revenue for the year ended December 31, 2000 as compared to December 31, 1999, was primarily due to:

•

increased sales of Cerezyme enzyme, attributable to our continued identification of new Gaucher disease patients worldwide, coupled with significant investment in our global infrastructure; and



•

increased sales of Renagel phosphate binder, attributable to the accelerated adoption by nephrologists.

        For both 2000 and 1999, our product revenue consisted primarily of sales of Cerezyme enzyme and Ceredase enzyme, as indicated in the following table:

		2000			1999			00/99 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Sales of Cerezyme/Ceredase enzymes		$	536,868		$	478,358		12	%
	% of total product revenue		66	%		70	%

        The following table provides information regarding the change in sales of Renagel phosphate binder as a percentage of total product revenue during the periods presented:

		2000			1999		00/99 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Sales of Renagel phosphate binder		$	47,891		$	—	N/A
	% of total product revenue		6	%		N/A

        Other therapeutics revenue for the year ending December 31, 2000 compared to December 31, 1999 includes sales of Thyrogen hormone. Revenue for Thyrogen hormone increased 65% for the year ended December 31, 2000 as compared to December 31, 1999, due primarily to increased market penetration.

Genzyme General—Diagnostic Products

        The increase in diagnostic products revenue for the year ended December 31, 2000 as compared to December 31, 1999 was due primarily to increased sales of infectious disease testing products and HDL and LDL cholesterol testing products. Diagnostic product revenue also includes royalties on product sales by Techne Corporation's biotechnology group.

Genzyme Biosurgery

        The decrease in cardiothoracic product revenue in 2000 as compared to 1999 was due primarily to the competitive pricing pressures in the chest drainage market. These factors were offset, in part, by the continued growth in minimally invasive cardiothoracic products and the revenue generated from FocalSeal-L surgical sealant, which was added to the cardiothoracic product line in 2000.

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        The increase in orthopaedics revenue was due to the continued growth in sales of Synvisc viscosupplementation product, which was added to the orthopaedic line in 2000 as a result of our acquisition of Biomatrix.

        Biosurgical specialties revenue increased as a result of continued revenue growth in sales of Seprafilm bioresorbable membrane and Sepramesh biosurgical composite, which are used to limit the incidence and severity of post-operative adhesions. An increase in revenues from our Snowden-Pencer line of instruments for general and plastic surgery and products sold to original equipment manufacturers, including sutures, also contributed to the overall increase in biosurgical specialties product revenue.

Service Revenue

        We derive service revenue from three principal sources:

•

genetic testing services performed by Genzyme General;



•

Genzyme Biosurgery's Carticel chondrocytes for the treatment of cartilage damage; and



•

genomics services using Genzyme Molecular Oncology's SAGE gene expression technology.

	2001		2000		1999		01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Genzyme General	$	74,056	$	61,161	$	57,223	21	%	7	%
Genzyme Biosurgery		23,614		23,321		20,305	1	%	15	%
Genzyme Molecular Oncology		700		—		1,920	N/A		(100)	%
Total service revenues	$	98,370	$	84,482	$	79,448	16	%	6	%

2001 As Compared to 2000

        The increase in service revenue for the year ending December 31, 2001 as compared to December 31, 2000 was due to increased sales of genetic testing services attributable to expanded presence in the prenatal market and a broader test menu in oncology.

2000 As Compared to 1999

        The increase in service revenue for the year ending December 31, 2000 as compared to December 31, 1999 was due to increased sales of genetic testing services attributable to expanded presence in the prenatal market and a broader test menu in oncology, as well as increased sales of Carticel chondrocytes and Epicel skin grafts. The increase in sales of Carticel chondrocytes was a result of continued increases in the numbers of patients treated and surgeons trained as well as an increase in the number of insurance reimbursement approvals. Sales of genomics services decreased during this period as a result of a planned shift in the focus of the SAGE business in late 1999 from one in which Genzyme Molecular Oncology provided services for third parties to one in which it granted licenses to practice the technology.

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International Product and Service Revenue

        A substantial portion of our revenue was generated outside of the United States, as described in the following table. Most of this revenue was attributable to sales of Cerezyme enzyme. The following table shows international product and service revenue:

		2001			2000			1999			01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
International product and service revenue		$	424,361		$	350,996		$	311,080		21	%	13	%
	% of total product and service revenue		35	%		39	%		41	%

2001 As Compared to 2000

        International sales of Cerezyme enzyme increased 10% to $297.5 million in the year ended December 31, 2001 as compared to $270.6 million in the year ended December 31, 2000. Despite an approximate 3% decline in the average exchange rate of the Euro for the year ended December 31, 2001 as compared to the year ended December 31, 2000, international sales of Cerezyme enzyme increased for both periods due primarily to the continued identification of new Gaucher disease patients worldwide, coupled with significant investment in our global infrastructure.

        We began recording revenues from Renagel phosphate binder during the second quarter of 2000 under an amended distribution arrangement with GelTex, which we acquired in December 2000. Prior to this amendment, revenues from Renagel phosphate binder were recorded by RenaGel LLC, our joint venture with GelTex. International sales of Renagel phosphate binder increased 66% to $20.1 million in the year ended December 31, 2001 as compared to $6.9 million in the year ended December 31, 2000. The increase is attributable to:

•

the on-going launch of Renagel phosphate binder tablets in Europe;



•

the introduction of Renagel phosphate binder in Brazil; and



•

the expansion of the European Renagel phosphate binder sales forces.

        International product and service revenue as a percent of total product and service revenue decreased in the years ended December 31, 2001 and December 31, 2000 due primarily to increased sales of Renagel phosphate binder in the United States.

2000 As Compared to 1999

        International sales of Cerezyme enzyme increased 13% to $270.6 million in the year ended December 31, 2000 as compared to $240.5 million in the year ended December 31, 1999. Despite an approximate 13% decline in the average exchange rate of the Euro for the year ended December 31, 2000 as compared to the year ended December 31, 1999, international sales of Cerezyme enzyme increased for both periods due primarily to the continued identification of new Gaucher disease patients worldwide, coupled with significant investment in our global infrastructure.

        For the year ended December 31, 2000 we recorded $6.9 million in sales of Renagel phosphate binder internationally. We did not record revenues for this product in 1999. The addition of Renagel phosphate binder to the international mix was driven primarily by the accelerating adoption of the product by nephrologists worldwide and the significant progress made with the post-approval clinical development program.

GCS-24

        International product and service revenue as a percent of total product and service revenue decreased slightly in year ended December 31, 2000 as compared to December 31, 1999 due primarily to the addition of sales of Renagel phosphate binder in the United States in 2000.

MARGINS

		2001			2000			1999			01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Product margin		$	802,829		$	579,514		$	501,145		39	%	16	%
	% of total product revenue		72	%		71	%		73	%
Service margin		$	42,197		$	34,305		$	30,004		23	%	14	%
	% of total service revenue		43	%		41	%		38	%
Total gross margin		$	845,026		$	613,819		$	531,149		38	%	16	%
	% of total product and service revenue		70	%		68	%		70	%

2001 As Compared to 2000

Product Margin

        Product margin for the year ended December 31, 2001 as compared to December 31, 2000 increased primarily as a result of increased sales of Renagel phosphate binder, Cerezyme enzyme, Synvisc viscosupplementation product and point of care rapid diagnostic tests for pregnancy and infectious diseases that we obtained through our acquisition of Wyntek. The increase for the year ended December 31, 2001 was partially offset by charges to cost of products sold of $8.2 million relating to the increased basis of the inventory obtained in connection with our acquisition of GelTex.

        The increase in product margin as a percentage of product revenue for the year ended December 31, 2001 as compared to December 31, 2000 was attributable to a 37% increase in product revenue, driven primarily by increased sales of Cerezyme enzyme, Renagel phosphate binder and sales of point of care rapid diagnostic tests for pregnancy and infectious diseases that we obtained through our acquisition of Wyntek, partially offset by a 32% increase in the cost of products sold for the same period. We expect that in the future our product margin as a percentage of product revenue will trend slightly lower, primarily due to the lower margins normally attributable to Renagel phosphate binder, our building of additional manufacturing capacity in both the United Kingdom and Ireland, and a product mix shift as sales of diagnostics products and services continue to increase.

Service Margin

        Service margin for the year ended December 31, 2001 as compared to December 31, 2000 continued to increase, both in absolute numbers and as a percentage of total service revenue, primarily as a result of increased sales of our DNA and cancer testing services. The increase in service margin as a percentage of service revenue for the year ended December 31, 2001 as compared to December 31, 2000 was attributable to a 16% increase in service revenue, driven primarily by increased sales of genetic testing services attributable to expanded presence in the prenatal market and a broader test menu in oncology, partially offset by a 12% increase in the cost of services sold for the same period.

2000 As Compared to 1999

Product Margin

        The decrease in product margin as a percentage of product revenue for the year ended December 31, 2000 as compared to the year ended December 31, 1999 was attributable to an 19%

GCS-25

increase in product revenue, driven primarily by increased sales of both Cerezyme enzyme and Renagel phosphate binder, offset by a 27% increase in the cost of products sold for the same period.

Service Margin

        Service margin for the year ended December 31, 2000 as compared to December 31, 1999 increased primarily as a result of increased sales of our DNA and cancer testing services. Service margin as a percentage of service revenue for the year ended December 31, 2001 as compared to December 31, 2000 remained flat. This was primarily attributable to a 6% increase in service revenue, driven primarily by increased sales of genetic testing services resulting from an expanded presence in the prenatal market and a broader test menu in oncology, partially offset by a 1% increase in the cost of services sold for the same period.

Operating Expenses

2001 As Compared to 2000

        The increase in selling, general and administrative expenses for the year ended December 31, 2001, as compared to the year ended December 31, 2000, is primarily related to:

•

increased staffing to support the growth in several of our product lines;



•

increased expenditures to support the increased sales of Cerezyme enzyme, drive the growth in sales of Renagel phosphate binder and Thyrogen hormone, and for the launch of Fabrazyme enzyme in Europe;



•

expenses associated with the consolidation of Genzyme Biosurgery's European operations;



•

increased patent litigation costs; and



•

the addition of expenses from GelTex, Biomatrix, Wyntek, Focal and Novazyme.

        Selling, general and administrative expenses for the year ended December 31, 2001 included $27.0 million of charges resulting from Pharming Group N.V.'s decision to file for and operate under a court-supervised receivership. Included was a write-off of the $10.2 million in principal and accrued interest due to us under the 7% senior convertible note issued to us by Pharming Group and a charge of $16.8 million representing our commitment to fund all of the operations of the LLC, which in turn is legally obligated to supply transgenic human alpha-glucosidase enzyme until the nine patients currently enrolled in the clinical trial for this product can be transitioned to a CHO-cell product. As a result of Pharming Group's failure to make payments to fund our joint venture for the development of a CHO-cell product for Pompe disease under a strategic alliance agreement, we terminated this agreement in August and have assumed full operational and financial responsibility for the development of the CHO-cell product. Our joint venture with Pharming Group covering a transgenic product for Pompe disease remains in place, however, we do not intend to commercialize this product.

        The increase in research and development expenses for the year ended December 31, 2001, as compared to the year ended December 31, 2000, is primarily attributable to:

•

the cost of post-marketing clinical development efforts for Renagel phosphate binder, which was included in equity in net loss of unconsolidated affiliates before we acquired GelTex;



•

the addition of spending on the C. difficile colitis, DENSPM, iron chelation, oral mucositis, anti-obesity, and GT102-279 programs as a result of our acquisition of GelTex;



•

increased spending on our program to develop Fabrazyme enzyme for the treatment of Fabry disease;

GCS-26

•

the addition of spending on the Synvisc viscosupplementation product through our acquisition of Biomatrix;



•

the addition of spending on FocalSeal-L surgical sealant through our acquisition of Focal;



•

increased spending on our orthopaedic and cardiothoracic development programs; and



•

increased spending on other internal programs.

        Research and development expenses for the year ended December 31, 2001, reflect a charge of $4.7 million, representing the net amount owed by Pharming Group to the CHO-cell product joint venture we previously formed with Pharming Group that we believe is uncollectable.

        In connection with our acquisition of GelTex in December 2000, we converted options to purchase shares of GelTex common stock into options to purchase shares of Genzyme General Stock. In accordance with Financial Accounting Standards Board (FASB) Interpretation No. 44, at the date of acquisition we allocated the intrinsic value for the unvested portion of these options of $10.2 million to deferred compensation, a component of stockholders' equity. This amount was amortized to operating expense over the vesting period of one year from the date of acquisition. We allocated the expense to the appropriate expense categories of our statements of operations based on the functional responsibility of each employee or option holder. For the year ended December 31, 2001, we recorded $9.7 million of compensation expense related to these options, of which $7.9 million was charged to research and development expense and $1.8 million was charged to selling, general and administrative expense. For the year ended December 31, 2000, we recorded $0.5 million of compensation expense related to these options, of which $0.4 million was charged to research and development expense and $0.1 million was charged to selling, general and administrative expense. The deferred compensation was fully amortized by December 31, 2001.

        In connection with our acquisition of Novazyme in September 2001, we converted options, warrants and rights to purchase shares of Novazyme common stock into options, warrants and rights to purchase shares of Genzyme General Stock. In accordance with FASB Interpretation No. 44, at the date of acquisition we allocated the $2.6 million intrinsic value of the portion of the unvested options related to the future service period to deferred compensation. We are amortizing this amount to operating expense over the remaining vesting period of 22 months from the date of acquisition. We are allocating the expense to the appropriate expense categories of our consolidated statements of operations based on the functional responsibility of each option holder. For the year ended December 31, 2001, we recorded $0.4 million of compensation expense related to these options, of which $0.2 million was charged to selling, general and administrative expenses and $0.2 million was charged to research and development expense.

2000 As Compared to 1999

        The increase in selling, general and administrative expenses for the year ended December 31, 2000 as compared to the year ended December 31, 1999, is primarily related to:

•

increased staffing to support the growth in several of Genzyme General's product lines, including Renagel phosphate binder;



•

increased expenditures to support the increased sales of Cerezyme enzyme and Thyrogen hormone; and



•

increased spending for marketing of the cardiothoracic products.

        In the fourth quarter of 2000, Genzyme General reversed $2.6 million of our allowance for bad debt, much of which had been accrued during 2000. This reversal was made due to changes in circumstances regarding, and estimates for, certain domestic and foreign receivables.

GCS-27

        The increase in research and development expenses for the year ended December 31, 2000, as compared to the year ended December 31, 1999, is primarily attributable to:

•

a charge of $19.5 million during the first quarter of 2000 for the initial amounts payable to Synpac (North Carolina), Inc. under a license agreement granted to us by Synpac to develop and commercialize a human alpha-glucosidase enzyme replacement therapy for Pompe disease, offset by a $10.3 million research and development reimbursement from Pharming Group;



•

a charge of $2.0 million in the third quarter of 2000, representing the 15% premium to the market price that we paid for ordinary shares of Cambridge Antibody Technology Group plc concurrently with entry into a strategic alliance to develop and commercialize human monoclonal antibodies directed against TGF-beta;



•

increased spending on our program to develop Fabrazyme enzyme for the treatment of Fabry disease;



•

increased costs in connection with the operations of ATIII LLC, our consolidated joint venture with Genzyme Transgenics Corporation to develop and commercialize recombinant human antithrombin III; and



•

increased spending in our cell and gene therapy programs.

Amortization of Intangibles

        The increase in amortization of intangibles for the year ended December 31, 2001, is primarily attributable to intangible assets acquired in connection with our acquisitions of:

•

GelTex and Biomatrix in December 2000;



•

Genzyme Development Partners, L.P. limited partnership interests in January and August 2001; and



•

Focal and Wyntek in June 2001.

Purchase of In-Process Research and Development

Novazyme

        In September 2001, in connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly, we have allocated to IPR&D and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. Genzyme General recorded this amount as a charge to expense in its combined statement of operations for the year ended December 31, 2001.

        Our management assumes responsibility for determining the IPR&D valuation and engaged an independent third-party appraisal company to assist in the valuation of the intangible assets acquired. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the probability-adjusted net cash flows expected to result once the technology has reached technological feasibility and is utilized in the treatment of certain LSDs. A discount rate of 16% was applied to estimate the present value of these cash flows and is consistent with the overall risks of the platform technology. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology and adjusted the future cash flows to reflect the contribution of value from these assets.

GCS-28

        In the allocation of purchase price to the IPR&D, the concept of alternative future use was specifically considered. The platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the treatment of LSDs. We currently estimate that it will take approximately three years and an investment of approximately $75 million to $100 million to complete the development of, obtain approval for and commercialize the first product based on this technology platform.

Wyntek

        In June 2001, in connection with our acquisition of Wyntek, we allocated approximately $8.8 million of the purchase price to IPR&D. Genzyme General recorded this amount as a charge to expense in its combined statement of operations for the year ended December 31, 2001.

        We estimated the fair value assigned to purchased IPR&D by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility. We applied a discount rate of 25% to estimate the present value of these cash flows, which is consistent with the risks of the project. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased IPR&D was the amount attributable to the efforts of Wyntek up to the time of acquisition. In the allocation of purchase price to IPR&D, the concept of alternative future use was specifically considered for the program under development. There are no alternative uses for the in-process program in the event that the program fails in clinical trials or is otherwise not feasible.

        Wyntek currently is developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. These are the leading markers for the diagnosis of acute myocardial infarction. The product consists of a mobile, stand-alone, quantitative diagnostic device and a reaction strip that detects disease specific marker proteins. The intended use of the device is to read reaction strips at the patient's bedside or in an emergency room setting. We expect to launch this product during the second half of 2002.

GelTex

        In December 2000, in connection with the acquisition of GelTex, we allocated approximately $118.0 million of the purchase price to IPR&D, which Genzyme General recorded as a charge to expense in its combined statement of operations for the year ended December 31, 2000. As of December 31, 2001, the technological feasibility of the projects had not yet been reached.

GCS-29

        Below is a brief description of the GelTex IPR&D projects, including an estimation of when management believes Genzyme General may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication	Development Status at December 31, 2001	Value at Acquisition Date (in millions)		Estimated Cost to Complete (in millions)		Year of Expected Product Launch
Renagel phosphate binder	Next stage non-absorbed polymer phosphate binder for the treatment of hyperphospatemia	•  Phase 4 trials ongoing in the U.S. •  Phase 3 trial ongoing in Japan	$	19.7	$	10.7	(1)
GT160-246	c. difficile colitis	Phase 2 trial ongoing		37.4		35.0	2006
Oral Iron Chelation	Iron overload disease	Approval to commence Phase 1 trials in Europe obtained 2001		15.7		26.5	2007
Fat absorption inhibitor	Anti-Obesity	Expected to file an IND in late 2002		17.8		40.0	2010
Polymer	Oral Mucositis	IND expected to be filed in the first quarter of 2003		17.8		30.0	2008
DENSPM	Psoriasis	Program cancelled during 2001; no further development planned		3.4		N/A	N/A
GT102-279	Second generation lipid-lowering compound	Program cancelled during 2001; no further development planned		6.2		N/A	N/A
			$	118.0	$	142.2

(1)

Clinical studies scheduled for completion in 2002, 2003 and 2004. Year of launch not estimable due to early stage of program.

Biomatrix

        In December 2000, in connection with our acquisition of Biomatrix, we allocated approximately $82.1 million to IPR&D, which Genzyme Biosurgery recorded as a charge to expense in its combined statement of operations for the year ended December 31, 2000. As of December 31, 2001, the technological feasibility of the Biomatrix IPR&D projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

GCS-30

        Below is a brief description of the Biomatrix IPR&D projects, including an estimation of when management believes we may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication	Development Status at December 31, 2001	Value at Acquisition Date (in millions)		Estimated Cost to Complete (in millions)	Year of Expected Product Launch
Visco-supplementation	Use of elastoviscous solutions and viscoelastic gels in disease conditions to supplement tissues and body fluids, alleviating pain and restoring normal function	•  Preclinical for knee indications •  Presubmission in Europe for hip indications	$	33.8	(1)	2002 to 2006
Visco-augmentation and Visco-separation	Use of viscoelastic gels to provide scaffolding for tissue regeneration and to separate tissues and decrease formation of adhesions and excessive scars after surgery.	•  Preclinical-gynecological pelvic indications •  Phase 2—spine indications •  Phase 3—abdominal indications		48.3	(1)	2003 to 2006
			$	82.1

(1)

Costs to complete are not estimable due to the early stage of these programs.

        Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once developed each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give you assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

Charge for Impaired Assets

        In 2000, we recorded a $4.3 million charge for abandoned equipment at our Springfield Mills manufacturing facility located in the United Kingdom. The write-off of equipment was related to the Sepra product line and did not have other alternative uses. We allocated this charge to Genzyme Biosurgery.

GCS-31

OTHER INCOME AND EXPENSES

		2001			2000			1999			01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliates		$	(35,681	)	$	(44,965	)	$	(42,696	)	(21	)%	5	%
Gain on affiliate sale of stock			212			22,689			6,683		(99	)%	240	%
Gain (loss) on investments in equity securities			(25,996	)		15,873			(3,749	)	(264	)%	523	%
Minority interest in net loss of subsidiary			2,259			4,625			3,674		(51	)%	26	%
Gain (loss) on sale of product line			(24,999	)		—			8,018		N/A		(100	)%
Other			(2,205	)		5,188			14,527		(143	)%	(64	)%
Investment income			50,504			45,593			36,158		11	%	26	%
Interest expense			(37,133	)		(15,710	)		(21,771	)	136	%	(28	)%
	Total other income (expense), net	$	(73,039	)	$	33,293		$	844		(319	)%	3,845	%

2001 As Compared to 2000

Equity in Net Loss of Unconsolidated Affiliates:

        We currently own approximately 26% of the common stock of Genzyme Transgenics and record our portion of its results in equity in net loss of unconsolidated affiliates.

        We record the results of the following joint ventures in equity in net loss of unconsolidated affiliates:

Joint Venture	Partner	Effective Date	Product/Indication	Genzyme Division
RenaGel LLC	GelTex (1)	June 1997	Renagel phosphate binder for the reduction of serum phosphorus in patients with end-stage renal disease	Genzyme General
BioMarin/ Genzyme LLC	BioMarin Pharmaceutical Inc.	September 1998	Aldurazyme enzyme for the treatment of mucopolysaccharidosis-I	Genzyme General
Pharming/ Genzyme LLC	Pharming Group N.V. (2,3)	October 1998	Human alpha-glucosidase for the treatment of Pompe disease (transgenic product)	Genzyme General
Genzyme/Pharming Alliance LLC	Pharming Group N.V. (2,4)	June 2000	Human alpha-glucosidase for the treatment of Pompe disease (produced using CHO cells)	Genzyme General
Diacrin/Genzyme LLC	Diacrin, Inc.	October 1996	Products using porcine fetal cells for the treatment of Parkinson's and Huntington's diseases	Genzyme Biosurgery (until May 1999); Genzyme General (after May 1999)

(1)

We acquired GelTex and the remaining 50% interest in RenaGel LLC in December 2000. RenaGel LLC was merged into GelTex effective October 1, 2001.

(2)

Since August 2001, Pharming Group N.V. has been operating under court-supervised receivership.

GCS-32

(3)

Beginning in August 2001, we became responsible for funding all of the operations of Pharming/Genzyme LLC, which in turn is legally obligated to supply transgenic human alpha-glucosidase enzyme until the patients currently enrolled in the clinical trial of this product can be transitioned to a CHO-cell product.

(4)

In August 2001, we terminated our strategic alliance with Pharming Group N.V. and certain of its subsidiaries for the development of a CHO-cell product for Pompe disease and assumed full operational and financial responsibility for the development of the CHO-cell product.

        Included in the year ended December 31, 2000 are losses from RenaGel LLC, in which we and GelTex each owned a 50% interest. Prior to our acquisition of GelTex in December 2000, we included our proportionate share of the results of RenaGel LLC in equity in net loss of unconsolidated affiliates. We acquired GelTex, including its 50% interest in RenaGel LLC, in December 2000. We have consolidated the results of RenaGel LLC in Genzyme General's combined financial statements from December 14, 2000, the date of our acquisition of GelTex. Our equity in the net losses of RenaGel LLC was $15.9 million for the year ended December 31, 2000.

        Excluding the losses of RenaGel LLC for the year ended December 31, 2000, the increase in our equity in net loss of unconsolidated affiliates for the year ended December 31, 2001 as compared to December 31, 2000 is primarily the result of:

•

a $5.9 million increase in losses from our joint venture with BioMarin;



•

a $1.3 million increase in losses from Genzyme/Pharming Alliance LLC, one of our joint ventures with Pharming Group (which we terminated in August 2001);



•

a $2.3 million increase in losses from Genzyme Transgenics; and



•

a $1.3 million increase in losses from Focal.

        The increased losses were offset in part by a $3.9 million decrease in losses from our joint venture with Diacrin and a $3.7 million decrease in losses from Pharming/Genzyme LLC. Also included in the year ended December 31, 2001 are losses from Genzyme/Pharming Alliance LLC, which was our joint venture with Pharming Group for the development of a CHO-cell derived product for the treatment of Pompe disease. We terminated our strategic alliance agreement with Pharming covering this joint venture in August 2001. As a result, we have included 100% of the losses of Genzyme/Pharming Alliance LLC since August 23, 2001. Beginning in August 2001, we became responsible for funding of the costs to produce transgenic alphaglucosidase and related clinical trial costs for Pharming/Genzyme LLC until the patients currently enrolled in the clinical trial of the product can be transitioned to a CHO-cell product.

        In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated this investment to Genzyme Biosurgery. We recorded in equity in net loss of unconsolidated affiliates our portion of the results of Focal. Our equity in net loss of unconsolidated affiliates increased in 2001 compared to 2000 in part because we did not account for our interest in Focal under the equity method in 2000. On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal in an exchange of shares of Biosurgery Stock for shares of Focal common stock.

Gain on Affiliate Sale of Stock

        In accordance with our policy pertaining to affiliate sales of stock we recorded the following due to the issuance by Genzyme Transgenics, an unconsolidated affiliate, of additional shares of Genzyme Transgenics common stock:

•

a gain of $0.2 million in 2001; and



•

gains of $22.7 million, and a net deferred tax expense of $3.9 million (net of a $3.4 million credit for the reversal of a valuation allowance on a deferred tax asset) in 2000.

GCS-33

        Our ownership interest in Genzyme Transgenics was approximately 26% as of December 31, 2001 and 2000.

Gain (Loss) on Investments in Equity Securities

        We recorded the following charges related to investments in equity securities for the year ended December 31, 2001:

•

In the quarter ended September 30, 2001, we recorded charges of $11.8 million in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group and $4.5 million in connection with our investment in the common stock of Targeted Genetics, because we considered the decline in the value of these investments to be other than temporary. Given the significance and duration of the declines as of the end of the quarter, we concluded that it was unclear over what period the recovery of the stock price for each of these investments would take place and, accordingly, that any evidence suggesting that the investments would recover to at least our purchase price was not sufficient to overcome the presumption that the current market price was the best indicator of the value of each of these investments.



•

In the quarter ended September 30, 2001, we recorded a charge of $8.5 million to write down our investment in Pharming Group common stock. In August 2001, Pharming Group announced that it would file for receivership in order to seek protection from its creditors.



•

In the quarter ended June 30, 2001, we recorded a $1.2 million charge to reflect the fair market value of our investment in Aronex. In April 2001, Antigenics announced that it had entered into a definitive merger agreement with Aronex. The merger was completed in July 2001. Under the terms of the merger agreement, we received 0.0594 of a share of Antigenics common stock for each share of Aronex common stock that we held.

        We recorded the following gains and losses on investments in equity securities for the year ended December 31, 2000:

•

In the quarter ended June 30, 2000, we recorded a gain of $5.5 million upon the sale of a portion of our investment in Genzyme Transgenics common stock. The tax effect of this gain was fully offset by the reversal of a $1.9 million valuation allowance related to previously recognized capital losses. In the third and fourth quarters of 2000, we recorded gains of $10.9 million and $1.3 million, upon additional sales of portions of our investment in Genzyme Transgenics common stock.



•

In the quarter ended June 30, 2000, we recorded a $7.6 million gain to reflect the fair market value of our investment in Celtrix Pharmaceuticals, Inc. Celtrix was acquired by Insmed Pharmaceuticals Inc. and our shares of Celtrix common stock were exchanged on a one-for-one basis for shares of Insmed common stock.



•

In the quarter ended December 31, 2000, we recorded a $7.3 million loss for the write down of our investment in the common stock of Focal because we considered the decline in the value of this investment to be other than temporary.

Minority Interest in Net Loss of Subsidiary

        As part of our combined direct (until July 2001) and indirect interest in ATIII LLC, our joint venture with Genzyme Transgenics for the development and commercialization of transgenic recombinant human antithrombin III (or ATIII), we consolidated the results of ATIII LLC and recorded Genzyme Transgenics' portion of the losses of that joint venture as minority interest. Minority interest increased for the year ended December 31, 2001 due to a change in the funding agreement for the joint venture in March 2001, retroactive to January 1, 2001, which increased Genzyme Transgenics's portion of the losses incurred by ATIII LLC to 50% until July 2001 and 100% thereafter as compared to 26% for the same period a year

GCS-34

ago. In 2000, ATIII LLC had losses of $14.8 million, of which Genzyme Transgenics' portion was $4.6 million.

        In July 2001, we transferred our 50% ownership interest in ATIII LLC to Genzyme Transgenics. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of its products based on ATIII beginning three years after the first commercial sale of each such product up to a cumulative maximum amount of $30.0 million.

Gain (Loss) on Sale of Product Line

        In November 2001, we sold the Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery, for $16.0 million in cash. The purchaser acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a carrying value of approximately $41.0 million at the time of the sale. We recorded a loss of $25.0 million in connection with this sale and a related tax benefit of $4.7 million.

        We did not sell any product lines during the year ended December 31, 2000.

Other

        For the year ended December 31, 2001, we recorded a pre-tax charge of $4.1 million in other expense to reflect the change in value of warrants to purchase shares of Genzyme Transgenics' common stock from January 1, 2001 to December 31, 2001.

        In December 2000, we recorded a $2.1 million charge in connection with our uncertainty in collecting amounts due under a note that was issued to us in May 1999 by a strategic collaborator. We concluded that this uncertainty existed as a result of the FDA's ruling to deny approval of the collaborator's New Drug Application for a key product. The ruling has subsequently resulted in the collaborator announcing that it will be taking steps to reserve cash by reducing its workforce and other operating expenses.

        In April 2000, we received net proceeds of approximately $5.1 million in connection with the settlement of a lawsuit. The lawsuit, initiated in 1993, pertained to insurance coverage for an accidental spill of Ceredase enzyme at a fill facility operated by a contractor to Genzyme.

Investment Income

        The increase in investment income for the year ended December 31, 2001 as compared to the year ended December 31, 2000 was primarily attributable to higher average cash and investment balances. The increase in cash balances was partially attributable to our completion of the private placement of $575.0 million in principal of 3% convertible subordinated debentures in May 2001. Net proceeds from the offering were approximately $562.1 million. We allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General. We used a portion of the net proceeds from the private placement of the debentures to repay the $150.0 million we had drawn under our revolving credit facility in December 2000 and allocated to Genzyme General.

Interest Expense

        The increase in interest expense for the year ended December 31, 2001 as compared to the year ended December 31, 2000 is primarily the result of additional interest expense resulting from the $350.0 million of debt drawn on our revolving credit facility in December 2000 as part of the financing of the GelTex and Biomatrix acquisitions, and the private placement of $575.0 million in principal of 3% convertible debentures issued in May 2001.

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2000 As Compared to 1999

Equity in Net Loss of Unconsolidated Affiliates:

        Our equity in net loss of unconsolidated affiliates increased in the year ended December 31, 2000 as compared to December 31, 1999 as a result of:

•

a $7.8 million increase in losses from RenaGel LLC;



•

a $5.6 million increase in losses from our joint venture with BioMarin; and



•

the addition of $1.5 million of losses from Genzyme/Pharming Alliance LLC, which was formed in June 2000.

        The increased losses were offset by:

•

a $1.8 million decrease in losses from our joint venture with Diacrin;



•

a $3.7 million decrease in losses from Pharming/Genzyme LLC;



•

a $1.9 million decrease in losses from our joint venture with StressGen Biotechnologies Corp. and the Canadian Medical Discoveries Fund, Inc. (the joint venture was dissolved in December 1999); and



•

a $5.0 million decrease in losses from Genzyme Transgenics.

Gain on Affiliate Sale of Stock

        In accordance with our policy pertaining to affiliate sales of stock we recorded the following due to the issuance by Genzyme Transgenics, an unconsolidated affiliate, of additional shares of Genzyme Transgenics common stock.:

•

gains of $22.7 million, and a net deferred tax expense of $3.9 million (net of a $3.4 million credit for the reversal of a valuation allowance on a deferred tax asset) in 2000; and



•

a gain of $6.7 million in 1999.

        Our ownership interest in Genzyme Transgenics was approximately 26% as of December 31, 2000 and 33% as of December 31, 1999.

Gain (Loss) on Investments in Equity Securities

        We recorded the following gains and losses on investments in equity securities for the year ended December 31, 2000:

•

In the quarter ended June 30, 2000, we recorded a gain of $5.5 million upon the sale of a portion of our investment in Genzyme Transgenics common stock. The tax effect of this gain was fully offset by the reversal of a $1.9 million valuation allowance related to previously recognized capital losses. In the third and fourth quarters of 2000, we recorded gains of $10.9 million and $1.3 million, respectively, upon additional sales of portions of our investment in Genzyme Transgenics common stock.



•

In the quarter ended June 30, 2000, we recorded a $7.6 million gain to reflect the fair market value of our investment in Celtrix Pharmaceuticals, Inc. Celtrix was acquired by Insmed Pharmaceuticals Inc. and our shares of Celtrix common stock were exchanged on a 1-for-1 basis for shares of Insmed common stock. We recognized a $7.6 million gain upon this exchange in the second quarter of 2000.



•

In the quarter ended December 31, 2000, we recorded a $7.3 million loss for the write down of our investment in the common stock of Focal because we considered the decline in the value of this investment to be other than temporary.

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        We recorded the following gains and losses on investments in equity securities for the year ended December 31, 1999:

•

In the quarter ended March 31, 1999, we recorded a gain of $2.0 million upon the sales of shares of Techne Corporation common stock that we received when we sold our research products business to Techne.



•

In the quarter ended June 30, 1999, we recorded losses of $5.7 million in connection with investments in the common stock of Pharming Group and IntegraMed America, Inc., because we considered the decline in the value of those investments to be other than temporary.

        In connection with the charges we recorded in 2000 and 1999, we concluded that substantial evidence existed that the value of the investments would recover to at least its cost. This evidence included:

•

continued positive progress in the issuers' scientific programs;



•

ongoing activity in our collaborations with the issuer; and



•

a lack of any substantial company-specific adverse events causing the declines in value.

        However, given the significance and duration of the declines as of the end of the applicable quarter, we concluded that it was unclear over what period any price recoveries would take place and that, accordingly, the positive evidence suggesting that the investments would recover to at least our purchase price was not sufficient to overcome the presumption that the current market price was the best indicator of the value of these investments.

Minority Interest in Net Loss of Subsidiary

        As part of our combined direct (until July 2001) and indirect interest in ATIII LLC, our joint venture with Genzyme Transgenics for the development and commercialization of ATIII, we consolidated the results of ATIII LLC and recorded Genzyme Transgenics' portion of the losses of that joint venture as minority interest. In 2000, ATIII LLC had losses of $14.8 million, of which Genzyme Transgenics' portion was $4.6 million. In 1999, ATIII LLC had losses of $12.2 million, of which Genzyme Transgenics' portion was $3.7 million.

Gain (Loss) on Sale of Product Line

        We did not sell any product lines during the year ended December 31, 2000.

        In July 1999, we recorded a gain of $0.5 million in connection with the sale of our immunochemistry product lines to an operating unit of Sybron Laboratory Products Corporation. In June 1999, we recorded a gain of $7.5 million representing the receipt of a payment of a note receivable that was received as partial consideration for the sale of Genetic Design in 1996. We had previously fully reserved the amount of this note because we considered the repayment of the note to be uncertain.

Other

        In December 2000, we recorded a $2.1 million charge in connection with our uncertainty in collecting amounts due under a note that was issued to us in May 1999 by a strategic collaborator. We concluded that this uncertainty existed as a result of the FDA's ruling to deny approval of the collaborator's New Drug Application for a key product. The ruling has subsequently resulted in the collaborator announcing that it will be taking steps to reserve cash by reducing its workforce and other operating expenses.

        In April 2000, we received net proceeds of approximately $5.1 million in connection with the settlement of a lawsuit. The lawsuit, initiated in 1993, pertained to insurance coverage for an accidental spill of Ceredase enzyme at a fill facility operated by a contractor to Genzyme.

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        In December 1999, we recorded a net gain of $14.4 million upon receipt of a payment associated with the termination of an agreement to acquire Cell Genesys, Inc.

Investment Income

        The increase in investment income for year ended December 31, 2000, as compared to December 31, 1999, was primarily attributable to higher average cash and investment balances. The increase in cash balances was partially attributable to our issuance in May 1998 of $250.0 million in principal of 5¹/4% convertible subordinated notes coupled with increased cash generated from operations.

Interest Expense

        The decrease in interest expense for the year ended December 31, 2000 as compared to the year ended December 31, 1999 is the result of our November 1999 repayment of $82.0 million outstanding under our revolving credit facility, which had been allocated to Genzyme General.

Tax (Benefit) Provision

	2001			2000			1999			01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
(Benefit from) provision for income taxes	$	(2,020	)	$	55,478		$	46,947		104	%	18	%
Tax rate		(2	)%		744	%		40	%

        Our tax rates for all periods vary from the U.S. statutory tax rate as a result of our:

•

non-deductible charges for IPR&D;



•

provision for state income taxes;



•

use of a foreign sales corporation;



•

nondeductible amortization of intangibles; and



•

use of tax credits.

        Our effective tax rate for 2001 was significantly impacted by nondeductible charges for IPR&D resulting from our acquisitions of Wyntek in June 2001 and Novazyme in September 2001, and nondeductible amortization of intangibles, consisting largely of goodwill, resulting from our acquisitions of GelTex and Biomatrix in December 2000. Additionally, the resolution of several tax audit matters in 2001 resulted in the recognition of $2.2 million of net tax benefits. Our effective tax rate for 2000 was significantly impacted by non-deductible IPR&D charges resulting from our acquisitions of GelTex and Biomatrix.

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Earnings Allocations

        We allocate our earnings to each of our series of common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from the division in accordance with our management and accounting policies. The earnings allocated to each series of common stock are indicated in the table below:

	2001			2000			1999
	(Amounts in thousands)
Earnings allocated to:
Genzyme General Stock	$	44,543		$	121,455		$	149,360
Biosurgery Stock		(126,981	)		(87,188	)		—
Molecular Oncology Stock		(29,718	)		(23,096	)		(28,832	)
Surgical Products Stock		—			(54,748	)		(20,514	)
Tissue Repair Stock		—			(19,833	)		(30,040	)

        We created Genzyme Biosurgery on December 18, 2000. Prior to this date, the operations allocated to Genzyme Biosurgery were included in the operations allocated to our then-existing divisions Genzyme Surgical Products and Genzyme Tissue Repair and as of that date, the operations of Genzyme Surgical Products and Genzyme Tissue Repair ceased. We created Genzyme Surgical Products on June 28, 1999. Prior to this date, the operations of Genzyme Surgical Products were included in the operations allocated to Genzyme General and, therefore, in the net income allocated to Genzyme General Stock. The tax benefits associated with the losses of Genzyme Surgical Products for the period from June 28, 1999 to December 31, 1999, which amounted to $6.9 million, continued to be allocated to Genzyme General Stock. Our management and accounting policies provide that, if as of the end of any fiscal quarter, a division can not 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 other divisions in proportion to their taxable income without any compensating payment or allocation to the division generating the benefit. Tax benefits allocated to Genzyme General, which are included in earnings attributable to Genzyme General Stock, are as follows:

	2001		2000		1999
	(Amounts in thousands)
Tax benefits allocated from:
Genzyme Biosurgery	$	24,593	$	28,023	$	26,994
Genzyme Molecular Oncology		11,904		7,476		7,812
Total	$	36,497	$	35,499	$	34,806

        These tax benefits represent 82%, 29% and 23% of earnings allocated to Genzyme General Stock in 2001, 2000 and 1999, respectively. The amount of tax benefits allocated to Genzyme General fluctuate based on the results of Genzyme Biosurgery and Genzyme Molecular Oncology. If the losses of those divisions decline, as they are expected to, then the tax benefits allocated to Genzyme General will also decline.

Cumulative Effect of Change in Accounting Principle

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our consolidated balance sheet and measure those instruments at fair value. Subsequent changes in fair

GCS-39

value are reflected in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

        In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative-effect adjustment of $4.2 million, net of tax, in our consolidated statements of operations for the year ended December 31, 2001 to recognize the fair value of warrants to purchase shares of Genzyme Transgenics' common stock held on January 1, 2001. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts were not significant. For the year ended December 31, 2001, we recorded a pre-tax charge of $4.1 million in other expense to reflect the change in value of our warrants to purchase shares of Genzyme Transgenics' common stock from January 1, 2001 to December 31, 2001. We also recorded a charge of $0.9 million ($1.5 million pre-tax) in other comprehensive income for the year ended December 31, 2001 to reflect the change in value of our interest rate swap contract during the period, net of tax.

        In the normal course of business, we manage risks associated with foreign exchange rates, interest rates and equity prices through a variety of strategies, including the use of hedging transactions, executed in accordance with our policies. As a matter of policy, we do not use derivative instruments unless there is an underlying exposure. Any change in the value of our derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items. We do not use derivative instruments for trading or speculative purposes.

Research and Development Programs

        Before we can commercialize our development-stage products, we will need to:

•

conduct substantial research and development;



•

undertake preclinical and clinical testing; and



•

pursue regulatory approvals.

        This process is risky, expensive, and may take several years. We cannot guarantee that we will be able to successfully develop any product, or that we would be able to recover our development costs upon commercialization of a product that we successfully develop.

        Below is a brief description of our significant research and development programs:

Program	Program Description or Indication	Development Status at December 31, 2001	Expected Product Launch
GENZYME GENERAL
Fabrazyme (afgalsidase beta for injection)	Fabry disease	Marketed in Europe in 2001; BLA submitted to the FDA in June 2000; post-marketing phase 4 trial ongoing	2002
Aldurazyme (laronidase for injection)	MPS 1	Phase 3 trial completed; BLA submission to the FDA and MAA submission to the EMEA planned for early 2002	2003
Alpha-glucosidase (CHO product)	Pompe disease	Phase 2 trial ongoing	2004
GT160-246(1)	C. difficile	Phase 2 trial ongoing	2006
TGF-beta antagonists	Diffuse scleroderma	Phase 1-2 trial ongoing	2006

GCS-40

GENZYME BIOSURGERY
HIF 1a	Angiogenic gene therapy to treat coronary artery disease and peripheral arterial disease	Phase 1 clinical trials ongoing	2008
Cardiac Cell Therapy	Tissue regeneration therapy to treat congestive heart failure	Preclinical	2010
Synvisc (Hylan G-F20)(2)	Next stage viscosupplementation products to treat osteoarthritis of the knee, hip and other joints	•  Preclinical for knee indications •  Pre-Submission in Europe for hip indications	2002 to 2006
Sepra technologies(3)	Next stage products to prevent surgical adhesions for various indications	•  Preclinical – gynecological & pelvic indications •  Phase 2 – spine indications •  Phase 3 – abdominal indications	2003 to 2006
GENZYME MOLECULAR ONCOLOGY
Dendritic/tumor cell fusion vaccines	Multiple cancer indications	Phase 1-2 ongoing	2007 to 2009
Melan-A/MART-1 and gp100 antigen specific cancer vaccines	Melanoma	Phase 1-2 ongoing	2006 to 2008

        The aggregate actual and estimated research and development expense for the above programs is as follows (in millions):

	Genzyme General	Genzyme Biosurgery	Genzyme Molecular Oncology	Total
Costs incurred for the year ended December 31, 2000	$48.3	$14.3	$6.4	$69.0
Costs incurred for the year ended December 31, 2001	$78.3	$19.8	$12.6	$110.7
Cumulative costs incurred as of December 31, 2001	$176.2	$70.3	$28.3	$274.8
Estimated costs to complete as of December 31, 2001(3)	$170.0 to $185.0	$135.0 to $150.0	$125.0 to $175.0	$430.0 to $510.0

(1)

Program was acquired in connection with the December 2000 acquisition of GelTex.

(2)

Includes programs acquired in connection with the December 2000 acquisition of Biomatrix.

(3)

Excludes estimated costs to complete Cardiac cell therapy, Synvisc programs and certain Sepra product applications due to the early stage of these programs.

        Our current estimates of the time and investment required to develop these products may change depending on the approach we take to pursue them, the results of preclinical and clinical studies, and the content and timing of decisions made by the FDA and other regulatory authorities. We cannot provide assurance that any of these programs will ever result in products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indication. If certain of our

GCS-41

development-stage programs do not result in commercially viable products, our results of operations could be materially affected.

Liquidity and Capital Resources

        At December 31, 2001, we had cash, cash-equivalents, and short- and long-term investments of $1.1 billion, an increase of $481.6 million from December 31, 2000.

        Our operating activities generated $225.1 million in cash for the year ended December 31, 2001, as compared to $177.1 million for the year ended December 31, 2000. Net cash provided by operating activities was the result of our net loss of $112.2 million offset by:

•

$179.0 million of depreciation and amortization, of which $56.7 million resulted from the depreciation of property, plant and equipment and $122.3 million resulted from the amortization of intangible assets, including intangible assets acquired in connection with our acquisitions of GelTex, Biomatrix, Wyntek and Focal;



•

$95.6 million of charges for IPR&D, of which $86.8 million was attributable to our acquisition of Novazyme and $8.8 million was attributable to our acquisition of Wyntek;



•

$35.7 million from the equity in net losses of unconsolidated affiliates;



•

$26.0 million from the loss on investments in equity securities; and



•

$18.1 million attributable to the net change in working capital.

        Our investing activities utilized $743.8 million in cash in 2001 as compared to $546.0 million in 2000, primarily due to:

•

$456.2 million to fund net purchases of investments compared to generating $200.9 million in net cash in 2000;



•

$184.3 million to fund purchases of property, plant and equipment, of which, $37.1 million resulted from our manufacturing capacity expansion in the United Kingdom, Belgium and Switzerland, $16.3 million resulted from payments towards our acquisition of a large-scale manufacturing facility in Ireland, $59.1 million resulted from our manufacturing capacity expansion in the United States and $33.9 million representing an aggregate of other manufacturing relocations, expansions and rehabilitations worldwide;



•

$58.7 million to fund the acquisition of Wyntek, net of cash acquired and $25.9 million to fund the purchase of the GDP Class A and Class B limited partnership interests, offset in part by $2.3 million of cash acquired in connection with the acquisition of Focal and $5.2 million of cash acquired in connection with our acquisition of Novazyme; and



•

$39.7 million to fund our joint ventures in 2001 as compared to $23.5 million in 2000.

        Our financing activities generated $530.2 million in net cash in 2001, primarily due to proceeds of $91.5 million from the issuance of common stock and $579.1 million from the issuance of debt, offset in part by $156.7 million used to repay debt and capital lease obligations. Financing activities in 2000 generated $475.6 million.

        We have access to a $350.0 million revolving credit facility, all of which matures in December 2003. Prior to November 2001, this was a $500.0 million credit facility, $150.0 million of which matured in December 2001 and $350.0 million of which matures in December 2003. At December 31, 2000 $18.0 million was outstanding under the portion of the facility that matured in December 2001, all of which was allocated to Genzyme Biosurgery, and $350.0 million was outstanding under the portion of the facility maturing in December 2003, $150.0 million of which was allocated to Genzyme General and $200.0 million of which was allocated to Genzyme Biosurgery. In May 2001, Genzyme General repaid

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the $150.0 million it had drawn under this facility in December 2000 to finance the cash component of the GelTex merger consideration. In September 2001 we decided to rollover the $18.0 million outstanding under the portion of the facility that matured in December 2001 into the portion of the facility that matures in December 2003. In November 2001, we drew an additional $17.0 million under this facility and allocated the borrowings to Genzyme Biosurgery. We repaid $1.0 million of this amount in December 2001. We allowed the $150.0 million portion of the credit facility to expire without renewal at its December 31, 2001 maturity date. At December 31, 2001, $234.0 million remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin. The terms of the revolving credit facility include various covenants, including financial covenants, which require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants and do not anticipate falling out of compliance.

        In May 2001, we completed the private placement of $575.0 million in principal of 3% convertible subordinated debentures due 2021. Net proceeds from the offering were approximately $562.1 million. We have allocated the principal amount of the debentures and the net proceeds from the offering to Genzyme General. We will pay interest on these debentures on May 15 and November 15 each year using cash allocated to Genzyme General. The first interest payment was made on November 15, 2001. The debentures are convertible, upon the satisfaction of certain conditions, into shares of Genzyme General Stock at an initial conversion price of $70.30 per share. The conversion price is subject to adjustment. Holders of the debentures may require us to repurchase all or part of their debentures for cash on May 15, 2006, 2011 or 2016, at a price equal to 100% of the principal amount of the debentures plus accrued interest through the date prior to the date of repurchase. Additionally, if certain fundamental changes occur, each holder may require us to repurchase, for cash, all or a portion of the holder's debentures. On or after May 20, 2004, we may redeem for cash all or part of the debentures that have not previously been converted or repurchased. We used a portion of these proceeds to repay the $150.0 million we had drawn under our revolving credit facility in December 2000 and allocated to Genzyme General to finance a portion of the cash consideration for the GelTex acquisition. We expect to utilize the remaining proceeds from the sale of the debentures for Genzyme General's working capital and general corporate purposes.

        In August 2001, we completed the redemption of our $21.2 million in principal of 5% convertible subordinated debentures due 2003. Prior to the redemption date, the holders of the debentures elected to convert all of the principal of the debentures into approximately 1.3 million shares of Genzyme General Stock. We paid approximately $3.2 million in cash for the accrued interest on the debentures through the date of conversion using cash allocated to Genzyme General.

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        As of December 31, 2001, we had committed to make the following payments under contractual obligations:

	Payments Due by Period
Contractual Obligations
	Total		2002		2003			2004		2005		2006			After 2006
	(Amounts in millions)
Long-term debt	$	825.7	$	6.7	$	244.0	(1)	$	—	$	—	$	575.0	(2)		—
Capital lease obligations		26.8		1.0		0.8			—		25.0		—			—
Operating leases		291.7		20.3		24.9			24.5		21.1		13.7			187.2
Unconditional purchase obligations		179.8		50.3		49.4			21.4		17.9		20.4			20.4
Capital commitments		7.7		7.7		—			—		—		—			—
Research and development agreements (3)		92.8		46.9		18.0			11.0		10.0		6.9			—
Total contractual obligations	$	1,424.5	$	132.9	$	337.1		$	56.9	$	74.0	$	616.0		$	207.6

(1)

Includes $10.0 million in principal under a 6.9% convertible subordinate note in favor of UBS Warburg LLC that matures in May 2003 and is convertible into shares of Biosurgery Stock;

(2)

Consists of $575.0 million in principal under our 3% convertible subordinated debentures due May 2021, which are convertible into shares of Genzyme General Stock;

(3)

From time to time, we enter into agreements with third parties to obtain access to scientific expertise or technology that we do not already have. These agreements frequently require that we pay our licensor or collaborator a technology access fee, milestone payments upon the occurrence of certain events, and/or royalties on sales of products that infringe the licensed technology or arise out of the collaborative research. In addition, these agreements may call for us to fund research activities not being performed by us. The amounts indicated in the table above represent committed funding obligations to our key collaborators under our significant development programs. Should we terminate any of our license or collaboration agreements, the funding commitments contained within them would expire. In addition, the actual amounts that we pay our licensors and collaborators will depend on numerous factors outside of our control, including the success of our preclinical and clinical development efforts with respect to the products being developed under these agreements, the content and timing of decisions made by the Patent & Trademark Office, the FDA and other regulatory authorities, the existence and scope of third party intellectual property, the reimbursement and competitive landscape around these products, and other factors described under the heading "Factors Affecting Future Operating Results" below.

        We believe that our available cash, investments and cash flows from operations will be sufficient to fund our planned operations and capital requirements for the foreseeable future. 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 staff;



•

working capital; and



•

strategic business initiatives.

        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 terms that we consider favorable.

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Third Party Transactions

        The following table identifies:

•

the companies in which we hold equity interests;



•

overlaps between the directors, executive officers or managing partners of those companies and our directors and officers;



•

any equity interest in excess of 5% of the outstanding common stock or partnership interests of those companies held by any of our directors or officers(1); and



•

whether, as of December 31, 2001, we had entered into a joint venture or collaboration with that company(2).

Company	Overlapping Officers & Directors	Equity Interest of Genzyme Officers & Directors in Excess of 5%	Joint Venture/Collaboration as of December 31, 2001
ABIOMED, Inc.	One of our directors, who is also one of our officers, is a director of ABIOMED	No	No
Antigenics, Inc.	None	No	No
BioMarin Pharmaceutical, Inc.	None	No	Yes
Cambridge Antibody Technology Group plc	None	No	Yes
Crucell, N.V.	None	No	No
Dyax Corporation	Two of our directors are directors of Dyax	No	Yes
Genzyme Transgenics Corporation	One of our directors is an officer of GTC; another	No	Yes
	of our directors, who is also one of our officers, is a director of GTC; and one of our officers is a director of GTC
Healthcare Ventures V, L.P.	None	No	No
Oxford Bioscience Partners IV, L.P.	None	No	No
Pharming Group N.V.	None	No	No
ProQuest Investments II, L.P.	None	No	No
Targeted Genetics Corporation	None	No	Yes
ViaCell, Inc.	None	No	No

(1)

Based on publicly available Securities and Exchange Commission filings submitted as of March 29, 2002 by each of the parties listed or the schedule of partnership interests provided by the partnership. This information has not been independently verified by us.

(2)

See Note I, "Investments," to the accompanying financial statements for additional information regarding our investment in and/or relationship with each entity.

New Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board or FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic

GCS-45

tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001, and will thus be adopted by us in fiscal year 2002. However, for goodwill and intangible assets acquired after June 30, 2001, certain provisions of SFAS No. 142 will be effective from the date of acquisition. We anticipate that our goodwill impairment test in 2002 will result in impairment loss recognition of between $80.0 million and $90.0 million related mainly to our cardiothoracic reporting unit. This charge will be reported as a cumulative effect of a change in accounting principle in our consolidated statement of operations and the combined statement of operations for Genzyme Biosurgery for the quarter ended March 31, 2002. For the year ended December 31, 2001, we had approximately $51.4 million of goodwill amortization. The full impact of SFAS No. 141 and SFAS No. 142 on our financial statements has not been determined.

        In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. We are in the process of assessing the effect of adopting SFAS No. 143, which will be effective for our fiscal year ending December 31, 2002.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for: 1) recognition and measurement of the impairment of long-lived assets to be held and used; and 2) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and thus will be adopted by us in fiscal year 2002. We do not expect the adoption of SFAS No. 144 to have a material effect on our financial condition or results of operations.

        The Emerging Issues Task Force recently released Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer" ("EITF No. 01-09"). EITF No. 01-09 addresses whether a vendor should recognize consideration given to a customer, including a distributor, as an offset to revenue being recognized from the same customer or as an expense. The provisions of EITF No. 01-09 are to be applied to financial statements for periods beginning after December 15, 2001, and thus will be adopted by us in fiscal year 2002. For comparative purposes, financial statements for prior periods must be reclassified to comply with the requirements. We are currently assessing the effect that adopting EITF No. 01-09 will have on our financial statements.

Market Risk

        We are exposed to potential loss from exposure to market risks represented principally by changes in interest rates, foreign exchange rates, and equity prices. At December 31, 2001 we held various derivative contracts in the form of foreign exchange forwards and interest rate swaps. The derivatives contain no leverage or option features. We also held a number of other financial instruments, including investments in marketable securities, and had balances outstanding under several debt securities.

Interest Rate Risk

        We are exposed to potential loss due to changes in interest rates. The principal interest rate exposure is to changes in domestic interest rates. Investments with interest rate risk include short-term deposits with financial institutions, and short-term and long-term investments in debt instruments. Debt with interest rate risk includes fixed rate convertible debt and borrowings under credit facilities.

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        To estimate the potential loss due to changes in interest rates, we performed a sensitivity analysis for a one-day horizon. In order to estimate the potential loss, we used an adverse change in interest rates of 100 basis points across the yield curve at year-end. We used the following assumptions in preparing the sensitivity analysis:

•

convertibles that are "in-the-money" at year end are considered equity securities and are excluded;



•

convertibles that are "out-of-the-money" at year end are treated as fixed rate debt securities and we assumed we will repay the principal amount in full at maturity and we ignored the exercise of embedded equity options; and



•

financial instruments contain no other call or leverage features material to our analysis.

        On this basis, we estimate the potential loss in fair value from changes in interest rates to be $4.6 million, virtually all of which is attributable to Genzyme General. The variance in interest rate risk is attributable to a similar debt portfolio with a slight change in portfolio structure. The estimate of potential loss does not include a separate determination of potential losses due to changes in credit spreads. Our investments are investment grade securities and deposits are with investment grade financial institutions. We believe that the realization of losses due to changes in credit spreads is unlikely. The potential loss estimated above on all market risk sensitive instruments reflects a fair value loss on debt offset by a fair value loss on assets. We expect to hold our debt to maturity or conversion, whichever is sooner. Therefore, the realization of the potential loss on debt obligations is unlikely.

Foreign Exchange Risk

        As a result of our worldwide operations, we face exposure to adverse movements in foreign currency exchange rates, primarily to the Euro and its component currencies, British pounds and Japanese yen. These exposures are reflected in market risk sensitive instruments, including foreign currency receivables and payables and foreign exchange forward contracts. During 2001, our risk management strategy for foreign exchange exposure periodically included the use of forward contracts. As of December 31, 2001, we estimate the potential loss in fair value of the forward contracts due to a 10% change in exchange rates to be $3.6 million, virtually all of which is attributable to Genzyme General. The increase in foreign exchange risk is attributable to a similar foreign exchange portfolio on a net basis but an increase in foreign denominated cash balances.

Equity Price Risk

        We hold investments in a limited number of domestic and European equity securities, substantially all of which are allocated to Genzyme General. We estimate the potential loss in fair value due to a 10% decrease in equity prices of each security held at year-end to be $13.2 million. This estimate assumes no change in foreign exchange rates from year-end spot rates. The increase in potential equity risk is largely explained by the fact that the size of our portfolio has decreased from a market value of $119.6 million for the year ended December 31, 2000 to $88.7 million for the year ended December 31, 2001.

Factors Affecting Future Operating Results

        The future operating results of Genzyme Corporation and its subsidiaries could differ materially from the results described above due to the following risks and uncertainties, which relate to us generally and affect all of our operating divisions.

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A reduction in revenue from sales of products that treat Gaucher disease would have an adverse effect on our business.

        We generate a majority of our product revenue from sales of enzyme-replacement products for patients with Gaucher disease. We entered this market in 1991 with Ceredase enzyme. Because production of Ceredase enzyme was subject to supply constraints, we developed Cerezyme 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 enzyme, scientists engineer Chinese hamster ovary cells to produce human alpha glucosidase. We stopped producing Ceredase enzyme, except for small quantities, during 1998, after substantially all the patients who previously used Ceredase enzyme converted to Cerezyme enzyme. Sales of Ceredase enzyme and Cerezyme enzyme totaled $569.9 million for the year ended December 31, 2001, representing approximately 51% of our consolidated revenues for that year.

        Because our business is highly dependent on Cerezyme enzyme, a decline in the growth rate of Cerezyme enzyme sales could have an adverse effect on our operations and may cause the value of our securities to decline substantially. We will lose revenues from Cerezyme enzyme if competitors develop alternative treatments for Gaucher disease and these alternative products gain commercial acceptance. Some companies have initiated efforts to develop competitive products, and other companies may do so in the future. Oxford Glycosciences plc, for example, is developing Vevesca (OGT 918), a small molecule drug candidate for the treatment of Gaucher disease. OGT-918 has been granted orphan drug status in the United States for treatment in Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Gaucher disease. In 2001, Oxford Glycosciences submitted a Marketing Authorisation Application (MAA) to the European Agency for the Evaluation of Medicinal Products (EMEA), as well as a new drug application (NDA) to the FDA for OGT 918 for the oral treatment of Type 1 Gaucher disease. Although orphan drug status for Cerezyne enzyme, which provided us with exclusive marketing rights for Cerezyme enzyme in the United States, expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme enzyme until 2010 and the composition of Cerezyme enzyme until 2013. The expiration of market exclusivity and orphan drug status in May 2001 will likely subject Cerezyme enzyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue.

        In addition, the patient population with Gaucher disease is limited. Because a significant percentage of that population already uses Cerezyme enzyme, opportunities for future sales growth are limited. Further, changes in the methods for treating patients with Gaucher disease, including treatment protocols that combine Cerezyme enzyme with other therapeutic products or reduce the amount of Cerezyme enzyme prescribed, could result in a decline in Cerezyme enzyme sales.

Our future earnings growth will depend on our ability to increase sales of Renagel phosphate binder.

        In November 1998, we launched, through a joint venture with GelTex, Renagel phosphate binder, a non-absorbed phosphate binder approved for use by patients with end-stage renal disease undergoing a form of treatment known as hemodialysis. We acquired GelTex in December 2000. We are currently conducting additional clinical trials in order to determine the efficacy and safety of Renagel phosphate binder when administered to pre-dialysis patients. Our ability to increase sales of Renagel phosphate binder will depend on a number of factors, including:

•

the results of additional clinical trials for additional indications and expanded labeling;



•

acceptance by the medical community of Renagel phosphate binder over calcium-based phosphorous binders as the preferred treatment for elevated serum phosphorous levels in dialysis patients;

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•

the availability of competing treatments serving the dialysis market;



•

our ability to manufacture Renagel phosphate binder at a reasonable price;



•

the effectiveness of our sales force;



•

our ability to manufacture Renagel phosphate binder in sufficient quantities to meet demand;



•

optimal dosing and patient compliance with respect to Renagel phosphate binder;



•

the content and timing of our submissions to and decisions by regulatory authorities;



•

our ability to successfully expand manufacturing systems;



•

the availability of reimbursement from third-party payors, and the extent of coverage; and



•

the accuracy of available information about dialysis patient populations and the accuracy of our expectations about growth in this population.

Government regulation imposes significant costs and restrictions on the development and commercialization of our products and services.

        Our success will depend on our ability to satisfy regulatory requirements. We may not receive required regulatory approvals on a timely basis or at all. Government agencies heavily regulate the production and sale of healthcare products and the provision of healthcare services. In particular, the Food and Drug Administration, commonly referred to as 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 company like Genzyme can first sell a product or may limit how a consumer may use a product or service or may adversely impact third-party reimbursement. A company's failure to comply with applicable regulatory approval requirements may lead regulatory authorities to take action against the company, including:

•

issuing warning letters;



•

issuing fines and other civil penalties;



•

suspending regulatory approvals;



•

refusing approval of pending applications or supplements to approved applications;



•

suspending product sales in the United States and/or exports from the United States;



•

recalling products; and



•

seizing products.

Furthermore, therapies that have received regulatory approval for commercial sale may continue to face regulatory difficulties. The FDA and comparable foreign regulatory agencies, for example, may require post-marketing clinical trials or patient outcome studies. In addition, regulatory agencies subject a marketed therapy, its manufacturer and the manufacturer's facilities to continual review and periodic inspections. The discovery of previously unknown problems with a therapy, the therapy's manufacturer or the facility used to produce the therapy could prompt a regulatory authority to impose restrictions on the therapy, manufacturer or facility, including withdrawal of the therapy from the market.

Legislative changes may adversely impact our business.

        The FDA has designated some of our products as orphan drugs under the Orphan Drug Act. The Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases,

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generally by entitling the first developer that receives FDA marketing approval for an orphan drug to a seven-year exclusive marketing period in the United States for that product. In recent years Congress has considered legislation to change the Orphan Drug Act to shorten the period of automatic market exclusivity and to grant marketing rights to simultaneous developers of the drug. If the Orphan Drug Act is amended in this manner, any drugs for which we have been granted exclusive marketing rights under the Orphan Drug Act will face increased competition, which may decrease the amount of revenue we receive from these products. In addition, the U.S. government has shown significant interest in pursuing healthcare reform. Any government-adopted reform measures could adversely affect:

•

the pricing of therapeutic products and medical devices in the United States or internationally; and



•

the amount of reimbursement available from governmental agencies or other third-party payers.

If the U.S. government significantly reduces the amount we may charge for our products, or the amount of reimbursement available for purchases of our products declines, our future revenues may decline and we may need to revise our research and development programs.

The development of our products involves a lengthy and complex process, and we may be unable to commercialize any of the products we are currently developing.

        Before we can commercialize our development-stage products, we will need to:

•

conduct substantial research and development;



•

undertake preclinical and clinical testing; and



•

pursue regulatory approvals.

        This process involves a high degree of risk and takes several years. Our product development efforts may fail for many reasons, including:

•

failure of the product in preclinical studies;



•

clinical trial data that is insufficient to support the safety or effectiveness of the product; or



•

our failure to obtain the required regulatory approvals.

For these reasons, and others, we may not successfully commercialize any of the products we are currently developing.

Any marketable products that we develop may not be commercially successful.

        Even if we obtain regulatory approval for any of our development-stage products, those products may not be accepted by the market, or approved for reimbursement by third-party payers. A number of factors may affect the rate and level of market acceptance of these products, 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 and extent of reimbursement from third-party payors.

If our products fail to achieve market acceptance, our profitability and financial condition will suffer.

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We will require significant additional financing, which may not be available or available on terms favorable to us.

        As of December 31, 2001, we had approximately $1.1 billion in cash, cash equivalents and short and long-term investments, excluding investments in equity securities. We intend to use substantial portions of our available cash for:

•

product development and marketing;



•

expanding facilities and staff;



•

working capital, including satisfaction of our obligations under capital and operating leases; and



•

strategic business initiatives.

We may further reduce available cash reserves to pay principal and interest on the following debt:

•

$575.0 million in principal under our 3% convertible subordinated debentures due May 2021, the entire amount of which is allocated to Genzyme General. These debentures may be converted into shares of Genzyme General Stock. Holders of debentures may require us to repurchase all or part of their debentures for cash on May 15, 2006, 2011 or 2016, at a price equal to 100% of the principal amount of the debentures plus accrued interest through the date prior to the date of purchase;



•

$234.0 million in principal under our revolving credit facility with a syndicate of commercial banks, all of which is allocated to Genzyme Biosurgery; and



•

$10.0 million in principal under our 6.9% convertible subordinated note in favor of UBS Warburg LLC, the entire amount of which is allocated to Genzyme Biosurgery. This note matures in May 2003 and is convertible into shares of Biosurgery Stock.

If we use cash to pay or redeem all or a portion of 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 may be unable to obtain any additional financing, extend any existing financing arrangement, or obtain either on terms that we consider favorable.

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. If we fail to obtain or maintain adequate intellectual property protections, we may not be able to prevent third parties from using our proprietary technologies. Our currently pending or future patent applications may not result in issued patents. In the United States, patent applications are confidential until patents issue, and because third parties may have filed patent applications for technology covered by our pending patent applications without us being aware of those applications, our patent applications may not have priority over any patent applications of others. 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. If a third party initiates litigation regarding our patents, our collaborators' patents, or those patents for which we have license rights, and is successful, a court could revoke our patents or limit the scope of coverage for those patents.

        The U.S. Patent and Trademark Office, commonly referred to as the USPTO, and the courts have not consistently treated the breadth of claims allowed in biotechnology patents. If the USPTO or the courts begin to allow broader claims, the incidence and cost of patent interference proceedings and the

GCS-51

risk of infringement litigation will likely increase. On the other hand, if the USPTO or the courts begin to allow narrower claims, the value of our proprietary rights may be limited. Any changes in, or unexpected interpretations of, the patent laws may adversely affect our ability to enforce our patent position.

        We also rely upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive. We protect this information with reasonable security measures, including the use of confidentiality agreements with our employees, consultants and corporate collaborators. It is possible that these individuals will breach these agreements and that any remedies for a breach will be insufficient to allow us to recover our costs. Furthermore, our trade secrets, know-how and other technology may otherwise become known or be independently discovered by our competitors.

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 may cover some of the products that we or our strategic partners are developing or testing. As a result, we or our strategic collaborators 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 our revenue from these products. Furthermore, we may not be able to obtain these licenses on acceptable terms or at all. If we fail to obtain a required license or are unable to alter the design of our technology to fall outside of a patent, we may be unable to effectively market some of our technology and services, which could limit our profitability.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

        A third party may sue us or one of our strategic collaborators for infringing the third-party's patent rights. Likewise, we or one of our strategic collaborators may need to resort to litigation to enforce patent rights or to determine the scope and validity of third-party proprietary rights. If we do not prevail in this type of litigation, we or our strategic collaborators may be required to:

•

pay monetary damages;



•

stop commercial activities relating to the affected products or services;



•

obtain a license in order to continue manufacturing or marketing the affected products or services; or



•

compete in the market with a substantially similar product.

        Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue some of our operations. In addition, a court may require that we pay expenses or damages and litigation could disrupt our commercial activities.

We may be liable for product liability claims not covered by insurance.

        Individuals who use our products or services, including those we acquire in business combinations, may bring product liability claims against us or our subsidiaries. While we have taken, and continue to take, what we believe are appropriate precautions, we may be unable to avoid significant liability exposure. We have only limited amounts of product liability insurance, which may not provide sufficient coverage against any product liability claims. We may be unable to obtain additional insurance in the future, or we may be unable to do so on acceptable terms. 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's time and attention;

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•

expenditure of large amounts of cash on legal fees, expenses and payment of damages;



•

decreased demand for our products and services; and



•

injury to our reputation.

In connection with our acquisition of Biomatrix, we assumed litigation faced by Biomatrix.

        On July 21 and August 7, 15, and 30, 2000, class action lawsuits requesting unspecified damages were filed in the U.S. District Court in New Jersey against Biomatrix, Inc. and two of its officers and directors, Endre A. Balazs and Rory B. Riggs. In these actions, the plaintiffs seek to certify a class of all persons or entities who purchased or otherwise acquired Biomatrix common stock during the period between July 20, 1999 and April 25, 2000. The plaintiffs allege, among other things, that the defendants failed to accurately disclose information relating to Biomatrix's Synvisc viscosupplementation product during the period between July 20, 1999 and April 25, 2000, and assert causes of action under the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated under that statute. We acquired Biomatrix in December 2000. We may be required to pay substantial damages or settlement costs to the extent that those damages or settlement costs are not covered by insurance. Regardless of their outcome, these actions may cause a diversion of our management's time and attention.

Our competitors in the biotechnology and pharmaceutical industries may have superior products, manufacturing capabilities or marketing position.

        The human healthcare products and services industry is extremely competitive. Our competitors include major pharmaceutical companies and other biotechnology companies. Some of these competitors may have more extensive research and development, marketing and production capabilities. Some competitors also may have greater financial resources than we have. Our future success will depend on our ability to develop and market effectively our products against those of our competitors. For instance, we are seeking orphan drug designation for some of our products that are still in development or are currently being reviewed by the FDA for marketing approval, including Fabrazyme enzyme for the treatment of Fabry disease. We are aware of other companies developing products for the treatment of Fabry disease. Transkaryotic Therapies Inc. submitted its application for marketing approval for its product to the FDA approximately one week before we submitted our application for Fabrazyme enzyme. If Transkaryotic Therapies or any other company receives FDA approval for a Fabry disease therapy with orphan drug designation before we receive FDA approval for Fabrazyme enzyme, the Orphan Drug Act may preclude us from selling Fabrazyme enzyme in the United States for up to seven years. Both Genzyme and Transkaryotic Therapies received European Medicines Evaluation Agency, or EMEA, approval for their respective Fabry disease therapies, and were granted the European equivalent of orphan drug designation in the European Union for up to ten years. If our products receive marketing approval, but cannot compete effectively in the marketplace, our profitability and financial position will suffer.

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 enzyme. If we cannot compete effectively in the marketplace, our profitability and financial position will suffer.

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If we fail to obtain adequate levels of reimbursement for our products from third-party payors, the commercial potential of our products will be significantly limited.

        A substantial portion of our revenue comes from payments by third-party payors, including government health administration authorities and private health insurers. As a result of the trend toward managed healthcare in the United States, as well as legislative proposals to reduce payments under government insurance programs, third-party payors are increasingly attempting to contain healthcare costs by:

•

challenging the prices charged for healthcare products and services;



•

limiting both coverage and the amount of reimbursement for new therapeutic products;



•

shifting increasing payments for products and services through copays, coinsurance and other risk sharing arrangements;



•

denying or limiting coverage for products that are approved by the FDA, but are considered experimental or investigational by third-party payors; 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 payors may not provide adequate insurance coverage or reimbursement for our products and services, which could impair our financial results. In addition, third-party payors may not reimburse patients for newly approved healthcare products, which could decrease demand for our products. Furthermore, Congress occasionally has discussed implementing broad-based measures to contain healthcare costs. It is possible that Congress will enact legislation specifically designed to contain healthcare costs. If third-party reimbursement is inadequate to allow us to recover our costs or if Congress passes legislation to contain healthcare costs, our profitability and financial condition will suffer.

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 35% of our consolidated revenues for the year ended December 31, 2001, 39% of our consolidated revenues for the year ended December 31, 2000 and 41% of our consolidated revenues for the year ended December 31, 1999. 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 United States, primarily in the United Kingdom, Europe and Japan. Our international sales and operations could be limited or disrupted, and the value of our direct investments may be diminished, by any of the following:

•

fluctuations in currency exchange rates;



•

the imposition of governmental controls;



•

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;



•

terrorist activities;



•

trade restrictions;

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•

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 our reporting currency, the U.S. dollar. We recognize foreign currency gains or losses arising from our operations in the period in which we incur those gains or losses. 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. Because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates, we may suffer significant foreign currency transaction losses in the future due to the effect of exchange rate fluctuations on our future operating results.

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 its sole discretion:

•

exchange shares of Molecular Oncology Stock or Biosurgery Stock for Genzyme General 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.

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GENZYME CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

				For the Years Ended December 31,
				2001			2000			1999
				(Amounts in thousands)
Revenues:
	Net product sales			$	1,110,254		$	811,897		$	683,482
	Net service sales				98,370			84,482			79,448
	Revenues from research and development contracts:
		Related parties			3,279			509			2,012
		Other			11,727			6,432			7,346
			Total revenues		1,223,630			903,320			772,288
Operating costs and expenses:
	Cost of products sold				307,425			232,383			182,337
	Cost of services sold				56,173			50,177			49,444
	Selling, general and administrative				424,640			264,551			242,797
	Research and development (including research and development related to contracts)				264,004			169,478			150,516
	Amortization of intangibles				121,124			22,974			24,674
	Purchase of in-process research and development				95,568			200,191			5,436
	Charge for impaired asset				—			4,321			—
			Total operating costs and expenses		1,268,934			944,075			655,204
	Operating income (loss)				(45,304	)		(40,755	)		117,084
	Other income (expenses):
		Equity in net loss of unconsolidated affiliates			(35,681	)		(44,965	)		(42,696	)
		Gain on affiliate sale of stock			212			22,689			6,683
		Minority interest			2,259			4,625			3,674
		Gain (loss) on investments in equity securities			(25,996	)		15,873			(3,749	)
		Gain (loss) on sale of product line			(24,999	)		—			8,018
		Other			(2,205	)		5,188			14,527
		Investment income			50,504			45,593			36,158
		Interest expense			(37,133	)		(15,710	)		(21,771	)
			Total other income (expenses)		(73,039	)		33,293			844
	Income (loss) before income taxes				(118,343	)		(7,462	)		117,928
	Benefit from (provision for) income taxes				2,020			(55,478	)		(46,947	)
	Net income (loss) before cumulative effect of change in accounting principle			$	(116,323	)	$	(62,940	)	$	70,981
	Cumulative effect of change in accounting principle				4,167			—			—
	Net income (loss)			$	(112,156	)	$	(62,940	)	$	70,981
Comprehensive income (loss), net of tax:
	Net income (loss)			$	(112,156	)	$	(62,940	)	$	70,981
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			(6,003	)		(14,569	)		(14,883	)
		Unrealized loss on derivatives			(943	)		—			—
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period		(10,577	)		9,876			24,946
			Reclassification adjustment for (gains) losses included in net income (loss)		16,429			3,788			2,092
			Unrealized gains on securities, net		5,852			13,664			27,038
	Other comprehensive income (loss)				(1,094	)		(905	)		12,155
Comprehensive income (loss)				$	(113,250	)	$	(63,845	)	$	83,136

The accompanying notes are an integral part of these consolidated financial statements.

GCS-56

GENZYME CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

		For the Years Ended December 31,
		2001			2000			1999
		(Amounts in thousands, except per share amounts)
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL STOCK:
	Genzyme General net income before cumulative effect of change in accounting principle	$	3,879		$	85,956		$	142,077
	Cumulative effect of change in accounting principle, net of tax		4,167			—			—
	Genzyme General net income		8,046			85,956			142,077
	Genzyme Surgical Products net loss		—			—			(27,523	)
	Tax benefit allocated from Genzyme Biosurgery		24,593			28,023			26,994
	Tax benefit allocated from Genzyme Molecular Oncology		11,904			7,476			7,812
	Net income allocated to Genzyme General Stock	$	44,543		$	121,455		$	149,360
Net income per share of Genzyme General Stock:
Basic:
	Net income per share before cumulative effect of change in accounting principle	$	0.20		$	0.71		$	0.90
	Per share cumulative effect of change in accounting principle		0.02			—			—
	Net income per share allocated to Genzyme General Stock	$	0.22		$	0.71		$	0.90
Diluted:
	Net income per share before cumulative effect of change in accounting principle	$	0.19		$	0.68		$	0.85
	Per share cumulative effect of change in accounting principle		0.02			—			—
	Net income per share allocated to Genzyme General Stock	$	0.21		$	0.68		$	0.85
Weighted average shares outstanding:
	Basic		202,221			172,263			166,185
	Diluted		211,176			179,366			186,456
ALLOCATED TO BIOSURGERY STOCK:
	Genzyme Biosurgery net loss	$	(145,170	)	$	(87,636	)
	Allocated tax benefit		18,189			448
	Net loss allocated to Biosurgery Stock	$	(126,981	)	$	(87,188	)
	Net loss per share of Biosurgery Stock—basic and diluted	$	(3.34	)	$	(2.40	)
	Weighted average shares outstanding		37,982			36,359
ALLOCATED TO MOLECULAR ONCOLOGY STOCK:
	Net loss	$	(29,718	)	$	(23,096	)	$	(28,832	)
	Net loss per share of Molecular Oncology Stock— basic and diluted	$	(1.82	)	$	(1.60	)	$	(2.25	)
	Weighted average shares outstanding		16,350			14,446			12,826
ALLOCATED TO SURGICAL PRODUCTS STOCK:
	Net loss				$	(54,748	)	$	(20,514	)
	Net loss per share of Surgical Products Stock—basic and diluted				$	(3.67	)	$	(1.38	)
	Weighted average shares outstanding					14,900			14,835
ALLOCATED TO TISSUE REPAIR STOCK:
	Net loss				$	(19,833	)	$	(30,040	)
	Net loss per share of Tissue Repair Stock—basic and diluted				$	(0.69	)	$	(1.26	)
	Weighted average shares outstanding					28,716			23,807

The accompanying notes are an integral part of these consolidated financial statements.

GCS-57

GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

				December 31,
				2001			2000
				(Amounts in thousands, except share amounts)
ASSETS
Current assets:
		Cash and cash equivalents		$	247,011		$	236,213
		Short-term investments			66,481			104,586
		Accounts receivable, net			259,283			205,094
		Inventories			171,409			170,341
		Prepaid expenses and other current assets			35,408			37,681
		Deferred tax assets—current			70,196			46,836
			Total current assets		849,788			800,751
Property, plant and equipment, net					635,314			504,412
Long-term investments					807,766			298,841
Notes receivable-related party					—			10,350
Intangibles, net					1,506,646			1,539,782
Investments in equity securities					88,686			121,251
Other noncurrent assets					47,545			42,713
			Total assets	$	3,935,745		$	3,318,100
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
		Accounts payable		$	47,860		$	26,165
		Accrued expenses			144,740			139,683
		Income taxes payable			75,944			46,745
		Deferred revenue			6,700			8,609
		Current portion of long-term debt and capital lease obligations			7,746			19,897
			Total current liabilities		282,990			241,099
Long-term debt and capital lease obligations					259,809			381,560
Convertible notes and debentures					585,000			283,680
Deferred tax liabilities					173,126			230,384
Other noncurrent liabilities					25,631			6,236
			Total liabilities		1,326,556			1,142,959
Commitments and contingencies (Notes I, K, M)
Stockholders' equity:
	Preferred stock, $0.01 par value				—			—
	Common stock $0.01 par value:
			Genzyme General Stock, $0.01 par value		2,132			1,912
			Biosurgery Stock, $0.01 par value		395			364
			Molecular Oncology Stock, $0.01 par value		168			159
	Treasury common stock, at cost:
		Genzyme General Stock			(901	)		(901	)
	Additional paid-in capital—Genzyme General Stock				1,749,097			1,268,328
	Additional paid-in capital—Biosurgery Stock				843,544			823,353
	Additional paid-in capital—Molecular Oncology Stock				148,481			111,484
	Deferred compensation				(2,377	)		(9,943	)
	Notes reveivable from stockholders				(13,245	)		(14,760	)
	Accumulated deficit				(117,894	)		(5,738	)
	Accumulated other comprehensive income				(211	)		883
	Total stockholders' equity				2,609,189			2,175,141
	Total liabilities and stockholders' equity			$	3,935,745		$	3,318,100

The accompanying notes are an integral part of these consolidated financial statements.

GCS-58

GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

					For the Years Ended December 31,
					2001			2000			1999
					(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)				$	(112,156	)	$	(62,940	)	$	70,981
	Reconciliation of net income (loss) to net cash provided by operating activities:
		Depreciation and amortization				179,009			57,930			62,652
		Non-cash compensation expense				10,196			2,185			58
		Provision for bad debts				1,116			4,277			13,031
		Note received from a collaborator				—			(10,350	)		—
		Write-off of note received from a collaborator				10,159			—			—
		Charges for in-process research and development				95,568			200,191			5,436
		Equity in net loss of unconsolidated affiliates				35,681			44,965			42,696
		Gain on affiliate sale of stock				(212	)		(22,689	)		(6,683	)
		(Gain) loss on investments in equity securities				25,996			(15,873	)		3,749
		Minority interest in net loss of subsidiary				(2,259	)		(4,625	)		(3,674	)
		Deferred income tax benefit				(58,799	)		(6,580	)		(6,061	)
		Loss on disposal of fixed assets				—			532			917
		Accrued interest/amortization of marketable securities				—			2,507			(1,647	)
		(Gain) loss on sale of product line				24,999			—			(8,018	)
		Other				(2,283	)		2,677			1,881
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			(58,385	)		(34,064	)		(18,682	)
			Inventories			(6,668	)		(9,549	)		(1,691	)
			Prepaid expenses and other current assets			441			(8,768	)		12,215
			Accounts payable, accrued expenses, and deferred revenue			30,811			(26,339	)		(33,049	)
			Income taxes payable and tax benefits from stock options			51,874			63,607			69,900
			Net cash provided by operating activities			225,088			177,094			204,011
CASH FLOWS FROM INVESTING ACTIVITIES:
		Purchases of investments				(978,595	)		(553,506	)		(509,177	)
		Sales and maturities of investments				522,400			754,437			438,530
		Purchases of equity securities				(11,138	)		(29,102	)		(17,700	)
		Proceeds from sale of investments in equity securities				2,467			33,124			11,090
		Purchases of property, plant and equipment				(184,304	)		(75,441	)		(57,724	)
		Sale of property, plant and equipment				1,047			26			188
		Proceeds from sale of product line				15,862			—			5,000
		Acquisitions, net of acquired cash				(74,460	)		(643,779	)		(6,500	)
		Purchase of technology rights				—			(75	)		(11,400	)
		Investments in unconsolidated affiliates				(39,677	)		(23,497	)		(46,621	)
		Proceeds from notes receivable				—			—			8,360
		Final distribution from joint venture				—			—			881
		Other				2,596			(8,160	)		2,859
				Net cash used in investing activities		(743,802	)		(545,973	)		(182,214	)

The accompanying notes are an integral part of these consolidated financial statements.

GCS-59

GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

			For the Years Ended December 31,
			2001			2000			1999
			(Amounts in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from issuance of common stock			91,517			116,181			59,986
	Proceeds from issuance of debt			579,062			350,000			5,000
	Payments of debt and capital lease obligations			(156,743	)		(5,000	)		(85,081	)
	Bank overdraft			8,058			12,306			9,625
	Payments of notes receivable from stockholders			3,365			—			—
	Other			4,942			2,076			2,289
		Net cash provided by (used in) financing activities		530,201			475,563			(8,181	)
Effect of exchange rate changes on cash				(689	)		(627	)		(2,072	)
Increase in cash and cash equivalents				10,798			106,057			11,544
Cash and cash equivalents at beginning of period				236,213			130,156			118,612
Cash and cash equivalents at end of period			$	247,011		$	236,213		$	130,156
Supplemental disclosures of cash flows:
Cash paid during the year for:
	Interest		$	35,238		$	15,998		$	20,151
	Income taxes		$	19,550		$	34,014		$	30,992
Supplemental disclosures of non-cash transactions:
Other gains and charges—Note B.
Dispositions of assets—Note C.
Acquisitions—Note D.
Investments in unconsolidated affiliates—Note I.
Conversion of 51/4% convertible subordinated notes—Note K.
Conversion of 5% convertible subordinated debentures—Note K.
Warrant exercise—Note L.

In conjunction with the acquisitions of Novazyme, Focal, Wyntek, GDP, Biomatrix and GelTex, liabilities were assumed as follows:

		For the Years Ended December 31,
		2001			2000
		(Amounts in thousands)
Fair value of assets acquired		$	85,675		$	994,481
Goodwill			47,272			561,896
Acquired in-process research and development			95,568			200,191
Deferred compensation			2,630			10,272
Issuance of common stock and options			(129,392	)		(774,458	)
Net cash paid for acquisition and acquisition costs			(80,356	)		(660,187	)
Existing equity investment			(5,488	)		—
Liabilities for exit activities and integration			(1,740	)		(6,716	)
Net deferred tax liability assumed			(4,817	)		(246,591	)
	Net liabilities assumed	$	9,352		$	78,888

The accompanying notes are an integral part of these consolidated financial statements.

GCS-60

GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

		Shares (In Thousands)						Dollars (In Thousands)
		2001		2000		1999		2001			2000			1999
COMMON STOCK:
GENZYME GENERAL STOCK:
	Balance at beginning of year	191,182		168,704		162,788		$	1,912		$	1,688		$	1,628
	Issuance of Genzyme General Stock under stock plans	5,406		6,706		5,916			54			66			60
	Exercise of warrants and stock purchase rights	127		—		—			1			—			—
	Shares issued for acquisition of GelTex	—		15,772		—			—			158			—
	Shares issued for acquisition of Novazyme	2,562		—		—			26			—			—
	Shares issued in connection with conversion of 51/4% convertible notes	12,597		—		—			126			—			—
	Shares issued in connection with conversion of 5% convertible debentures	1,305		—		—			13			—			—
	Balance at end of year	213,179		191,182		168,704		$	2,132		$	1,912		$	1,688
BIOSURGERY STOCK:
	Balance at beginning of year	36,398						$	364		$	—
	Issuance of Biosurgery Stock under stock plans	384		46					4			—
	Conversion of Surgical Products Stock to Biosurgery Stock upon creation of Genzyme Biosurgery	—		9,092					—			91
	Conversion of Tissue Repair Stock to Biosurgery Stock upon creation of Genzyme Biosurgery	—		9,679					—			97
	Shares issued in connection with conversion of 51/4% convertible notes	685		—					6			—
	Shares issued for acquisition of Focal	2,087		—					21			—
	Shares issued for acquisition of Biomatrix	—		17,581					—			176
	Balance at end of year	39,554		36,398				$	395		$	364
MOLECULAR ONCOLOGY STOCK:
	Balance at beginning of year	15,905		13,421		12,648		$	159		$	134		$	126
	Issuance of Molecular Oncology Stock under stock plans	175		345		129			2			4			2
	Issuance of Molecular Oncology designated shares	—		—		27			—			—			—
	Sales of Molecular Oncology Stock	—		2,139		—			—			21			—
	Shares issued in connection with conversion of 51/4% convertible notes	682		—		—			7			—			—
	Issuance of Molecular Oncology Stock in connection with the purchase of joint venture interest	—		—		617			—			—			6
	Balance at end of year	16,762		15,905		13,421		$	168		$	159		$	134
SURGICAL PRODUCTS STOCK:
	Balance at beginning of year			14,835		—					$	148		$	—
	Initial distribution of Genzyme Surgical Products designated shares			—		14,792						—			148
	Issuance of Surgical Products Stock under stock plans			169		43						2			—
	Conversion of Surgical Products Stock to Biosurgery Stock upon creation of Genzyme Biosurgery			(15,004	)	—						(150	)		—
	Balance at end of year			—		14,835					$	—		$	148
TISSUE REPAIR STOCK:
	Balance at beginning of year			28,504		20,921					$	285		$	209
	Issuance of Tissue Repair Stock under stock plans			374		325						4			3
	Issuance of Tissue Repair Stock in connection with conversion of 6% convertible note			—		7,258						—			73
	Conversion of Tissue Repair Stock to Biosurgery Stock upon creation of Genzyme Biosurgery			(28,878	)	—						(289	)		—
	Balance at end of year			—		28,504					$	—		$	285
TREASURY COMMON STOCK (AT COST):
GENZYME GENERAL STOCK:
Balance at beginning of year		(106	)	(106	)	(106	)	$	(901	)	$	(901	)	$	(901	)
Purchases		—		—		—			—			—			—
Balance at end of year		(106	)	(106	)	(106	)	$	(901	)	$	(901	)	$	(901	)

The accompanying notes are an integral part of these consolidated financial statements.

GCS-61

GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)

		2001			2000			1999
		(Amounts in thousands)
ADDITIONAL PAID-IN CAPITAL:
GENZYME GENERAL STOCK:
	Balance at beginning of year	$	1,268,328		$	635,284		$	958,205
	Issuance of Genzyme General Stock under stock plans		86,651			85,315			59,557
	Exercise of warrants and stock purchase rights		2,290			—			—
	Allocation of cash to Genzyme Biosurgery for Biosurgery designated shares		(12,000	)		—			—
	Allocation of cash to Genzyme Tissue Repair for Tissue Repair designated shares		—			(9,910	)		(4,937	)
	Allocation of cash to Genzyme Molecular Oncology for Molecular Oncology designated shares		(4,040	)		(15,000	)		—
	Allocation of cash to Genzyme Surgical Products for Surgical Products designated shares		—			—			(376,271	)
	Tax benefit from disqualified dispositions		50,176			17,041			24,238
	Conversion of 51/4% convertible notes		245,946			—			—
	Conversion of 5% convertible debentures		21,187			—			—
	Acquisition of Novazyme		119,572			—			—
	Acquistion of GelTex		—			554,063			—
	Stock based compensation expense		—			1,536			—
	Transfer of interest in joint venture from Genzyme Tissue Repair		—			—			(25,000	)
	Payment to Genzyme Tissue Repair for research program		—			—			(100	)
	Allocation of cash to Genzyme Molecular Oncology in exchange for the reallocation of diagnostic assets from Genzyme Molecular Oncology to Genzyme General		(32,000	)		—			—
	Other		2,987			(1	)		(408	)
	Balance at end of year	$	1,749,097		$	1,268,328		$	635,284
BIOSURGERY STOCK:
Balance at beginning of year		$	823,353		$	—
Issuance of Biosurgery Stock under stock plans			1,551			298
Allocation of cash from Genzyme General for Biosurgery designated shares			12,000			—
Conversion of Surgical Products Stock to Biosurgery Stock upon creation of Genzyme Biosurgery			—			377,090
Conversion of Tissue Repair Stock to Biosurgery Stock upon creation of Genzyme Biosurgery			—			228,288
Acquisition of Focal			9,780
Acquisition of Biomatrix			—			217,719
Other			(3,140	)		(42	)
Balance at end of year		$	843,544		$	823,353
MOLECULAR ONCOLOGY STOCK:
Balance at beginning of year		$	111,484		$	67,672		$	63,427
Issuance of Molecular Oncology Stock under stock plans			957			1,829			306
Allocation of cash from Genzyme General for Molecular Oncology designated shares			4,040			15,000			—
Issuance of Molecular Oncology Stock in connection with public offering			—			26,980			—
Allocation of cash from Genzyme General in exchange for the reallocation of diagnostic assets from Genzyme Molecular Oncology to Genzyme General			32,000			—			—
Issuance of Molecular Oncology Stock in connection with conversion of 51/4% convertible notes			(7	)		—			—
Shares issued upon purchase of joint venture interest			—			—			3,929
Other			7			3			10
Balance at end of year		$	148,481		$	111,484		$	67,672
SURGICAL PRODUCTS STOCK:
Balance at beginning of year					$	376,123		$	—
Allocation of cash from Genzyme General for Surgical Products designated shares						—			376,271
Issuance of Surgical Products Stock under stock plans						908			—
Conversion of Surgical Products Stock to Biosurgery Stock upon creation of Genzyme Biosurgery						(377,031	)
Initial distribution of Genzyme Surgical Products designated shares						—			(148	)
Balance at end of year					$	—		$	376,123

The accompanying notes are an integral part of these consolidated financial statements.

GCS-62

GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)

	2001			2000			1999
	(Amounts in thousands)
TISSUE REPAIR STOCK:
Balance at beginning of year				$	217,103		$	174,198
Issuance of Tissue Repair Stock under stock plans					794			458
Issuance of Tissue Repair Stock in connection with conversion of 6% convertible note					—			12,410
Gain on transfer of interest in joint venture to Genzyme General					—			25,000
Payment from Genzyme General for research program					—			100
Issuance of Tissue Repair Stock in connection with research program					289			—
Allocation of cash from Genzyme General for Tissue Repair designated shares					9,910			4,937
Conversion of Tissue Repair Stock to Biosurgery Stock upon creation of Genzyme Biosurgery					(228,096	)		—
Stock compensation expense (unearned compensation), net					—			—
Balance at end of year				$	—		$	217,103
DEFERRED COMPENSATION
Balance at beginning of year	$	(9,943	)	$	(134	)	$	(192	)
Deferred compensation associated with GelTex acquisition		—			(10,206	)		—
Deferred compensation associated with Biomatrix acquisition		—			(66	)		—
Deferred compensation associated with Novazyme acquisition		(2,630	)		—			—
Amortization of deferred compensation		10,196			463			58
Balance at end of year	$	(2,377	)	$	(9,943	)	$	(134	)
NOTES RECEIVABLE FROM STOCKHOLDERS:
Balance at beginning of year	$	(14,760	)	$	—		$	—
Notes acquired in connection with Biomatrix acquisition		—			(14,760	)		—
Notes acquired in connection with Focal acquisition		(535	)		—			—
Notes acquired in connection with Novazyme acquisition		(1,316	)		—			—
Payments of Biomatrix notes receivable		2,769			—			—
Payments of Focal notes receivable		72			—			—
Payments of Novazyme notes receivable		541			—			—
Accrued interest receivable on Novazyme notes		(16	)		—			—
Balance at end of year	$	(13,245	)	$	(14,760	)	$	—
RETAINED EARNINGS (ACCUMULATED DEFICIT):
Balance at beginning of year	$	(5,738	)	$	57,202		$	(13,779	)
Net income		(112,156	)		(62,940	)		70,981
Balance at end of year	$	(117,894	)	$	(5,738	)	$	57,202
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX:
Balance at beginning of year	$	883		$	1,788		$	(10,367	)
Foreign currency translation adjustments		(6,003	)		(14,569	)		(14,883	)
Change in unrealized gains (losses) on investments and derivatives		4,909			13,664			27,038
Accumulated other comprehensive income (loss)	$	(211	)	$	883		$	1,788

The accompanying notes are an integral part of these consolidated financial statements.

GCS-63

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

        We are a biotechnology and human healthcare company that develops innovative products and provides services for significant unmet medical needs. We have three operating divisions:

•

Genzyme General, which develops and markets:



•

therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and other specialty therapeutics;



•

diagnostic products, with a focus on in vitro diagnostics; and



•

other products and services, such as genetic testing and pharmaceutical drug materials.




•

Genzyme Biosurgery, which develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedics and cardiothoracic markets; and



•

Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        We currently have three series of common stock designed to reflect the value and track the performance of one of our divisions. We refer to our series of common stock as follows:

•

Genzyme General Division Common Stock = "Genzyme General Stock;"



•

Genzyme Biosurgery Division Common Stock = "Biosurgery Stock;" and



•

Genzyme Molecular Oncology Division Common Stock = "Molecular Oncology Stock."

        On December 18, 2000, we acquired Biomatrix, Inc., a public company engaged in the development and commercialization of viscoelastic products made of biological polymers called hylans for use in therapeutic medical applications and skin care. We accounted for the acquisition as a purchase. Immediately prior to the acquisition, we combined two of our operating divisions, Genzyme Surgical Products and Genzyme Tissue Repair, to form a new division called Genzyme Biosurgery. We allocated the acquired assets and liabilities of Biomatrix to Genzyme Biosurgery. The combination of Genzyme Surgical Products and Genzyme Tissue Repair to form Genzyme Biosurgery did not result in any adjustments to the book values of the net assets of the divisions because they remained divisions of the same corporation. We present the financial statements of Genzyme Biosurgery as though the divisions had been combined for all periods presented, and include the operations of Biomatrix from the date of acquisition.

        In connection with the formation of Genzyme Biosurgery, we created Genzyme Biosurgery Stock. Each outstanding share of Genzyme Surgical Products Division common stock, or "Surgical Products Stock," was converted into 0.6060 of a share of Biosurgery Stock, and each outstanding share of Genzyme Tissue Repair Division common stock, or "Tissue Repair Stock," was converted into 0.3352 of a share of Biosurgery Stock. All outstanding options to purchase Surgical Products Stock and Tissue Repair Stock were converted into options to purchase Biosurgery Stock at the applicable conversion rates.

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Basis of Presentation

        Our consolidated financial statements for each period include the balance sheets, results of operations and cash flows of each of our divisions, and for our corporate operations taken as a whole. We eliminate all significant intracompany items and transactions in consolidation. We have reclassified certain 2000 and 1999 data to conform with our 2001 presentation.

Tracking Stocks

        We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specific subset of our business operations and its allocated assets, rather than operations and assets of our entire company. The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Molecular Oncology Stock or Biosurgery Stock, if all or substantially all of the assets allocated to those corresponding divisions are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from that division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to each series of stock are based on the income or losses attributable to each corresponding division, we include financial statements and management's discussion and analysis for the corporation, as well as for each of our divisions, to aid investors in evaluating our performance and the performance of each of our divisions.

        While each tracking stock is designed to reflect each division's performance, it is common stock of Genzyme Corporation and not of a division. Our divisions are not separate companies or legal entities, and therefore do not and cannot issue stock. Holders of tracking stock have no specific rights to assets allocated to the corresponding division. Genzyme Corporation continues to hold title to all of the assets allocated to the corresponding division and is responsible for all of its liabilities, regardless of what it deems for financial statement presentation purposes as allocated to any division. Holders of each tracking stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are

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subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of each tracking stock would only have the rights of common stockholders in the combined assets of Genzyme.

Allocation Policy

        Our charter sets forth what operations and assets were initially allocated to each division and states that going forward the division will also include all business, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between our divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to that division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to that division;



•

actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the service is performed on a cost basis. Such charges are generally based upon direct labor hours;



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proportionate usage—costs incurred which benefit more than one division are allocated based upon management's estimate of the proportionate benefit each division receives. Such costs include facilities, legal, finance, human resources, executive and investor relations; or



•

board directed—programs and products, both internally developed and acquired, are allocated to divisions by the board of directors. The board also allocates long-term debt and strategic investments.

Principles of Consolidation

        Our consolidated financial statements include the accounts of our wholly owned and majority-owned subsidiaries. For consolidated majority-owned subsidiaries in which we own greater than 50%, we record a minority interest in the consolidated financial statements to account for the ownership interest of the minority owner. We use the equity method to account for investments in entities in which we have a substantial ownership interest (20% to 50%), or in which we participate in policy decisions. Our consolidated net income includes our share of the earnings of these entities. All significant intercompany accounts and transactions have been eliminated in consolidation. For additional information on our investments, please read Note I "Investments" below.

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Dividend Policy

        We have never paid a cash dividend on shares of our stock. We currently intend to retain our earnings to finance future growth and do not anticipate paying any cash dividends on our stock in the foreseeable future.

Use of Estimates

        Under generally accepted accounting principles, we are required to make certain estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in our financial statements. Our actual results could differ from these estimates.

Financial Instruments

        A number of financial instruments subject us to significant credit risk, including cash and cash equivalents, current and non-current investments, and accounts receivable. We generally invest our cash in investment-grade securities to mitigate risk.

Cash and Cash Equivalents

        We value our cash and cash equivalents at cost plus accrued interest, which we believe approximates their market value. Our cash equivalents consist principally of money market funds and municipal notes with original maturities of three months or less.

Investments

        We invest our excess cash balances in short-term and long-term marketable securities. As part of our strategic relationships, we may also invest in equity securities of other biotechnology companies. We use the equity method to account for investments in entities in which we have a substantial ownership interest (20% to 50%), or in which we participate in policy decisions. Other investments are accounted for as described below.

        We classify all of our marketable equity investments as available-for-sale. We classify our investments in marketable debt securities as either held-to-maturity or available-for-sale based on facts and circumstances present at the time we purchase the securities. As of each balance sheet date presented, we classified all of our investments in debt securities as available-for-sale. We report available-for-sale investments at fair value as of each balance sheet date and include any unrealized holding gains and losses (the adjustment to fair value) in stockholders' equity. Realized gains and losses are determined on the specific identification method and are included in investment income. If any adjustment to fair value reflects a decline in the value of the investment, we consider all available evidence to evaluate the extent to which the decline is "other than temporary" and mark the investment to market through a charge to our statement of operations. Investments in equity securities for which fair value is not readily determinable are carried at cost, subject to review for impairment.

        We classify our investments with remaining maturities of 12 months or less as short-term investments. We classify our investments with remaining maturities of greater than twelve months as long-term investments.

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Inventories

        We value inventories at cost or, if lower, fair value. We determine cost using the first-in, first-out method.

        We analyze our inventory levels quarterly and write down to its net realizable value:

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inventory that has become obsolete;



•

inventory that has a cost basis in excess of its expected net realizable value;



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inventory in excess of expected requirements; and



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expired inventory.

We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If a product is not approved for sale, it would result in the write-off of the inventory and a charge to earnings.

Property, Plant and Equipment

        We record property, plant and equipment at cost. When we dispose of these assets, we remove the related cost and accumulated depreciation and amortization from the related accounts on our balance sheet and include any resulting gain or loss in our statement of operations.

        We generally compute depreciation using the straight-line method over the estimated useful lives of the assets. We compute useful lives as follows:

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plant and equipment—three to ten years;



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furniture and fixtures—five to seven years; and



•

buildings—20 to 40 years.

        We depreciate certain specialized manufacturing equipment and facilities, all of which are allocated to Genzyme General, over their remaining useful lives using the units-of-production method. We evaluate the remaining life and recoverability of this equipment periodically based on the appropriate facts and circumstances.

        We amortize leasehold improvements over their useful life or, if shorter, the term of the applicable lease.

        For products we expect to be commercialized, we capitalize, to construction-in-progress, the costs we incur in validating the manufacturing process. We begin this capitalization when we consider the product to have demonstrated technological feasibility and end this capitalization when the asset is substantially complete and ready for its intended use. These capitalized costs include incremental labor and direct material, and incremental fixed overhead and interest. We generally depreciate these costs using the straight-line method.

Intangibles

        Our intangible assets consist of:

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goodwill;

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covenants not to compete;



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purchased technology rights;



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customer lists; and



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patents, trademarks and trade names.

We amortize intangible assets using the straight-line method over useful lives of 1.5 to 40 years.

Accounting for the Impairment of Long-Lived Assets

        We evaluate the recoverability of our intangible and other long-lived assets when the facts and circumstances suggest that these assets may be impaired. When we conduct such an evaluation we consider several factors, including operating results, business plans, economic projections, strategic plans and market emphasis. Our evaluations also compare expected cumulative, undiscounted operating incomes or cash flows of these assets with the net book values of the related intangible assets. We charge unrealizable intangible and long-lived asset values to operations if our evaluations indicate that the value of these assets are impaired.

Translation of Foreign Currencies

        We translate the financial statements of our foreign subsidiaries from local currency into U.S. dollars using:

•

the current exchange rate at each balance sheet date for assets and liabilities; and



•

the average exchange rate prevailing during each period for revenues and expenses.

We consider the local currency for all of our foreign subsidiaries to be the functional currency for that subsidiary. As a result, we included translation adjustments for these subsidiaries in stockholders' equity. We also record as a charge or credit to stockholders' equity exchange gains and losses on intercompany balances that are of a long-term investment nature. Our stockholders' equity includes cumulative foreign currency charges of $40.2 million at December 31, 2001 and $34.2 million at December 31, 2000.

        Gains and losses on all other foreign currency transactions are included in our results of operations, although these amounts are not material to our financial statements.

Derivative Instruments

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our consolidated balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

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        In accordance with the transition provisions of SFAS 133, we recorded a cumulative-effect adjustment of $4.2 million, net of tax, in our consolidated statements of operations for the year ended December 31, 2001 to recognize the fair value of warrants to purchase shares of Genzyme Transgenics common stock that we held on January 1, 2001. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts were not significant.

Revenue Recognition

        We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, and title and risk of loss have passed to the customer. Allowances are recorded for product returns, and for any applicable third party contractual allowances, rebates, or discounts. These allowances are recorded as reductions of revenue. Outbound shipping charges to customers are included in revenues.

        We recognize revenue from service sales when we have finished providing the service. Revenue from research and development contracts is recognized over the term of the applicable contract and as we incur costs related to that contract. Advance payments received in excess of amounts earned are classified as deferred revenue until earned. We recognize non-refundable up-front license fees over the related performance period or at the time we have no remaining performance obligations.

        Revenue from milestone payments for which we have no continuing performance obligations is recognized upon achievement of the related milestone. When we have continuing performance obligations, we recognize milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

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the milestone payments are non-refundable;



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achievement of the milestone was not reasonably assured at the inception of the arrangement;



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there is a substantial effort involved in achieving the milestone; and



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the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

        If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

        We receive royalties related to the manufacture, sale or use of our products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following quarter. Historically, such adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize royalties upon receipt of royalty statements from the licensee.

        We do not recognize revenue unless collectibility is reasonably assured. We believe our revenue recognition policies are in compliance with Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements."

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Research and Development

        We expense internal and external research and development costs, including costs of funded research and development arrangements, in the period incurred. We also expense the cost of purchased technology in the period of purchase if we believe that the technology has not demonstrated technological feasibility and that it does not have an alternative future use.

Issuance of Stock By a Subsidiary or an Affiliate

        We include gains on the issuance of stock by our subsidiaries and affiliates in net income unless that subsidiary or affiliate is a research and development, start-up or development stage company or an entity whose viability as a going concern is under consideration. In those situations, we account for the change in our equity ownership of that subsidiary or affiliate as an equity transaction.

Income Taxes

        We use the asset and liability method of accounting for deferred income taxes. Our provision for income taxes includes income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities.

        We file a consolidated return and allocate income taxes to each division based upon the financial statement income, taxable income, credits and other amounts properly allocable to each division under generally accepted accounting principles as if it were a separate taxpayer. In preparing financial statements for our operating divisions we assess the realizability of our deferred tax assets at the division level. As a result, our consolidated tax provision may not equal the sum of the divisions' tax provisions.

        We have not provided for possible U.S. taxes on the undistributed earnings of foreign subsidiaries. We do not believe it is practicable to determine the tax liability associated with the repatriation of our foreign earnings because it is our policy to indefinitely reinvest these earnings in non-U.S. operations. At December 31, 2001, these undistributed foreign earnings totaled approximately $58.8 million.

Net Income (Loss) Per Share

        We calculate earnings per share for each series of stock using the two-class method. To calculate basic earnings per share for each series of stock, we divide the earnings allocated to each series of stock by the weighted average number of outstanding shares of that series of stock during the applicable period. When we calculate diluted earnings per share, we also include in the denominator all potentially dilutive securities outstanding during the applicable period. We allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Genzyme General Stock, as defined in our charter, is equal to the net income or loss of Genzyme General determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies. Earnings attributable to Biosurgery Stock, Molecular Oncology Stock, Surgical Products Stock and Tissue Repair Stock are defined similarly and, as such, are based on the net income or loss of the corresponding division as adjusted for the allocation of tax benefits.

        We calculate the income tax provision of each division as if such division were a separate taxpayer, which includes assessing realizability of deferred tax assets at the division level. Our management and

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accounting policies provide that, if as of the end of any fiscal quarter, a division can not 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 other divisions in proportion to their taxable income without compensating payment or allocation to the division generating the benefit. The tax benefits allocated to Genzyme General, which are included in earnings attributable to Genzyme General Stock, were:

	Year Ended December 31,
	2001		2000		1999
	(Amounts in thousands)
Tax benefits allocated from:
Genzyme Biosurgery	$	24,593	$	28,023	$	26,994
Genzyme Molecular Oncology		11,904		7,476		7,812
Total	$	36,497	$	35,499	$	34,806

        In future periods, Genzyme Biosurgery or Genzyme Molecular Oncology may recognize deferred tax assets in the calculation of their respective tax provisions determined on a separate division basis in accordance with generally accepted accounting principles. However, to the extent the benefit of those deferred tax assets has been previously allocated to Genzyme General in accordance with the management and accounting policies, the benefit will be reflected as a reduction of net income in determining net income attributable to Biosurgery Stock or Molecular Oncology Stock. As of December 31, 2001, the total tax benefits previously allocated to Genzyme General were (in thousands):

Genzyme Biosurgery	$	193,312
Genzyme Molecular Oncology		36,428

Genzyme General Stock

        As described in Note L., "Stockholders' Equity," we completed a two-for-one split of Genzyme General Stock by means of a 100% stock dividend paid to holders of Genzyme General Stock of record on May 24, 2001. All share and per share amounts for Genzyme General Stock have been retroactively revised for all periods presented to reflect the two-for-one split.

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        The following table sets forth our computation of basic and diluted net income per share of Genzyme General Stock:

				For the Years Ended December 31,
				2001		2000		1999
				(Amounts in thousands, except per share amounts)
Genzyme General net income before cumulative effect of change in accounting principle				$	3,879	$	85,956	$	142,077
Cumulative effect of change in accounting principle, net of tax					4,167		—		—
Genzyme General net income					8,046		85,956		142,077
Genzyme Surgical Products net loss					—		—		(27,523	)
Tax benefit allocated from Genzyme Biosurgery					24,593		28,023		26,994
Tax benefit allocated from Genzyme Molecular Oncology					11,904		7,476		7,812
Net income allocated to Genzyme General Stock—basic					44,543		121,455		149,360
Effect of dilutive securities, net of tax(1):
		51/4% convertible subordinated notes(2):
			Interest expense		—		—		8,375
			Amortization of purchasers' discount and offering costs		—		—		597
		5% convertible subordinated debentures(3):
			Interest expense		—		—		676
			Amortization of debt offering costs		—		—		113
Net income allocated to Genzyme General Stock—diluted				$	44,543	$	121,455	$	159,121
Shares used in computing net income per common share—basic					202,221		172,263		166,185
	Effect of dilutive securities:
		Stock options(4)			8,914		7,103		6,345
		Warrants			41		—		40
		51/4% convertible subordinated notes(1,2)			—		—		12,626
		5% convertible subordinated debentures(1,3)			—		—		1,260
			Dilutive potential common shares		8,955		7,103		20,271
Shares used in computing net income per share—diluted(4)					211,176		179,366		186,456
Net income per share of Genzyme General Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting principle		$	0.20	$	0.71	$	0.90
		Per share cumulative effect of change in accounting principle(5)			0.02		—		—
		Net income per share allocated to Genzyme General Stock		$	0.22	$	0.71	$	0.90
	Diluted(4,6):
		Net income per share before cumulative effect of change in accounting principle		$	0.19	$	0.68	$	0.85
		Per share cumulative effect of change in accounting principle(5)			0.02		—		—
		Net income per share allocated to Genzyme General Stock		$	0.21	$	0.68	$	0.85

(1)

The effect of the assumed conversion of the 5¹/4% convertible subordinated notes and 5% convertible subordinated debentures has been excluded for the years ended December 31, 2001 and 2000 as the effect was anti-dilutive.

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(2)

We issued these notes in May 1998 and amortized the purchasers' discount and offering costs of approximately $7.0 million over the term of the notes, which were due to mature in June 2005. These notes were converted into shares of Genzyme General Stock, Biosurgery Stock and Molecular Oncology Stock in 2001.

(3)

We issued these debentures in August 1998 and amortized the offering costs of approximately $0.9 million over the term of the debentures, which were due to mature in August 2003. These debentures were converted in 2001 into shares of Genzyme General Stock.

(4)

We did not include the securities described in the following table in the computation of Genzyme General's diluted earnings per share for each period because these securities had an exercise price greater than the average market price of Genzyme General Stock:

	December 31,
	2001	2000	1999
	(Amounts in thousands)
Shares of Genzyme General Stock issuable for options	2,170	3,492	4,188
Shares of Genzyme General Stock issuable for warrants	—	92	52
Total shares with exercise prices greater than the average market price of Genzyme General Stock during the period	2,170	3,584	4,240

(5)

On January 1, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative-effect adjustment of $4.2 million, net of tax, in our consolidated statement of operations to record the fair value of certain warrants held on January 1, 2001.

(6)

We did not include the potentially dilutive effect of the assumed conversion of the $575.0 million in principal of 3% convertible subordinated debentures allocated to Genzyme General in the computation of Genzyme General's dilutive earnings per share for the year ended December 31, 2001 because the conditions for conversion had not been met. The debentures are contingently convertible into approximately 8.2 million shares of Genzyme General Stock at an initial conversion price of $70.30 per share.

Biosurgery Stock:

        We created Biosurgery Stock on December 18, 2000. We created Genzyme Biosurgery by combining two of our former divisions of Genzyme Surgical Products and Genzyme Tissue Repair, and simultaneously acquiring Biomatrix. Accordingly, we amended our charter to create Biosurgery Stock and eliminate Surgical Products Stock and Tissue Repair Stock. Each outstanding share of, or option to purchase, Surgical Products Stock was converted into the right to receive 0.6060 of a share of, or option to purchase, Biosurgery Stock, and each outstanding share of, or option to purchase, Tissue Repair Stock was converted into the right to receive 0.3352 of a share of, or option to purchase, Biosurgery Stock. Net loss allocated to Biosurgery Stock for the year ended December 31, 2000 consists of the net loss of Genzyme Biosurgery from December 18, 2000, the date Biosurgery Stock was initially issued, through December 31, 2000. Prior to December 18, 2000, the losses of Genzyme Surgical Products and Genzyme Tissue Repair, which were combined to form Genzyme Biosurgery, were allocated to Surgical Products Stock and Tissue Repair Stock. For all periods presented, basic and diluted net loss per share of Biosurgery Stock are the same.

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        We did not include the securities described in the following table in the computation of Biosurgery Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Biosurgery Stock.

	December 31,
	2001	2000(1)
	(Amounts in thousands)
Shares of Biosurgery Stock issuable for options	5,582	4,739
Warrants to purchase Biosurgery Stock	8	3
Biosurgery designated shares issuable upon conversion of 51/4% convertible subordinated notes allocated to Genzyme General(2)	—	685
Biosurgery designated shares reserved for options(3)	93	111
Biosurgery designated shares(3)	3,105	1,195
Shares of Biosurgery Stock issuable upon conversion of 6.9% convertible subordinated note allocated to Genzyme Biosurgery	358	358
Total shares excluded from the calculation of diluted net loss per share of Biosurgery Stock	9,146	7,091

(1)

For the period from December 18, 2000 through December 31, 2000.

(2)

These shares were issued upon conversion of our 5¹/4% convertible subordinated notes in June 2001.

(3)

Biosurgery designated shares are shares of Biosurgery Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Biosurgery. As of December 31, 2001, there were approximately 3.2 million Biosurgery designated shares.

Molecular Oncology Stock:

        In accounting for the acquisition of PharmaGenics, Inc. in June of 1997, Genzyme Molecular Oncology recorded a valuation allowance against a $2.9 million tax asset related to acquired net operating losses. This was due to the application of our policy of accounting for income taxes at the divisional level as if each division were a separate taxpayer. As a result, Genzyme Molecular Oncology recorded an additional $2.9 million of goodwill that was not recorded at the consolidated level. The amortization of this goodwill increases the loss of Genzyme Molecular Oncology and, therefore, the loss allocated to Molecular Oncology Stock. This additional amortization amounted to approximately $0.5 million in 2000 and $1.0 million in 1999. Amortization of this goodwill was completed in June 2000.

        For all periods presented, basic and diluted net loss per share of Molecular Oncology Stock are the same. We did not include the securities described in the following table in the computation of

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Molecular Oncology Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Molecular Oncology Stock.

	December 31,
	2001	2000	1999
	(Amounts in thousands)
Shares of Molecular Oncology Stock issuable for options	1,370	862	1,597
Warrants to purchase Molecular Oncology Stock	—	10	10
Molecular Oncology designated shares issuable upon conversion of 51/4% convertible subordinated notes allocated to Genzyme General(1,2)	—	682	682
Molecular Oncology designated shares(1)	1,651	1,318	1,006
Total shares excluded from the calculation of diluted net loss per share of Molecular Oncology Stock	3,021	2,872	3,295

(1)

Molecular Oncology designated shares are shares of Molecular Oncology Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Molecular Oncology. As of December 31, 2001, there were approximately 1.7 million Molecular Oncology designated shares.

(2)

These shares were issued upon conversion of our 5¹/4% convertible subordinated notes in 2001.

Surgical Products Stock:

        For all periods presented, basic and diluted net loss per share of Surgical Products Stock is the same. We did not include the securities described in the following table in the computation of Surgical Products Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Surgical Products Stock.

	December 31,
	2000(1)	1999(2)
	(Amounts in thousands)
Shares of Surgical Products Stock issuable for options	450	2,991
Surgical Products designated shares issuable upon conversion of 51/4% convertible subordinated notes allocated to Genzyme General(3)	1,130	1,130
Total shares excluded from the calculation of diluted net loss per share of Surgical Products Stock(4)	1,580	4,121

(1)

For the period from January 1, 2000 through December 18, 2000.

(2)

For the period from June 28, 1999 through December 31, 1999.

(3)

Surgical Products designated shares were shares of Surgical Products Stock that were not issued and outstanding, but which our board of directors could have issued, sold or distributed without allocating the proceeds to Genzyme Surgical Products. As of December 31, 2000, there were no

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Surgical Products designated shares outstanding because these shares were converted into Biosurgery designated shares.

(4)

On December 18, 2000, in connection with the merger of Biomatrix, we converted all of the existing shares of Surgical Products Stock into shares of Biosurgery Stock. Each share of Surgical Products Stock was converted into 0.6060 of a share of Biosurgery Stock. In the aggregate, we converted approximately 15.0 million shares of Surgical Products Stock into shares of Biosurgery Stock.

Tissue Repair Stock:

        For all periods presented, basic and diluted net loss per share of Tissue Repair Stock is the same. We did not include the securities described in the following table in the computation of Tissue Repair Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Tissue Repair Stock.

	December 31,
	2000(1)	1999
	(Amounts in thousands)
Shares of Tissue Repair Stock issuable for options	2,934	4,176
Tissue Repair designated shares(2)	1,285	2,238
Total shares excluded from the calculation of diluted net loss per share of Tissue Repair Stock(3)	4,219	6,414

(1)

For the period from January 1, 2000 through December 18, 2000.

(2)

Tissue Repair designated shares were shares of Tissue Repair Stock that were not issued and outstanding, but which our board of directors could have issued, sold or distributed without allocating the proceeds to Genzyme Tissue Repair. As of December 31, 2000, there were no Tissue Repair designated shares outstanding because these shares were converted into Biosurgery designated shares.

(3)

On December 18, 2000, in connection with the merger of Biomatrix, we converted all of the existing shares of Tissue Repair Stock into shares of Biosurgery Stock. Each share of Tissue Repair Stock was converted into 0.3352 of a share of Biosurgery Stock. In the aggregate, we converted approximately 28.9 million shares of Tissue Repair Stock into shares of Biosurgery Stock.

Comprehensive Income

        Comprehensive income consists of net income and all changes in equity from non-shareholder sources, including changes in unrealized gains and losses on investments and foreign currency translation adjustments, net of taxes.

Accounting for Stock Based Compensation

        Stock options issued to employees under our stock option plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and

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related interpretations. Accordingly, no compensation expense is recorded for options issued to employees in fixed amounts and with fixed exercise prices at least equal to the fair market value of our common stock at the date of grant. We apply the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," through disclosure only, in Note L to these consolidated financial statements. All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

New Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001, and will thus be adopted by us in fiscal year 2002. However, for goodwill and intangible assets acquired after June 30, 2001, certain provisions of SFAS No. 142 are effective from the date of acquisition. For the year ended December 31, 2001, we had approximately $51.4 million of goodwill amortization. The full impact of SFAS No. 141 and SFAS No. 142 on our financial statements has not been determined, however, we anticipate that our transitional goodwill impairment test in 2002 will result in impairment loss recognition of between $80.0 million and $90.0 million related mainly to our cardiothoracic reporting unit. This charge will be reflected in our consolidated statement of operations and the combined statement of operations for Genzyme Biosurgery for the quarter ended March 31, 2002.

        In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations." SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. We are in the process of assessing the effect of adopting SFAS 143, which will be effective for our fiscal year ending December 31, 2002.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for: 1) recognition and measurement of the impairment of long-lived assets to be held and used; and 2) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and this will be adopted by us in fiscal year 2002. We do not expect the adoption of SFAS No. 144 to have a material effect on our financial condition or results of operations.

        The Emerging Issues Task Force recently released Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer." EITF No. 01-09 addresses whether a vendor should recognize

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consideration given to a customer, including a distributor, as an offset to revenue being recognized from that same customer or as an expense. The provisions of EITF No. 01-09 are to be applied to financial statements for periods beginning after December 15, 2001, and thus will be adopted by us in fiscal year 2002. For comparative purposes, financial statements for prior periods must be reclassified to comply with the requirements. We are currently assessing the effect that adopting EITF No. 01-09 will have on our financial statements.

Uncertainties

        We are subject to risks and uncertainties common to companies in the biotechnology industry. These risks and uncertainties may affect our future results, and include:

•

our ability to successfully complete preclinical and clinical development of our products and services;



•

our ability to manufacture sufficient amounts of our products for development and commercialization activities;



•

our ability to obtain timely regulatory approval of our products and services;



•

our ability to obtain, maintain and successfully enforce adequate patent and other proprietary rights protection of our products and services;



•

the scope, validity and enforceability of patents and other proprietary rights held by third parties and their impact on our ability to commercialize our products and services;



•

the content and timing of submissions to and decisions made by the FDA and other regulatory agencies regarding our products and services;



•

our ability to manufacture sufficient quantities of products for development and commercialization activities;



•

our ability to manage inventories of our products;



•

our ability to maintain adequate insurance coverage for any claims that may be asserted against us;



•

the accuracy of our estimates of the size and characteristics of the markets to be addressed by our products and services;



•

market acceptance of our products and services;



•

our ability to obtain reimbursement for our products and services by third party payors, and the extent of such coverage;



•

our ability to establish and maintain licenses, strategic collaborations and distribution arrangements;



•

the continued funding of our joint ventures; and



•

the accuracy of our information regarding the products and resources of our competitors and potential competitors.

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NOTE B. OTHER GAINS AND CHARGES

        In 2001, we recorded $27.0 million of charges to selling, general and administrative expenses resulting from Pharming Group's decision to file for and operate under a court supervised receivership. Included was a write-off of the $10.2 million in principal and accrued interest due to us under the 7% senior convertible note issued to us by Pharming Group, and a charge of $16.8 million representing our commitment to fund all of the operations of the LLC, which in turn is legally obligated to supply transgenic human alpha-glucosidase enzyme until the patients currently enrolled in the clinical trial of this product can be transitioned to a CHO-cell product. As a result of Pharming Group's failure to make payments to fund our joint venture for the development of a CHO-cell product for Pompe disease under a strategic alliance agreement, we terminated this agreement in August and have assumed full operational and financial responsibility for the development of the CHO-cell product. Our joint venture with Pharming Group covering a transgenic product for Pompe disease remains in place. We do not intend to commercialize this product. We allocate these charges to Genzyme General.

        In 2001, we recorded a charge of $4.7 million to research and development expenses, representing the net amount owed by Pharming Group to the CHO-cell product joint venture we previously formed with Pharming Group that we believed was uncollectable. We allocated this charge to Genzyme General.

        In 2000, we recorded a $4.3 million charge for abandoned equipment at our Springfield Mills manufacturing facility located in the United Kingdom. The write-off of equipment was related to the Sepra product line and did not have other alternative uses. We allocated this charge to Genzyme Biosurgery.

        In June 2000, Celtrix was acquired by Insmed, upon which our shares of Celtrix common stock were exchanged on a 1-for-1 basis for shares of Insmed common stock. We recognized a $7.6 million gain upon this exchange in 2000, which we allocated to Genzyme General.

        In 2000, we recorded a gain of approximately $5.1 million in connection with proceeds received from the settlement of a lawsuit. The lawsuit, initiated in 1993, pertained to insurance coverage for an accidental spill of Ceredase enzyme at a fill facility operated by a contractor to us. We allocated this gain to Genzyme General.

        In 2000, we recorded gains of $22.7 million relating to public offerings of common stock by our unconsolidated affiliate, Genzyme Transgenics. We recorded this gain as gain on affiliate sale of stock and allocated it to Genzyme General.

        In 1999, we recorded a net gain of $14.4 million upon receipt of a payment associated with the termination of our agreement to acquire Cell Genesys. We allocated this gain to Genzyme General.

NOTE C. DISPOSITIONS OF ASSETS

Snowden-Pencer Products

        In November 2001, we sold the Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery for $15.9 million in net cash, which was allocated to Genzyme Biosurgery. The purchaser acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a net carrying

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value of approximately $41.0 million at the time of the sale. We recorded a loss of $25.0 million in connection with this sale and a related tax benefit of $4.7 million.

ATIII LLC

        In July 2001, we transferred our 50% ownership interest in ATIII LLC, our joint venture with Genzyme Transgenics for the development and commercialization of ATIII, to Genzyme Transgenics. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of any of Genzyme Transgenics' products based on ATIII beginning three years after the first commercial sale of each such product up to a cumulative maximum amount of $30.0 million. We will allocate any royalty amounts that we receive to Genzyme General. Prior to the transfer, we consolidated the results of ATIII LLC because we had control of ATIII LLC through our combined, direct and indirect ownership interest in the joint venture.

Sybron Laboratory Products

        In July 1999, we sold the assets of our immunochemistry product line to an operating unit of Sybron Laboratory Products Corp. for $5.0 million in cash. We recorded a gain of $0.5 million in connection with the sale of this product line, and allocated it to Genzyme General.

NOTE D. ACQUISITIONS

Novazyme

        In September 2001, we acquired all of the outstanding capital stock of Novazyme Pharmaceuticals, Inc., a privately-held developer of biotherapies for the treatment of lysosomal storage disorders, or LSDs, for an initial payment of approximately 2.6 million shares of Genzyme General Stock. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products for the treatment of LSDs that employ certain of Novazyme's technologies. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme common stock and exchanged them for options, warrants and rights to purchase Genzyme General Stock, on an as-converted basis. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Novazyme are included in our consolidated financial statements and the combined financial statements of Genzyme General from September 26, 2001, the date of acquisition.

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        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (dollars in thousands):

Issuance of 2,562,182 shares of Genzyme General Stock		$	110,584
Issuance of options to purchase 158,840 shares of Genzyme General Stock			6,274
Issuance of warrants to purchase 25,338 shares of Genzyme General Stock			894
Issuance of rights to purchase 66,846 shares of Genzyme General Stock			1,839
Acquisition costs			951
Total purchase price		$	120,542
Cash and cash equivalents		$	5,194
Other assets			125
Property, plant & equipment			4,475
Goodwill			17,177
In-process research and development			86,800
Deferred tax asset			8,328
Assumed liabilities			(2,795	)
Liabilities for exit activities and integration			(1,740	)
Notes receivable from stockholders			1,316
Deferred compensation			2,630
Deferred tax liability			(968	)
	Allocated purchase price	$	120,542

        Because our acquisition of Novazyme was completed after June 30, 2001, the provisions of SFAS No. 141 and certain provisions of SFAS No. 142 apply from the date of acquisition. Accordingly, we will not ratably amortize the goodwill resulting from the acquisition of Novazyme. Instead, we will test the goodwill's impairment on a periodic basis in accordance with the provisions of SFAS No. 142.

        We issued approximately 2.6 million shares of Genzyme General Stock to Novazyme's shareholders. These shares were valued at $110.6 million using the average trading price of Genzyme General Stock for the four day trading period ending on September 26, 2001, the date of acquisition. Options, warrants and rights to purchase shares of Genzyme General Stock were valued at $9.0 million using the Black-Scholes model. In accordance with Financial Accounting Standards Board Interpretation No. 44, at the date of acquisition we allocated the $2.6 million intrinsic value of the portion of the unvested options related to the future service period to deferred compensation in Stockholders' equity. We are amortizing the unvested portion to operating expense over the remaining vesting period of approximately 22 months.

        In connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly, we have allocated to in-process research and development, which we refer to as IPR&D, and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. In accordance with generally accepted

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accounting principles, the amount allocated to IPR&D was charged as an expense in our consolidated financial statements and the combined financial statements of Genzyme General for the year ended December 31, 2001.

        Our management assumes responsibility for determining the IPR&D valuation and engaged an independent third-party appraisal company to assist in the valuation of the intangible assets acquired. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the probability-adjusted net cash flows expected to result once the technology has reached technological feasibility and is utilized in the treatment of certain LSDs. A discount rate of 16% was applied to estimate the present value of these cash flows and is consistent with the overall risks of the platform technology. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology and adjusted the future cash flows to reflect the contribution of value from these assets. In the allocation of purchase price to IPR&D, the concept of alternative future use was specifically considered. The platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the treatment of LSDs. As of December 31, 2001, the technological feasibility for the acquired platform technology had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Focal

        In January 2001, Focal, a public company and developer of synthetic biopolymers used in surgery, exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated this investment to Genzyme Biosurgery. On June 30, 2001, we acquired the remaining 78% of the outstanding shares in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as merger consideration. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We allocated the acquired assets and liabilities to Genzyme Biosurgery and accounted for the acquisition as a purchase. Accordingly, we included the results of operations of Focal in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from June 30, 2001, the date of acquisition.

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        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (dollars in thousands):

Issuance of 2,086,151 shares of Biosurgery Stock		$	9,450
Issuance of options to purchase 231,566 shares of Biosurgery Stock			351
Acquisition costs			638
Existing equity investment in Focal			5,488
Cash paid to selling security holder			11
	Total purchase price	$	15,938
Cash and cash equivalents		$	2,331
Other current assets			6,003
Property, plant and equipment			1,568
Intangible assets (to be amortized over 3 to 12 years)			7,909
Goodwill			1,365
Assumed liabilities			(3,773	)
Note receivable from stockholders			535
	Allocated purchase price	$	15,938

Wyntek

        In June 2001, we acquired all of the outstanding capital stock of privately-held Wyntek for $65.0 million in cash. Wyntek is a provider of high quality point of care rapid diagnostic tests for pregnancy and infectious diseases. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, we included the results of operations of Wyntek in our consolidated financial statements and the combined financial statements of Genzyme General from June 1, 2001, the date of acquisition.

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        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (dollars in thousands):

Cash paid	$	65,000
Acquisition costs		350
Total purchase price.	$	65,350
Cash and cash equivalents	$	4,974
Other current assets		4,966
Property, plant & equipment		1,843
Intangible assets (to be amortized straight-line over 5 to 10 years)		39,444
Goodwill		20,316
In-process research and development		8,768
Deferred tax assets		2,255
Assumed liabilities		(2,784	)
Deferred tax liability		(14,432	)
Allocated purchase price	$	65,350

        In connection with the acquisition of Wyntek we allocated approximately $8.8 million of the purchase price to IPR&D. We estimated the fair value assigned to purchased IPR&D by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility. We applied a discount rate of 25% to estimate the present value of these cash flows, which was consistent with the risks of the project. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased IPR&D was the amount attributable to the efforts of Wyntek up to the time of acquisition.

        In the allocation of purchase price to IPR&D, the concept of alternative future use was specifically considered for the program under development. The acquired IPR&D consists of Wyntek's work to complete the program. There are no alternative uses for the in-process program in the event that the program fails in clinical trials or is otherwise not feasible. The development effort for the acquired IPR&D does not possess an alternative future use for us as defined by generally accepted accounting principles. Consequently, in accordance with generally accepted accounting principles, the amount allocated to IPR&D was charged as an expense for the year ended December 31, 2001. We are amortizing the remaining acquired intangible assets arising from the acquisition on a straight-line basis over their estimated lives, which range from 5 years to 10 years.

        Wyntek is currently developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. These are the leading markers for the diagnosis of acute myocardial infarction. The product consists of a mobile, stand-alone, quantitative diagnostic device and a reaction strip that detects disease specific marker proteins. The device will be used to read reaction strips at the patient's bedside or in an emergency room setting. As of December 31, 2001, the technological feasibility of the acquired programs had not been reached and no significant departures from the

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assumptions included in the valuation analysis had occurred. We expect to launch this product during the second half of 2002.

Genzyme Development Partners

        In January 2001, we purchased all of the outstanding Class A limited partnership interests of GDP for a payment of approximately $25.7 million in cash plus royalties payable over ten years on sales of certain Sepra products. In August 2001, we purchased the remaining GDP limited partnership interests, consisting of two Class B interests, for an aggregate of $180,000, plus additional royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, we include the results of operations of GDP in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

        We allocated the purchase prices to the fair value of the intangible assets acquired as follows (dollars in thousands):

Patents (to be amortized over 8 years)	$	5,909
Trademarks (to be amortized over 10 years)		2,755
Technology (to be amortized over 10 years)		8,827
Goodwill		8,414
Total	$	25,905

Biomatrix

        In December 2000, we completed the acquisition of Biomatrix, a public company engaged in the development and manufacturing of viscoelastic biomaterials for use in orthopaedic and other medical applications. Concurrently with the acquisition, we created Genzyme Biosurgery as a new division. We reallocated the businesses of two of our operating divisions—Genzyme Surgical Products and Genzyme Tissue Repair—to Genzyme Biosurgery and allocated the acquired businesses of Biomatrix to Genzyme Biosurgery. As a result of this transaction, we amended our charter to create Biosurgery Stock and eliminated Surgical Products Stock, and Tissue Repair Stock. Each outstanding share of, and option to purchase, Surgical Product Stock was converted into the right to receive 0.6060 of a share of, or option to purchase, Biosurgery Stock and each outstanding share of, or option to purchase, Tissue Repair Stock was converted into the right to receive 0.3352 of a share of, or option to purchase, Biosurgery Stock.

        We accounted for the acquisition as a purchase and accordingly, the results of operations of Biomatrix are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from December 18, 2000, the date of acquisition.

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        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (dollars in thousands):

Cash paid		$	252,421
Issuance of 17.5 million shares of Biosurgery Stock.			206,522
Issuance of options and warrants to purchase 1.7 million shares of Biosurgery Stock			11,373
Acquisition costs			12,087
	Total purchase price.	$	482,403
Cash and cash equivalents		$	56,137
Current assets			37,639
Property, plant & equipment			38,060
Intangible assets (to be amortized straight-line over 1.5 to 11 years)			284,854
Goodwill			114,759
In-process research and development			82,143
Deferred tax asset			922
Deferred compensation			66
Assumed liabilities			(29,903	)
Liabilities for exit activities and integration			(8,216	)
Notes receivable from stockholders			14,760
Deferred tax liability			(108,818	)
	Allocated purchase price	$	482,403

        The approximately 17.5 million shares of Biosurgery Stock issued in exchange for all of the outstanding shares of Biomatrix common stock were valued using the combined five day average closing prices of Surgical Products Stock and Tissue Repair Stock, divided by the applicable exchange ratio. Options and warrants to purchase approximately 1.7 million shares of Biosurgery Stock, issued in exchange for options and warrants to purchase Biomatrix common stock, were valued at $11.4 million using the Black-Scholes model. The intrinsic value of the portion of the unvested options related to the future service period was de minimis.

        Prior to the acquisition, Biomatrix sold approximately 0.7 million shares of its common stock to certain of its employees, directors and consultants in exchange for ten-year, full recourse promissory notes. The notes accrue interest at rates ranging from 5.30% to 7.18% and mature at various dates from May 2007 through September 2009, upon which all outstanding principal and accrued interest becomes payable. As a result of the acquisition, these shares were converted into approximately 0.5 million shares of Biosurgery Stock and we recorded $14.7 million of outstanding principal and accrued interest to stockholders' equity because the notes were received in exchange for the issuance of stock.

        At the date of acquisition, we began to formulate plans for certain exit and integration activities, including workforce reductions and the closure of Biomatrix's Canadian facility. Accordingly, we recorded liabilities of $6.7 million for severance and related costs and assigned to Biomatrix's Canadian facility a value equal to the amount we estimated that we would obtain upon disposal or sale. In 2001,

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we recorded adjustments to and charges against the restructuring reserve as follows (amount in thousands):

Liabilities for exit activities and integration recorded at acquisition	$	6,716
Payments in 2000		(746	)
Balance at December 31, 2000		5,970
Additional reserve recorded in 2001		1,500
Payments in 2001		(5,891	)
Balance at December 31, 2001	$	1,579

        In October 2001, we completed the sale of the Canadian facility for net proceeds of approximately $1.0 million which we allocated to Genzyme Biosurgery. We adjusted the allocated fair value of the Canadian facility to equate to the proceeds of the disposal.

        At December 31, 2001, a total of $6.6 million of costs had been charged against the accrual for exit activity and integration costs. We expect to complete this restructuring in 2002.

        In connection with the purchase of Biomatrix, we allocated approximately $82.1 million of the purchase price to IPR&D. Although management ultimately is responsible for determining the fair value of the acquired IPR&D, we engaged an independent third-party appraisal company to assist in the valuation of the intangible assets acquired.

        The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected to result from each project once it has reached technological feasibility. A 38% discount rate was used which is consistent with the risks of each project. In estimating future cash flows, management considered other tangible and intangible assets, including core technology, required for successful exploitation of the technology resulting from each purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased research and development was the amount attributable to the efforts of Biomatrix up to the time of acquisition. This amount was estimated through application of the "stage of completion" calculation, which calculation involves multiplying total estimated revenue for IPR&D by the percentage of completion of each purchased research and development project at the time of acquisition.

        The significant assumptions underlying the valuations included potential revenues, costs of completion, the timing of product approvals and the selection of appropriate probability of success and discount rate. None of Biomatrix's IPR&D projects had reached technological feasibility at the date of acquisition nor did they have any alternative future use. Consequently, in accordance with generally accepted accounting principles, the amount allocated to IPR&D was charged as an expense in our consolidated financial statements and in Genzyme Biosurgery's combined financial statements for the year ended December 31, 2000. We are amortizing the remaining acquired intangible assets arising from the acquisition on a straight-line basis over their estimated lives, which range from 1.5 years to 11 years. As of December 31, 2001, the technological feasibility of the acquired projects had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

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NOTE D. ACQUISITIONS (Continued)

GelTex

        In December 2000, we acquired GelTex Pharmaceuticals, Inc., a public company engaged in developing therapeutic products based on polymer technology. We accounted for the acquisition as a purchase and allocated it to Genzyme General. Accordingly, the results of operations of GelTex are included in our consolidated financial statements and the combined financial statements of Genzyme General from the date of acquisition.

        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (dollars in thousands):

Cash paid		$	515,151
Issuance of 15.8 million shares of Genzyme General Stock.			491,181
Issuance of options and warrants to purchase 3.2 million shares of Genzyme General Stock			62,882
Existing equity investment in GelTex			2,500
Acquisition costs			4,321
Total purchase price.		$	1,076,035
Cash and cash equivalents		$	67,656
Short-term investments			75,338
Prepaid expenses and other assets			24,669
Inventory			8,156
Property, plant & equipment			45,477
Intangible assets (to be amortized straight-line over 5 to 15 years)			465,109
Goodwill			452,544
In-process research and development			118,048
Deferred tax asset			35,016
Deferred compensation			10,206
Assumed liabilities			(47,789	)
Deferred tax liability			(178,395	)
	Allocated purchase price	$	1,076,035

        The 15.8 million shares of Genzyme General Stock issued in exchange for all of the outstanding shares of GelTex common stock were valued at $491.2 million using the average trading price of Genzyme General Stock over three days before and after the September 11, 2000 announcement of the merger. Options and warrants to purchase approximately 3.2 million shares of Genzyme General Stock were valued at $62.9 million using the Black-Scholes model. In accordance with Financial Accounting Standards Board Interpretation No. 44, the intrinsic value of the portion of the unvested options related to the future service period of $10.2 million has been allocated to deferred compensation in stockholders' equity. The unvested portion was amortized to operating expense over the remaining vesting period of approximately one year, which concluded in December 2001.

        As part of the acquisition of GelTex, we acquired all of GelTex's interest in RenaGel LLC, our joint venture with GelTex. Prior to the acquisition of GelTex, we accounted for the investment in RenaGel LLC under the equity method. Because we already owned a 50% interest in RenaGel LLC, the assets of RenaGel LLC were adjusted to fair value only to the extent of the 50% interest we acquired.

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        In connection with the purchase of GelTex, we allocated approximately $118.0 million of the purchase price to IPR&D. Although management ultimately is responsible for determining the fair value of the acquired IPR&D, we engaged an independent third-party appraisal company to assist in the valuation of the intangible assets acquired.

        The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected to result from each project once it has reached technological feasibility. The discount rates used were consistent with the risks of each project, and ranged from 35% to 40%. In estimating future cash flows, management considered other tangible and intangible assets, including core technology, required for successful exploitation of the technology resulting from each purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased research and development was the amount attributable to the efforts of GelTex up to the time of acquisition. This amount was estimated through application of the "stage of completion" calculation, which calculation involves multiplying total estimated revenue for IPR&D by the percentage of completion of each purchased research and development project at the time of acquisition.

        The significant assumptions underlying the valuations included potential revenues, costs of completion, the timing of product approvals and the selection of appropriate probability of success and discount rate. None of the GelTex IPR&D projects had reached technological feasibility at the date of acquisition nor did they have any alternative future use. Consequently, in accordance with generally accepted accounting principles, the amount allocated to IPR&D was charged as an expense in our consolidated financial statements and the combined financial statements of Genzyme General for the year ended December 31, 2000. We are amortizing the remaining acquired intangible assets arising from the acquisition on a straight-line basis over their estimated lives, which range from 5 years to 15 years. As of December 31, 2001, the technological feasibility of the acquired projects had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Peptimmune

        In July 1999, we acquired Peptimmune, Inc., a privately-held company whose lead development program focuses on a treatment for pemphigus vulgaris. We allocated this acquisition to Genzyme General and accounted for it as a purchase. We allocated the aggregate purchase price of $6.5 million and assumed liabilities of $0.3 million to the tangible and intangible assets we acquired from Peptimmune based on their respective fair values (amounts in thousands):

Property, plant & equipment	$	128
Deferred tax asset		1,229
In-process research & development		5,436
Total	$	6,793

        The $5.4 million allocated to IPR&D represents the value we assigned to Peptimmune's programs that were still in the development stage and for which there was no alternative future use. We recorded this amount as a charge to operations. As of December 31, 2001, these products were still under development.

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        Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technical feasibility. In addition, once developed each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give you assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

Unaudited Pro Forma Financial Summary

        The following unaudited pro forma financial summary is presented as if the acquisitions of Novazyme, Wyntek, Focal, GelTex and Biomatrix were completed as of January 1, 2001 and 2000. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated at these dates, or of the future operations of the combined entities. Material nonrecurring charges related to these acquisitions, such as acquired IPR&D charges of $86.8 million resulting from the acquisition of Novazyme, $8.8 million resulting from the acquisition of Wyntek, $118.0 million resulting from the acquisition of GelTex, and $82.1 million resulting from the acquisition of Biomatrix, are not reflected in the following unaudited pro forma financial summary:

			For the Year Ended December 31,
			2001			2000
			(Amounts in thousands, except per share amounts)
Total revenues			$	1,232,190		$	1,039,771
Net income (loss) before extraordinary items and cumulative effect of change in accounting principle				(46,085	)		1,321
Net income (loss)				(41,918	)		1,321
Net income allocated to Genzyme General Stock:
	Net income allocated to Genzyme General Stock before cumulative effect of change in accounting principle		$	121,168		$	154,604
	Cumulative effect of change in accounting principle, net of tax			4,167			—
	Net income allocated to Genzyme General Stock		$	125,335		$	154,604
Net income per share allocated to Genzyme General Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting principle	$	0.59		$	0.81
		Per share cumulative effect of change in accounting principle, net of tax		0.02			—
		Net income per share allocated to Genzyme General Stock	$	0.61		$	0.81
	Diluted:
		Net income per share before cumulative effect of change in accounting principle	$	0.57		$	0.76
		Per share cumulative effect of change in accounting principle, net of tax		0.02			—
		Net income per share allocated to Genzyme General Stock	$	0.59		$	0.76
Net loss allocated to Biosurgery Stock			$	(137,535	)	$	(130,657	)
Net loss per share allocated to Biosurgery Stock—basic and diluted			$	(3.52	)	$	(3.40	)

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NOTE E. DERIVATIVE FINANCIAL INSTRUMENTS

      We use an interest rate swap to mitigate the risk associated with a floating rate lease obligation, and have designated the swap as a cash flow hedge. The notional amount of this swap at December 31, 2001 was $25.0 million. Because the critical terms of the swap agreement correspond to the related lease obligation, there were no amounts of hedge ineffectiveness during 2001. No gains or losses were excluded from the assessment of hedge effectiveness. We record the differential to be paid or received on the swap as incremental interest expense. The fair value of the swap at December 31, 2001, representing the cash requirements to settle the agreement, was approximately $2.7 million.

        We periodically enter foreign currency forward contracts, all of which have durations of three months. These contracts have not been designated as hedges and, accordingly, unrealized gains or losses on these contracts are reported in current earnings. The notional settlement amount of foreign currency forward contracts outstanding at December 31, 2001 was $22.0  million. These contracts had a fair value of $0.2 million, representing an unrealized gain, and were included in other current assets (liabilities) at December 31, 2001.

        For the year ended December 31, 2001, we recorded a pre-tax charge of $4.1 million in other expense to reflect the change in value of our warrants to purchase shares of Genzyme Transgenics common stock from January 1, 2001 to December 31, 2001. We also recorded a charge of $0.9 million ($1.5 million pre-tax) in other comprehensive income for the year ended December 31, 2001 to reflect the change in value of our interest rate swap contract during the period, net of tax.

        In the normal course of business, we manage risks associated with foreign exchange rates, interest rates and equity prices through a variety of strategies, including the use of hedging transactions, executed in accordance with our management and accounting policies. As a matter of policy, we do not use derivative instruments unless there is an underlying exposure. We do not use derivative instruments for trading or speculative purposes.

NOTE F. ACCOUNTS RECEIVABLE AND INTANGIBLE ASSETS

        Our trade receivables primarily represent amounts due from distributors, healthcare service providers, and companies and institutions engaged in research, development or production of pharmaceutical and biopharmaceutical products. We perform credit evaluations of our customers on an ongoing basis and generally do not require collateral. We state accounts receivable at fair value after reflecting an allowance for doubtful accounts and other allowances. These allowances were $14.2 million at December 31, 2001 and $20.7 million at December 31, 2000.

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        The following table contains information on our intangible assets for the periods presented:

	December 31, 2001			Weighted Average Estimated Useful Life (Years)	December 31, 2000			Weighted Average Estimated Useful Life (Years)
	(Amounts in thousands, except useful life data)
Goodwill	$	792,331		17	$	757,414		19
Acquired technology		551,743		13		500,535		14
Patents		196,968		13		191,928		13
License fees		27,016		14		26,040		15
Customer lists		8,324		10		8,324		10
Trademarks		91,754		22		101,150		24
Distribution agreements		13,950		8		13,950		8
Non-compete agreements		6,640		5		6,640		5
Other		9,927		5		9,389		5
		1,698,653				1,615,370
Less accumulated amortization		(192,007	)			(75,588	)
Intangible assets, net	$	1,506,646			$	1,539,782

NOTE G. INVENTORIES

		December 31,
		2001		2000
		(Amounts in thousands)
Raw materials		$	52,586	$	51,545
Work-in-process			64,925		73,520
Finished products			53,898		45,276
	Total	$	171,409	$	170,341

NOTE H. PROPERTY, PLANT AND EQUIPMENT

	December 31,
	2001			2000
	(Amounts in thousands)
Plant and equipment	$	317,707		$	264,109
Land and buildings		303,691			252,789
Leasehold improvements		122,800			106,384
Furniture and fixtures		23,139			20,570
Construction-in-progress		150,918			94,098
		918,255			737,950
Less accumulated depreciation		(282,941	)		(233,538	)
Property, plant and equipment, net	$	635,314		$	504,412

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        Our depreciation expense was $56.7 million in 2001, $33.6 million in 2000 and $40.7 million in 1999.

        We allocate our fixed assets among our operating divisions based on use.

        We capitalize costs we have incurred in validating the manufacturing process for products which have reached technological feasibility. As of December 31, 2001, capitalized validation costs, net of accumulated depreciation, were $20.3 million. We have capitalized the following amounts of interest costs incurred in financing the construction of our manufacturing facilities:

2001	2000	1999
$4.2 million	$2.2 million	$1.2 million

        Our estimated cost of completion for assets under construction as of December 31, 2001 is $349.3 million.

NOTE I. INVESTMENTS

Marketable Securities

		December 31,
		2001				2000
		Cost		Market Value		Cost		Market Value
		(Amounts in thousands)
Cash equivalents(1):
	Corporate notes	$	1,550	$	1,552	$	50,922	$	50,922
	U.S. Governmental agencies		22,646		22,720		—		—
	Money market fund		149,233		149,233		148,577		148,577
		$	173,429	$	173,505	$	199,499	$	199,499
Short-term:
	Corporate notes	$	47,221	$	47,921	$	90,930	$	91,133
	U.S. Governmental agencies		16,084		16,464		13,175		13,207
	Non U.S. Governmental agencies		1,042		1,066		—		—
	U.S. Treasury notes		1,005		1,030		246		246
		$	65,352	$	66,481	$	104,351	$	104,586
Long-term:
	Corporate notes	$	509,560	$	521,519	$	186,904	$	190,542
	U.S. Governmental agencies		156,282		157,526		99,549		100,803
	Non U.S. Governmental agencies		36,397		36,929		—		—
	U.S. Treasury notes		89,611		91,792		7,432		7,496
		$	791,850	$	807,766	$	293,885	$	298,841
Investments in equity securities		$	50,347	$	88,686	$	74,299	$	121,251

(1)

Cash equivalents are included as part of cash and cash equivalents on our balance sheets.

        We allocate marketable securities to our operating divisions.

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        The following table contains information regarding the range of contractual maturities of our investments in debt securities:

	December 31,
	2001				2000
	Cost		Market Value		Cost		Market Value
	(Amounts in thousands)
Within 1 year	$	238,781	$	239,986	$	303,849	$	304,085
1-2 years		202,071		206,705		85,712		86,686
2-10 years		589,779		601,061		208,174		212,155
	$	1,030,631	$	1,047,752	$	597,735	$	602,926

Realized and Unrealized Gains and Losses on Marketable Securities and Investments in Equity Securities

        We recorded charges of $11.8 million in 2001 in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group plc and $4.5 million in connection with our investment in the common stock of Targeted Genetics, because we considered the decline in the value of these investments to be other than temporary. We allocate these investments to Genzyme General.

        In August 2001, Pharming Group announced that it would file for receivership in order to seek protection from its creditors. In the quarter ended September 30, 2001, we recorded a charge of $8.5 million, representing a write-down of our investment in Pharming Group common stock. We allocate this investment to Genzyme General.

        In April 2001, Antigenics announced that it had entered into a definitive merger agreement with Aronex. The merger was completed in July 2001. Under the terms of the merger agreement, we received 0.0594 of a share of Antigenics common stock for each share of Aronex common stock that we held. As a result of this merger, we recorded a $1.2 million charge to reflect the fair market value of our investment in Aronex at June 30, 2001. We allocate this investment to Genzyme General.

        During 2000, we recorded gains of $16.4 million resulting from sales of portions of our investment in Genzyme Transgenics common stock. We also recognized a $7.6 million gain resulting from the acquisition of Celtrix Pharmaceuticals, Inc. by Insmed Pharmaceuticals, Inc. in which our shares of Celtrix common stock were exchanged on a 1-for-1 basis for shares of Insmed common stock. The tax effect of these gains was offset by the reversal of a $1.9 million valuation allowance related to previously recognized capital losses. We allocate these investments to Genzyme General. In 2000, we determined that our investment in the common stock of Focal, Inc., which we allocated to Genzyme Biosurgery, was impaired. As a result, we recorded a charge to operations of $7.3 million in 2000, which we allocated to Genzyme Biosurgery.

        We recorded gains of $2.0 million in 1999 upon the sale of our investment in shares of Techne common stock. We also recorded a $5.7 million charge in 1999 in connection with our investments in the common stock of Pharming Group and IntegraMed America, Inc. because we considered the decline in the value of those investments to be other than temporary. In connection with these assessments, we concluded that evidence existed that the value of the investments would recover to at least its cost. This included continued positive progress in the issuers' scientific programs, ongoing

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activity in our collaborations with the issuers; and a lack of any substantial company-specific adverse events causing the declines in value. However, given the significance and duration of the declines as of the end of the applicable quarter, we concluded that it was unclear over what period any price recoveries would take place and that, accordingly, the positive evidence suggesting that the investments would recover to at least our purchase price was not sufficient to overcome the presumption that the current market price was the best indicator of the value of these investments. We allocate these investments to Genzyme General.

        We record gross unrealized holding gains and losses in stockholders' equity. The following table sets forth the amounts recorded:

	December 31,
	2001		2000
Unrealized holding gains	$	56.2 million	$	60.7 million
Unrealized holding losses	$	0.6 million	$	7.9 million

        We allocate strategic investments in equity securities of unconsolidated entities to our operating divisions. All of the investments included in the following table are allocated to Genzyme General:

		December 31, 2001
		Adjusted Cost		Market Value		Unrealized Gain/(Loss)
		(Amounts in thousands)
Abiomed, Inc.		$	15,804	$	36,508	$	20,704
Antigenics, Inc. (formerly Aronex Pharmaceuticals, Inc.).			466		412		(54	)
BioMarin Pharmaceutical, Inc.			18,000		28,258		10,258
Cambridge Antibody Technology Group plc(1)			6,311		8,611		2,300
Crucell, N.V.			576		1,758		1,182
Dyax Corporation			3,000		6,039		3,039
Healthcare Ventures V, L.P.			1,620		1,620		—
Oxford Bioscience Partners IV, L.P.			500		500		—
Pharming Group N.V.(1)			—		520		520
ProQuest Investments II, L.P.			1,110		1,110		—
Targeted Genetics Corporation			960		1,350		390
Viacell, Inc.			2,000		2,000		—
	Total at December 31, 2001	$	50,347	$	88,686	$	38,339

	December 31, 2000
	Adjusted Cost		Market Value		Unrealized Gain/(Loss)
	(Amounts in thousands)
Total at December 31, 2000	$	74,299	$	121,251	$	46,952

(1)

Our investment in Cambridge Antibody Technology Group plc is denominated in British pounds sterling and our investment in Pharming Group is denominated in Euros. We translated these investments into U.S. dollars at the current exchange rates for each of these currencies on December 31, 2001.

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NOTE I. INVESTMENTS (Continued)

Genzyme Transgenics Corporation

        At December 31, 2001, we owned approximately 26% of the outstanding common stock of Genzyme Transgenics and record in net loss of unconsolidated affiliates our portion of its results. We refer to Genzyme Transgenics in this note as GTC. Our portion of GTC's net losses was $4.3 million in 2001, $2.1 million in 2000 and $7.1 million in 1999. The fair market value of our investment in GTC common stock was $45.1 million on December 31, 2001 and $110.8 million on December 31, 2000.

        In February 2000, we converted $6.6 million in shares of Series B convertible preferred stock of GTC into approximately 1.0 million shares of GTC common stock.

        Our chairman and chief executive officer and another Genzyme officer are directors of GTC. One additional member of our board of directors is also a director of GTC.

        The following table contains condensed statement of operations and balance sheet data for GTC:

	Year Ended December 31,
	2001			2000			1999
	(Amounts in thousands)
Revenues	$	13,740		$	88,149		$	68,784
Operating loss		(13,384	)		(10,239	)		(2,666	)
Net loss		(16,556	)		(13,143	)		(18,761	)

	At December 31,
	2001		2000
	(Amounts in thousands)
Current assets	$	47,323	$	92,396
Noncurrent assets		72,809		68,181
Current liabilities		18,102		38,237
Noncurrent liabilities		80		6,660

Agreements with GTC

        We have a number of agreements with GTC, including the following:

•

services agreement under which GTC pays us for services provided by us, including treasury, data processing and laboratory support services;



•

sublease agreement under which we sublease a portion of one of our facilities in Framingham, Massachusetts;



•

research and development agreement under which each of the parties performs research services for the other;



•

a services agreement under which GTC pays us for research, development, regulatory and manufacturing services related to transgenic recombinant human antithrobin III, or ATIII; and



•

a purchase agreement and amended and restated collaboration agreement executed in connection with the sale of our interest in ATIII LLC to GTC, as more fully described below.

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        During 2001, we received approximately $3.5 million from GTC under these agreements. At December 31, 2001, GTC owed us $1.3 million under these agreements. Research and development revenue from GTC is reflected as related party revenue in our statements of operations.

        We have guaranteed the obligations of GTC under a credit facility consisting of a revolving credit line and a term loan that GTC obtained from a commercial bank. As of December 31, 2001, no principal was outstanding under the revolving credit line and approximately $15.8 million was available, and $5.7 was outstanding, under the term loan with no further availability. All outstanding amounts under this credit facility are payable on March 28, 2002. Genzyme Transgenics may be required to repay these amounts earlier if, among other things, it violates specified negative covenants, defaults under a material contract such that it is likely to suffer a material adverse effect, or declares bankruptcy. In order to secure GTC's reimbursement obligation for any payments that we may be required to make on the guaranty, each of GTC and its material subsidiaries granted us a first lien on all of its assets. In consideration of our agreement to provide this guaranty, GTC issued to us a warrant to purchase up to 288,000 shares of GTC common stock at an exercise price of $4.875 per share. GTC also issued to us a warrant to purchase 145,000 shares of GTC common stock at an exercise price of $2.84375 per share in connection with our guarantee of GTC's obligations under a prior credit facility. Both GTC warrants currently are exercisable for the underlying shares of GTC common stock.

        ATIII LLC    In 1998, we formed ATIII LLC, a joint venture with GTC for the development and commercialization of transgenic recombinant human antithrombin III. The collaboration agreement provided that we fund 70% of the first $33.0 million in development costs, excluding facility costs, under this program, 50% of all development costs thereafter, and 50% of all new facility costs to be incurred by ATIII LLC. However, under an interim funding agreement, we shared the costs of this program incurred between January 1, 2001 and February 2, 2001 equally with GTC. As our combined direct and indirect interest in ATIII LLC was in excess of 50%, we consolidated the results of ATIII LLC and recorded GTC's portion of the ATIII LLC's losses as minority interest. We allocated our ownership interest in ATIII LLC to Genzyme General.

        In July 2001, we transferred our 50% ownership interest in ATIII to GTC. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of any of GTC's products based on ATIII beginning three years after the first commercial sale of each such product up to a cumulative maximum amount of $30.0 million.

Dyax Corp.

        We have two license agreements with Dyax Corp. for Dyax's phage display technology. We pay annual license maintenance fees of $50,000 for this license. We will also make milestone payments and pay royalties on net sales of diagnostic and therapeutic products discovered, made or developed using the licensed technology. We also sublease office and laboratory space in Cambridge, Massachusetts to Dyax. Current rent under this sublease is $53,943 per month.

        In October 1998, we entered into a collaboration agreement with Dyax to develop and commercialize one of Dyax's proprietary compounds for the treatment of chronic inflammatory diseases. Dyax will fund the first $6.0 million in development costs, and the parties will split all subsequent development costs equally. In connection with that agreement, we made an investment of $3.0 million in the convertible preferred stock of Dyax and made a $3.0 million line of credit available

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to help Dyax fund its operations. This preferred stock converted into common stock upon Dyax's initial public offering in 1999. To date, Dyax has not borrowed any money under the line of credit. We will make milestone payments to Dyax upon FDA approval of products that arise out of the collaboration, and we will share equally with Dyax all profits from the sale of these products.

        One of our directors is chairman and chief executive officer of Dyax and two of our directors are directors of Dyax.

Investments in Joint Ventures

        Our investment in joint ventures is included in other assets, non-current, on our balance sheet. Except as described below, we own a 50% interest in the following joint ventures:

Joint Venture	Partner(s)	Effective Date	Product/Indication	Genzyme Division
RenaGel LLC	GelTex (1)	June 1997	Renagel phosphate binder for the reduction of serum phosphorus in patients with end-stage renal disease	Genzyme General
BioMarin/ Genzyme LLC	BioMarin Pharmaceutical Inc.	September 1998	Aldurazyme enzyme for the treatment of mucopolysaccharidosis-I	Genzyme General
Pharming/ Genzyme LLC	Pharming Group N.V.(2,3)	October 1998	Human alpha-glucosidase for the treatment of Pompe disease (transgenic product)	Genzyme General
Genzyme/ Pharming Alliance LLC	Pharming Group N.V.(2,4)	June 2000	Human alpha-glucosidase for the treatment of Pompe disease (CHO-cell product)	Genzyme General
Diacrin/ Genzyme LLC	Diacrin, Inc.	October 1996	Products using porcine fetal cells for the treatment of Parkinson's and Huntington's diseases	Genzyme Biosurgery (until May 1999); Genzyme General (after May 1999)

(1)

We acquired GelTex and the remaining 50% interest in RenaGel LLC in December 2000. RenaGel LLC was merged into GelTex effective October 1, 2001.

(2)

Since August 2001, Pharming Group has been operating under court-supervised receivership.

(3)

In August 2001, we committed to fund all of the operations of Pharming/Genzyme LLC, which in turn is legally obligated to supply transgenic human alpha-glucosidase enzyme until the patients currently enrolled in the clinical trial of this product can be transitioned to a CHO-cell product.

(4)

In August 2001, we terminated our strategic alliance with Pharming Group and certain of its subsidiaries for the development of a CHO-cell product for Pompe disease and assumed full operational and financial resposibility for the development of the CHO-cell product.

The following tables describe:

•

the amount of funding we have provided to each joint venture and unconsolidated affiliate to date;

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•

amounts due to us by each joint venture and unconsolidated affiliate as of December 31, 2001 for services we provided on behalf of the joint venture, which we have recorded on our balance sheet as prepaids and other current assets;



•

our portion of the losses of each joint venture and unconsolidated affiliate for the periods presented, which we have recorded as charges to equity in net loss of unconsolidated affiliates in our statement of operations; and



•

total net losses of each joint venture and unconsolidated affiliate for the periods presented.

Joint Venture/ Unconsolidated Affiliate		Total Funding through December 31, 2001		Receivables As of December 31, 2001
		(Amounts in millions)
BioMarin/Genzyme LLC		$	40.1	$	2.2
Pharming/Genzyme LLC			21.9		0.2
Genzyme/Pharming Alliance LLC			8.5		13.3
Diacrin/Genzyme LLC			33.0		0.1
StressGen/Genzyme LLC			0.7		—
Genzyme Transgenics Corporation			—		1.3
	Totals	$	104.2	$	17.1

		Our Portion of the Net Losses from Our Unconsolidated Affiliates									Total Losses of Our Unconsolidated Affiliates
Joint Venture/ Unconsolidated Affiliate
		2001			2000			1999			2001			2000			1999
		(Amounts in millions)
RenaGel LLC (1)		$	—		$	(15.9	)	$	(8.1	)	$	—		$	(10.7	)	$	(15.9	)
BioMarin/Genzyme LLC			(18.5	)		(12.6	)		(7.0	)		(36.9	)		(25.3	)		(13.9	)
Pharming/Genzyme LLC (2)			(2.9	)		(6.6	)		(10.3	)		(5.8	)		(13.3	)		(10.7	)
Genzyme/Pharming Alliance LLC (3)			(6.5	)		(1.5	)		—			(13.0	)		(2.9	)		—
Diacrin/Genzyme LLC			(2.3	)		(6.2	)		(8.0	)		(3.1	)		(8.2	)		(10.7	)
StressGen/Genzyme LLC (4)			—			—			(1.9	)		—			—			(1.3	)
Genzyme Transgenics Corporation			(4.3	)		(2.1	)		(7.1	)		(16.6	)		(13.1	)		(18.8	)
Focal, Inc.			(1.3	)		—			—			(6.0	)		—			—
Other			0.1			(0.1	)		(0.3	)		0.3			(0.1	)		—
	Totals	$	(35.7	)	$	(45.0	)	$	(42.7	)	$	(81.1	)	$	(73.6	)	$	(71.3	)

(1)

We acquired GelTex and the remaining 50% interest in RenaGel LLC in December 2000. RenaGel LLC was merged into GelTex effective October 1, 2001.

(2)

In August 2001, we committed to fund all of the operations of Pharming/Genzyme LLC, which in turn is legally obligated to supply transgenic human alpha-glucosidase enzyme until the nine clinical trial patients can be transitioned to a CHO-cell product for Pompe disease.

(3)

In August 2001, we terminated our strategic alliance with Pharming Group, N.V. and certain of its subsidiaries for the development of a CHO-cell product for Pompe disease and assumed full operational and financial responsibility for the development of the CHO-cell product.

GCS-100

(4)

Because an investor had the right to require us to repurchase its interest in the joint venture, we recorded 50% of the losses incurred by the joint venture. When the investor exercised its repurchase right in August 1999, we recorded a $1.0 million charge to our statement of operations in connection with the repurchase.

        Condensed financial information for our joint ventures and unconsolidated affiliates is summarized below:

	For the Years Ended December 31,
	2001			2000			1999
	(Amounts in thousands)
Revenue	$	1,519		$	47,083		$	21,100
Gross profit		(969	)		23,748			13,738
Operating expenses		(69,450	)		(107,621	)		(74,096	)
Net loss		(67,545	)		(60,280	)		(52,453	)

	December 31,
	2001		2000
	(Amounts in thousands)
Current assets	$	11,538	$	21,200
Noncurrent assets		106		15,374
Current liabilities		28,817		20,658
Noncurrent liabilities		—		—

NOTE J. ACCRUED EXPENSES

		December 31,
		2001		2000
		(Amounts in thousands)
Compensation		$	51,827	$	33,134
Purchase accrual			12,508		11,468
Bank overdraft			19,468		12,306
Royalties			7,468		10,810
Rebates			7,950		6,482
Restructuring costs			2,160		5,970
Acquisition costs			—		13,595
Other			43,359		45,918
	Total accrued expenses	$	144,740	$	139,683

NOTE K. LONG-TERM DEBT AND LEASES

Long-Term Debt and Capital Lease Obligations

        While we are responsible for repaying all long-term debt and capital lease obligations, we allocate these obligations to our operating divisions for financial reporting purposes based on the intended use of the funds.

GCS-101

        Our long-term debt and capital lease obligations consist of the following:

	December 31,
	2001			2000
	(Amounts in thousands)
3% convertible subordinated debentures due May 2021	$	575,000		$	—
51/4% convertible subordinated notes		—			250,000
Revolving credit facility maturing in December 2003		234,000			350,000
Revolving credit facility maturing in December 2001		—			18,000
5% convertible subordinated debentures		—			23,680
6.9% convertible subordinated note due May 2003		10,000			10,000
Notes payable		6,723			5,493
Capital lease obligations		26,832			27,964
		852,555			685,137
Less current portion		(7,746	)		(19,897	)
	$	844,809		$	665,240

        Over the next five years, we will be required to repay the following principal amounts on our long-term debt (amounts in millions):

2002	2003		2004		2005		2006		After 2006
$7.8	$	244.8	$	—	$	25.0	$	575.0	$	—

3% Convertible Subordinated Debentures

        In May 2001, we completed the private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. After deducting the underwriter's discount and offering costs of $12.9 million, net proceeds from the offering were approximately $562.1 million. We have allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General. We will pay interest on these debentures on May 15 and November 15 each year.

        Holders may surrender debentures for conversion into shares of Genzyme General Stock at a conversion price of approximately $70.30 per share, subject to adjustment, if any of the following conditions is satisfied:

•

if the closing sale price of Genzyme General Stock for at least 20 trading days in the 30 trading day period ending on the trading day prior to the day of surrender is more than 110% of the conversion price per share of Genzyme General Stock;



•

if we have called the debentures for redemption; or



•

upon the occurrence of specified corporate transactions.

        Holders of the debentures may require us to repurchase all or part of their debentures for cash on May 15, 2006, 2011 or 2016, at a price equal to 100% of the principal amount of the debentures plus accrued interest through the date prior to the date of repurchase. Additionally, if certain fundamental changes occur, each holder may require us to repurchase, for cash, all or a portion of the holder's

GCS-102

debentures. On or after May 20, 2004, we may redeem for cash all or part of the debentures that have not previously been converted or repurchased. The redemption price would be 100.75% of the principal amount if redeemed from May 20, 2004 through May 14, 2005, and 100% of the principal amount thereafter.

        Interest expense related to these debentures was $12.9 million in 2001, which includes $1.8 million for amortization of offering costs. The fair value of these debentures at December 31, 2001, was $631.8 million.

5¹/4% Convertible Subordinated Notes

        In June 2001, we completed the redemption of our $250.0 million in principal of 5¹/4% convertible subordinated notes due 2005. Prior to the redemption date, holders of the notes elected to convert substantially all of the principal of the notes into approximately 12,597,000 shares of Genzyme General Stock, 685,000 shares of Biosurgery Stock and 682,000 shares of Molecular Oncology Stock. On June 15, 2001, the redemption date, we redeemed the remaining notes using cash allocated to Genzyme General.

Revolving Credit Facility

        At December 31, 2000, we had access to a $500.0 million revolving credit facility, $150.0 of which matured in December 2001 and $350.0 million of which matures in December 2003. At December 31, 2000, $368.0 million was outstanding under this facility, $150.0 million of which was allocated to Genzyme General and $218.0 million of which was allocated to Genzyme Biosurgery. In May 2001, we repaid the $150.0 million we had drawn under this facility to finance a portion of the cash component of the GelTex merger consideration. In November 2001, we drew an additional $17.0 million under the $350.0 million facility that matures in December 2003, all of which was allocated to Genzyme Biosurgery. In December 2001, we repaid $1.0 million of the funds drawn under this facility using Genzyme Biosurgery cash. We allowed the $150.0 million facility to expire without renewal at its maturity date in December 2001. As of December 31, 2001, we have access to a $350.0 million revolving credit facility that matures in December 2003, of which $234.0 million remained outstanding and allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin. The terms of the revolving credit facility include various covenants, including financial covenants, which require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants and do not anticipate falling out of compliance.

5% Convertible Subordinated Debentures

        In August 2001, we completed the redemption of our $21.2 million in principal of 5% convertible subordinated debentures due 2003. Prior to the redemption date, the holders of the debentures elected to convert all of the principal of the debentures into approximately 1,305,000 shares of Genzyme General Stock. We paid approximately $3.2 million in cash for the accrued interest on the debentures through the date of conversion using cash allocated to Genzyme General.

GCS-103

6.9% Convertible Subordinated Note

        In connection with our acquisition of Biomatrix, we assumed a 6.9% convertible subordinated note due May 14, 2003 in favor of UBS Warburg LLC. At December 31, 2001, $10.0 million principal amount of this note remained outstanding. We use cash allocated to Genzyme Biosurgery to satisfy debt service on this note.

Notes Payable

        In connection with our acquisition of Novazyme in September 2001, we assumed a note payable that matures in December 2002, in the amount of $1.6 million. In connection with our acquisition of GelTex in December 2000, we assumed notes payable, with maturities in June and September 2002, aggregating $5.4 million, of which $5.1 million remained outstanding at December 31, 2001. We will use cash allocated to Genzyme General to satisfy this debt.

Capital Leases

        In connection with our acquisition of GelTex in December 2000, we assumed a capital lease obligation pursuant to an October 1998 lease agreement for the construction of GelTex's administrative offices in Waltham, Massachusetts. The lease provides for the lessor to fund the construction of the facility in exchange for interest-only lease payments equal to the total amount funded by the lessor multiplied by the LIBOR rate plus 1.8%. The construction was completed in October 1999 and the construction costs funded by the lessor aggregated $25.0 million. After giving effect to an interest swap agreement, we make monthly interest payments of $187,000 based on a fixed rate of 8.99% and an outstanding principal amount of $25.0 million. Therefore, we will make annual interest payments under this lease of approximately $2.2 million each year through 2005. The $25.0 million capital lease obligation and corresponding building is recorded in our consolidated balance sheet and the combined balance sheet of Genzyme General at December 31, 2000. The building is being depreciated over its estimated useful life.

        During the term of the lease, we have the option to purchase the building and improvements for a purchase price equal to the total amount funded by the lessor of $25.0 million, plus any accrued and unpaid lease payments and certain other costs, which aggregate amount is referred to as the Purchase Option Price. At the end of the lease term of October 31, 2005, we have the option to:

•

purchase the building and improvements for the Purchase Option Price;



•

arrange for the facility to be purchased by a third party; or



•

return the building and improvements to the lessor.

In the case of the latter two options, however, we are contingently liable to the extent the lessor is not able to realize 85% of the Purchase Option Price upon the sale or disposition of the property.

        In December 2000, in connection with the acquisition of Biomatrix, we assumed the remaining principal balance of $1.5 million due under a $2.3 million capital lease that Biomatrix had entered into with GE Capital in December 1998. The lease has a five-year term, a coupon rate of 7.4%, and is payable in equal monthly installments. Certain of the machinery and equipment we acquired through the merger is pledged as collateral for this financing.

GCS-104

NOTE K. LONG-TERM DEBT AND LEASES (Continued)

Operating Leases

        We lease facilities and personal property under non-cancellable operating leases with terms in excess of one year. Our total expense under operating leases was (amounts in millions):

2001		2000		1999
$	25.5	$	23.4	$	22.6

        Over the next five years, we will be required to repay the following amounts under non-cancellable operating leases (amounts in millions):

2002		2003		2004		2005		2006		After 2006
$	20.3	$	24.9	$	24.5	$	21.1	$	13.7	$	187.2

        In June 1992, we entered into a 65-year land lease with an unaffiliated lessor. Our expenses under this lease, which are allocated to Genzyme General, were $1.5 million in each of 2001 2000 and 1999. Our rent under this lease increases every five years based on the Consumer Price Index or, at a minimum, 3% per year.

        In August 2000, we entered into an agreement to lease a significant portion of a multi-use urban complex in Cambridge, Massachusetts for our new corporate headquarters. The lessor will fund the construction of the complex, except that we will fund certain leasehold improvements to be made to the portion of the building leased by us. Our lease payments will be determined as a function of the aggregate project costs incurred by the lessor and the resulting rentable space of the complex, plus common area charges. Payments under the lease will commence upon completion of construction, which we estimate to be in 2003. We have included estimated payments for this lease in the operating lease schedule above. The lease term is for fifteen years and may be extended for two successive ten-year periods. The lease also provides us with an option, exercisable on or before July 1, 2003, to lease an additional building on mutually acceptable terms.

        In August 2001, we entered into a lease agreement with an unaffiliated lessor for approximately 16 acres of land at the Waterford Industrial Estate. The land, situated at the lessor's Industrial Estate in the County of Waterford, will be used for the development of a multi-product manufacturing center in the Republic of Ireland. The lease term is for nine hundred ninety-nine years with rent payable in advance on January 1, of each year. For the first five year period the term of the annual rent shall be approximately $3,000 per year. Our rent under this lease increases every five years based on the Consumer Price Index with increases not to exceed 10% of the rent payment from the prior five year period.

GCS-105

NOTE L. STOCKHOLDERS' EQUITY

Preferred Stock

	At December 31, 2001			At December 31, 2000
Series
	Authorized	Issued	Outstanding	Authorized	Issued	Outstanding
Series A Junior Participating, $0.01 par value	2,000,000	—	—	2,000,000	—	—
Series B Junior Participating, $0.01 par value	1,000,000	—	—	1,000,000	—	—
Series C Junior Participating, $0.01 par value	400,000	—	—	400,000	—	—
Undesignated	6,600,000	—	—	6,600,000	—	—
Total	10,000,000	—	—	10,000,000	—

        Our charter permits us to issue shares of preferred stock at any time in one or more series. Our board of directors will establish the preferences, voting powers, qualifications, and special or relative rights or privileges of any series of preferred stock before it is issued.

Stock Rights

        Under our shareholder rights plan, each outstanding share of Genzyme General Stock, Biosurgery Stock and Molecular Oncology Stock also represents one preferred stock purchase right for that series of stock. When the stock purchase rights become exercisable, the holders of our common stock will be entitled to purchase the following:

•

Genzyme General Stock right: one share of Series A Junior Participating Preferred Stock, par value $.01 per share, for $150.00;



•

Biosurgery Stock right: one share of Series B Junior Participating Preferred Stock, par value $.01 per share, for $80.00; and



•

Molecular Oncology Stock right: one share of Series C Junior Participating Preferred Stock, par value $.01 per share, for $26.00.

        A stock purchase right becomes exercisable either:

•

ten days after our board of directors announces that a third party has become the owner of 15% or more of the total voting power of our outstanding common stock combined; or



•

ten business days after a third party announces or initiates a tender or exchange offer that would result in that party owning 15% or more of the total voting power of our outstanding common stock combined.

In either case, the board of directors can extend the ten-day delay. These stock purchase rights expire in March 2009.

GCS-106

Common Stock

        We have three series of common stock—Genzyme General Stock, Biosurgery Stock and Molecular Oncology Stock — which we also refer to as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specific subset of our business operations and its allocated assets, rather than operations and assets of our entire company.

        The chief mechanism intended to cause our tracking stock to "track" the financial performance of a corresponding division are special provisions in our charter governing dividends and distributions. The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        Within these parameters, and other general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. To date, we have never paid or declared a cash dividend on shares of any of our series of common stock, nor do we anticipate doing so in the foreseeable future. Unless declared, no dividends accrue on our tracking stocks.

        Our charter also requires that distributions be made to holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to that stock's corresponding division are sold to a third party. This mandatory distribution can be in the form of a dividend, a redemption of the division's related tracking stock or an exchange of that tracking stock for Genzyme General Stock, as chosen by our board of directors in its discretion. The distribution, if by dividend or redemption, must equal in value the net after-tax proceeds received from the sale. If our board of directors chooses to make the distribution by issuing Genzyme General Stock in exchange for the selling division's related tracking stock, then the exchange must be effected at a 10% premium to the corresponding tracking stock's average market price calculated over a ten day period beginning on the first business day following the announcement of the sale.

        While tracking stock is designed to reflect a division's performance, it is common stock of the entire company. Therefore, a holder of tracking stock is a common stockholder subject to risks of investing in the business, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to any division are nonetheless subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, a holder of tracking stock would have no direct claim against the assets allocated to the corresponding tracked division; a holder of tracking stock would only have the rights of a common stockholder in the combined assets of Genzyme, subject also to the Genzyme charter's allocation of liquidation units as discussed below under the subheading "Liquidation Units."

GCS-107

Common Stock

		At December 31, 2001		At December 31, 2000
Series
	Authorized	Issued	Outstanding	Issued	Outstanding
Genzyme General Stock, $0.01 par value	500,000,000	213,179,196	213,072,838	191,181,638	190,968,922
Genzyme Biosurgery Stock, $0.01 par value	100,000,000	39,554,105	39,554,105	36,397,854	36,397,854
Genzyme Molecular Oncology Stock, $0.01 par value	40,000,000	16,762,331	16,762,331	15,905,360	15,905,360
Undesignated	50,000,000	—	—	—	—
Total	690,000,000	269,495,632	269,389,274	243,484,852	243,272,136

Rights of Common Stock

Voting Rights

        Genzyme General Stock is entitled to one vote per share, which is never adjusted. However, the votes per share of our other series of common stock are adjusted every two years. Specifically, on January 1, 2003 and every second anniversary thereafter, the vote per share to which each series is entitled will be recalculated based on that stock's fair market value divided by the fair market value of a share of Genzyme General Stock, with "fair market value" meaning the average closing price over the 20 consecutive trading days beginning the 30th trading day preceding the January 1st adjustment date. Currently, each series of common stock is entitled the following vote per share:

Series	Vote Per Share
Genzyme General Stock	1.00
Biosurgery Stock	0.28
Molecular Oncology Stock	0.28

Liquidation Units

        If we were to 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 would receive any remaining assets according to the percentage of total liquidation units that they hold. Each series of our common stock is entitled to the following liquidation units:

Series	Units
Genzyme General Stock	100
Biosurgery Stock	100
Molecular Oncology Stock	50

        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 tracked divisions.

GCS-108

Two-for-One Stock Split

        At our annual meeting on May 31, 2001, our shareholders approved an amendment to our charter which increased the total number of authorized shares of Genzyme common stock from 390,000,000 to 690,000,000 and increased the number of such shares designated as Genzyme General Stock from 200,000,000 to 500,000,000. On June 1, 2001, we completed a two-for-one split of Genzyme General Stock by means of a 100% stock dividend paid to holders of Genzyme General Stock of record on May 24, 2001. We distributed a total of 97,183,724 shares of Genzyme General Stock to holders of Genzyme General Stock in connection with the stock split. All share and per share amounts for Genzyme General Stock have been retroactively revised for all periods presented to reflect the two-for-one split.

Stock Offering

        In July 2000, we sold 1,607,400 shares of Molecular Oncology Stock to a limited number of purchasers at a price of $12.91 per share. We received approximately $20.7 million of net proceeds from the offering, which we allocated to Genzyme Molecular Oncology.

Directors' Deferred Compensation Plan

        Each member of our board of directors who is not also one of our employees may defer receipt of all or a portion of the cash compensation payable to him or her as a director and receive either cash or stock in the future. Under this plan, the director may defer his or her compensation until his or her services as a director cease or until another date specified by the director.

        Under a deferral agreement, a participant indicates the percentage of deferral to allocate to cash and stock, upon which a cash deferral account and a stock deferral account is established. The cash account bears interest at the rate paid on 90-day Treasury bills with interest payable quarterly.

        The stock account is for amounts invested in hypothetical shares of Genzyme General Stock, Biosurgery Stock or Molecular Oncology Stock. Under the deferral agreement, a participant directs us how to allocate amounts among each series of stock. These amounts will be converted into shares quarterly at the average closing price of the stock for all trading days during the quarter, for each series of stock.

        Distributions are paid in a lump sum or in annual installments for up to five years. Payments begin the year following a director's termination of service or, subject to certain restrictions, a year elected by the participant. As of December 31, 2001, two of the seven eligible directors was participating in this plan.

        We have reserved the following numbers of shares to cover distributions credited to stock accounts under the plan:

•

100,000 shares of Genzyme General Stock;



•

63,820 shares of Biosurgery Stock; and



•

50,000 shares of Molecular Oncology Stock.

        We had not made any distributions under this plan as of December 31, 2001.

GCS-109

Equity Plans

        At December 31, 2001, we had reserved the following numbers of shares for issuance under our 1990 Equity Incentive Plan, 1997 Equity Incentive Plan, 2001 Equity Incentive Plan, 1998 Director Stock Option Plan and 1999 Employee Stock Purchase Plan:

•

27,392,311 shares of Genzyme General Stock;



•

9,296,983 shares of Biosurgery Stock; and



•

4,041,472 shares of Molecular Oncology Stock.

Stock Options

        The following number of shares are currently authorized and available for grant under our 1990 Equity Incentive Plan, 2001 Equity Incentive Plan and 1997 Equity Incentive Plan:

•

1,338,952 shares of Genzyme General Stock;



•

2,052,382 shares of Biosurgery Stock; and



•

1,045,735 shares of Molecular Oncology Stock.

        The purpose of these three plans is to attract and retain key employees and consultants, provide an incentive for them to achieve long-range performance goals, and enable them to participate in our long-term growth. Under these three plans, we grant stock options with exercise prices not less than fair market value at date of grant. The plans provide for the grant of stock appreciation rights, performance shares, restricted stock and stock units. Each of these instruments has a maximum term of ten years and generally vest over four years. The compensation committee of our board determines the terms and conditions of each award, including who is eligible to receive awards, the form of payment of the exercise price, the number of shares granted and the exercisability date. No incentive stock options may be granted under the 1997 Equity Incentive Plan. After March 15, 2000, no incentive stock options may be granted under the 1990 Equity Incentive Plan. The 2001 Equity Incentive Plan is an amendment and restatement of the 1990 Equity Incentive Plan which was merged into the 2001 Equity Incentive Plan.

        The following number of shares are currently authorized and available for grant under our 1998 Director Stock Option Plan:

•

292,800 shares of Genzyme General Stock;



•

141,911 shares of Biosurgery Stock; and



•

140,176 shares of Molecular Oncology Stock.

        Options under our 1998 Director Stock Option Plan are automatically granted with an exercise price at fair market value to non-employee members of our board of directors when they are elected or re-elected as directors. These options expire ten years after the initial grant date and vest as to one-third of each grant on the date of each annual stockholders meeting following the date of grant.

GCS-110

        The following table depicts activity under our stock option plans:

		Shares Under Option		Weighted Average Exercise Price		Number Exercisable
GENZYME GENERAL STOCK:
Outstanding at December 31, 1998		23,185,460		$	12.00	11,158,534
	Granted	3,295,438			21.72
	Granted — premium price	2,544,752			29.49
	Exercised	(5,053,676	)		10.32
	Forfeited and cancelled	(752,960	)		15.11
Outstanding at December 31, 1999		23,219,014			15.56	11,266,106
	Granted	7,729,856			23.44
	Granted — premium price	202,760			28.23
	Exercised	(6,183,902	)		13.20
	Forfeited and cancelled	(807,018	)		21.21
Outstanding at December 31, 2000		24,160,710			18.60	10,723,368
	Granted	6,688,060			52.51
	Exercised	(4,953,670	)		14.66
	Forfeited and cancelled	(534,320	)		28.38
Outstanding at December 31, 2001		25,360,780		$	27.80	11,815,491
BIOSURGERY STOCK:
Outstanding at December 18, 2000		—		$	—
	Conversion from Surgical Products Stock options	1,794,684			11.02
	Conversion from Tissue Repair Stock options	1,258,952			24.28
	Assumed from Biomatrix	1,706,639			16.79
	Exercised	(717	)		5.59
	Forfeited and cancelled	(19,640	)		23.61
Outstanding at December 31, 2000		4,739,918			16.65	2,444,601
	Granted	3,644,850			7.58
	Exercised	(119,037	)		3.76
	Forfeited and cancelled	(1,261,861	)		14.23
Outstanding at December 31, 2001		7,003,870		$	12.54	3,783,030

GCS-111

MOLECULAR ONCOLOGY STOCK:
Outstanding at December 31, 1998		1,157,785		$	6.96	391,044
	Granted	286,363			3.46
	Granted — premium price	402,615			5.39
	Exercised	(362	)		3.50
	Forfeited and cancelled	(37,291	)		6.67
Outstanding at December 31, 1999		1,809,110			6.14	656,648
	Granted	603,061			12.65
	Granted — premium price	32,167			23.19
	Exercised	(211,113	)		6.66
	Forfeited and cancelled	(82,214	)		6.84
Outstanding at December 31, 2000		2,151,011			8.13	834,955
	Granted	671,952			14.83
	Exercised	(15,934	)		5.99
	Forfeited and cancelled	(33,010	)		15.40
Outstanding at December 31, 2001		2,774,019		$	9.68	1,407,425
SURGICAL PRODUCTS STOCK:
Outstanding at June 28, 1999		—			—
	Granted	3,050,690		$	6.65
	Exercised	0			—
	Forfeited and cancelled	(60,120	)		6.69
Outstanding at December 31, 1999		2,990,570			6.65	563,048
	Granted	47,900			10.64
	Exercised	(63,194	)		6.69
	Forfeited and cancelled	(13,751	)		7.02	—
Conversion to Biosurgery Stock options		(2,961,525	)		6.69
Outstanding at December 31, 2000 and 2001		—
TISSUE REPAIR STOCK:
Outstanding at December 31, 1998		3,397,946		$	9.13	1,464,732
	Granted	667,120			2.22
	Granted — premium price	402,615			7.71
	Exercised	(357	)		2.09
	Forfeited and cancelled	(291,558	)		7.49
Outstanding at December 31, 1999		4,175,766			8.02	1,905,031
	Granted	47,217			6.41
	Exercised	(71,615	)		4.47
	Forfeited and cancelled	(395,545	)		6.76
	Conversion to Biosurgery Stock options	(3,755,823	)		8.14
Outstanding at December 31, 2000 and 2001		—

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        The total exercise proceeds for all options outstanding at December 31, 2001 is:

•

$705.0 million for Genzyme General Stock;



•

$87.8 million for Biosurgery Stock; and



•

$26.8 million for Molecular Oncology Stock.

        The following table contains information regarding the range of option prices as of December 31, 2001:

GENZYME GENERAL STOCK:

					Exercisable
		Remaining Contractual Life (In Years)
Range Of Exercise Prices	Number Outstanding		Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.21—$13.78	6,338,334	3.92	$	10.06	3,996,846	$	10.78
13.79—20.59	5,429,498	5.79		16.94	4,474,181		16.32
20.75—29.44	5,830,125	7.73		27.44	1,999,569		27.33
29.50—51.78	2,380,277	9.02		42.40	400,733		40.01
51.96—59.88	5,382,546	9.42		53.55	944,162		53.51
$0.21—59.88	25,360,780	6.84	$	27.80	11,815,491	$	20.09

BIOSURGERY STOCK:

					Exercisable
		Remaining Contractual Life (In Years)
Range Of Exercise Prices	Number Outstanding		Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$2.31—$6.26	1,258,942	8.90	$	6.00	353,382	$	5.83
6.34—6.69	2,041,293	9.10		6.68	838,266		6.69
6.88—11.00	361,398	6.80		9.31	250,477		9.79
11.04—11.04	1,443,985	7.65		11.04	901,219		11.04
11.33—116.51	1,898,252	6.05		24.93	1,439,686		24.21
$2.31—116.51	7,003,870	7.82	$	12.54	3,783,030	$	14.52

MOLECULAR ONCOLOGY STOCK:

					Exercisable
		Remaining Contractual Life (In Years)
Range Of Exercise Prices	Number Outstanding		Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$2.31—$5.38	579,915	7.18	$	4.69	251,550	$	4.46
5.75—5.75	10,000	7.10		5.75	3,334		5.75
7.00—7.00	921,134	5.98		7.00	856,116		7.00
7.70—12.73	619,601	8.47		12.26	176,502		12.41
13.69—26.85	643,369	9.34		15.58	119,923		15.35
$2.31—$26.85	2,774,019	7.57	$	9.68	1,407,425	$	7.93

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Employee Stock Purchase Plan

        Our 1999 Employee Stock Purchase Plan is an amendment and replacement of our 1990 Employee Stock Purchase Plan. This plan allows full-time employees to purchase our stock at a discount. The number of shares authorized for purchase under the plan as of December 31, 2001 are:

•

989,299 shares of Genzyme General Stock;



•

570,600 shares of Biosurgery Stock; and



•

500,000 shares of Molecular Oncology Stock.

        We place limitations on the number of shares of each series of stock that can be purchased under the plan in a given year.

        The following table shows the shares purchased by employees under both plans for the past three years:

Shares Purchased	Genzyme General Stock	Biosurgery Stock	Molecular Oncology Stock	Surgical Products Stock	Tissue Repair Stock
1999	626,360	0	126,066	0	208,375
2000	554,980	44,482	133,763	106,222	174,166
2001	547,787	252,681	158,629	0	0
Available for purchase as of December 31, 2001	399,779	98,820	81,542	0	0

Stock Compensation Plans

        We apply APB Opinion No. 25 and related interpretations in accounting for our six stock-based compensation plans: the 1990 Equity Incentive Plan, the 1997 Equity Incentive Plan, the 2001 Equity Incentive Plan, the 1998 Director Stock Option Plan (each of which are stock option plans), the 1990 Employee Stock Purchase Plan and the 1999 Employee Stock Purchase Plan. We do not recognize compensation expense for options granted under the provisions of these plans with fixed terms at an exercise price greater than or equal to fair market value on the date of the grant.

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NOTE L. STOCKHOLDERS' EQUITY (Continued)

        The following table sets forth our net income (loss) data as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," based on the fair value at the grant dates of the awards. The resulting compensation expense would be allocated to each division in accordance with our allocation policies:

			2001			2000			1999
			(Amounts in thousands, except per share amounts)
CONSOLIDATED:
	Net income (loss):
		As reported	$	(112,156	)	$	(62,940	)	$	70,981
		Pro forma	$	(177,957	)	$	(95,666	)	$	46,382
ALLOCATED TO GENZYME GENERAL STOCK:
	Basic net income (loss) per share:
		As reported	$	0.22		$	1.41		$	1.80
		Pro forma	$	(0.04	)	$	1.12		$	1.59
	Diluted net income (loss) per share:
		As reported	$	0.21		$	1.35		$	1.71
		Pro forma	$	(0.04	)	$	1.07		$	1.52
ALLOCATED TO BIOSURGERY STOCK:
	Basic and diluted loss per share:
		As reported	$	(3.34	)	$	(2.40	)
		Pro forma	$	(3.58	)	$	(2.40	)
ALLOCATED TO MOLECULAR ONCOLOGY STOCK:
	Basic and diluted loss per share:
		As reported	$	(1.82	)	$	(1.60	)	$	(2.25	)
		Pro forma	$	(2.11	)	$	(1.80	)	$	(2.34	)
ALLOCATED TO SURGICAL PRODUCTS STOCK:
	Basic and diluted loss per share:
		As reported				$	(3.67	)	$	(1.38	)
		Pro forma				$	(3.82	)	$	(1.53	)
ALLOCATED TO TISSUE REPAIR STOCK:
	Basic and diluted loss per share:
		As reported				$	(0.69	)	$	(1.26	)
		Pro forma				$	(0.76	)	$	(1.40	)

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        We estimate the fair value of each option grant using the Black-Scholes option-pricing model. In computing these pro forma amounts, we used the following assumptions:

		Risk-Free Interest Rate		Volatility		Dividend Yield		Expected Option Life (In Years)	Average Fair Value
GENZYME GENERAL STOCK:
	2001	5.08	%	49	%	0	%	5	$	25.66
	2000	6.78	%	48	%	0	%	5	$	26.62
	1999	5.58	%	45	%	0	%	5	$	10.16
BIOSURGERY STOCK:
	2001	5.08	%	70	%	0	%	5	$	4.06
	2000	6.78	%	58	%	0	%	5	$	6.68
MOLECULAR ONCOLOGY STOCK:
	2001	5.08	%	99	%	0	%	5	$	11.33
	2000	6.78	%	94	%	0	%	5	$	9.76
	1999	5.58	%	70	%	0	%	5	$	2.16
SURGICAL PRODUCTS STOCK:
	2000	6.78	%	58	%	0	%	5	$	9.95
	1999	5.58	%	42	%	0	%	5	$	2.99
TISSUE REPAIR STOCK:
	2000	6.78	%	58	%	0	%	5	$	8.21
	1999	5.58	%	68	%	0	%	5	$	1.36

Warrants

        Upon our acquisition of GelTex in December 2000, we assumed warrants to purchase GelTex common stock that we converted into warrants to purchase 102,706 shares of Genzyme General Stock for an aggregate purchase price of $1.5 million. A portion of these warrants were exercised or expired in 2001. The remaining warrants expire on March 28, 2002.

        In connection with the execution of a technology license agreement in March 2000, we issued to Sentron Medical, Inc., a warrant to purchase 10,000 shares of Tissue Repair Stock at a price of $7.641 per share. Upon the formation of Genzyme Biosurgery, the warrant converted in accordance with its terms into a warrant to purchase 3,352 shares of Biosurgery Stock at a price of $22.795 per share. The warrant expires in March 2005.

        When we acquired PharmaGenics, Inc. in 1997, we assumed a warrant that expired in 2001. This warrant was exercisable into 9,563 shares of Molecular Oncology Stock at $8.04 per share.

        Upon our acquisition of Novazyme in September 2001, we assumed warrants to purchase Novazyme common stock that we converted into warrants to purchase 3,909 shares of Genzyme General Stock at an exercise price of $13.13 per share, for an aggregate purchase price of $51,325. All of these warrants were exercised in 2001.

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        Upon our acquisition of Focal in June 2001, we assumed warrants to purchase Focal common stock that we converted into warrants to purchase 4,203 shares of Genzyme Biosurgery Stock for an aggregate purchase price of $306,055. These warrants expire at various dates through February 2006.

        Warrant activity is summarized below:

	Genzyme General Stock			Genzyme Biosurgery Stock
	Warrants		Exercise Price	Warrants	Exercise Price
Outstanding at December 31, 1999	—		—	—	—
Sentron Medical, Inc.	—		—	3,352	$22.80
Assumed from GelTex	102,706		$9.09—$33.50	—	—
Outstanding at December 31, 2000	102,706		$9.09—$35.50	3,352	$22.80
Assumed from Focal	—		—	4,203	$40.18—$77.83
Assumed from Novazyme	3,909		$13.13	—	—
Warrants exercised	(97,023	)	—	—	—
Warrants expired	(2,162	)	—	—	—
Outstanding at December 31, 2001	7,430		$16.57—$18.94	7,555	$22.80—$77.83

Purchase Rights

        Upon our acquisition of Novazyme, we assumed rights to purchase Novazyme Series B preferred stock that we converted into rights to purchase 66,830 shares of Genzyme General Stock for an aggregate purchase price of $1,216,306. These purchase rights expire 15 days following the filing of our first Investigational New Drug application with the FDA for a treatment for Pompe disease utilizing certain technology acquired from Novazyme.

        Purchase rights activity is summarized below:

		Genzyme General Stock
		Purchase Rights		Exercise Price
Outstanding at December 31, 2000		—			—
	Assumed from Novazyme	66,830		$	18.20
	Rights exercised	(46,001	)	$	18.20
Outstanding at December 31, 2001		20,829		$	18.20

Designated Shares

        Designated shares are authorized shares of Biosurgery Stock and Molecular Oncology Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds or benefits to the division that the series of stock tracks. Designated shares are not eligible to receive dividends and cannot be voted by us. We create designated shares when we transfer cash or other assets from Genzyme General to Genzyme Biosurgery or Genzyme Molecular Oncology or from other interdivision transactions. Our board of directors may issue designated shares:

•

as a stock dividend to the holders of Genzyme General Stock;

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•

by selling the shares in a public or private sale and allocating all of the proceeds to Genzyme General; and



•

when convertible securities are converted, the proceeds of which will be allocated to Genzyme General.

Distribution of Designated Shares

        We will distribute designated shares of Molecular Oncology Stock and Biosurgery Stock each year to holders of Genzyme General Stock if the number of designated shares of a particular series exceeds 10% of the number of shares of that series issued and outstanding as of the following dates:

•

November 30th for Molecular Oncology Stock; and



•

September 30th for Biosurgery Stock.

We will not distribute an amount of designated shares equal to the sum of:

•

the designated shares reserved for issuance upon the exercise or conversion of Genzyme General convertible securities; and



•

the number of designated shares our board of directors reserved as of November 30th for Molecular Oncology Stock and September 30th for Biosurgery Stock for sale not later than six months after these dates.

Any proceeds from the sale of designated shares will be allocated to Genzyme General.

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        Designated share activity is summarized in the following table:

	Biosurgery Designated Shares		Molecular Oncology Designated Shares		Surgical Products Designated Shares		Tissue Repair Designated Shares
Balance at December 31, 1998	—		1,409,992		—		716,268
Established	—		—		16,000,000		—
Dividend distribution	—		—		(14,835,161	)	—
Debenture adjustment	—		278,245		—		—
Increase from interdivision cash allocation	—		—		—		1,633,399
Stock options exercised	—		—		—		(111,614	)
Balance at December 31, 1999	—		1,688,237		1,164,839		2,238,053
Increase from interdivision cash allocation	—		676,254		—		1,692,657
Repayment of portion of interdivision cash allocation	—		(364,293	)	——
Stock options exercised	(517	)	—		—		(97,209	)
Conversion to Biosurgery designated shares	—		—		(1,164,839	)	(3,833,501	)
Conversion from Surgical Products designated shares	705,892		—		—		—
Conversion from Tissue Repair designated shares	1,284,989		—		—		—
Balance at December 31, 2000	1,990,364		2,000,198		—		—
Increase from interdivision cash allocation	1,902,949		333,333
Issuance from conversion of 51/4% convertible subordinate notes	(684,955	)	(682,449	)
Stock options exercised	(10,681	)	—
Balance at December 31, 2001	3,197,677		1,651,082

        In connection with our creation of Genzyme Biosurgery in December 2000, each Surgical Products designated share was converted into 0.6060 of a Biosurgery designated share and each Tissue Repair designated share was converted into 0.3352 of a Biosurgery designated share.

        In October 1999, we adjusted the number of Molecular Oncology designated shares reserved in connection with the exchange in August 1998 of 6% debentures convertible into Molecular Oncology Stock into 5% debentures convertible into Genzyme General Stock. We made this adjustment based on the fair market value of Molecular Oncology Stock on October 16, 1999 in accordance with the terms of the exchange established by our board.

        In June 1999, we distributed Surgical Products designated shares to holders of Genzyme General Stock upon creation of Surgical Products Stock.

Interdivisional Financing Arrangements

Genzyme Biosurgery

        Our board of directors has made $25.0 million of Genzyme General's cash available to Genzyme Biosurgery. Under this arrangement, Genzyme Biosurgery is able to draw down funds as needed each quarter in exchange for designated shares based on the fair market value (as defined in our charter) of

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Biosurgery Stock at the time of the draw. Genzyme Biosurgery has made the following draws during the past three fiscal years:

•

In 1999—none;



•

In 2000—two draws aggregating $10.0 million in exchange for a reserve of approximately 1.7 million Tissue Repair designated shares, which shares were converted into approximately 0.6 million Biosurgery designated shares;



•

In 2001—$12.0 million in exchange for an additional reserve of approximately 1.9 million Biosurgery designated shares.

        At December 31, 2001, $3.0 million remained available to Genzyme Biosurgery under this arrangement.

Genzyme Molecular Oncology

        Our board of directors has made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed each quarter in exchange for designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. Genzyme Molecular Oncology has made the following draws during the past three fiscal years:

•

In 1999—none;



•

In 2000—$15.0 million in exchange for a reserve of approximately 0.7 million Molecular Oncology designated shares;



•

In 2001—$4.0 million in exchange for an additional reserve of approximately 0.3 million Molecular Oncology designated shares.

        At December 31, 2001, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

NOTE M. RESEARCH AND DEVELOPMENT AGREEMENTS

        Our revenues from research and development agreements with related parties include the following:

	2001		2000		1999
	(Amounts in thousands)
Genzyme Transgenics Corporation	$	3,279	$	509	$	1,156
StressGen/Genzyme LLC		—		—		496
	$	3,279	$	509	$	2,012

        We allocate all of our research and development agreements with unconsolidated affiliates to our operating divisions based on the business to which the research relates.

        Genzyme Transgenics Corporation.    Note I, "Investments," contains disclosure regarding our relationship with Genzyme Transgenics.

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        Dyax Corporation.    Note I, "Investments," contains disclosure regarding our relationship with Dyax.

Joint Ventures.

        Note I., "Investments," contains disclosure regarding the following joint ventures:

•

RenaGel LLC;



•

BioMarin/Genzyme LLC;



•

Pharming/Genzyme LLC;



•

Genzyme/Pharming Alliance LLC;



•

Diacrin/Genzyme LLC;



•

ATIII LLC; and



•

StressGen/Genzyme LLC.

NOTE N. COMMITMENTS AND CONTINGENCIES

        We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims against us as of December 31, 2001 which, if adversely decided, would have a material adverse effect on our results of operations, financial condition, or liquidity.

        As of December 31, 2001, we had approximately $7.7 million of capital commitments related to manufacturing capacity expansion, all of which were allocated to Genzyme General.

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NOTE O. INCOME TAXES

        Our income (loss) before income taxes and the related income tax expense (benefit) are as follows for the year ended:

		December 31,
		2001			2000			1999
		(Amounts in thousands)
Domestic		$	(138,630	)	$	(20,791	)	$	101,548
Foreign			20,287			13,329			16,380
Total		$	(118,343	)	$	(7,462	)	$	117,928
Currently payable:
	Federal	$	44,810		$	55,469		$	41,638
	State		3,846			2,982			2,990
	Foreign		8,123			3,607			5,733
Total			56,779		$	62,058		$	50,361
Deferred:
	Federal	$	(41,416	)	$	(3,322	)	$	1,041
	State		(2,770	)		(182	)		(181	)
	Foreign		(14,613	)		(3,076	)		(4,274	)
Total			(58,799	)		(6,580	)		(3,414	)
(Benefit from) provision for income taxes		$	(2,020	)	$	55,478		$	46,947

        Our provisions for income taxes were at rates other than the U.S. federal statutory tax rate for the following reasons:

	2001		2000		1999
Tax provision (benefit) at U.S. statutory rate	(35.0	)%	(35.0	)%	35.0	%
Losses in less than 80% owned subsidiaries with no current tax benefit	—		(45.5	)	0.2
State taxes, net	0.9		25.6		1.4
Foreign sales corporation	(8.7	)	(105.8	)	(4.4	)
Nondeductible amortization	13.2		53.9		3.6
Benefit of tax credits	(4.0	)	(51.9	)	(3.6	)
Other	0.9		(23.3	)	6.0
Foreign rate differential	0.9		(13.5	)	—
Utilization of operating loss carryforwards	(1.8	)	—		—
Write-off of non-deductible goodwill	4.4		—		—
Charge for purchased research and development	27.5		939.0		1.6
Effective tax rate	(1.7	)%	743.5	%	39.8	%

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NOTE O. INCOME TAXES (Continued)

        The components of net deferred tax assets are described in the following table:

		December 31,
		2001			2000
		(Amounts in thousands)
Deferred tax assets:
Net operating loss carryforwards		$	34,211		$	35,769
	Tax credits		19,448			13,304
	Inventory		49,817			37,297
	Reserves, accruals and other		37,088			19,649
	Gross deferred tax asset		140,564			106,019
	Valuation allowance		—			(13,592	)
			140,564			92,427
Deferred tax liabilities:
	Depreciable assets		(19,371	)		(23,297	)
	Realized and unrealized capital gains		(8,640	)		(7,530	)
	Investments in unconsolidated subsidiaries		—			(4,396	)
	Deferred gain		(898	)		(878	)
	Intangible amortization		(214,585	)		(239,874	)
	Net deferred tax liability	$	(102,930	)	$	(183,548	)

        As of December 31, 2000, we had valuation allowances of $13.6 million against otherwise recognizable deferred tax assets, primarily consisting of capital losses from the purchase of in-process research and development, as the realizability of the assets was not sufficiently assured. As a result of the resolution of several tax audit matters in 2001, we were able to recognize these deferred tax assets and, therefore, released the related valuation allowances. The resolution of these matters resulted in the recognition of $2.2 million of net tax benefits in the second quarter of 2001.

        Our ability to realize the benefit of net deferred tax assets is dependent on our generating sufficient taxable income before loss carryforwards expire. While it is not assured, we believe that it is more likely than not that we will be able to realize all of our net deferred tax assets. The amount we can realize, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

        For U.S. income tax purposes, we had net operating loss carryforwards of $97.7 million in 2001 and $105.1 million in 2000. Our net operating loss carryforwards expire between 2007 and 2021. Prior to expiration, our ability to use these carryforwards may be limited under U.S. tax laws, specifically Section 382 of the Internal Revenue Code.

NOTE P. BENEFIT PLANS

        We have a 401(k) plan that covers nearly all of our employees. We also maintain a separate 401(k) plan for the former employees of Deknatel Snowden Pencer, Inc., which we acquired in 1996. These plans permit qualifying employees to make contributions up to a specified percentage of their

GCS-123

compensation, and we match a portion of those contributions. We contributed the following amounts to the 401(k) plans in millions:

	2001		2000		1999
Allocated to Genzyme General	$	5.9	$	1.5	$	3.9
Allocated to Genzyme Biosurgery		2.1		2.6		0.9
	$	8.0	$	4.1	$	4.8

        We also maintain defined-benefit pension plans for qualifying employees of a number of our foreign subsidiaries and qualifying former employees of Deknatel Snowden Pencer. We fund pension costs as they are accrued. Our expense related to these plans was:

	2001		2000		1999
Allocated to Genzyme General	$	1.6	$	1.0	$	1.3
Allocated to Genzyme Biosurgery		0.5		0.6		0.5
	$	2.1	$	1.6	$	1.8

        We do not present actuarial and other disclosures for these plans because we do not consider them to be material.

NOTE Q. SEGMENT INFORMATION

        In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent with the method we use to report this information to our management. Applying SFAS No. 131, we have four reportable segments:

•

Therapeutics, which develops, manufactures and distributes human therapeutic products with an expanding focus on products which treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and other specialty therapeutics. The business derives substantially all of its revenue from sales of Cerezyme enzyme and Renagel phosphate binder;



•

Diagnostic products, which provides diagnostic products to niche markets focusing on in vitro diagnostics;



•

Genzyme Biosurgery, which develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedics and cardiothoracic markets; and



•

Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule discovery and protien therapeutic capabilities.

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        We have provided information concerning the operations in these reportable segments in the following table:

			December 31,
			2001		2000			1999
			(Amounts in thousands)
Revenues:
Genzyme General:
	Therapeutics(1)		$	783,736	$	600,679		$	488,705
	Diagnostics products(3)			76,858		61,469			57,971
	Other(4)			118,008		89,371			86,409
	Eliminations/Adjustments(5)			3,324		964			2,281
		Total Genzyme General		981,926		752,483			635,366
Genzyme Biosurgery(6)				235,142		145,214			132,353
Genzyme Molecular Oncology				6,562		5,671			4,619
Eliminations/Adjustments				—		(48	)		(50	)
		Total	$	1,223,630	$	903,320		$	772,288
Depreciation and amortization expense:
Genzyme General:
	Therapeutics(1,7)		$	75,884	$	8,913		$	13,069
	Diagnostics products(3,7)			7,819		4,940			1,909
	Other(4)			7,066		7,226			6,422
	Eliminations/Adjustments(5)			27,184		20,127			20,835
		Total Genzyme General		117,953		41,206			42,235
Genzyme Biosurgery(6,8)				60,931		11,622			9,367
Genzyme Molecular Oncology				125		5,572			12,057
Eliminations/Adjustments(9)				—		(470	)		(1,007	)
		Total	$	179,009	$	57,930		$	62,652

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Equity in net loss of unconsolidated affiliates:
Genzyme General:
	Therapeutics(1,10)		$	(30,214	)	$	(42,801	)	$	(30,094	)
	Diagnostic products			—			—			—
	Other			126			(64	)		56
	Eliminations/Adjustments(11)			(4,277	)		(2,100	)		(7,385	)
		Total Genzyme General		(34,365	)		(44,965	)		(37,423	)
Genzyme Biosurgery				(1,316	)		—			(3,403	)
Genzyme Molecular Oncology				—			—			(1,870	)
		Total	$	(35,681	)	$	(44,965	)	$	(42,696	)
Income tax (expense) benefits:
Genzyme General:
	Therapeutics(1)		$	(17,522	)	$	(53,046	)	$	(84,859	)
	Diagnostics products (3)			1,269			(2,056	)		(2,485	)
	Other (4)			(4,818	)		1,006			2,952
	Eliminations/Adjustments (5)			(31,595	)		(38,543	)		(8	)
	Genzyme General tax provision			(52,666	)		(92,639	)		(84,400	)
Genzyme Biosurgery(6)				—			—			—
Genzyme Molecular Oncology				—			1,214			2,647
Eliminations/Adjustments				54,686			35,947			34,806
		Total	$	2,020		$	(55,478	)	$	(46,947	)
Net income (loss):
Genzyme General:
	Therapeutics(1,2,12)		$	81,937		$	94,065		$	133,854
	Diagnostic products(3,13)			(1,075	)		3,004			3,915
	Other(14)			8,383			(1,790	)		(4,661	)
	Eliminations/Adjustments(15)			(85,366	)		(9,323	)		8,969
	Net income for Genzyme General before cumulative effect of change in accounting principle			3,879			85,956			142,077
	Cumulative effect of change in accounting principle, net of tax(16)			4,167			—			—
	Net income for Genzyme General			8,046			85,956			142,077
Genzyme Biosurgery(6,17)				(145,170	)		(162,217	)		(78,077	)
Genzyme Molecular Oncology				(29,718	)		(23,096	)		(28,832	)
Eliminations/Adjustments(18)				54,686			36,867			35,813
		Total	$	(112,156	)	$	(62,490	)	$	70,981

GCS-126

(1)

In December, 2000 we acquired GelTex and allocated the acquistion to Genzyme General. The results of operations of GelTex are included our Therapeutics segment beginning on December 14, 2000. See Note D., "Acquisitions," above.

(2)

In September 2001, we acquired Novazyme and allocated the acquisition to Genzyme General. The results of operations of Novazyme are included in our Therapeutics business segment beginning on September 26, 2001, the date of acquisition. See Note D., "Acquisitions," above.

(3)

In June 2001, we acquired Wyntek and allocated the acquisition to Genzyme General. The results of operations of Wyntek are included in our Diagnostic products business segment beginning on June 1, 2001, the date of acquisition. See Note D., "Acquisitions," above.

(4)

Other includes amounts attributable to our genetic testing and pharmaceuticals businesses, both of which operate within Genzyme General.

(5)

Eliminations/adjustments consists primarily of amounts related to Genzyme General's research and development and administrative activities that we do not specifically allocate to a particular segment of Genzyme General.

(6)

In June 2001, we acquired Focal and allocated the acquisition to Genzyme Biosurgery. The results of operations of Focal are included in the results of Genzyme Biosurgery from June 30, 2001, the date of acquisition. In December 2000, we acquired Biomatrix and allocated the acquisition to Genzyme Biosurgery. The results of operations of Biomatrix are included in the results of Genzyme Biosurgery beginning on December 19, 2000. See Note D., "Acquisitions," above.

(7)

Includes the amortization of the intangible assets generated from the GelTex acquisition beginning December 2000 and from the acquisition of Wyntek beginning in June 2001. See Note D., "Acquisitions," above.

(8)

Includes the amortization of the intangible assets generated from the acquisition of Biomatrix beginning in December 2000. See Note D., "Acquisitions," above.

(9)

Consists primarily of a difference in amortization due to $2.9 million of additional goodwill associated with the PharmaGenics acquisition allocated to Genzyme Molecular Oncology, as compared to amounts recorded at the consolidated level and other adjustments related to our corporate activities that we do not specifically allocate to a particular segment. The difference in the amortization results from the application of our policy to account for income taxes at the divisional level as if each division was a separate taxpayer.

(10)

In 2000 includes our 50% portion of the losses of RenaGel LLC through December 13, 2000. In connection with the acquisition of GelTex, we acquired GelTex's 50% interest in RenaGel LLC and, as a result, consolidated the activities of the joint venture for the period from December 14, 2000 through December 31, 2000. See Note D., "Acquisitions," above.

(11)

Represents our portion of the net loss of Genzyme Transgenics, an unconsolidated affiliate, which we do not specifically allocate to a particular segment of Genzyme General.

(12)

Therapeutics net income includes charges for IPR&D of:

•

in 2001—$86.8 milllion related to the acquisition of Novazyme;

GCS-127

•

in 2000—$118.0 million related to the acquisition of GelTex; and



•

in 1999—$5.4 million related to the acquisition of Peptimmune.

See Note D. "Acquisitions," above.

(13)

Diagnostic products' net loss for 2001 includes an $8.8 million charge for IPR&D related to the acquisition of Wyntek. See Note D., "Acquisitions," above.

(14)

Other income (loss) for Genzyme General for 1999 includes a $7.5 million pre-tax gain on the sale of a product line. See Note C., "Disposition of Assets," above.

(15)

Includes the net income (loss) of Genzyme General's corporate administrative and research and development activities which we do not specifically allocate to a particular segment of Genzyme General including the following (pre-tax):

•

gains on affiliate sale of stock of $0.2 million in 2001, $22.7 million in 2000, and $6.7 million in 1999 recognized in accordance with our policy pertaining to affiliate sales of stock, all of which resulted from the sale of common stock by Genzyme Transgenics, an unconsolidated affiliate;

•

losses on equity investments of $26.0 million in 2001, including a charge of $8.5 million to write-off our investment in Pharming Group N.V., a charge of $11.8 million to write down our investment in Cambridge Antibody Technology plc and a charge of $4.5 million to write down our investment in Targeted Genetics Corporation.

•

net gains on sales of investment in equity securities of $23.2 million in 2000 and $2.0 million in 1999 resulting from sales of a portion of our investment portfolio in each period; and

•

in 2000, net proceeds of $5.1 million received in connection with the settlement of a lawsuit and in 1999, a $14.4 million gain upon receipt of a payment associated with the termination of the agreement to acquire Cell Genesys.

(16)

On January 1, 2001, in connection with the adoption of SFAS No. 133, Genzyme General recorded a cumulative-effect adjustment of $4.2 million, net of tax, to recognize the fair value of certain common stock warrants held on January 1, 2001.

(17)

In 2001 includes a loss of $25.0 million in connection with the sale of the assets of our Snowden Pencer line of surgical instruments. See Note C., "Dispositions," above. In 2000 includes charges for IPR&D of $82.1 million related to the acquisition of Biomatrix. See Note D., "Acquisitions," above.

(18)

Includes income tax benefits that have not been recognized in the tax provisions of any of the divisions. Also includes the elimination of interdivisional revenues and expenses and a difference in amortization due to $2.9 million of additional goodwill associated with the PharmaGenics acquisition allocated to Genzyme Molecular Oncology as compared to amounts recorded at the corporate level. The difference in the amortization results from the application of our policy to account for income taxes at the divisional level as if each division was a separate taxpayer.

GCS-128

        We provide information concerning the assets of our reportable segments in the following table:

		December 31,
		2001			2000			1999
		(Amounts in thousands)
Segment Assets:
Genzyme General(1):
	Therapeutics(2)	$	1,347,494		$	1,341,656		$	338,960
	Diagnostic Products (3)		196,571			89,236			40,266
	Other(4)		84,239			77,153			83,088
	Eliminations/Adjustments(5)		1,596,950			991,008			937,269
Total Genzyme General			3,225,254			2,499,053			1,399,583
Genzyme Molecular Oncology			42,419			30,752			9,692
Genzyme Biosurgery(6)			704,671			811,600			390,572
Eliminations/Adjustments(7)			(36,599	)		(23,305	)		(12,565	)
Total		$	3,935,745		$	3,318,100		$	1,787,282

(1)

Segment assets for Genzyme General include primarily cash and investments, accounts receivable, inventory and certain fixed and intangible assets.

(2)

Segment assets for Therapeutics for 2000 include $1.1 billion of additional assets resulting from the acquisition of GelTex, including $465.1 million of intangible assets and $449.6 million of goodwill. See Note D., "Acquisitions," above.

(3)

Segment assets for Diagnostic products for 2001 include $71.5 million of assets resulting from the acquisition of Wyntek, including $20.3 million of goodwill and $39.4 million of other intangible assets. See Note D., "Acquisitions," above.

(4)

Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.

(5)

Eliminations/Adjustments for Genzyme General consists of the differences between the total assets for Genzyme General's segments and other category and the total combined assets for Genzyme General. Eliminations/Adjustments for 2001 includes the allocation of net proceeds of $562.1 million from the private placement of $575.0 million in principal of 3% convertible subordinated debentures which was completed in May 2001.

(6)

Segment assets for Genzyme Biosurgery for 2001 include:

•

$25.9 million of additional assets resulting from the acquisition of the Class A and Class B limited partnership interests of GDP, including $8.4 million of goodwill and $17.5 million of other intangible assets; and

•

$19.2 million of additional assets resulting from the acquisition of Focal, including $1.4 million of goodwill and $7.9 million of other intangible assets.

Segment assets for Genzyme Biosurgery for 2000 include $488.9 million of additional assets resulting from the acquisition of Biomatrix, including $284.9 million of intangible assets, $112.3 million of goodwill and $38.5 million of property, plant and equipment. See Note D., "Acquisitions," above.

(7)

Represents the elimination of inter-divisional balances.

GCS-129

        The amounts in Eliminations/Adjustments for segment assets consist of the following.

	December 31,
	2001		2000		1999
	(Amounts in thousands)
Cash, cash equivalents, and short and long-term investments	$	870,662	$	339,259	$	513,905
Deferred tax assets-current		70,196		46,836		41,195
Intangibles, net		5,143		30,197		33,871
Property, plant and equipment, net		420,684		332,423		172,165
Investment in equity securities		88,686		119,648		94,719
Deferred tax assets, noncurrent		—		—		18,631
Other		104,980		99,340		50,218
Total Eliminations/Adjustments	$	1,560,351	$	967,703	$	924,704

        We operate in the healthcare industry and we manufacture and market our products primarily in the United States and Europe. Our principal manufacturing facilities are located in the United States, United Kingdom, Switzerland and Germany. We purchase products from our subsidiaries in the United Kingdom and Switzerland for sale to customers in the United States. We set transfer prices from our foreign subsidiaries to allow us to produce profit margins commensurate with our sales and marketing effort. Our subsidiary in Ireland is our primary distributor of therapeutic products in Europe. The following table contains certain financial information by geographic area:

		December 31,
		2001		2000		1999
		(Amounts in thousands)
Revenues:
	U.S	$	799,268	$	550,756	$	512,304
	Europe		306,332		248,487		184,169
	Other		118,030		104,077		75,815
Total		$	1,223,630	$	903,320	$	772,288
Long-lived assets:
	U.S	$	1,467,291	$	926,790	$	732,771
	Other		112,020		50,778		52,540
Total		$	1,579,311	$	977,568	$	785,311

        Our results of operations are highly dependent on sales of Ceredase and Cerezyme enzymes. Sales of these products represented 51% of product revenue in 2001, 66% of product revenue in 2000 and 70% of product revenue in 1999. We sell these products directly to physicians, hospitals and treatment centers as well as through an unaffiliated distributor. Distributor sales represented 33% of Ceredase and Cerezyme enzyme revenues in 2001 and 28% in each of 2000 and 1999. We manufacture Cerezyme at a single manufacturing facility in Allston, Massachusetts. We believe that our credit risk associated with trade receivables is mitigated as a result of the fact that we sell these products to a large number of customers in a number of different industries and over a broad geographic area.

GCS-130

        Although sales of our Gaucher disease therapies continue to increase, the decline as a percentage of total product revenue is a result of the growth in the sales of Renagel phosphate binder. Driven primarily by the accelerating adoption of the product by nephrologists worldwide and the significant progress made with the post-approval clinical development program, sales of Renagel phosphate binder represented approximately 16% of our product revenue in 2001 and approximately 6% of product revenue in 2000. Prior to 2000, revenues from Renagel phosphate binder were recorded by RenaGel LLC, our joint venture with GelTex.

NOTE R. QUARTERLY RESULTS (UNAUDITED)

			1st Quarter 2001			2nd Quarter 2001			3rd Quarter 2001			4th Quarter 2001
			(Amounts in thousands, except per share amounts)
Net revenue			$	278,261		$	300,641		$	319,495		$	325,233
Gross profit				184,637			204,680			226,444			228,838
Net income (loss)				3,257			(6,354	)		(102,676	)		(6,383	)
Income (loss) per share:
	Allocated to Genzyme General Stock:
		Basic	$	0.21		$	0.18		$	(0.37	)	$	0.21
		Diluted	$	0.20		$	0.17		$	(0.37	)	$	0.20
	Allocated to Biosurgery Stock:
		Basic and diluted	$	(0.84	)	$	(0.91	)	$	(0.48	)	$	(1.11	)
	Allocated to Molecular Oncology Stock:
		Basic and diluted	$	(0.39	)	$	(0.52	)	$	(0.45	)	$	(0.46	)

			1st Quarter 2000			2nd Quarter 2000			3rd Quarter 2000			4th Quarter 2000
			(Amounts in thousands, except per share amounts)
Net revenue			$	208,130		$	223,913		$	227,359		$	243,918
Gross profit				145,277			157,176			150,815			160,551
Net income (loss)				31,818			49,492			34,421			(178,671	)
Income (loss) per share:
	Allocated to Genzyme General Stock:
		Basic	$	0.30		$	0.42		$	0.34		$	(0.34	)
		Diluted	$	0.28		$	0.39		$	0.32		$	(0.34	)
	Allocated to Biosurgery Stock:
		Basic and diluted		N/A			N/A			N/A		$	(2.40	)
	Allocated to Molecular Oncology Stock:
		Basic and diluted	$	(0.37	)	$	(0.54	)	$	(0.37	)	$	(0.33	)
	Allocated to Surgical Products Stock:
		Basic and diluted	$	(0.68	)	$	(0.70	)	$	(0.93	)	$	(1.36	)
	Allocated to Tissue Repair Stock:
		Basic and diluted	$	(0.17	)	$	(0.14	)	$	(0.19	)	$	(0.18	)

GCS-131

REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Stockholders of Genzyme Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of stockholders' equity present fairly, in all material respects, the financial position of Genzyme Corporation and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Boston, Massachusetts
February 14, 2002

GCS-132

GENZYME CORPORATION
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

Column A		Column B		Column C				Column D		Column E
				Additions
Description		Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions		Balance at End of Period
Year ended December 31, 2001:
	Allowance for doubtful accounts	$	20,711,000	$	1,766,000	$	1,295,000	$	9,562,000	$	14,210,000
Year ended December 31, 2000:
	Allowance for doubtful accounts	$	20,285,000	$	4,608,000	$	3,388,000	$	7,570,000	$	20,711,000
Year ended December 31, 1999:
	Allowance for doubtful accounts	$	11,299,000	$	12,775,000	$	—	$	3,789,000	$	20,285,000

GCS-133

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FINANCIAL STATEMENTS GENZYME CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME CORPORATION AND SUBSIDIARIES' FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENZYME CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
GENZYME CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
GENZYME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
GENZYME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

EX-13.2

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EXHIBIT 13.2

FINANCIAL STATEMENTS
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION

Combined Selected Financial Data	GG-2
Management's Discussion and Analysis of Genzyme General's Financial Condition and Results of Operations	GG-7
Combined Statements of Operations—For the Years Ended December 31, 2001, 2000 and 1999	GG-40
Combined Balance Sheets—December 31, 2001 and 2000	GG-41
Combined Statements of Cash Flows—For the Years Ended December 31, 2001, 2000 and 1999	GG-42
Notes to Combined Financial Statements	GG-44
Report of Independent Accountants	GG-79

GG-1

GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION

COMBINED SELECTED FINANCIAL DATA

        These selected financial data have been derived from the audited combined financial statements of Genzyme General. You should read the following information in conjunction with the audited financial statements and related notes of Genzyme General and Genzyme contained elsewhere in this annual report. These selected financial data may not be indicative of Genzyme General's future financial condition due to the risks and uncertainties described under the caption "Management's Discussion and Analysis of Genzyme General's Financial Condition and Results of Operations—Factors Affecting Future Operating Results" below.

        Genzyme General is our operating division that develops and markets:

•

therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and other specialty therapeutics;



•

diagnostic products, with a focus on in vitro diagnostics; and



•

other products and services, such as genetic testing and pharmaceutical drug materials.

        A series of our common stock, Genzyme General Division common stock, which we refer to as "Genzyme General Stock," is designed to reflect the value and track the performance of this division. Genzyme General Stock is common stock of Genzyme Corporation, not of Genzyme General; Genzyme General is a division, not a company or legal entity, and therefore does not and cannot issue stock. The chief mechanisms intended to cause Genzyme General Stock to "track" the financial performance of Genzyme General are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to Genzyme General into the determination of the amount available to pay dividends on Genzyme General Stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to those corresponding divisions are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Genzyme General Stock is defined in our charter as the net income or loss of Genzyme General determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to Genzyme General Stock are based on the income or losses attributable to Genzyme General, we include financial statements and management's discussion and analysis of Genzyme General to aid investors in evaluating its performance.

GG-2

        In September 2001, we acquired all of the outstanding capital stock of Novazyme Pharmaceuticals, Inc., a privately-held developer of biotherapies for the treatment of lysosomal storage disorders, or LSDs, for an initial payment of approximately 2.6 million shares of Genzyme General Stock valued at $110.6 million. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products for the treatment of LSDs that employ certain of Novazyme's technologies. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme common stock on an as-converted basis. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Novazyme are included in the combined financial statements of Genzyme General from September 26, 2001, the date of acquisition.

        In June 2001, we acquired all of the outstanding capital stock of privately-held Wyntek Diagnostics, Inc. for $65.0 million in cash. Wyntek is a provider of high quality point of care rapid diagnostic tests for pregnancy and infectious diseases. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Wyntek are included in the combined financial statements of Genzyme General from June 1, 2001, the date of acquisition.

        In December 2000, we acquired GelTex Pharmaceuticals, Inc., a public company engaged in developing therapeutic products based on polymer technology, for an aggregate purchase price of approximately $1.1 billion, of which we paid $515.2 million in cash and issued approximately 15.8 million in shares of Genzyme General Stock valued at $491.2 million. We accounted for the acquisition as a purchase and allocated it to Genzyme General. Accordingly, the results of operations of GelTex are included in the combined financial statements of Genzyme General from December 14, 2000, the date of acquisition. As part of the acquisition of GelTex, we acquired GelTex's interest in RenaGel LLC, our joint venture with GelTex. The combined financial statements of Genzyme General reflect the consolidation of RenaGel LLC from the date of acquisition of GelTex. Prior to the acquisition of GelTex, we accounted for our investment in RenaGel LLC under the equity method of accounting.

GG-3

COMBINED STATEMENTS OF OPERATIONS DATA

				For the Years Ended December 31,
				2001			2000			1999			1998			1997
				(Amounts in thousands)
Revenues:
	Net product sales			$	898,731		$	690,027		$	571,531		$	509,727		$	429,092
	Net service sales				74,056			61,161			57,223			55,445			55,835
	Revenues from research and development contracts:
		Related parties			3,279			509			1,516			3,568			8,041
		Other			5,860			786			5,096			579			3,400
			Total revenues		981,926			752,483			635,366			569,319			496,368
Operating costs and expenses:
	Cost of products sold				194,175			162,894			115,125			138,802			146,226
	Cost of services sold				43,167			37,879			35,637			34,240			35,451
	Selling, general and administrative(1)				295,068			166,462			149,427			126,172			118,616
	Research and development (including research and development related to contracts)				187,502			112,792			97,746			73,139			62,905
	Amortization of intangibles				74,296			10,928			8,106			7,610			6,887
	Purchase of in-process research and development(2)				95,568			118,048			5,436			—			—
			Total operating costs and expenses		889,776			609,003			411,477			379,963			370,085
Operating income					92,150			143,480			223,889			189,356			126,283
Other income (expenses):
	Equity in net loss of unconsolidated affiliates				(34,365	)		(44,965	)		(37,423	)		(19,739	)		(5,782	)
	Gain on affiliate sale of stock(3)				212			22,689			6,683			2,369			—
	Gain (loss) on investments in equity securities(4)				(25,996	)		23,173			(3,749	)		(6	)		—
	Minority interest				2,259			4,625			3,674			4,285			—
	Gain on sale of product line(5)				—			—			8,018			31,202			—
	Other(6)				(2,329	)		5,203			14,389			—			(2,000	)
	Investment income				47,806			38,549			30,881			22,953			9,940
	Interest expense				(23,192	)		(14,159	)		(19,885	)		(16,994	)		(8,074	)
			Total other income (expenses)		(35,605	)		35,115			2,588			24,070			(5,916	)
	Income before income taxes				56,545			178,595			226,477			213,426			120,367
	Provision for income taxes				(52,666	)		(92,639	)		(84,400	)		(80,374	)		(43,725	)
	Division net income before cumulative effect of change in accounting principle				3,879			85,956			142,077			133,052			76,642
Cumulative effect of change in accounting principle, net of tax (7)					4,167			—			—			—			—
	Division net income			$	8,046		$	85,956		$	142,077		$	133,052		$	76,642

GG-4

COMBINED BALANCE SHEET DATA

	December 31,
	2001		2000		1999		1998		1997
	(Amounts in thousands)
Cash and investments	$	1,041,500	$	531,326	$	513,905	$	556,097	$	192,222
Working capital		478,191		438,733		487,561		381,685		273,697
Total assets		3,225,254		2,499,053		1,399,583		1,410,391		960,490
Long-term debt, capital lease obligations and convertible debt(8)		606,926		455,684		272,702		357,214		118,713
Division equity		2,280,352		1,750,280		1,007,614		939,967		745,895

1)

Selling, general and administrative expenses for 2001 includes $27.0 million of charges resulting from Pharming Group, N.V.'s decision to file for and operate under a court supervised receivership.

2)

Charges for in-process research and development were incurred in connection with the following acquisitions:

•

2001—$86.8 million from the acquisition of Novazyme and $8.8 million from the acquisition of Wyntek;

•

2000—$118.0 million from the acquisition of GelTex; and

•

1999—$5.4 million from the acquisition of Peptimmune, Inc.

3)

During 2000, in accordance with our policy pertaining to affiliate sales of stock, we recorded gains of $22.7 million relating to public offerings of common stock by our unconsolidated affiliate, Genzyme Trangenics Corporation. In 2001, 1999 and 1998, our gain on affiliate sale of stock represents the gain on our investment in Genzyme Transgenics as a result of Genzyme Transgenics' various issuances of additional shares of its common stock.

4)

Gain (loss) on investments in equity securities for 2001 includes a charge of $8.5 million to write off our investment in Pharming Group, N.V., a charge of $11.8 million to write down our investment in Cambridge Antibody Technology Group plc and a $4.5 million charge to write down our investment in Targeted Genetics Corporation. We wrote down these investments because we considered the decline in the fair value to be other than temporary. In 2000, we recorded gains of $16.4 million upon the sale of a portion of our investment in Genzyme Transgenics common stock and $7.6 million relating to our investment in Celtrix Pharmaceuticals, Inc. when it was acquired in a stock-for-stock transaction.

5)

Gain on sale of product line in 1999 includes $7.5 million for the payment of a note receivable that we received as partial consideration for the sale of Genetic Design, Inc. to Laboratory Corporation of America in 1996, and $0.5 million relating to the sale of our immunochemistry business assets to an operating unit of Sybron Laboratory Products Corp. Gain on sale of product line of $31.2 million in 1998 relates to the sale of our research products business assets to Techne.

6)

Other income in 2000 includes a $5.1 million payment received in connection with the settlement of a lawsuit. Other income in 1999 includes the receipt of a $14.4 million payment associated with the termination of our agreement to acquire Cell Genesys, Inc., net of acquisition related expenses.

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7)

On January 1, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. In accordance with the transition provisions of SFAS No. 133, Genzyme General recorded a cumulative-effect adjustment of $4.2 million, net of tax, in its combined statement of operations to record the fair value of certain warrants held on January 1, 2001.

8)

Long-term debt, capital lease obligations and convertible debt: at December 31, 2001 consists primarily of $575.0 million in principal of our 3% convertible subordinated debentures due May 2021 and a $25.0 million capital lease obligation; at December 31, 2000 consists primarily of $250.0 million in principal of our 5¹/4% convertible subordinated notes, $150.0 million of debt drawn under our revolving credit facility, and a $25.0 million capital lease obligation; at December 31, 1999 and 1998 consists primarily of $250.0 million in principal of 5¹/4% convertible subordinated notes; and at December 31, 1997 consists primarily of $100.0 million outstanding under a revolving credit facility.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME GENERAL'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

        This discussion contains forward-looking statements. Actual results could differ materially from those anticipated by the forward-looking statements due to the risks and uncertainties described under the caption "Factors Affecting Future Operating Results" for Genzyme General and Genzyme Corporation included in this annual report. You should consider carefully each of these risks and uncertainties in evaluating the financial condition and results of operations of Genzyme General and Genzyme. We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements except as required by law.

        Genzyme General, develops and markets:

•

therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and other specialty therapeutics;



•

diagnostic products, with a focus on in vitro diagnostics; and



•

other products and services, such as genetic testing services and pharmaceutical drug materials.

        We prepare the combined financial statements of Genzyme General in accordance with generally accepted accounting principles. We present financial information and accounting policies specific to Genzyme General in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and our operating divisions taken as a whole in our consolidated financial statements. You should read our consolidated financial statements in conjunction with the combined financial statements of Genzyme General. Note A., "Summary of Significant Accounting Policies," to our consolidated financial statements contains a summary of our accounting policies.

        Genzyme General Division common stock, which we refer to as "Genzyme General Stock," is a series of our common stock that is designed to reflect the value and track the performance of Genzyme General. The chief mechanisms intended to cause Genzyme General Stock to "track" the financial performance of Genzyme General are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to Genzyme General into the determination of the amount available to pay dividends on Genzyme General Stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock or Molecular Oncology Stock of all or substantially all of the assets allocated to those corresponding divisions are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Genzyme General Stock is defined in our charter as the net income or loss of Genzyme General determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies. Our charter

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also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to Genzyme General Stock are based on the income or losses attributable to Genzyme General, we include financial statements and management's discussion and analysis of Genzyme General to aid investors in evaluating its performance.

        While Genzyme General Stock is designed to reflect Genzyme General's performance, it is common stock of Genzyme Corporation and not Genzyme General; Genzyme General is a division, not a company or legal entity, and therefore does not and cannot issue stock. Consequently, holders of Genzyme General Stock have no specific rights to assets allocated to Genzyme General. Genzyme Corporation continues to hold title to all of the assets allocated to Genzyme General and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to Genzyme General. Holders of Genzyme General Stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to Genzyme General are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of Genzyme General Stock and other tracking stockholders would only have the rights of common stockholders in the combined assets of Genzyme.

        Our charter requires us to manage and account for transactions between Genzyme General and our other divisions and with third parties, and any resulting reallocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our divisional management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        In June 1999, we established Genzyme Surgical Products as a separate division of Genzyme. Genzyme General transferred $150.0 million in cash, cash equivalents and investments, and certain other assets, to Genzyme Surgical Products in connection with the creation of Genzyme Surgical Products. The business of Genzyme Surgical Products previously operated as a business unit of Genzyme General. The combined financial statements of Genzyme General reflect the financial position, results of operations and cash flows allocated to Genzyme General as if the operations of Genzyme Surgical Products had been separately accounted for as its own division of the corporation for all periods presented. By excluding Genzyme Surgical Products' results of operations, and therefore its operating losses, from Genzyme General's results, the net income of Genzyme General increased for all periods presented. Genzyme General's tax provision also increased because the tax benefits associated with Genzyme Surgical Products losses are not reflected in Genzyme General's tax provision. Although such benefits are allocated to Genzyme General Stock in the determination of Genzyme's earnings allocations, those benefits do not enter into the determination of Genzyme General's tax provision under generally accepted accounting principles.

        The impact on Genzyme General's net income of the exclusion of Genzyme Surgical Products' results of operations, through June 1999, were as follows (in thousands):

	1999
Genzyme Surgical Products net loss	$	48,037
Tax benefit		(16,128	)
Increase in Genzyme General's net income	$	31,909

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        This increase represented 22% of Genzyme General's net income for the year ended December 31, 1999.

        In December 2000, we acquired Biomatrix for an aggregate purchase price of $426.2 million. Immediately prior to the acquisition, we combined two of our operating divisions, Genzyme Surgical Products and Genzyme Tissue Repair, to form a new division called Genzyme Biosurgery. We allocated the acquired assets and liabilities of Biomatrix to Genzyme Biosurgery. Concurrent with the completion of our acquisition of Biomatrix, we amended our charter to create Biosurgery Stock and to eliminate Surgical Products Division common stock and Genzyme Tissue Repair Division common stock. The combination reduces the segregation of assets among our divisions and reduces the number of series of our common stock outstanding. Following the acquisition, the tax benefits generated by Genzyme Biosurgery are being allocated to Genzyme General Stock pursuant to our management and accounting policies.

Acquisitions

        In September 2001, we acquired all of the outstanding capital stock of Novazyme for an initial payment of approximately 2.6 million shares of Genzyme General Stock valued at $110.6 million. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products for the treatment of LSDs that employ certain of Novazyme's technologies. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme common stock on an as-converted basis. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Novazyme are included in the combined financial statements of Genzyme General from September 26, 2001, the date of acquisition.

        In June 2001, we acquired all of the outstanding capital stock of privately-held Wyntek for $65.0 million in cash. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Wyntek are included in the combined financial statements of Genzyme General from June 1, 2001, the date of acquisition.

        In December 2000, we acquired GelTex for an aggregate purchase price of approximately $1.1 billion, of which we paid $515.2 million in cash and issued approximately 15.8 million in shares of Genzyme General Stock valued at $491.2 million. We accounted for the acquisition as a purchase and allocated it to Genzyme General. Accordingly, the results of operations of GelTex are included in the combined financial statements of Genzyme General from December 14, 2000, the date of acquisition. As part of the acquisition of GelTex, we acquired GelTex's interest in RenaGel LLC, our joint venture with GelTex. The combined financial statements of Genzyme General reflect the consolidation of RenaGel LLC from the date of acquisition of GelTex. Prior to the acquisition of GelTex, we accounted for our investment in RenaGel LLC under the equity method of accounting.

CRITICAL ACCOUNTING POLICIES

        The preparation of the combined financial statements of Genzyme General under generally accepted accounting principles requires us to make certain estimates and judgments that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in these financial statements. Our actual results could differ from these estimates under different assumptions and conditions.

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        We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our combined financial statements:

•

Policies Relating to Tracking Stocks;



•

Revenue Recognition;



•

Inventories;



•

Long-Lived Assets;



•

Asset Impairments; and



•

Marketable Securities Impairments

Policies Relating to Tracking Stocks

Allocation of Revenue, Expenses, Assets, and Liabilities

        Our charter requires us to manage and account for transactions between Genzyme General and our other divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to that division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to that division;



•

actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the service is performed on a cost basis. Such charges are generally based on direct labor hours;



•

proportionate usage—costs incurred which benefit more than one division are allocated based on management's estimate of the proportionate benefit each division receives. Such costs include facilities, legal, finance, human resources, executive and investor relations; or



•

board directed—programs and products, both internally developed and acquired, are allocated to divisions by the board of directors. The board also allocates long-term debt and strategic investments.

        Any future changes that our board of directors may make to the methods for allocating revenue, expenses, assets, and liabilities among our divisions could materially change the results of operations or the financial condition of Genzyme General.

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Income Tax Allocation Policy

        If at the end of any fiscal quarter, 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 other divisions in proportion to their taxable income without any compensating payments or allocation to the division generating the benefit. Genzyme Biosurgery and Genzyme Molecular Oncology have not yet generated taxable income, and thus have not had the ability to use any projected annual tax benefits. Genzyme General has generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology. Consistent with our policy, we have allocated the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology to Genzyme General without any compensating payments or allocations to Genzyme Biosurgery or Genzyme Molecular Oncology.

        We anticipate that the losses of Genzyme Biosurgery and Genzyme Molecular Oncology will decline in the future. As these losses decline, the tax benefits allocated from these divisions to Genzyme General will also decline. In addition, if our board of directors decided to change our tax allocation policy, it could reduce the tax benefits allocated to any division that is profitable at the time the change becomes effective, and reduce the earnings allocated to the associated series of tracking stock. Currently, Genzyme General is our only profitable division.

        Deferred tax assets and liabilities can arise from purchase accounting that relate to a division that does not satisfy the realizability criteria of SFAS No. 109, "Accounting for Income Taxes." Such deferred tax assets and liabilities are allocated to the division to which the acquisition was allocated. As a result, the periodic changes in the deferred tax assets and liabilities do not result in a tax expense or benefit to that division. However, the change in the deferred tax asset or liability is added to division net income for purposes of determining net income allocated to a tracking stock. If our board of directors modified the policy for allocating changes in these assets and liabilities, the income attributable to each series of tracking stock could be materially different.

Revenue Recognition

        Genzyme General recognizes revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, and title and risk of loss have passed to the customer. Genzyme General recognizes revenue from service sales when we have finished providing the service. Genzyme General recognizes revenue from research and development contracts over the term of the applicable contract and as we incur costs related to that contract. Genzyme General recognizes non-refundable up-front license fees over the related performance period or at the time it has no remaining performance obligations.

        Genzyme General receives royalties related to the manufacture, sale or use of its products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, Genzyme General recognizes revenue based on estimates of royalties earned during the applicable period and adjusts for differences between the estimated and actual royalties in the following quarter. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, Genzyme General recognizes revenue upon receipt of royalty statements from the licensee.

        The timing of product shipments and receipts can have a significant impact the amount of revenue recognized in a period. Also, some of Genzyme General's products are sold through distributors. Revenue could be adversely affected if distributor inventories increased to an excessive level. If this were to happen Genzyme General could experience reduced purchases in subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand, or expiration. Genzyme General has invested in significant resources to track channel inventories in order to prevent distributor inventories from increasing to excessive levels.

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        The risks and uncertainties regarding future revenue include Genzyme General's ability to manufacture sufficient amounts of our products. For example, we are currently dependent on third party manufacturers for the majority of the production of the raw material used in the production of Renagel phosphate binder as well as the tableting and capsulating process for Renagel finished goods. At the same time Genzyme General is rapidly expanding our worldwide manufacturing infrastructure in order to meet the projected demand for Renagel phosphate binder and all other products that are currently in Genzyme General's pipeline.

        Genzyme General records allowances for product returns, and for any applicable third party contractual allowances, rebates, or discounts. These allowances are recorded as reductions of revenue. These allowances require Genzyme General to make significant judgments and estimates, which could require adjustments in the future. Such adjustments could have a material effect on Genzyme General's reported revenues.

        Genzyme General does not recognize revenue unless collectibility is reasonably assured. Genzyme General maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Genzyme General's customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

Inventories

        Genzyme General values inventories at cost or, if lower, fair value. It determines cost using the first-in, first-out method. Genzyme General analyzes inventory levels quarterly and writes down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements. Inventory with a life in excess of its shelf life is disposed of and the related costs are written off. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

        Genzyme General capitalizes inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If a product is not approved for sale, it would result in the write-off of the inventory and a charge to earnings.

Long-Lived Assets

        In the ordinary course of our business, Genzyme General incurs substantial costs to purchase and construct property, plant and equipment. The treatment of costs to purchase or construct these assets depends on the nature of the costs and the stage of construction. Costs incurred in the initial design and evaluation phase, such as the cost of performing feasibility studies and evaluating alternatives, are charged to expense. Qualifying costs incurred in the committed project planning and design phase, and in the construction and installation phase, are capitalized as part of the cost of the asset. Genzyme General stops capitalizing costs when an asset is substantially complete and ready for its intended use. Determining the appropriate period during which to capitalize costs, and assessing whether particular costs qualify for capitalization, requires Genzyme General to make significant judgments. These judgments can have a material impact on its reported results.

        For products Genzyme General expects to be commercialized, it capitalizes the cost of validating new equipment for the underlying manufacturing process. Genzyme General begins capitalization when it considers the product to have demonstrated technological feasibility, and ends capitalization when the asset is substantially complete and ready for its intended use. Costs capitalized include incremental labor and direct material, and incremental fixed overhead and interest. Determining whether to capitalize validation costs requires judgment, and can have a significant impact on Genzyme General's reported results. Also, if Genzyme General were unable able to successfully validate the manufacturing process for any future product, it would have to write-off to current operating expense any validation

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costs that had been capitalized during the unsuccessful validation process. To date, all of Genzyme General's manufacturing process validation efforts have been successful.

        Genzyme General generally depreciates plant and equipment using the straight-line method over its estimated economic life, which ranges from 3 to 10 years. Determining the economic lives of plant and equipment requires it to make significant judgments that can materially impact Genzyme General's operating results. For certain specialized manufacturing plant and equipment, Genzyme General uses the units-of-production depreciation method. The units-of-production method requires Genzyme General to make significant judgments and estimates, including estimates of the number of units that will be produced using the assets. There can be no assurance that Genzyme General's estimates are accurate. If Genzyme General's estimates require adjustment, it could have a material impact on its reported results.

        In accounting for acquisitions, Genzyme General allocates the purchase price to the fair value of the acquired tangible and intangible assets, including acquired in-process research and development (IPR&D). This requires Genzyme General to make several significant judgments and estimates. For example, it generally estimates the value of acquired intangible assets and IPR&D using a discounted cash flow model, which requires it to make assumptions and estimates about, among other things:

•

the time and investment that will be required to develop products and technologies;



•

the ability to develop and commercialize products before its competitors develop and commercialize products for the same indications;



•

revenues that will be derived from the products;



•

appropriate discount rates to use in the analysis.

        Use of different estimates and judgments could yield materially different results in this analysis, and could result in materially different asset values and IPR&D charges.

        As of December 31, 2001, there were approximately $981.5 million of intangible assets on Genzyme General's balance sheet. Genzyme General amortizes acquired intangible assets using the straight-line method over their estimated economic lives, which range from 1.5 to 40 years. Determining the economic lives of acquired intangible assets requires Genzyme General to make significant judgment and estimates, and can materially impact its operating results.

Asset Impairments

        Genzyme General periodically evaluates long-lived assets for potential impairment under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of." Genzyme General performs these evaluations whenever events or changes in circumstance suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•

a significant change in the manner in which an asset is used;



•

a significant decrease in the market value of an asset;



•

a significant adverse change in its business or its industry; and



•

a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

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        If it believes an indicator of potential impairment exists, it tests to determine whether the impairment recognition criterion of SFAS No. 121 has been met. In evaluating long-lived assets for potential impairment, Genzyme General makes several significant estimates and judgments, including:

•

determining the appropriate grouping of assets at the lowest level for which cash flows are available,



•

estimating future cash flows associated with the asset or group of assets; and



•

determining an appropriate discount rate to use in the analysis.

Use of different estimates and judgments could yield significantly different results in this analysis, and could result in materially different asset impairment charges.

        Effective January 1, 2002, Genzyme General adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives. Unlike SFAS No. 121, goodwill impairment tests performed under SFAS No. 142 do not involve an initial test comparing the projected undiscounted cash flows to the carrying amount of the goodwill. Instead, SFAS No. 142 requires that goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value.

        Genzyme General will perform transitional impairment tests under SFAS No. 142 in 2002 for the $558.6 million of goodwill recorded as of December 31, 2001. For all of its acquisitions, various analysis, assumptions, and estimates were made at the time of acquisition specifically regarding product development, market conditions, and cash flows that were used to determine the valuation of goodwill and intangibles. The possibility exists that those estimates could prove to be inaccurate, which could result in an impairment of goodwill. Also, because the goodwill impairment test required by SFAS No. 142 is different than the test Genzyme General had been required to perform under SFAS No. 121, transitional impairment tests performed under SFAS No. 142 may yield different results than previous tests performed under SFAS No. 121. This charge would be recorded as an expense to the income statement at the time of impairment.

Marketable Securities Impairments

        Genzyme General invests in marketable securities as part of its strategy to align itself with technologies and companies that fit with its future strategic direction. Most often Genzyme General will collaborate on scientific programs and research with the issuer of the marketable securities. On a quarterly basis Genzyme General reviews the fair market value of these marketable securities in comparison to historical cost.

        If the fair market value of a marketable security is less than its carrying value, Genzyme General considers all available evidence in assessing when and if the value of the investment can be expected to recover to at least its historical cost. This evidence would include:

•

continued positive progress in the issuer's scientific programs;



•

ongoing activity in its collaborations with the issuer;



•

a lack of any other substantial company-specific adverse events causing declines in value; and



•

overall financial condition and liquidity of the issuer of the securities.

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        If this review indicates that the decline in value is "other than temporary," Genzyme General would write-down its investment to the then current market value and record an impairment charge to its statement of operations. The determination of whether an unrealized loss is "other than temporary" requires significant judgment, and can have a material impact on its reported results.

Results of Operations

        The following discussion summarizes the key factors management believes are necessary for an understanding of Genzyme General's financial statements.

REVENUES

		2001		2000		1999		01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Product revenue		$	898,731	$	690,027	$	571,531	30	%	21	%
Service revenue			74,056		61,161		57,223	21	%	7	%
	Total product and service revenue		972,787		751,188		628,754	29	%	19	%
Research and development revenue			9,139		1,295		6,612	606	%	(80	)%
	Total revenues	$	981,926	$	752,483	$	635,366	30	%	18	%

Product and Service Revenue

        The following table describes Genzyme General's product and service revenue on a segment basis:

				2001		2000		1999		01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
				(Amounts in thousands, except percentage data)
Product revenue:
	Therapeutics:
		Cerezyme/Ceredase enzymes		$	569,887	$	536,868	$	478,538	6	%	12	%
		Renagel phosphate binder			176,921		47,891		—	269	%	N/A
		Other therapeutic products			25,489		15,578		10,167	64	%	53	%
			Total Therapeutics		772,297		600,337		488,705	29	%	23	%
	Diagnostic Products				76,858		61,469		57,971	25	%	6	%
	Other				49,576		28,221		24,855	76	%	14	%
			Total product revenue		898,731		690,027		571,531	30	%	21	%
Service revenue:
	Other				74,056		61,161		57,223	21	%	7	%
Total product and service revenue				$	972,787	$	751,188	$	628,754	29	%	19	%

2001 As Compared to 2000

Therapeutics

        The increase in Genzyme General's product revenue for the year ended December 31, 2001 as compared to December 31, 2000 was primarily due to increased sales of Renagel phosphate binder,

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which is used to reduce serum phosphorus levels in patients with end-stage renal disease on dialysis, and continued growth in sales of Cerezyme enzyme for the treatment of Type I Gaucher disease. Genzyme General began recording revenues from Renagel phosphate binder during the second quarter of 2000 under an amended distribution arrangement with GelTex, which we acquired in December 2000. Prior to this amendment, revenues from Renagel phosphate binder were recorded by RenaGel LLC, our joint venture with GelTex, and were $8.0 million for the three month period ended March 31, 2000.

        Sales of Renagel phosphate binder for the year ended December 31, 2001 as compared to December 31, 2000 include sales of capsules and the 800 mg tablet formulation. Genzyme General launched the tablet formulation in the United States during the third quarter of 2000. In the first quarter of 2001, the higher-than-anticipated demand for the 800 mg tablet formulation and certain production constraints resulted in a temporary shortage of this dosage form of Renagel phosphate binder. Patients taking the 800 mg tablets were shifted to an equivalent dose of 400 mg Renagel tablets or 403 mg Renagel capsules while Genzyme General built an inventory of 800 mg tablets to support our re-launch of this dosage form in June 2001. Despite the temporary shortage of the 800 mg tablet formulation, sales of Renagel phosphate binder increased significantly in the year ended December 31, 2001 in comparison to the same period of 2000 due to accelerating adoption of the product by nephrologists, as evidenced by significant increases in both renewal prescriptions and new prescriptions. To support the increased demand for Renagel phosphate binder, we are in the process of expanding our manufacturing capacity in both Ireland and the United Kingdom. Renagel is sold primarily through a wholesale distribution channel. It is important for us to manage wholesaler inventory levels. Excess wholesaler inventory levels could lead to product returns due to overstocking, low end-user demand, or expiration. Our objective is to manage wholesale inventory levels to 4-6 weeks by the end of 2002.

        The steady growth in sales of Cerezyme enzyme for the year ended December 31, 2001 as compared to December 31, 2000 was primarily attributable to Genzyme General's continued identification of new Gaucher disease patients worldwide, coupled with significant investment in our global infrastructure that has continued to increase international sales of this product. Additionally, Genzyme General continues to market Ceredase enzyme for the treatment of Gaucher disease, although we have successfully converted virtually all Gaucher disease patients to a treatment regimen using Cerezyme enzyme.

        Genzyme General's results of operations are highly dependent on sales of Cerezyme enzyme and a reduction in revenue from sales of this product would adversely affect its results of operations. Revenue from Cerezyme enzyme would be impacted negatively if competitors developed alternative treatments for Gaucher disease and the alternative products gained commercial acceptance. Genzyme General is aware of companies that have initiated efforts to develop competitive products. Oxford Glycosciences plc, for example, is developing Vevesca (OGT 918), a small molecule drug candidate for the treatment of Gaucher disease. OGT 918 has been granted orphan drug status in the United States for treatment in Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Gaucher disease. In 2001, Oxford Glycosciences submitted a Marketing Authorisation Application (MAA) to the European Agency for the Evaluation of Medicinal Products (EMEA), as well as a new drug application (NDA) to the FDA for OGT 918 for the oral treatment of type 1 Gaucher disease. Although orphan drug status for Cerezyme enzyme, which provided us with exclusive marketing rights for Cerezyme enzyme in the United States, expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme enzyme until 2010 and the composition of Cerezyme enzyme as made by that process until 2013. The expiration of market exclusivity and orphan drug status in May 2001 will likely subject Cerezyme enzyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue.

GG-16

        The following table provides information regarding the change in sales of Genzyme General's Gaucher disease therapies as a percentage of Genzyme General's total product revenue during the periods presented:

	2001			2000			01/00 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Sales of Cerezyme/Ceredase enzymes	$	569,887		$	536,868		6	%
% of total product revenue		63	%		78	%

        Although sales of Genzyme General's Gaucher disease therapies continue to increase, the decline as a percentage of total product revenue is a trend we expect will continue in the future. Genzyme General expects that growth in the sales of Renagel phosphate binder will continue to increase, driven primarily by the accelerating adoption of the product by neprologists worldwide. The continued growth in sales of Renagel phosphate binder will be dependent on several factors, including:

•

our ability to successfully expand manufacturing capacity;



•

our ability to manufacture sufficient quantities to meet demand; and



•

acceptance by the medical community of Renagel phosphate binder as the preferred treatment for elevated serum phosphorus levels in dialysis patients.

        The following table provides information regarding the change in sales of Renagel phosphate binder as a percentage of Genzyme General's total product revenue during the periods presented:

	2001			2000			01/00 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Sales of Renagel phosphate binder	$	176,921		$	47,891		269	%
% of total product revenue		20	%		7	%

        Other therapeutics revenue for each period includes sales of Thyrogen hormone, which is an adjunctive diagnostic tool for well-differentiated thyroid cancer. Revenue for Thyrogen hormone increased 36% for the year ended December 31, 2001 as compared to December 31, 2000 due primarily to increased market penetration. Additionally, Thyrogen hormone was launched in Europe during the fourth quarter of 2001 as a result of a positive opinion rendered in September 2001 by the Committee for Proprietary Medicinal Products of the European Medicines Evaluation Agency, which was necessary for commercial introduction of the product. Other therapeutics revenue also increased due to increased sales of Fabrazyme enzyme in Europe.

Diagnostic Products

        The increase in diagnostic products revenue for the year ended December 31, 2001 as compared to December 31, 2000 was due primarily to increased sales of infectious disease testing products and HDL and LDL cholesterol testing products. Also contributing to the increase for the year ending December 31, 2001 as compared to December 31, 2000 was the addition of sales of point of care rapid diagnostic tests for pregnancy and infectious diseases that we obtained through our June 2001 acquisition of Wyntek, which we acquired in June 2001. Diagnostic products revenue also included royalties on product sales by Techne Corporation's biotechnology group.

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Other Product and Service Revenue

        The increases in other product revenue for the year ended December 31, 2001 as compared to December 31, 2000 was primarily attributable to increased sales of lipids and peptides for drug discovery. The increase in service revenue for the year ended December 31, 2001 as compared to December 31, 2000 was primarily attributable to increased sales of genetic testing services attributable to expanded presence in the prenatal market and a broader test menu in oncology.

2000 As Compared to 1999

Therapeutics

        The increase in Genzyme General's product revenue for the year ended December 31, 2000 as compared to December 31, 1999, was primarily due to increased sales of Cerezyme enzyme attributable to Genzyme General's continued identification of new Gaucher disease patients worldwide, coupled with significant investment in our global infrastructure, and increased sales of Renagel phosphate binder, attributable to the accelerated adoption by nephrologists.

        The following table provides information regarding the change in sales of Genzyme General's Gaucher disease therapies as a percentage of Genzyme General's total product revenue during the periods presented:

	2000			1999			00/99 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Sales of Cerezyme/Ceredase enzymes	$	536,868		$	478,538		12	%
% of total product revenue		78	%		84	%

        Although sales of Genzyme General's Gaucher disease therapies continued to increase, the decline as a percentage of total product revenue was the result of growth in the sales of Renagel phosphate binder. Growth in sales of Renagel phosphate binder for the year ended December 31, 2000 as compared to December 31, 1999 was driven primarily by the accelerated adoption of the product by neprologists worldwide.

        The following table provides information regarding the change in sales of Renagel phosphate binder as a percentage of Genzyme General's total product revenue during the periods presented:

	2000			1999	00/99 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Sales of Renagel phosphate binder	$	47,891		—	N/A
% of total product revenue		7	%	N/A

        Other therapeutics revenue for the year ending December 31, 2000 compared to December 31, 1999 includes sales of Thyrogen hormone. Revenue for Thyrogen hormone increased 65% for the year ended December 31, 2000 as compared to December 31, 1999, due primarily to increased market penetration.

Diagnostic Products

        The increase in diagnostic products revenue for the year ended December 31, 2000 as compared to December 31, 1999 was due primarily to increased sales of infectious disease testing products and HDL

GG-18

and LDL cholesterol testing products. Diagnostic product revenue also includes royalties on product sales by Techne Corporation's biotechnology group.

Other Product and Service Revenue

        The increases in other revenue for the year ended December 31, 2000 as compared to December 31, 1999 was primarily attributable to increased sales of lipids and peptides for drug discovery. The increase in service revenue for the year ending December 31, 2000 as compared to December 31, 1999 was due to increased sales of genetic testing services attributable to expanded presence in the prenatal market and a broader test menu in oncology.

International Product and Service Revenue

        A substantial portion of Genzyme General's revenue was generated outside of the United States. Most of these revenues were attributable to sales of Cerezyme enzyme. The following table provides information regarding the change in international product and service sales as a percentage of total product and service revenue during the periods presented:

	2001			2000			1999			01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
International product and service revenue	$	377,185		$	316,482		$	273,851		19	%	16	%
% of total product and service revenue		39	%		42	%		44	%

2001 As Compared to 2000

        International sales of Cerezyme enzyme increased 10% to $297.5 million in the year ended December 31, 2001 as compared to $270.6 million in the year ended December 31, 2000. Despite an approximate 3% decline in the average exchange rate of the Euro for the year ended December 31, 2001 as compared to the year ended December 31, 2000, international sales of Cerezyme enzyme increased for both periods due primarily to the continued identification of new Gaucher disease patients worldwide, coupled with significant investment in our global infrastructure.

        Genzyme General began recording revenues from Renagel phosphate binder during the second quarter of 2000 under an amended distribution arrangement with GelTex, which we acquired in December 2000. Prior to this amendment, revenues from Renagel phosphate binder were recorded by RenaGel LLC, our joint venture with GelTex. International sales of Renagel phosphate binder increased 66% to $20.1 million in the year ended December 31, 2001 as compared to $6.9 million in the year ended December 31, 2000. The increase is attributable to:

•

the on-going launch of Renagel phosphate binder tablets in Europe;



•

the introduction of Renagel phosphate binder in Brazil; and



•

the expansion of the European Renagel phosphate binder sales forces.

        International product and service revenue as a percent of total product and service revenue decreased in the years ended December 31, 2001 and December 31, 2000 due primarily to increased sales of Renagel phosphate binder in the United States.

2000 As Compared to 1999

        International sales of Cerezyme enzyme increased 13% to $270.6 million in the year ended December 31, 2000 as compared to $240.5 million in the year ended December 31, 1999. Despite an approximate 13% decline in the average exchange rate of the Euro for the year ended December 31,

GG-19

2000 as compared to the year ended December 31, 1999, international sales of Cerezyme enzyme increased for both periods due primarily to the continued identification of new Gaucher disease patients worldwide, coupled with significant investment in our global infrastructure.

        For the year ended December 31, 2000 Genzyme General recorded $6.9 million in sales of Renagel phosphate binder internationally. We did not record revenues for this product in 1999. The addition of Renagel phosphate binder to the international mix was driven primarily by the accelerating adoption of the product by nephrologists worldwide and the significant progress made with the post-approval clinical development program.

        International product and service revenue as a percent of total product and service revenue decreased slightly in year ended December 31, 2000 as compared to December 31, 1999 due primarily to sales of Renagel phosphate binder in the United States.

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MARGINS

		2001			2000			1999			01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Product margin		$	704,556		$	527,133		$	456,406		34	%	15	%
	% of total product revenue		78	%		76	%		80	%
Service margin		$	30,889		$	23,282		$	21,586		33	%	8	%
	% of total service revenue		42	%		38	%		38	%
Total gross margin		$	735,445		$	550,415		$	477,992		34	%	15	%
	% of total product and service revenue		76	%		73	%		76	%

        Genzyme General provides a broad range of healthcare products and services. As a result, Genzyme General's gross margin varies significantly based on the category of product or service. Sales of therapeutic products, including Cerezyme enzyme, typically result in higher margins than sales of diagnostic products.

2001 As Compared to 2000

Product Margin

        Product margin for the year ended December 31, 2001 as compared to December 31, 2000 increased primarily as a result of increased sales of Renagel phosphate binder and Cerezyme enzyme. The increase for the year ended December 31, 2001 was partially offset by charges to cost of products sold in 2001 of $8.2 million relating to the increased basis of the inventory obtained in connection with our acquisition of GelTex in December 2000.

        The increase in product margin as a percentage of product revenue for the year ended December 31, 2001 as compared to December 31, 2000 was attributable to a 30% increase in product revenue, driven primarily by increased sales of Cerezyme enzyme, Renagel phosphate binder and sales of point of care rapid diagnostic tests for pregnancy and infectious diseases that we obtained through our acquisition of Wyntek, partially offset by a 19% increase in the cost of products sold for the same period. We expect that in the future Genzyme General's product margin as a percentage of product revenue will trend slightly lower, primarily due to the lower margins normally attributable to Renagel phosphate binder, our building of additional manufacturing capacity in both the United Kingdom and Ireland, and a product mix shift as sales of diagnostics products and services continue to increase.

Service Margin

        Service margin for the year ended December 31, 2001 as compared to December 31, 2000 continued to increase, both in absolute numbers and as a percentage of total service revenue, primarily as a result of increased sales of our DNA and cancer testing services. The increase in service margin as a percentage of service revenue for the year ended December 31, 2001 as compared to December 31, 2000 was attributable to a 21% increase in service revenue, driven primarily by increased sales of genetic testing services attributable to expanded presence in the prenatal market and a broader test menu in oncology, partially offset by a 14% increase in the cost of services sold for the same period.

2000 As Compared to 1999

Product Margin

        Product margin for the year ended December 31, 2000 as compared to December 31, 1999 increased primarily as a result of increased sales of Cerezyme enzyme and Renagel phosphate binder.

GG-21

The increase for the year ended December 31, 2000 included a $1.5 million credit to cost of products sold as a result of a reduction in a royalty liability to a collaborator. This credit was taken when it became apparent that, based on the contractual terms and timing of certain events, we would not be required to pay that portion of the royalty obligation.

        The decrease in product margin as a percentage of product revenue for the year ended December 31, 2000 as compared to the year ended December 31, 1999 was attributable to an 21% increase in product revenue, driven primarily by increased sales of both Cerezyme enzyme and Renagel phosphate binder, offset by a 42% increase in the cost of products sold for the same period.

Service Margin

        Service margin for the year ended December 31, 2000 as compared to December 31, 1999 continued to increase primarily as a result of increased sales of our DNA and cancer testing services. Service margin as a percentage of service revenue for the year ended December 31, 2001 as compared to December 31, 2000 remained flat. This was primarily attributable to a 7% increase in service revenue, driven primarily by increased sales of genetic testing services resulting from an expanded presence in the prenatal market and a broader test menu in oncology, partially offset by a 6% increase in the cost of services sold for the same period.

Operating Expenses

2001 As Compared to 2000

        The increase in selling, general and administrative expenses for the year ended December 31, 2001, as compared to the year ended December 31, 2000, is primarily related to:

•

increased staffing to support the growth in several of Genzyme General's product lines;



•

increased expenditures to support the increased sales of Cerezyme enzyme, to drive the growth in sales of Renagel phosphate binder and Thyrogen hormone, and for the launch of Fabrazyme enzyme in Europe; and



•

the addition of expenses resulting from our acquisitions of GelTex, Wyntek and Novazyme.

        Selling, general and administrative expenses for the year ended December 31, 2001 included $27.0 million of charges resulting from Pharming Group's decision to file for and operate under a court-supervised receivership. Included was a write-off of the $10.2 million in principal and accrued interest due to us under the 7% senior convertible note issued to us by Pharming Group and a charge of $16.8 million representing our commitment to fund the operations of the LLC, which in turn is legally obligated to supply transgenic human alpha-glucosidase enzyme until the nine patients currently enrolled in the clinical trial for this product can be transitioned to a CHO-cell product. As a result of Pharming Group's failure to make payments to fund our joint venture for the development of a CHO-cell product for Pompe disease under a strategic alliance agreement, we terminated this agreement in August and have assumed full operational and financial responsibility for the development of the CHO-cell product. Our joint venture with Pharming Group covering a transgenic product for Pompe disease remains in place, however, we do not intend to commercialize this product.

        The increase in research and development expenses for the year ended December 31, 2001, as compared to the year ended December 31, 2000, is primarily attributable to:

•

the cost of post-marketing clinical development efforts for Renagel phosphate binder, which was included in equity in net loss of unconsolidated affiliates before we acquired GelTex;



•

the addition of spending on the C. difficile colitis, DENSPM, iron chelation, oral mucositis, anti-obesity, and GT102-279 programs as a result of our acquisition of GelTex;

GG-22

•

increased spending on Genzyme General's program to develop Fabrazyme enzyme for the treatment of Fabry disease; and



•

increased spending on other internal programs.

        Research and development expenses for the year ended December 31, 2001, reflects a charge of $4.7 million, representing the net amount owed by Pharming Group to the CHO-cell product joint venture we previously formed with Pharming Group that we believe is uncollectable.

        In connection with our acquisition of GelTex in December 2000, we converted options to purchase shares of GelTex common stock into options to purchase shares of Genzyme General Stock. In accordance with Financial Accounting Standards Board Interpretation No. 44, at the date of acquisition we allocated the intrinsic value for the unvested portion of these options of $10.2 million to deferred compensation, a component of division equity. We are amortizing this amount to operating expense over the remaining vesting period of one year from the date of acquisition. We are allocating the expense to the appropriate expense categories of Genzyme General's statements of operations based on the functional responsibility of each employee or option holder. For the year ended December 31, 2001, Genzyme General recorded $9.7 million of compensation expense related to these options, of which $7.9 million was charged to research and development expense and $1.8 million was charged to selling, general and administrative expense. For the year ended December 31, 2000, Genzyme General recorded $0.5 million of compensation expense related to these options, of which $0.4 million was charged to research and development expense and $0.1 million was charged to selling, general and administrative expense. The deferred compensation was fully amortized by December 31, 2001.

        In connection with our acquisition of Novazyme in September 2001, we converted options, warrants and rights to purchase shares of Novazyme common stock into options, warrants and rights to purchase shares of Genzyme General Stock. In accordance with Financial Accounting Standards Board Interpretation No. 44, at the date of acquisition we allocated the $2.6 million intrinsic value of the portion of the unvested options related to the future service period to deferred compensation. We are amortizing this amount to operating expense over the remaining vesting period of 22 months from the date of acquisition. We are allocating the expense to the appropriate expense categories of Genzyme General's combined statements of operations based on the functional responsibility of each option holder. For the year ended December 31, 2001, we recorded $0.4 million of compensation expense related to the options, of which $0.2 million was charged to selling, general and administrative expenses and $0.2 million was charged to research and development expenses.

2000 As Compared to 1999

        The increase in selling, general and administrative expenses for the year ended December 31, 2000 as compared to the year ended December 31, 1999, is primarily related to:

•

increased staffing to support the growth in several of Genzyme General's product lines, including Renagel phosphate binder; and



•

increased expenditures to support the increased sales of Cerezyme enzyme and Thyrogen hormone.

        In the fourth quarter of 2000, Genzyme General reversed $2.6 million of our allowance for bad debt, much of which had been accrued during 2000. This reversal was made due to changes in circumstances regarding, and estimates for, certain domestic and foreign receivables.

        The increase in research and development expenses for the year ended December 31, 2000, as compared to the year ended December 31, 1999, is primarily attributable to:

•

a charge of $19.5 million during the first quarter of 2000 for the initial amounts payable to Synpac (North Carolina), Inc. under a license agreement granted to us by Synpac to develop and

GG-23

commercialize a human alpha-glucosidase enzyme replacement therapy for Pompe disease, offset by a $10.3 million research and development reimbursement from Pharming Group;

•

a charge of $2.0 million in the third quarter of 2000, representing the 15% premium to the market price that we paid for ordinary shares of Cambridge Antibody Technology Group plc concurrently with entry into a strategic alliance to develop and commercialize human monoclonal antibodies directed against TGF-beta;



•

increased spending on our program to develop Fabrazyme enzyme for the treatment of Fabry disease;



•

increased costs in connection with the operations of ATIII LLC, our consolidated joint venture with Genzyme Transgenics Corporation to develop and commercialize recombinant human antithrombin III; and



•

increased spending in our cell and gene therapy programs.

Amortization of Intangibles

        The increase in amortization of intangibles for the year ended December 31, 2001, as compared to the year ended December 31, 2000, is primarily attributable to intangible assets acquired in connection with the acquisition of GelTex in December 2000 and Wyntek in June 2001. The increase in amortization of intangibles for the year ended December 31, 2000 as compared to the year ended December 31, 1999, is primarily attributable to intangible assets acquired in connection with the acquisition of GelTex in December 2000.

Purchase of In-Process Research and Development

Novazyme

        In September 2001, in connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly, we have allocated to IPR&D and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. Genzyme General recorded this amount as a charge to expense in its combined statement of operations for the year ended December 31, 2001.

        Our management assumes responsibility for determining the IPR&D valuation and engaged an independent third-party appraisal company to assist in the valuation of the intangible assets acquired. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the probability-adjusted net cash flows expected to result once the technology has reached technological feasibility and is utilized in the treatment of certain LSDs. A discount rate of 16% was applied to estimate the present value of these cash flows and is consistent with the overall risks of the platform technology. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology and adjusted the future cash flows to reflect the contribution of value from these assets.

        In the allocation of purchase price to the IPR&D, the concept of alternative future use was specifically considered. The platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the treatment of LSDs. We currently estimate that it will take approximately three years and an investment of approximately $75 million to $100 million to complete the development of, obtain approval for and commercialize the first product based on this technology platform.

GG-24

Wyntek

        In June 2001, in connection with our acquisition of Wyntek, we allocated approximately $8.8 million of the purchase price to IPR&D. Genzyme General recorded this amount as a charge to expense in its combined statement of operations for the year ended December 31, 2001. We estimated the fair value assigned to purchased IPR&D by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility. We applied a discount rate of 25% to estimate the present value of these cash flows, which is consistent with the risks of the project. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased IPR&D was the amount attributable to the efforts of Wyntek up to the time of acquisition. In the allocation of purchase price to IPR&D, the concept of alternative future use was specifically considered for the program under development. There are no alternative uses for the in-process program in the event that the program fails in clinical trials or is otherwise not feasible.

        Below is a brief description of the IPR&D program associated with Wyntek's cardiovascular disease diagnostic product, including an estimation of when management believes we may realize revenues from the sale of this product.

        Wyntek currently is developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. These are the leading markers for the diagnosis of acute myocardial infarction. The product consists of a mobile, stand-alone, quantitative diagnostic device and a reaction strip that detects disease specific marker proteins. The intended use of the device is to read reaction strips at the patient's bedside or in an emergency room setting. We expect to complete the regulatory review process and file an application for marketing approval in early 2002 and begin selling the product during the second half of 2002.

GelTex

        In December 2000, in connection with the acquisition of GelTex, we allocated approximately $118.0 million of the purchase price to IPR&D, which Genzyme General recorded as a charge to expense in its combined statement of operations for the year ended December 31, 2000. As of December 31, 2001, the technological feasibility of the projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

GG-25

        Below is a brief description of the GelTex IPR&D projects, including an estimation of when management believes Genzyme General may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication	Development Status	Value at Acquisition Date (in millions)		Estimated Cost to Complete (in millions)		Year of Expected Product Launch
Renagel phosphate binder	Next stage non-absorbed polymer phosphate binder for the treatment of hyperphospatemia	•  Phase 4 trials ongoing in the U.S. •  Phase 3 trial ongoing in Japan	$	19.7	$	10.7	(1)
GT160-246	C. difficile colitis	•  Phase 2 trial ongoing		37.4		35.0	2006
Oral Iron Chelation	Iron overload disease	•  Approval to commence Phase 1 trials in Europe obtained 2001		15.7		26.5	2007
Fat absorption inhibitor	Anti-Obesity	•  Expected to file an IND in late 2002		17.8		40.0	2010
Polymer	Oral Mucositis	•  IND expected to be filed in the first quarter of 2003		17.8		30.0	2008
DENSPM	Psoriasis	•  Program cancelled during 2001; no further development planned		3.4		N/A	N/A
GT102-279	Second generation lipid-lowering compound	•  Program cancelled during 2001; no further development planned		6.2		N/A	N/A
			$	118.0	$	142.2

(1)

Clinical studies scheduled for completion in 2002, 2003 and 2004. Year of launch not estimable due to early stage of program.

        Substantial additional research and development will be required prior to any of acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once developed each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give you assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

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OTHER INCOME AND EXPENSES

		2001			2000			1999			01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliates		$	(34,365	)	$	(44,965	)	$	(37,423	)	(24	)%	20	%
Gain on affiliate sale of stock			212			22,689			6,683		(99	)%	240	%
Gain (loss) on investments in equity securities			(25,996	)		23,173			(3,749	)	(212	)%	1,080	%
Minority interest in net loss of subsidiary			2,259			4,625			3,674		(51	)%	26	%
Gain on sale of product line			—			—			8,018		N/A		(100	)%
Other			(2,329	)		5,203			14,389		(145	)%	(64	)%
Investment income			47,806			38,549			30,881		24	%	25	%
Interest expense			(23,192	)		(14,159	)		(19,885	)	64	%	(29	)%
	Total other income (expense), net	$	(35,605	)	$	35,115		$	2,588		(201	)%	1,257	%

2001 As Compared to 2000

Equity in Net Loss of Unconsolidated Affiliates:

        Genzyme General records in equity in net loss of unconsolidated affiliates its portion of the results of its joint ventures with BioMarin, Pharming Group and Diacrin, Inc. Prior to our acquisition of GelTex in December 2000, we included our proportionate share of the results of RenaGel LLC in equity in net loss of unconsolidated affiliates. Included in the year ended December 31, 2000 are losses from RenaGel LLC, in which we and GelTex each owned a 50% interest. We acquired GelTex, including its 50% interest in RenaGel LLC, in December 2000. We have consolidated the results of RenaGel LLC in Genzyme General's combined financial statements from the date of acquisition. RenaGel LLC was merged into GelTex effective October 1, 2001. Prior to our acquisition of GelTex's 50% interest in RenaGel LLC, we had included our proportionate share of the results of RenaGel LLC in equity in net loss of unconsolidated affiliates. Genzyme General's equity in the net losses of RenaGel LLC was $15.9 million in the year ended December 31, 2000.

        Excluding the losses of RenaGel LLC for the year ended December 31, 2000, Genzyme General's equity in net loss of unconsolidated affiliates for the year ended December 31, 2001 as compared to December 31, 2000 increased primarily as a result of:

•

increased losses from our joint venture with BioMarin;



•

increased losses from our joint venture with Pharming Group for the CHO-cell product for Pompe disease; and



•

increased losses in our equity position in Genzyme Transgenics.

The increased losses were offset in part by decreased losses from our joint venture with Diacrin and decreased losses from our joint venture with Pharming Group for the transgenic product for Pompe disease. We terminated our strategic alliance agreement with Pharming Group covering development of the CHO-cell product in August 2001. As a result, we have included 100% of the losses of Genzyme/Pharming Alliance LLC since August 23, 2001.

GG-27

Gain on Affiliate Sale of Stock

        In accordance with our policy pertaining to affiliate sales of stock we recorded the following due to the issuance by Genzyme Transgenics, an unconsolidated affiliate, of additional shares of Genzyme Transgenics common stock:

•

a gain of $0.2 million in 2001; and



•

gains of $22.7 million, and a net deferred tax expense of $3.9 million (net of a $3.4 million credit for the reversal of a valuation allowance on a deferred tax asset) in 2000.

        Our ownership interest in Genzyme Transgenics was approximately 26% as of December 31, 2001 and 2000.

Gain (Loss) on Investments in Equity Securities

        Genzyme General recorded the following losses on investments in equity securities for the year ended December 31, 2001:

•

In the quarter ended September 30, 2001, Genzyme General recorded charges of $11.8 million in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group and $4.5 million in connection with our investment in the common stock of Targeted Genetics, because we considered the decline in the value of these investments to be other than temporary. Given the significance and duration of the declines as of the end of the quarter, we concluded that it was unclear over what period the recovery of the stock price for each of these investments would take place and, accordingly, that any evidence suggesting that the investments would recover to at least our purchase price was not sufficient to overcome the presumption that the current market price was the best indicator of the value of each of these investments.



•

In the quarter ended September 30, 2001, Genzyme General recorded a charge of $8.5 million, representing an at cost write-off of our investment in Pharming Group common stock. In August 2001, Pharming Group announced that it would file for receivership in order to seek protection from its creditors.



•

In the quarter ended June 30, 2001, Genzyme General recorded a $1.2 million charge to reflect the fair market value of our investment in Aronex at June 30, 2001. In April 2001, Antigenics announced that it had entered into a definitive merger agreement with Aronex. The merger was completed in July 2001. Under the terms of the merger agreement, we received 0.0594 of a share of Antigenics common stock for each share of Aronex common stock that we held.

        Genzyme General recorded the following gains on investments in equity securities for the year ended December 31, 2000:

•

In the quarter ended June 2000, Genzyme General recorded a gain of $5.5 million upon the sale of a portion of our investment in Genzyme Transgenics common stock. The tax effect of this gain was fully offset by the reversal of a $1.9 million valuation allowance related to previously recognized capital losses. In the third and fourth quarters of 2000, Genzyme General recorded gains of $10.9 million and $1.3 million, respectively, upon additional sales of portions of our investment in Genzyme Transgenics common stock.



•

In the quarter ended June 2000, we recorded a $7.6 million gain to reflect the fair market value of our investment in Celtrix Pharmaceuticals, Inc. Celtrix was acquired by Insmed Pharmaceuticals Inc. and our shares of Celtrix common stock were exchanged on a 1-for-1 basis for shares of Insmed common stock.

GG-28

Minority Interest in Net Loss of Subsidiary

        As part of our combined direct (until July 2001) and indirect interest in ATIII LLC, we consolidated the results of ATIII LLC and recorded Genzyme Transgenics' portion of the losses of that joint venture as minority interest. Minority interest increased for the year ended December 31, 2001 due to a change in the funding agreement for the joint venture in March 2001, retroactive to January 1, 2001, which increased Genzyme Transgenics's portion of the losses incurred by ATIII LLC to 50% from January 1, 2001 until February 2, 2001 and 100% thereafter as compared to 26% for the same period a year ago. In 2000, ATIII LLC had losses of $14.8 million, of which Genzyme Transgenics' portion was $4.6 million.

        In July 2001, we transferred our 50% ownership interest in ATIII LLC to Genzyme Transgenics. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of its products based on ATIII beginning three years after the first commercial sale of each such product up to a cumulative maximum amount of $30.0 million.

Other

        In December 2000, Genzyme General recorded a $2.1 million charge in connection with our uncertainty in collecting a note receivable that was issued to us in May 1999 by a strategic collaborator. We concluded that this uncertainty existed as a result of the FDA's ruling to deny approval of the collaborator's New Drug Application for a key product. The ruling has subsequently resulted in the collaborator announcing that it will be taking steps to reserve cash by reducing its workforce and other operating expenses.

        In April 2000, Genzyme General received net proceeds of approximately $5.1 million in connection with the settlement of a lawsuit. The lawsuit, initiated in 1993, pertained to insurance coverage for an accidental spill of Ceredase enzyme at a fill facility operated by a contractor to Genzyme General.

Investment Income

        The increase in investment income for the year ended December 31, 2001 as compared to the year ended December 31, 2000 was primarily attributable to higher average cash and investment balances. The increase in cash balances was partially attributable to our completion of the private placement of $575.0 million in principal of 3% convertible subordinated debentures in May 2001. Net proceeds from the offering were approximately $562.1 million. We allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General. Genzyme General used a portion of the net proceeds from the private placement of the debentures to repay the $150.0 million we had drawn under our revolving credit facility in December 2000 and allocated to Genzyme General.

Interest Expense

        The increase in interest expense for the year ended December 31, 2001 as compared to the year ended December 31, 2000 is primarily the result of additional interest expense resulting from the $150.0 million of debt drawn on our revolving credit facility in December 2000 as part of the financing of the GelTex acquisition, and the private placement of $575.0 million in principal of 3% convertible subordinated debentures issued in May 2001.

GG-29

2000 As Compared to 1999

Equity in Net Loss of Unconsolidated Affiliates:

        Genzyme General's equity in net loss of unconsolidated affiliates for the year ended December 31, 2000 as compared to December 31, 1999 increased primarily as a result of:

•

increased losses from RenaGel LLC;



•

increased losses from our joint venture with BioMarin;



•

the addition of losses from Genzyme/Pharming Alliance LLC, which was formed in June 2000;



•

the reallocation of our joint venture with Diacrin to develop therapies for neurodegenerative diseases from Genzyme Tissue Repair to Genzyme General in May 1999; and



•

increased losses from Genzyme Transgenics.

These increases were offset in part by decreased losses from Pharming/Genzyme LLC.

Gain on Affiliate Sale of Stock

        In accordance with our policy pertaining to affiliate sales of stock Genzyme General recorded the following due to the issuance by Genzyme Transgenics, an unconsolidated affiliate, of additional shares of Genzyme Transgenics common stock:

•

gains of $22.7 million, and a net deferred tax expense of $3.9 million (net of a $3.4 million credit for the reversal of the valuation allowance on a deferred tax asset) in 2000; and



•

a gain of $6.7 million in 1999.

Our ownership interest in Genzyme Transgenics was approximately 26% as of December 31, 2000, and 33% as of December 31, 1999.

Gain (Loss) on Investments in Equity Securities

        Genzyme General recorded the following gains on investments in equity securities for the year ended December 31, 2000:

•

In the quarter ended June 2000, Genzyme General recorded a gain of $5.5 million upon the sale of a portion of our investment in Genzyme Transgenics common stock. The tax effect of this gain was fully offset by the reversal of a $1.9 million valuation allowance related to previously recognized capital losses. In the third and fourth quarters of 2000, Genzyme General recorded gains of $10.9 million and $1.3 million, respectively, upon additional sales of portions of our investment in Genzyme Transgenics common stock.



•

In the quarter ended June 2000, we recorded a $7.6 million gain to reflect the fair market value of our investment in Celtrix Pharmaceuticals, Inc. Celtrix was acquired by Insmed Pharmaceuticals Inc. and our shares of Celtrix common stock were exchanged on a 1-for-1 basis for shares of Insmed common stock.

        Genzyme General recorded the following gains and losses on investments in equity securities for the year ended December 31, 1999:

•

In the quarter ended March 31, 1999, Genzyme General recorded gains of $2.0 million upon the sales of shares of Techne Corporation common stock that it received when it sold its research products business to Techne Corporation.



•

In the quarter ended 1999, Genzyme General recorded losses of $5.7 million in connection with investments in the common stock of Pharming Group and IntegraMed America, Inc., because

GG-30

we considered the decline in the value of those investments to be other than temporary. Given the significance and duration of the declines as of the end of the quarter, we concluded that it was unclear over what period the recovery of the stock price for each of these investments would take place and that, accordingly, any evidence suggesting that the investments would recover to at least our purchase price was not sufficient to overcome the presumption that the current market price was the best indicator of the value of each of these investments.

        In 1999, in connection with these charges, we concluded that substantial evidence existed that the value of the investments would recover to at least its cost. This evidence included:

•

continued positive progress in the issuers' scientific programs;



•

ongoing activity in Genzyme General's collaborations with the issuer; and



•

a lack of any substantial company-specific adverse events causing the declines in value.

However, given the significance and duration of the declines as of the end of the applicable quarter, we concluded that it was unclear over what period any price recoveries would take place and that, accordingly, the positive evidence suggesting that the investments would recover to at least Genzyme General's purchase price was not sufficient to overcome the presumption that the current market price was the best indicator of the value of these investments.

Minority Interest in Net Loss of Subsidiary

        As part of our combined direct and indirect interest in ATIII LLC, we consolidated the results of ATIII LLC and recorded Genzyme Transgenics' portion of the losses of that joint venture as minority interest. In 2000, ATIII LLC had losses of $14.8 million, of which Genzyme Transgenics' portion was $4.6 million. In 1999, ATIII LLC had losses of $12.2 million, of which Genzyme Transgenics' portion was $3.7 million.

Gain on Sale of Product Line

        Genzyme General did not sell any product lines transacted during the year ended December 31, 2000.

        In July 1999, Genzyme General recorded a gain of $0.5 million in connection with the sale of its immunochemistry product lines to an operating unit of Sybron Laboratory Products Corporation. In June 1999, Genzyme General recorded a gain of $7.5 million representing the receipt of a payment of a note receivable that it received as partial consideration for the sale of Genetic Design in 1996. Genzyme General had previously fully reserved the amount of this note because it considered the repayment of the note to be uncertain.

Other

        In December 2000, Genzyme General recorded a $2.1 million charge in connection with our uncertainty in collecting a note receivable that was issued to us in May 1999 by a strategic collaborator. We concluded that this uncertainty existed as a result of the FDA's ruling to deny approval of the collaborator's New Drug Application for a key product. The ruling has subsequently resulted in the collaborator announcing that it will be taking steps to reserve cash by reducing its workforce and other operating expenses.

        In April 2000, Genzyme General received net proceeds of approximately $5.1 million in connection with the settlement of a lawsuit. The lawsuit, initiated in 1993, pertained to insurance coverage for an accidental spill of Ceredase enzyme at a fill facility operated by a contractor to Genzyme General.

        In December 1999, Genzyme General recorded a net gain of $14.4 million upon receipt of a payment associated with the termination of an agreement to acquire Cell Genesys.

GG-31

Investment Income

        The increase in investment income for the year ended December 31, 2000 as compared to December 31, 1999 was primarily attributable to higher average cash and investment balances.

Interest Expense

        The decrease in interest expense for the year ended December 31, 2000 as compared to the year ended December 31, 1999 is the result of our November 1999 repayment of $82.0 million outstanding under our revolving credit facility, which had been allocated to Genzyme General.

Tax Provision

	2001			2000			1999			01/00 Increase/ (Decrease) % Change		00/99 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Provision for income taxes	$	52,666		$	92,639		$	84,400		43	%	10	%
Effective tax rate		93	%		52	%		37	%

        Genzyme General's tax rates for all periods vary from the U.S. statutory tax rate as a result of its:

•

nondeductible charges for IPR&D;



•

share of losses of foreign subsidiaries;



•

provision for state income taxes;



•

use of a foreign sales corporation;



•

nondeductible amortization of intangibles; and



•

use of tax credits.

        Genzyme General's effective tax rate for 2001 was significantly impacted by nondeductible charges for IPR&D resulting from our acquisitions of Wyntek in June 2001 and Novazyme in September 2001, and nondeductible amortization of intangibles consisting largely of goodwill resulting from our acquisition of GelTex in December 2000. Additionally, the resolution of several tax audit matters in 2001 resulted in the recognition of $2.2 million of net tax benefits.

        Genzyme General's 2000 effective tax rate was adversely impacted by charges for purchased in-process research and development resulting from our acquisition of GelTex in December 2000.

Cumulative Effect of Change in Accounting Principle

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our combined balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship, and, if it is, the type of hedge relationship.

        In accordance with the transition provisions of SFAS No. 133, Genzyme General recorded a cumulative-effect adjustment of $4.2 million, net of tax, in its combined statements of operations for the year ended December 31, 2001 to recognize the fair value of certain common stock warrants held on January 1, 2001. Transition adjustments pertaining to interest rate swaps designated as cash-flow

GG-32

hedges and foreign currency forward contracts allocated to Genzyme General were not significant. For the year ended December 31, 2001, Genzyme General recorded a pre-tax charge of $4.1 million in other expense to reflect the change in value of warrants to purchase shares of Genzyme Transgenics' common stock from January 1, 2001 to December 31, 2001. Genzyme General also recorded a charge of $0.9 million, ($1.5 million pre-tax) in division equity for the year ended December 31, 2001, to reflect the change in value of our interest rate swap contract during the period, net of tax.

        In the normal course of business, we manage risks associated with foreign exchange rates, interest rates and equity prices through a variety of strategies, including the use of hedging transactions, executed in accordance with our policies. As a matter of policy, we do not use derivative instruments unless there is an underlying exposure. Any change in the value of our derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items. We do not use derivative instruments for trading or speculative purposes.

Research and Development Programs

        Before we can commercialize our development-stage products, we will need to:

•

conduct substantial research and development;



•

undertake preclinical and clinical testing; and



•

pursue regulatory approvals.

This process is risky, expensive, and may take several years. We cannot guarantee that we will be able to successfully develop any product, or that we would be able to recover our development costs upon commercialization of a product that we successfully develop.

        Below is a brief description of our significant research and development programs that have been allocated to Genzyme General:

Program	Program Description or Indication	Development Status at December 31, 2001	Year of Expected Product Launch
Fabrazyme (afgalsidase beta for injection)	Fabry disease	Marketed in Europe in 2001; BLA submitted to the FDA in June 2000; post-marketing phase 4 trial ongoing	2002
Aldurazyme (laronidase for injection)	MPS 1	Phase 3 trial completed; BLA submission to the FDA and MAA submission to the EMEA planned for early 2002	2003
Alpha-glucosidase (CHO product)	Pompe disease	Phase 2 trial ongoing	2004
GT160-246(1)	c. difficile	Phase 2 trial ongoing	2006
TGF-beta antagonists	Diffuse scleroderma	Phase 1-2 trial ongoing	2006

GG-33

        The aggregate actual and estimated research and development expense for the above programs is as follows (in millions):

Costs incurred for the year ended December 31, 2000	$	48.3
Costs incurred for the year ended December 31, 2001	$	78.3
Cumulative costs incurred as of December 31, 2001	$	176.2
Estimated costs to complete as of December 31, 2001	$	170.0 to $185.0

(1)

Program acquired in connection with the December 2000 acquisition of GelTex Pharmaceuticals, Inc.

        Our current estimates of the time and investment required to develop these products may change depending on the approach we take to pursue them, the results of preclinical and clinical studies, and the content and timing of decisions made by the FDA and other regulatory authorities. We cannot provide assurance that any of these programs will ever result in products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indication. If certain of our development-stage programs do not result in commercially viable products, our results of operations could be materially affected.

Liquidity and Capital Resources

        At December 31, 2001, Genzyme General had cash, cash-equivalents, and short- and long-term investments of $1.0 billion, an increase of $510.2 million from December 31, 2000.

        Genzyme General's operating activities generated $295.2 million of cash for the year ended December 31,2001 as compared to $244.3 million for the year ended December 31, 2000. Net cash provided by operating activities was the result of Genzyme General's division net income of $8.0 million, and:

•

$118.0 million of depreciation and amortization, of which $42.5 million resulted from the depreciation of property, plant and equipment and $75.5 million resulted from the amortization of intangible assets, including intangible assets acquired in connection with our acquisitions of GelTex and Wyntek;



•

$95.6 million of charges for IPR&D, of which $86.8 million was attributable to our acquisition of Novazyme and $8.8 million was attributable to our acquisition of Wyntek;



•

$34.4 million from the equity in net losses of unconsolidated affiliates;



•

$26.0 million from the loss on investments in equity securities; and



•

$56.3 million attributable to the net change in working capital.

        Genzyme General's investing activities utilized $724.4 million in cash for the year ended December 31, 2001 as compared to $424.7 million for the year ended December 31, 2000. Investing activities in 2001 used:

•

$464.1 million for Genzyme General's net purchases of investments;



•

$171.4 million to fund purchases of property, plant and equipment, of which $37.1 million resulted from our manufacturing capacity expansion in the United Kingdom, Belgium and Switzerland, $16.3 million resulted from payments towards our acquisition of a large-scale manufacturing facility in Ireland, $59.1 million resulted from our manufacturing capacity expansion in the United States and $33.9 million resulted from an aggregate of other office expansions and laboratory rehabilitations worldwide;

GG-34

•

$60.0 million to fund the acquisition of Wyntek, net of cash acquired and net of $5.2 million of cash acquired in connection with our acquisition of Novazyme; and



•

$39.7 million to fund Genzyme General's investments in unconsolidated affiliates.

        Genzyme General's financing activities provided $461.0 million in cash for the year ended December 31, 2001 as compared to $222.1 for the year ended December 31, 2000. During the year ended December 31, 2001 and Genzyme General received $89.0 million in cash from the issuance of common stock and $562.1 million from the issuance of debt. This was offset by $155.0 million used to repay debt and capital lease obligations and $7.6 million to repay bank overdrafts.

        In June 2001, we acquired all of the outstanding capital stock of Wyntek for $65.0 million in cash. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase.

        Genzyme General, together with our other operating divisions, has access to a $350.0 million revolving credit facility, all of which matures in December 2003. Prior to November 2001, this was a $500.0 million credit facility, $150.0 million of which matured in December 2001 and $350.0 million of which matures in December 2003. At December 31, 2000, $350.0 million was outstanding under the portion of the facility maturing in December 2003, $150.0 million of which was allocated to Genzyme General. In May 2001, Genzyme General repaid the $150.0 million it had drawn under this facility in December 2000 to finance the cash component of the GelTex merger consideration. We allowed the $150.0 million portion of the credit facility to expire without renewal at its December 12, 2001 maturity date. At December 31, 2001, $234.0 million remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin. The terms of the revolving credit facility include various covenants, including financial covenants, which require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants and do not anticipate falling out of compliance.

        In May 2001, we completed the private placement of $575.0 million in principal of 3% convertible subordinated debentures due 2021. Net proceeds from the offering were approximately $562.1 million. We have allocated the principal amount of the debentures and the net proceeds from the offering to Genzyme General. We will pay interest on these debentures on May 15 and November 15 each year using cash allocated to Genzyme General. The first interest payment was made on November 15, 2001. The debentures are convertible, upon the satisfaction of certain conditions, into shares of Genzyme General Stock at an initial conversion price of $70.30 per share. The conversion price is subject to adjustment. Holders of the debentures may require us to repurchase all or part of their debentures for cash on May 15, 2006, 2011 or 2016, at a price equal to 100% of the principal amount of the debentures plus accrued interest through the date prior to the date of repurchase. Additionally, if certain fundamental changes occur, each holder may require us to repurchase, for cash, all or a portion of the holder's debentures. On or after May 20, 2004, we may redeem for cash all or part of the debentures that have not previously been converted or repurchased. Genzyme General used a portion of these proceeds to repay the $150.0 million we had drawn under our revolving credit facility in December 2000 and allocated to Genzyme General to finance a portion of the cash consideration for the GelTex acquisition. Genzyme General expects to utilize the remaining proceeds from the sale of the debentures for working capital and general corporate purposes.

        In August 2001, we completed the redemption of our $21.2 million in principal of 5% convertible subordinated debentures due 2003. Prior to the redemption date, the holders of the debentures elected to convert all of the principal of the debentures into approximately 1.3 million shares of Genzyme General Stock. We paid approximately $3.2 million in cash for the accrued interest on the debentures through the date of conversion using cash allocated to Genzyme General.

GG-35

        In July 2001, Genzyme Biosurgery drew down $12.0 million of the $15.0 million still available to it under the $25.0 million interdivisional financing arrangement with Genzyme General in exchange for an additional reserve of approximately 1.9 million Biosurgery designated shares. Genzyme Biosurgery used $8.5 million of the proceeds to pay a portion of the amounts it owes to Genzyme General. Under the terms of this arrangement, Genzyme Biosurgery may draw down funds as needed each quarter in exchange for Biosurgery designated shares based on the fair market value (as defined in our charter) of Biosurgery Stock at the time of the draw. Biosurgery designated shares are shares of Biosurgery Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Biosurgery. At December 31, 2001, $3.0 million remained available to Genzyme Biosurgery under this arrangement.

        In August 2001, Genzyme Molecular Oncology drew down $4.0 million of the $15.0 million still available to it under the $30.0 million interdivisional financing arrangement with Genzyme General in exchange for an additional reserve of approximately 0.3 million Molecular Oncology designated shares. Under the terms of this arrangement, Genzyme Molecular Oncology may draw down funds as needed each quarter in exchange for Molecular Oncology designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. Molecular Oncology designated shares are shares of Molecular Oncology Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Molecular Oncology. At December 31, 2001, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

        Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc. did not initiate a Phase 3 clinical trial of NeuroCell-PD for Parkinson's disease by June 30, 2001. Because a Phase 3 trial of the product was not initiated by June 30, 2001, Genzyme General had the right to elect to receive a refund of $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in the joint venture plus accrued interest thereon at a rate of 13.5% per annum. On August 2, 2001, Genzyme Biosurgery received notification from Genzyme General of its election to receive the refund. Genzyme Biosurgery can pay the refund amount in cash, Biosurgery designated shares or both. The refund is due and payable within 90 days after Genzyme Biosurgery received the notice from Genzyme General. Genzyme General and Genzyme Biosurgery agreed to extend this deadline to February 1, 2002.

        As of December 31, 2001 we had committed to make the following payments under contractual obligations using cash allocated to Genzyme General:

	Payments Due by Period
Contractual Obligations
	Total		2002		2003		2004		2005		2006			After 2006
	(Amounts in millions)
Long-term debt	$	581.7	$	6.7	$	—	$	—	$	—	$	575.0	(1)
Capital lease obligations		25.2		0.1		0.1		—		25.0		—			—
Operating leases		270.8		15.7		20.3		21.0		18.3		10.9			184.6
Unconditional purchase obligations		179.8		50.3		49.4		21.4		17.9		20.4			20.4
Capital commitments		7.7		7.7		—		—		—		—			—
Research and development agreements(2)		89.6		43.7		18.0		11.0		10.0		6.9			—
Total contractual cash obligations	$	1,154.8	$	124.2	$	87.8	$	53.4	$	71.2	$	613.2		$	205.0

(1)

Consists of $575.0 million in principal under our 3% convertible subordinated debentures due May 2021, which are convertible into shares of Genzyme General Stock.

(2)

From time to time, we enter into agreements with third parties to obtain access to scientific expertise or technology that we do not already have. These agreements frequently require that we

GG-36

pay our licensor or collaborator a technology access fee, milestone payments upon the occurrence of certain events, and/or royalties on sales of products that infringe the licensed technology or arise out of the collaborative research. In addition, these agreements may call for us to fund research activities not being performed by us. The amounts indicated in the table above represent committed funding obligations to our key collaborators under our significant development programs. Should we terminate any of our license or collaboration agreements, the funding commitments contained within them would expire. In addition, the actual amounts that we pay our licensors and collaborators will depend on numerous factors outside of our control, including the success of our preclinical and clinical development efforts with respect to the products being developed under these agreements, the content and timing of decisions made by the Patent & Trademark Office, the FDA and other regulatory authorities, the existence and scope of third party intellectual property, the reimbursement and competitive landscape around these products, and other factors described under the heading "Factors Affecting Future Operating Results" below.

        We believe that Genzyme General's available cash, investments and cash flows from operations will be sufficient to fund its planned operations and capital requirements for the foreseeable future. Although Genzyme General currently has substantial cash resources and positive cash flow, it intends to use substantial portions of its available cash for:

•

product development and marketing;



•

expanding facilities and staff;



•

working capital; and



•

strategic business initiatives.

        In addition, Genzyme General's cash resources will be reduced to the extent that the liabilities of Genzyme Biosurgery or Genzyme Molecular Oncology affect our consolidated results of operations.

        To satisfy these and other commitments, we may have to obtain additional financing for Genzyme General. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on favorable terms.

New Accounting Pronouncements, Market Risk, Interest Rate Risk, Foreign Exchange Risk and Equity Price Risk

        See "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" included in this annual report.

Factors Affecting Future Operating Results

        The future operating results of Genzyme General could differ materially from the results described above due to the risks and uncertainties described below and under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report.

Genzyme General is substantially dependent upon sales of Cerezyme enzyme.

        Genzyme General derives a majority of its revenue from sales of Cerezyme enzyme, our enzyme-replacement therapy for the treatment of Gaucher disease. Accordingly, the risks described above under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results—A reduction in revenue from sales of products that treat Gaucher disease would have an adverse effect on our business" included in this annual report may also adversely affect the business of Genzyme General.

GG-37

Future increases in Genzyme General's earnings will depend on our ability to increase sales of Renagel phosphate binder

        We encourage you to read the material under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results—Our future earnings growth will depend on our ability to increase sales of Renagel brand phosphate binder" included in this annual report. That material describes the factors on which the commercial success of Renagel phosphate binder depends.

We may not successfully commercialize Genzyme General's product candidates.

        Genzyme General is developing or collaborating on the development of treatments for Fabry disease, mucopolysaccharidosis I (MPS-I) disease, and Pompe disease, among others. Our ability to secure regulatory approvals for marketing these product candidates is highly uncertain, as is our ability to successfully commercialize those that receive regulatory approvals. Because the commercial success of these product candidates will substantially determine future revenue and profit at Genzyme General, we encourage you to review the factors described under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report for details regarding risks that characterize commercialization of our biotechnology product candidates.

Genzyme General may not be able to successfully commercialize Thyrogen hormone.

        In January 1999, Genzyme General launched U.S. sales of Thyrogen recombinant thyroid stimulating hormone used to diagnose thyroid cancer. Genzyme General began marketing Thyrogen hormone in Europe in 2001, and plans to continue European product launches on a country-by-country basis as pricing and reimbursement approvals are obtained. The commercial success of Thyrogen hormone will depend on a number of factors, including:

•

regulation by the FDA and other regulatory authorities;



•

our ability to obtain regulatory approvals in foreign countries;



•

the development and commercial success of competitive products; and



•

the availability of reimbursement from third-party payers and the extent of coverage.

Genzyme General cannot be sure that market penetration of Thyrogen hormone will increase.

If Genzyme General's strategic alliances to develop and commercialize its products are unsuccessful, Genzyme General's earnings growth will be limited.

        Several of Genzyme General's strategic initiatives involve alliances with other biotechnology companies. These include:

•

an agreement with Biogen, Inc. for the marketing in Japan of AVONEX (Interferon-beta 1a), Biogen's treatment for relapsing forms of multiple sclerosis, following regulatory approval; and



•

a joint venture with BioMarin for the development and commercialization of alpha-L-iduronidase for the treatment of the lysosomal storage disorder known as MPS-I.

Genzyme General plans to enter into additional alliances in the future. The success of many of these arrangements is largely dependent on technology and other intellectual property contributed by Genzyme General's strategic partners to the alliances or the resources, efforts and skills of Genzyme General's partners. Genzyme General's strategic partners may:

GG-38

•

terminate their agreements and Genzyme General's access to the underlying intellectual property;



•

fail to devote significant financial or other resources to the alliances and thereby significantly hinder or delay development, manufacturing or commercialization activities; and



•

fail to successfully develop or commercialize any products.



•

fail to maintain the financial resources necessary to continue financing their portion of the development, manufacturing or commercialization costs or their own operations.

        If any of these alliances are terminated and Genzyme General loses access to the underlying intellectual property, or if Genzyme General and its partners are unable to successfully develop or commercialize products, Genzyme General's future earnings will be adversely affected. For example, in August 2001, Genzyme General terminated its strategic alliance with Pharming Group for the development and commercialization of human alpha-glucosidase produced using a Chinese hamster ovary cell line for the treatment of Pompe disease as a result of Pharming Group's filing for receivership. Although Genzyme General retained access to the intellectual property licensed from Synpac (North Carolina), Inc. that was previously sublicensed to the joint venture, it lost access to the intellectual property licensed from Pharming Group in connection with this joint venture.

Subsequent Event

        On February 1, 2002, Genzyme Biosurgery paid to Genzyme General $27.1 million, representing $20.0 million of the $25.0 million, plus accrued interest of 13.5% per annum, Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC. The refund obligation arose because Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc., failed to initiate a phase 3 trial of NeuroCell-PD for Parkinson's disease by June 30, 2001.

GG-39

GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION

COMBINED STATEMENTS OF OPERATIONS

				For the Years Ended December 31,
				2001			2000			1999
				(Amounts in thousands)
Revenues:
	Net product sales			$	898,731		$	690,027		$	571,531
	Net service sales				74,056			61,161			57,223
	Revenue from research and development contracts:
		Related parties			3,279			509			1,516
		Other			5,860			786			5,096
			Total revenues		981,926			752,483			635,366
Operating costs and expenses:
	Cost of products sold				194,175			162,894			115,125
	Cost of services sold				43,167			37,879			35,637
	Selling, general and administrative				295,068			166,462			149,427
	Research and development (including research and development related to contracts)				187,502			112,792			97,746
	Amortization of intangibles				74,296			10,928			8,106
	Purchase of in-process research and development				95,568			118,048			5,436
			Total operating costs and expenses		889,776			609,003			411,477
Operating income					92,150			143,480			223,889
Other income (expenses):
	Equity in net loss of unconsolidated affiliates				(34,365	)		(44,965	)		(37,423	)
	Gain on affiliate sale of stock				212			22,689			6,683
	Gain (loss) on investments in equity securities				(25,996	)		23,173			(3,749	)
	Minority interest in net loss of subsidiary				2,259			4,625			3,674
	Gain on sale of product line				—			—			8,018
	Other				(2,329	)		5,203			14,389
	Investment income				47,806			38,549			30,881
	Interest expense				(23,192	)		(14,159	)		(19,885	)
			Total other income (expenses)		(35,605	)		35,115			2,588
Income before income taxes					56,545			178,595			226,477
Provision for income taxes					(52,666	)		(92,639	)		(84,400	)
Division net income before cumulative effect of change in accounting principle					3,879			85,956			142,077
Cumulative effect of change in accounting principle, net of tax					4,167			—			—
Division net income				$	8,046		$	85,956		$	142,077
Comprehensive income, net of tax:
	Division net income			$	8,046		$	85,956		$	142,077
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			(6,981	)		(14,236	)		(14,883	)
		Unrealized loss on derivatives			(943	)		—			—
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period		(10,674	)		15,434			26,785
			Reclassification adjustment for (gains) losses included in division net income		16,429			(3,512	)		2,092
			Unrealized gains on securities, net		5,755			11,922			28,877
	Other comprehensive income (loss)				(2,169	)		(2,314	)		13,994
Comprehensive income				$	5,877		$	83,642		$	156,071

The accompanying notes are an integral part of these combined financial statements.

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GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION

COMBINED BALANCE SHEETS

			December 31,
			2001		2000
			(Amounts in thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	167,253	$	135,841
	Short-term investments			66,481		96,644
	Accounts receivable, net			220,527		165,911
	Inventories			127,864		108,767
	Prepaid expenses and other current assets			31,972		28,012
	Due from Genzyme Biosurgery			29,513		18,645
	Due from Genzyme Molecular Oncology			7,086		4,660
	Deferred tax assets—current			70,196		46,836
		Total current assets		720,892		605,316
Property, plant and equipment, net				581,401		446,759
Long-term investments				807,766		298,841
Notes receivable—related party				—		10,350
Intangibles, net				981,468		977,147
Investments in equity securities				88,686		119,648
Other noncurrent assets				45,041		40,992
		Total assets	$	3,225,254	$	2,499,053
LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accounts payable		$	40,025	$	20,091
	Accrued expenses			119,511		98,201
	Income taxes payable			74,631		40,442
	Deferred revenue			1,693		6,401
	Current portion of long-term debt and capital lease obligations			6,841		1,448
		Total current liabilities		242,701		166,583
Long-term debt and capital lease obligations				25,085		180,556
Convertible notes and debentures				575,000		273,680
Deferred tax liability				80,696		124,613
Other noncurrent liabilities				21,420		3,341
		Total liabilities		944,902		748,773
Commitments and contingencies (Notes J, L, N)
Division equity				2,280,352		1,750,280
		Total liabilities and division equity	$	3,225,254	$	2,499,053

The accompanying notes are an integral part of these combined financial statements.

GG-41

GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION

COMBINED STATEMENTS OF CASH FLOWS

					For the Years Ended December 31,
					2001			2000			1999
					(Amounts in thousands)
Cash flows from operating activities:
Division net income					$	8,046		$	85,956		$	142,077
	Reconciliation of division net income to net cash provided by operating activities:
		Depreciation and amortization				117,953			41,206			42,235
		Non-cash compensation expense				10,130			2,185			58
		Provision for bad debts				302			2,918			12,216
		Note received from a collaborator				—			(10,350	)		—
		Write-off of note received from a collaborator				10,159			—			—
		Charge for in-process research and development				95,568			118,048			5,436
		Equity in net loss of unconsolidated affiliates				34,365			44,965			37,423
		Gain on affiliate sale of stock				(212	)		(22,689	)		(6,683	)
		(Gain) loss on investments in equity securities				25,996			(23,173	)		3,749
		Minority interest in net loss of subsidiary				(2,259	)		(4,625	)		(3,674	)
		Deferred income tax benefit				(58,799	)		(6,188	)		(3,414	)
		Loss on disposal of fixed assets				—			532			971
		Accrued interest/amortization of marketable securities				—			213			(1,647	)
		Gain on sale of product line				—			—			(8,018	)
		Other				(2,308	)		2,376			556
		Increase (decrease) in cash from working capital:
			Accounts receivable			(57,679	)		(26,929	)		(18,459	)
			Inventories			(19,765	)		(1,988	)		6,542
			Prepaid expenses and other assets			(5,485	)		(7,682	)		9,925
			Due from Genzyme Biosurgery			(10,868	)		(10,906	)		(6,541	)
			Due from Genzyme Molecular Oncology			(2,426	)		(938	)		980
			Accounts payable, accrued expenses and deferred revenue			95,665			(2,210	)		1,126
			Income taxes payable and tax benefits from stock options			56,864			63,607			69,900
				Net cash provided by operating activites		295,247			244,328			284,758
Cash flows from investing activities:
	Purchases of investments					(978,595	)		(426,875	)		(494,016	)
	Sales and maturities of investments					514,458			533,461			400,630
	Purchases of equity securities					(6,138	)		(24,102	)		(13,700	)
	Proceeds from the sale of investments in equity securities					2,467			33,124			11,090
	Purchases of property, plant and equipment					(171,430	)		(72,591	)		(52,910	)
	Proceeds from the sale of product line					—			—			5,000
	Acquisitions, net of cash acquired					(50,655	)		(447,495	)		(6,500	)
	Purchase of technology rights					—			—			(10,000	)
	Investments in unconsolidated affiliates					(39,677	)		(23,497	)		(43,027	)
	Proceeds from notes receivable					—			—			8,360
	Other					5,150			3,319			2,388
				Net cash used in investing activities		(724,420	)		(424,656	)		(192,685	)

The accompanying notes are an integral part of these combined financial statements.

GG-42

			For the Years Ended December 31,
			2001			2000			1999
			(Amounts in thousands)
Cash flows from financing activities:
	Allocated proceeds from the issuance of Genzyme General Stock		$	88,996		$	85,345		$	59,216
	Allocated proceeds from the issuance of debt			562,062			150,000			—
	Payments of debt and capital lease obligations			(154,978	)		—			(84,985	)
	Net cash allocated to Genzyme Biosurgery			(11,993	)		(9,910	)		(79,451	)
	Net cash allocated to Genzyme Molecular Oncology			(36,040	)		(15,000	)		—
	Bank overdraft			7,615			9,523			7,220
	Payments of notes receivable from stockholders			524			—			—
	Other			4,861			2,130			2,510
		Net cash provided by (used in) financing activities		461,047			222,088			(95,490	)
Effect of exchange rates changes on cash				(462	)		(442	)		(2,072	)
Increase (decrease) in cash and cash equivalents				31,412			41,318			(5,489	)
Cash and cash equivalents at beginning of period				135,841			94,523			100,012
Cash and cash equivalents at end of period			$	167,253		$	135,841		$	94,523
Supplemental disclosures of cash flows:
Cash paid during the year for:
Interest			$	23,266		$	44,191		$	18,508
Income taxes			$	17,504		$	34,014		$	30,992
Supplemental disclosures of non-cash transactions: Transfer of investments to Genzyme Surgical Products — Note A. Other gains and charges — Note C. Dispositions of assets — Note D. Acquisitions — Note E. Investment in unconsolidated affiliate — Note J. Conversion of 51/4% convertible subordinated notes — Note L. Conversion of 5% convertible subordinated debentures — Note L. Warrant exercise — Note M.

        In conjunction with the acquisitions of Novazyme, Wyntek and GelTex, liabilities were assumed as follows:

		For the Years Ended December 31,
		2001			2000
		(Amounts in thousands)
Fair value of assets acquired		$	52,169		$	618,749
Goodwill			37,493			449,634
Acquired in-process research and development			95,568			118,048
Deferred compensation			2,630			10,206
Issuance of common stock and options			(119,591	)		(556,563	)
Net cash paid for acquisition and acquisition costs			(56,133	)		(451,816	)
Liabilities for exit activities and integration			(1,740	)		—
Net deferred tax liability assumed			(4,817	)		(140,469	)
	Net liabilities assumed	$	5,579		$	47,789

The accompanying notes are an integral part of these combined financial statements.

GG-43

GENZYME GENERAL

A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

        Genzyme General is our operating division that develops and markets:

•

therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and other specialty therapeutics;



•

diagnostic products, with a focus on in vitro diagnostics; and



•

other products and services, such as genetic testing and pharmaceutical drug materials.

Basis of Presentation

        The combined financial statements of Genzyme General for each period include the balance sheets, results of operations and cash flows of the businesses we allocate to Genzyme General. We also allocate a portion of our corporate operations to Genzyme General using methods described in our allocation policy below. These combined financial statements are prepared using amounts included in our consolidated financial statements included in this annual report. We have reclassified certain 1999 and 2000 data to conform with the 2001 presentation.

        We prepare the financial statements of Genzyme General in accordance with generally accepted accounting principles. We present financial information and accounting policies specific to Genzyme General in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should read our consolidated financial statements in conjunction with the financial statements of Genzyme General. Note A., "Summary of Significant Accounting Policies," to our consolidated financial statements contains a summary of our accounting policies. We incorporate that information into this note by reference.

Tracking Stock

        Genzyme General Division Common Stock, which we refer to as "Genzyme General Stock," is a series of our common stock that is designed to reflect the value and track the performance of Genzyme General. The chief mechanisms intended to cause Genzyme General Stock to "track" the financial performance of Genzyme General are provisions in our charter governing dividends and distributions. Under these provisions, our charter factors the assets and liabilities and income or losses attributable to Genzyme General into the determination of the amount available to pay dividends on Genzyme General Stock.

        To determine earnings per share, we allocate Genzyme's earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Genzyme General Stock are defined in our charter as the net income or loss of Genzyme General determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies. Our charter also requires that all income and expenses of Genzyme Corporation be allocated among the divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without

GG-44

shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to Genzyme General Stock are based on the income or losses attributable to Genzyme General, we include financial statements and management's discussion and analysis of Genzyme General to aid investors in evaluating its performance.

        While Genzyme General Stock is designed to reflect Genzyme General's performance, it is common stock of Genzyme Corporation and not Genzyme General; Genzyme General is a division, not a company or legal entity, and therefore does not and cannot issue stock. Consequently, holders of Genzyme General Stock have no specific rights to assets allocated to Genzyme General. Genzyme Corporation continues to hold title to all of the assets allocated to Genzyme General and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to any division. Holders of Genzyme General Stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of Genzyme General Stock and other tracking stockholders would only have the rights of common stockholders in the combined assets of Genzyme.

Allocation Policy

        Our charter requires us to manage and account for transactions between Genzyme General and our other divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. Our charter requires that all assets and liabilities of Genzyme be allocated among the divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitudes and extent of allocations to each series of common stock without shareholder approval.

        Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred which directly benefit a division are allocated to the division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to that division;



•

actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the service is performed on a cost basis. Such charges are generally based on direct labor hours;



•

proportionate usage—costs incurred which benefit more than one division are allocated based on management's estimate of the proportionate benefit each division receives. Such costs include facilities, legal, finance, human resources, executive and investor relations; or

GG-45

•

board directed—programs and products, both internally developed and acquired, are allocated to divisions by the board of directors. The board of directors also allocates long-term debt and strategic investments.

        Note B., "Policies Governing the Relationship of Genzyme's Operating Divisions," further describes our policies concerning interdivisional transactions and income tax allocations.

        We believe that the divisional allocations are reasonable and have been consistently applied. However, a division's results of operations may not be indicative of what would have been realized if the division was a stand-alone entity.

Principles of Combination

        In June 1999, we created Genzyme Surgical Products as a separate division of Genzyme. Genzyme General transferred $150.0 million in cash, cash equivalents and investments, and certain other assets, to Genzyme Surgical Products in connection with the creation of Genzyme Surgical Products as a separate division of Genzyme. The business of Genzyme Surgical Products previously operated as a business unit of Genzyme General. These financial statements reflect the financial position, results of operations and cash flows allocated to Genzyme General as if the operations of Genzyme Surgical Products had been separately accounted for as its own division of the corporation for all periods presented.

        We use the equity method to account for investments in entities in which Genzyme General has a substantial ownership interest (20% to 50%), or in which it participates in policy decisions. Genzyme General's consolidated net income includes its share of the earnings of these entities. We report at fair value investments in entities in which Genzyme General's ownership interest is less than 20%.

Translation of Foreign Currencies

        We translate the financial statements of foreign subsidiaries allocated to Genzyme General from local currency into U.S. dollars and include translation adjustments for these subsidiaries in division equity. Genzyme General's division equity includes cumulative foreign currency translation charges of $40.9 million at December 31, 2001 and $33.9 million at December 31, 2000.

        We include exchange gains and losses on intercompany balances which are long-term in nature in our division equity. Our gains and losses on all other transactions are included in results of operations. Genzyme General recorded net gains of $0.4 million in 2001, net losses of $2.0 million in 2000 and net gains of $0.6 million in 1999.

Translation of Foreign Currencies

        We translate the financial statements of our foreign subsidiaries from local currency into U.S. dollars using:

•

the current exchange rate at each balance sheet date for assets and liabilities; and



•

the average exchange rate prevailing during each period for revenues and expenses.

GG-46

We consider the local currency for all of our foreign subsidiaries to be the functional currency for that subsidiary. As a result, we included translation adjustments for these subsidiaries in stockholders' equity. We also record as a charge or credit to stockholders' equity exchange gains and losses on intercompany balances that are of a long-term investment nature. Our stockholders' equity includes cumulative foreign currency adjustments of $(40.9) million at December 31, 2001 and $(33.9) million at December 31, 2000.

        Gains and losses on all other foreign currency transactions are included in our results of operations, although these amounts are not material to our financial statements.

Derivative Financial Instruments

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our consolidated balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

        In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative-effect adjustment of $4.2 million, net of tax, in our unaudited, consolidated statements of operations for the year ended December 31, 2001 to recognize the fair value of certain common stock warrants held on January 1, 2001. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts were not significant.

Revenue Recognition

        We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, and title and risk of loss have passed to the customer. Allowances are recorded for product returns, and for any applicable third party contractual allowances, rebates, or discounts. These allowances are recorded as reductions of revenue. Outbound shipping charges to customers are included in revenues.

        We recognize revenue from service sales when we have finished providing the service. Revenue from research and development contracts is recognized over the term of the applicable contract and as we incur costs related to that contract. Advance payments received in excess of amounts earned are classified as deferred revenue until earned. We recognize non-refundable up-front license fees over the related performance period or at the time we have no remaining performance obligations.

        Revenue from milestone payments for which we have no continuing performance obligations is recognized upon achievement of the related milestone. When we have continuing performance obligations, we recognize milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;

GG-47

•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and



•

the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

        If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

        We receive royalties related to the manufacture, sale or use of our products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following quarter. Historically, such adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize royalties upon receipt of royalty statements from the licensee.

        We do not recognize revenue unless collectibility is reasonably assured. We believe our revenue recognition policies are in compliance with Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements."

Net Income (Loss) Per Share

        We calculate earnings per share for each series of our stock using the two-class method, as further described in the notes to our consolidated financial statements. We present earnings per share data only in our consolidated financial statements because Genzyme Corporation is the issuer of the securities. Our divisions do not and cannot issue securities because they are not companies or legal entities.

NOTE B.    POLICIES GOVERNING THE RELATIONSHIP OF GENZYME'S OPERATING DIVISIONS

        Because each of our operating divisions is a part of a single company, our board of directors has adopted policies to address issues that may arise among divisions and to govern the management of and the relationships between each division. With some exceptions that are mentioned specifically in this note, our board of directors may modify or rescind these policies, or adopt additional policies, in its sole discretion without stockholder approval, subject only to our board of directors' fiduciary duty to stockholders. Generally accepted accounting principles require that any change in policy be preferable (in accordance with these principles) to the previous policy.

Interdivisional Asset Transfers

        Our board of directors may at any time reallocate any program, product or other asset from one division to any other division. We account for interdivisional asset transfers at book value. The consideration paid for an asset transfer generally must be fair value, as determined by our board of directors. The difference between the consideration paid and the book value of the assets transferred is recorded in division equity. Our board of directors determines fair value using either a risk-adjusted discounted cash flow model or a comparable transaction model.

GG-48

        The risk-adjusted discounted cash flow model estimates fair value by taking the discounted value of all the cash inflows and outflows related to a program or product over a specified period of time, generally the economic life of the project, adjusted for the probabilities of certain outcomes occurring or not occurring. In performing this analysis, we consider various factors that could affect the success or failure of the program including:

•

the duration, cost and probability of success of each phase of development;



•

the current and potential size of the market and barriers to entry into the market;



•

the maximum number of patients likely to be treated with the product and the speed with which that maximum number will be reached;



•

reimbursement policies and pricing limitations;



•

current and potential competitors;



•

the net proceeds received by us upon the sale of the program or product; and



•

the costs of manufacturing and marketing the product or program.

        The comparable transaction model estimates fair value through comparison to valuations established for other transactions within the biotechnology and biosurgical areas involving similar programs and products having similar terms and structure. In identifying comparable transactions, we consider, among other factors, the following:

•

the similarity of market opportunity;



•

the comparability of the medical needs addressed;



•

the similarity of the regulatory, reimbursement and competitive environment;



•

the stage of product or program development; and



•

the risk profile of successfully commercializing the product or program.

        We customarily use the comparable transaction model to corroborate valuations derived under the risk-adjusted discounted cash flow model.

        When determining the fair value of a program under development using either model, our board of directors also takes into account the following criteria:

•

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 time of the realization; and



•

other matters that our board of directors and its financial advisors, if any, deem relevant.

        One division may compensate another division for a reallocation with cash or other consideration having a value equal to the fair market value of the reallocated assets. In the case of a reallocation of

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assets from Genzyme General to another division, our board of directors 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. Designated shares are authorized but unissued shares of a division's common stock that our board of directors may from time to time issue, sell or otherwise distribute without allocating the proceeds or other benefits of such issuance, sales or distribution to the division tracked by the stock. No gain or loss is recognized as a result of these transfers.

        Our policy regarding transfers of assets between divisions may not be changed by our board of directors without the approval of the holders of Genzyme Biosurgery Stock or Genzyme Molecular Oncology Stock voting as separate classes unless the policy change does not affect one of those divisions.

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 are subject to the conditions described below. The division providing these products and services does not recognize revenue on any of these transactions unless it provides them to unrelated third parties in the ordinary course of business.

•

We 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 direct costs to the division for which we incur them. We allocate direct labor and indirect costs in reasonable and consistent manners based on the use by a division of relevant services.



•

We charge the manufacturing of goods and performance of services by one division exclusively for another division to the division for which it is performed on a cost basis. We determine gross fixed assets for the facility used at the beginning of each fiscal year. We allocate direct labor and indirect costs in reasonable and consistent manners based on the benefit received by a division of related goods and services.



•

Other than transactions involving research and development, manufacturing, distribution, sales, marketing, general and administrative services, which are addressed above, all interdivision transactions are performed on terms and conditions obtainable in arm's length transactions with third parties.



•

Our board must approve interdivision transactions that are performed on terms and conditions other than as described above and 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

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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 matures within 18 months and accrues interest at the best borrowing rate available to the corporation for a loan of like type and duration. Our board of directors must approve any loan in excess of $1 million. In giving its approval, our board of directors must determine that the material terms of the 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 interdivision transactions are set forth in a written agreement that is signed by an authorized member of the management team of each division involved in the transaction.

Tax Allocations

        We file a consolidated return and allocate income taxes to each division based upon the financial statement income, taxable income, credits and other amounts properly allocable to each division under generally accepted accounting principles as if it were a separate taxpayer. We assess the realizability of our deferred tax assets at the division level. As a result, our consolidated tax provision may not equal the sum of the divisions' tax provision. 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. Tax benefits allocated to Genzyme General are recorded as a credit to division equity.

Access to Technology and Know-How

        Genzyme General has unrestricted access to all technology and know-how owned or controlled by Genzyme Corporation that may be useful in its business, subject to any obligations or limitations that apply to the corporation generally.

NOTE C.    OTHER GAINS AND CHARGES

        In 2001, Genzyme General recorded $27.0 million of charges to selling, general and administrative expenses resulting from Pharming Group, N.V.'s decision to file for and operate under a court-supervised receivership. Included was a write-off of the $10.2 million in principal and accrued interest due to us under the 7% senior convertible note issued to us by Pharming Group, and a charge of $16.8 million representing our commitment to fund all of the operations of the LLC, which in turn is legally obligated to supply transgenic human alpha-glucosidase enzyme until the nine patients currently enrolled in the clinical trial for this product can be transitioned to a CHO-cell derived product. As a result of Pharming Group's failure to make payments to fund our joint venture for the development of a CHO-cell product for Pompe disease under a strategic alliance agreement, we terminated this agreement in August and have assumed full operational and financial responsibility for the development of the CHO-cell product. Our joint venture with Pharming Group covering a transgenic product for Pompe disease remains in place; however, we do not intend to commercialize this product.

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        In 2001, Genzyme General recorded a charge of $4.7 million to research and development expenses, representing the net amount owed by Pharming Group to the CHO-cell product joint venture we previously formed with Pharming Group that we believed was uncollectable.

        In June 2000, Celtrix was acquired by Insmed, upon which our shares of Celtrix common stock were exchanged on a 1-for-1 basis for shares of Insmed common stock. We recognized a $7.6 million gain upon this exchange in 2000, which we allocated to Genzyme General.

        In 2000, we recorded a gain of approximately $5.1 million in connection with the settlement of a lawsuit. We allocated these proceeds to Genzyme General and recorded them as other income. The lawsuit, initiated in 1993, pertained to insurance coverage for an accidental spill of Ceredase enzyme at a fill facility operated by a contractor to Genzyme General.

        In 2000, Genzyme General recorded gains of $22.7 million relating to public offerings of common stock by our unconsolidated affiliate, Genzyme Transgenics. We recorded this gain as gain on affiliate sale of stock and allocated it to Genzyme General.

        In 1999, we recorded a net gain of $14.4 million upon receipt of a payment associated with the termination of our agreement to acquire Cell Genesys, Inc. We allocated this gain to Genzyme General.

NOTE D. DISPOSITIONS OF ASSETS

ATIII LLC

        In July 2001, we transferred our 50% ownership interest in ATIII LLC, our joint venture with Genzyme Transgenics for the development and commercialization of ATIII, to Genzyme Transgenics. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of any of Genzyme Transgenics' products based on ATIII beginning three years after the first commercial sale of each such product up to a cumulative maximum amount of $30.0 million. We will allocate any royalty amount that we receive to Genzyme General. Prior to the transfer, we consolidated the results of ATIII LLC because we had control of ATIII LLC through our combined, direct and indirect ownership interest in the joint venture.

Sybron Laboratory Products

        In July 1999, we sold the assets of our immunochemistry product line to an operating unit of Sybron Laboratory Products Corp. for $5.0 million in cash. We recorded a gain of $0.5 million in connection with the sale of this product line and allocated it to Genzyme General.

NOTE E.    ACQUISITIONS

Novazyme

        In September 2001, we acquired all of the outstanding capital stock of Novazyme, a privately-held developer of biotherapies for the treatment of LSDs, for an initial payment of approximately 2.6 million shares of Genzyme General Stock. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to

GG-52

make two additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products for the treatment of LSDs that employ certain of Novazyme's technologies. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme common stock and exchanged them for options, warrants and rights to purchase Genzyme General Stock, on an as-converted basis. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Novazyme are included in our consolidated financial statements and the combined financial statements of Genzyme General from September 26, 2001, the date of acquisition.

        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (dollars in thousands):

Issuance of 2,562,182 shares of Genzyme General Stock	$	110,584
Issuance of options to purchase 158,840 shares of Genzyme General Stock		6,274
Issuance of warrants to purchase 25,338 shares of Genzyme General Stock		894
Issuance of rights to purchase 66,846 shares of Genzyme General Stock		1,839
Acquisition costs		951
Total purchase price	$	120,542
Cash and cash equivalents	$	5,194
Other assets		125
Property, plant & equipment		4,475
Goodwill		17,177
In-process research and development		86,800
Deferred tax asset		8,328
Assumed liabilities		(2,795	)
Liabilities for exit activities and integration		(1,740	)
Notes receivable from stockholders		1,316
Deferred compensation		2,630
Deferred tax liability		(968	)
Allocated purchase price	$	120,542

        Because our acquisition of Novazyme was completed after June 30, 2001, the provisions of SFAS No. 141 and certain provisions of SFAS No. 142 apply from the date of acquisition. Accordingly, we will not ratably amortize the goodwill resulting from the acquisition of Novazyme. Instead, we will test the goodwill's impairment on a periodic basis in accordance with the provisions of SFAS No. 142.

        We issued approximately 2.6 million shares of Genzyme General Stock to Novazyme's shareholders. These shares were valued at $110.6 million using the average trading price of Genzyme General Stock for the four day trading period ending on September 26, 2001, the date of acquisition. Options, warrants and rights to purchase shares of Genzyme General Stock were valued at $9.0 million using the Black-Scholes model. In accordance with Financial Accounting Standards Board

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Interpretation No. 44, at the date of acquisition we allocated the $2.6 million intrinsic value of the portion of the unvested options related to the future service period to deferred compensation in division equity. We are amortizing the unvested portion to operating expense over the remaining vesting period of approximately 22 months.

        In connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly, we have allocated to in-process research and development, which we refer to as IPR&D, and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. In accordance with generally accepted accounting principles, the amount allocated to IPR&D was charged as an expense in the combined financial statements of Genzyme General for the year ended December 31, 2001.

        Our management assumes responsibility for determining the IPR&D valuation and engaged an independent third-party appraisal company to assist in the valuation of the intangible assets acquired. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the probability-adjusted net cash flows expected to result once the technology has reached technological feasibility and is utilized in the treatment of certain LSDs. A discount rate of 16% was applied to estimate the present value of these cash flows and is consistent with the overall risks of the platform technology. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology and adjusted the future cash flows to reflect the contribution of value from these assets. In the allocation of purchase price to IPR&D, the concept of alternative future use was specifically considered. The platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the treatment of LSDs. As of December 31, 2001, the technological feasibility of the acquired platform technology had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Wyntek

        In June 2001, we acquired all of the outstanding capital stock of privately-held Wyntek for $65.0 million in cash. Wyntek is a provider of high quality point of care rapid diagnostic tests for pregnancy and infectious diseases. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, we included the results of operations of Wyntek in our consolidated financial statements and the combined financial statements of Genzyme General from June 1, 2001, the date of acquisition.

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        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (dollars in thousands):

Cash paid	$	65,000
Acquisition costs		350
Total purchase price.	$	65,350
Cash and cash equivalents	$	4,974
Other current assets		4,966
Property, plant & equipment		1,843
Intangible assets (to be amortized straight-line over 5 to 10 years)		39,444
Goodwill		20,316
In-process research and development		8,768
Deferred tax assets		2,255
Assumed liabilities		(2,784	)
Deferred tax liability		(14,432	)
Allocated purchase price	$	65,350

        In connection with the acquisition of Wyntek we allocated approximately $8.8 million of the purchase price to IPR&D. We estimated the fair value assigned to purchased IPR&D by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility. We applied a discount rate of 25% to estimate the present value of these cash flows, which was consistent with the risks of the project. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased IPR&D was the amount attributable to the efforts of Wyntek up to the time of acquisition.

        In the allocation of purchase price to IPR&D, the concept of alternative future use was specifically considered for the program under development. The acquired IPR&D consists of Wyntek's work to complete the program. There are no alternative uses for the in-process program in the event that the program fails in clinical trials or is otherwise not feasible. The development effort for the acquired IPR&D does not possess an alternative future use for us as defined by generally accepted accounting principles. Consequently, in accordance with generally accepted accounting principles, the amount allocated to IPR&D was charged as an expense for the year ended December 31, 2001. We are amortizing the remaining acquired intangible assets arising from the acquisition on a straight-line basis over their estimated lives, which range from 5 years to 10 years.

        Wyntek is currently developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. These are the leading markers for the diagnosis of acute myocardial infarction. The product consists of a mobile, stand-alone, quantitative diagnostic device and a reaction strip that detects disease specific marker proteins. The device will be used to read reaction strips at the patient's bedside or in an emergency room setting. As of December 31, 2001, the technological feasibility of the acquired programs had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred. We expect to launch the product during the second half of 2002.

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GelTex

        In December 2000, we acquired GelTex, a public company engaged in developing therapeutic products based on polymer technology. We accounted for the acquisition as a purchase and allocated it to Genzyme General. Accordingly, the results of operations of GelTex are included in our consolidated financial statements and the combined financial statements of Genzyme General from the date of acquisition.

        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (dollars in thousands):

Cash paid	$	515,151
Issuance of 15.8 million shares of Genzyme General Stock		491,181
Issuance of options and warrants to purchase 3.2 million shares of Genzyme General stock		62,882
Existing equity investment in GelTex		2,500
Acquisition costs		4,321
Total purchase price	$	1,076,035
Cash and cash equivalents	$	67,656
Short-term investments		75,338
Prepaid expenses and other assets		24,669
Inventory		8,156
Property, plant & equipment		45,477
Intangible assets (to be amortized straight-line over 5 to 15 years)		465,109
Goodwill		452,544
In-process research and development		118,048
Deferred tax asset		35,016
Deferred compensation		10,206
Assumed liabilities		(47,789	)
Deferred tax liability		(178,395	)
Allocated purchase price	$	1,076,035

        The 15.8 million shares of Genzyme General Stock issued in exchange for all of the outstanding shares of GelTex common stock were valued at $491.2 million using the average trading price of Genzyme General Stock over three days before and after the September 11, 2000 announcement of the merger. Options and warrants to purchase approximately 3.2 million shares of Genzyme General Stock were valued at $62.9 million using the Black-Scholes model. In accordance with Financial Accounting Standards Board Interpretation No. 44, the intrinsic value of the portion of the unvested options related to the future service period of $10.2 million has been allocated to deferred compensation in division equity. The unvested portion was amortized to operating expense over the remaining vesting period of approximately one year which concluded in December 2001.

        As part of the acquisition of GelTex, we acquired all of GelTex's interest in RenaGel LLC, our joint venture with GelTex. Prior to the acquisition of GelTex, we accounted for the investment in RenaGel LLC under the equity method. Because we already owned a 50% interest in RenaGel LLC, the assets of RenaGel LLC were adjusted to fair value only to the extent of the 50% interest we acquired.

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NOTE E.    ACQUISITIONS (Continued)

        In connection with the purchase of GelTex, Genzyme General allocated approximately $118.0 million of the purchase price to IPR&D. Although management ultimately is responsible for determining the fair value of the acquired IPR&D, we engaged an independent third-party appraisal company to assist in the valuation of the intangible assets acquired. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected to result from each project once it has reached technological feasibility. The discount rates used were consistent with the risks of each project, and ranged from 35% to 40%. In estimating future cash flows, management considered other tangible and intangible assets, including core technology, required for successful exploitation of the technology resulting from each purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased research and development was the amount attributable to the efforts of GelTex up to the time of acquisition. This amount was estimated through application of the "stage of completion" calculation, which calculation involves multiplying total estimated revenue for IPR&D by the percentage of completion of each purchased research and development project at the time of acquisition.

        The significant assumptions underlying the valuations included potential revenues, costs of completion, the timing of product approvals and the selection of appropriate probability of success and discount rate. None of the GelTex IPR&D projects had reached technological feasibility at the date of acquisition nor did they have any alternative future use. Consequently, in accordance with generally accepted accounting principles, the amount allocated to IPR&D was charged as an expense in our consolidated financial statements and the combined financial statements of Genzyme General for the year ended December 31, 2000. Genzyme General is amortizing the remaining acquired intangible assets arising from the acquisition on a straight-line basis over their estimated lives, which range from 5 years to 15 years. As of December 31, 2001, the technological feasibility of the acquired projects had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Peptimmune

        In July 1999, we acquired Peptimmune, Inc., a privately-held company whose lead development program focused on a treatment for pemphigus vulgaris. We allocated this acquisition to Genzyme General and accounted for it as a purchase. We allocated the aggregate purchase price of $6.5 million and assumed liabilities of $0.3 million to the tangible and intangible assets we acquired from Peptimmune based on their respective fair values (amounts in thousands):

Property, plant & equipment		$	128
Deferred tax asset			1,229
In-process research and development			5,436
	Total	$	6,793

        The $5.4 million allocated to IPR&D represents the value we assigned to Peptimmune's programs that were still in the development stage and for which there was no alternative future use. We recorded

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this amount as a charge to operations. As of December 31, 2001, these products were still under development.

        Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technical feasibility. In addition, once research is completed, each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue and on the results of preclinical and clinical studies. We cannot give you assurances that any of these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

Unaudited Pro Forma Financial Summary

        The following unaudited pro forma financial summary is presented as if the acquisitions of Novazyme, Wyntek and GelTex were completed as of January 1, 2001 and 2000. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated on those dates, or of the future operations of the combined entities. Material nonrecurring charges related to these acquisitions, such as acquired IPR&D charges of $118.0 million resulting from the acquisition of GelTex, $86.8 million resulting from the acquisition of Novazyme, $8.8 million resulting from the acquisition of Wyntek and are not reflected in the following unaudited pro forma financial summary:

	For the Year Ended December 31,
	2001		2000
	(Amounts in thousands)
Total revenues	$	990,339	$	813,045
Income before extraordinary items and cumulative effect of change in accounting principle, net of tax		80,797		114,320
Division net income		84,964		114,320

NOTE F.    DERIVATIVE FINANCIAL INSTRUMENTS

        Note E., "Derivative Financial Instruments," to our consolidated financial statements contains information regarding interest rate swap contracts that are allocated to Genzyme General. We incorporate that information into this note by reference.

NOTE G.    ACCOUNTS RECEIVABLE AND INTANGIBLE ASSETS

        Genzyme General's trade receivables primarily represent amounts due from distributors, healthcare service providers and companies and institutions engaged in research, development or production of pharmaceutical and biopharmaceutical products. Genzyme General performs credit evaluations of its customers on an ongoing basis and generally does not require collateral. Genzyme General states

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accounts receivable at fair value after reflecting an allowance for doubtful accounts and certain other allowances. These allowances were $11.9 million at December 31, 2001 and $16.9 million at December 31, 2000.

        The following table contains information on Genzyme General's intangible assets for the periods presented:

	December 31, 2001			Weighted Average Estimated Useful Life (Years)	December 31, 2000			Weighted Average Estimated Useful Life (Years)
	(Amounts in thousands, except useful life data)
Goodwill	$	558,610		14	$	518,205		15
Acquired technology		378,364		14		340,911		15
Patents		117,545		15		116,732		15
License fees		25,075		15		25,075		15
Customer lists		8,324		10		8,324		10
Trademarks		6,526		15		6,526		15
Non-compete agreements		6,000		5		6,000		5
Other		7,497		5		6,372		5
		1,107,941				1,028,145
Less accumulated amortization		(126,473	)			(50,998	)
Intangible assets, net	$	981,468			$	977,147

NOTE H.    INVENTORIES

		December 31,
		2001		2000
		(Amounts in thousands)
Raw materials		$	39,285	$	30,275
Work-in-process			53,408		47,880
Finished products			35,171		30,612
	Total	$	127,864	$	108,767

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NOTE I.    PROPERTY, PLANT AND EQUIPMENT

	December 31,
	2001			2000
	(Amounts in thousands)
Plant and equipment	$	284,662		$	240,779
Land and buildings		264,800			212,750
Leasehold improvements		120,080			103,301
Furniture and fixtures		16,125			13,534
Construction-in-progress		149,806			93,534
		835,473			663,898
Less accumulated depreciation		(254,072	)		(217,139	)
Property, plant and equipment, net	$	581,401		$	446,759

        Genzyme General's depreciation expense was $42.5 million in 2001, $29.1 million in 2000, and $36.9 million in 1999.

        Genzyme General capitalizes costs it incurs in validating the manufacturing process for products which have reached technological feasibility. As of December 31, 2001, capitalized validation costs, net of accumulated depreciation, were $20.3 million. Genzyme General has capitalized the following amounts of interest costs incurred in financing the construction of manufacturing facilities (amounts in millions):

2001	2000	1999
$4.2	$2.2	$1.2

The estimated cost of completion for assets under construction as of December 31, 2001 is $349.3 million.

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NOTE J.    INVESTMENTS

Marketable Securities

		December 31,
		2001				2000
		Cost		Market Value		Cost		Market Value
		(Amounts in Thousands)
Cash equivalents(1):
	Corporate notes	$	1,550	$	1,552	$	50,922	$	50,922
	U.S. Governmental agencies		22,646		22,720		—		—
	Money market fund		75,003		75,003		52,456		52,456
		$	99,199	$	99,275	$	103,378	$	103,378
Short-term:
	Corporate notes	$	47,221	$	47,921	$	82,988	$	83,191
	U.S. Governmental agencies		16,084		16,464		13,175		13,207
	Non U.S. Governmental agencies		1,042		1,066		—		—
	U.S. Treasury notes		1,005		1,030		246		246
		$	65,352	$	66,481	$	96,409	$	96,644
Long-term:
	Corporate notes	$	509,560	$	521,519	$	186,904	$	190,542
	U.S. Governmental agencies		156,282		157,526		99,549		100,803
	Non U.S. Governmental agencies		36,397		36,929		—		—
	U.S. Treasury notes		89,611		91,792		7,432		7,496
		$	791,850	$	807,766	$	293,885	$	298,841
Investments in equity securities		$	50,347	$	88,686	$	73,117	$	119,648

(1)

Cash equivalents are included as part of cash and cash equivalents on our balance sheets.

        The following table contains information regarding the range of contractual maturities of Genzyme General's investments in debt securities:

	December 31,
	2001				2000
	Cost		Market Value		Cost		Market Value
	(Amounts in thousands)
Within 1 year	$	164,551	$	165,756	$	199,787	$	200,021
1-2 years		202,071		206,705		85,712		86,686
2-10 years		589,779		601,061		208,173		212,156
	$	956,401	$	973,522	$	493,672	$	498,863

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Realized and Unrealized Gains and Losses on Marketable Securities and Investments in Equity Securities

        Genzyme General recorded charges of $11.8 million in 2001 in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group and $4.5 million in connection with our investment in the common stock of Targeted Genetics, because we considered the decline in the value of these investments to be other than temporary.

        In August 2001, Pharming Group announced that it would file for receivership in order to seek protection from its creditors. In the quarter ended September 30, 2001, Genzyme General recorded a charge of $8.5 million, representing a write-down of our investment in Pharming Group common stock.

        In April 2001, Antigenics announced that it had entered into a definitive merger agreement with Aronex. The merger was completed in July 2001. Under the terms of the merger agreement, we received 0.0594 of a share of Antigenics common stock for each share of Aronex common stock that we held. As a result of this merger, Genzyme General recorded a $1.2 million charge to reflect the fair market value of our investment in Aronex at June 30, 2001.

        Genzyme General recorded gains of $16.4 million in 2000 resulting from sales of portions of our investment in Genzyme Transgenics common stock. Genzyme General also recognized a $7.6 million gain in 2000, resulting from the Ismed acquisition of Celtrix, in which our shares of Celtrix common stock were exchanged on a 1-for-1 basis for shares of Insmed common stock. The tax effect of these gains were offset by the reversal of a $1.9 million valuation allowance related to previously recognized capital losses.

        During 2000, Genzyme General recorded gains of $2.0 million in 1999 upon the sale of its investment in shares of Techne common stock. Genzyme General also recorded a $5.7 million charge in 1999 in connection with its investments in the common stock of Pharming Group and IntegraMed America because we considered the decline in the value of those investments to be other than temporary. Given the significance and duration of the declines as of the end of the applicable quarters, we concluded that it was unclear over what period the recovery of the stock price for each of these investments would take place and that, accordingly, any evidence suggesting that the investments would recover to at least our purchase price was not sufficient to overcome the presumption that the current market price was the best indicator of the value of each of these investments.

        Genzyme General records gross unrealized holding gains and losses in division equity. The following table sets forth the amounts recorded:

	December 31,
	2001		2000
Unrealized holding gains	$	56.2 million	$	60.7 million
Unrealized holding losses	$	0.6 million	$	7.9 million

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Note I., "Investments," to our consolidated financial statements contains information regarding Genzyme General's:

•

Equity investments in:



•

Abiomed, Inc.;



•

Antigenics, Inc. (formerly Aronex Pharmaceuticals, Inc.);



•

BioMarin Pharmaceutical, Inc.;



•

Cambridge Antibody Technology Group plc;



•

Crucell, N.V.;



•

Healthcare Ventures V, L.P.;



•

Oxford Bioscience Partners IV LP;



•

Pharming Group N.V.;



•

ProQuest Investments II, L.P.;



•

Targeted Genetics Corp.;



•

Viacell, Inc.;




•

Investments in, and relationships with, Genzyme Transgenics, ATIII LLC and Dyax Corporation; and



•

Investments in the following joint ventures:



•

BioMarin/Genzyme LLC;



•

Diacrin/Genzyme LLC;



•

Genzyme/Pharming Alliance LLC;



•

Pharming/Genzyme LLC; and



•

RenaGel LLC.

We incorporate that information into this note by reference.

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NOTE K.    ACCRUED EXPENSES

		December 31,
		2001		2000
		(Amounts in thousands)
Compensation		$	40,080	$	20,811
Purchase accrual			12,508		11,468
Bank overdrafts			17,138		9,523
Royalties			2,549		7,318
Rebates			7,950		6,482
Acquisition costs			—		4,698
Other			39,286		37,901
	Total accrued expenses	$	119,511	$	98,201

NOTE L.    LONG-TERM DEBT AND LEASES

Long-Term Debt and Capital Lease Obligations

        In May 2001, we completed the private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. After deducting the underwriter's discount and offering costs of $12.9 million, net proceeds from the offering were approximately $562.1 million. We have allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General. We will pay interest on these debentures on May 15 and November 15 each year.

        Holders may surrender debentures for conversion into shares of Genzyme General Stock at a conversion price of approximately $70.30 per share, subject to adjustment, if any of the following conditions is satisfied:

•

if the closing sale price of Genzyme General Stock for at least 20 trading days in the 30 trading day period ending on the trading day prior to the day of surrender is more than 110% of the conversion price per share of Genzyme General Stock;



•

if we have called the debentures for redemption; or



•

upon the occurrence of specified corporate transactions.

        Holders of the debentures may require us to repurchase all or part of their debentures for cash on May 15, 2006, 2011 or 2016, at a price equal to 100% of the principal amount of the debentures plus accrued interest through the date prior to the date of repurchase. Additionally, if certain fundamental changes occur, each holder may require us to repurchase, for cash, all or a portion of the holder's debentures. On or after May 20, 2004, we may redeem for cash all or part of the debentures that have not previously been converted or repurchased. The redemption price would be 100.75% of the principal amount if redeemed from May 20, 2004 through May 14, 2005, and 100% of the principal amount thereafter.

        Interest expense related to these debentures was $12.9 million in 2001, which includes $1.8 million for amortization of offering costs. The fair value of these debentures at December 31, 2001 was $631.8 million.

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        In June 2001, we completed the redemption of our $250.0 million in principal of 5¹/4% convertible subordinated notes due 2005. Prior to the redemption date, holders of the notes elected to convert substantially all of the principal of the notes into approximately 12.6 million shares of Genzyme General Stock, approximately 0.7 million shares of Biosurgery Stock and approximately 0.7 million shares of Molecular Oncology Stock. On June 15, 2001, the redemption date, we redeemed the remaining notes using cash allocated to Genzyme General.

        In August 2001, we completed the redemption of our $21.2 million in principal of 5% convertible subordinated debentures due 2003. Prior to the redemption date, the holders of the debentures elected to convert all of the principal of the debentures into approximately 1.3 million shares of Genzyme General Stock. We paid approximately $3.2 million in cash for the accrued interest on the debentures through the date of conversion using cash allocated to Genzyme General. The following is a summary of our long-term debt and capital lease obligations:

	December 31,
	2001			2000
	(Amounts in thousands)
3% convertible subordinated debentures due May 2021	$	575,000		$	—
51/4% convertible subordinated notes		—			250,000
Revolving credit facility maturing December 2003		—			150,000
5% convertible subordinated debentures due August 2003		—			23,680
Notes payable		6,723			5,493
Capital lease obligations		25,203			26,511
		606,926			455,684
Less current portion		(6,841	)		(1,448	)
	$	600,085		$	454,236

        Over the next five years, Genzyme General will be required to repay the following principal amounts on its long-term debt, excluding capital leases, (amounts in millions):

2002	2003	2004	2005	2006	After 2006
$6.8	$0.1	$—	$25.0	$575.0	$—

Other Long Term Debt

        Note K. "Long Term Debt and Leases," to our consolidated financial statements contains information regarding our:

•

revolving credit facility; and



•

notes payable resulting from the acquisition of Novazyme in 2001 and GelTex in 2000.

We incorporate that information into this note by reference.

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Capital Leases

        In connection with our acquisition of GelTex in December 2000, we assumed a capital lease obligation pursuant to an October 1998 lease agreement for the construction of GelTex's administrative offices in Waltham, Massachusetts. The lease provides for the lessor to fund the construction of the facility in exchange for interest-only lease payments equal to the total amount funded by the lessor multiplied by the LIBOR rate plus 1.8%. The construction was completed in October 1999 and the construction costs funded by the lessor aggregated $25.0 million. After giving effect to an interest swap agreement, we make monthly interest payments of $187,000 based on a fixed rate of 8.99% and an outstanding principal amount of $25.0 million. Therefore, we will make annual interest payments under this lease of approximately $2.2 million each year through 2005. The $25.0 million capital lease obligation and corresponding building is recorded in Genzyme General's combined balance sheet. The building is being depreciated over its estimated useful life.

        During the term of the lease, we have the option to purchase the building and improvements for a purchase price equal to the total amount funded by the lessor of $25.0 million, plus any accrued and unpaid lease payments and certain other costs, which aggregate amount is referred to as the Purchase Option Price. At the end of the lease term of October 31, 2005, we have the option to:

•

purchase the building and improvements for the Purchase Option Price;



•

arrange for the facility to be purchased by a third party; or



•

return the building and improvements to the lessor.

In the case of the latter two options, however, we are contingently liable to the extent the lessor is not able to realize 85% of the Purchase Option Price upon the sale or disposition of the property.

Operating Leases

        Genzyme General leases facilities and personal property under non-cancellable operating leases with terms in excess of one year. Genzyme General's total expense under operating leases was (amounts in millions):

2001	2000	1999
$22.2	$20.7	$20.7

        Over the next five years, Genzyme General will be required to repay the following amounts under non-cancellable operating leases (amounts in millions):

2002	2003	2004	2005	2006	After 2006
$15.7	$20.3	$21.0	$18.3	$10.9	$184.6

        In June 1992, we entered into a 65-year land lease with an unaffiliated lessor. Annual expenses under this lease, which are allocated to Genzyme General, were $1.5 million in 2001, 2000 and 1999. Our rent under this lease increases every five years based on the Consumer Price Index or, at a minimum, 3% per year.

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        In August 2000, we entered into an agreement to lease a significant portion of a multi-use urban complex in Cambridge, Massachusetts for our new corporate headquarters. The lessor will fund the construction of the complex, except that we will fund certain leasehold improvements to be made to the portion of the building leased by us. Our lease payments will be determined as a function of the aggregate project costs incurred by the lessor and the resulting rentable space of the complex, plus common area charges. Payments under the lease will commence upon completion of construction, which we estimate to be in 2003. We have included estimated payments for this lease in the operating lease schedule above. The lease term is for 15 years and may be extended for two successive ten-year perionds. The lease also provides us with an option, exercisable on or before July 1, 2003, to lease an additional building on mutually acceptable terms.

        In August 2001, we entered into a lease agreement with an unaffiliated lessor for approximately 16 acres of land at the Waterford Industrial Estate in Waterford, Ireland. The land, situated at the lessor's Industrial Estate in the County of Waterford, will be used for the development of a multi-product manufacturing center in the Republic of Ireland. The lease term is for 999 years with rent payable in advance on January 1, of each year. For the first five year period the term of the annual rent shall be approximately $3,000 per year. Our rent under this lease increases every five years based on the Consumer Price Index with increases not to exceed 10% of the rent payment from the prior five year period.

GG-67

NOTE M. DIVISION EQUITY

        The following table contains the components of division equity for Genzyme General for the periods presented:

			December 31,
			2001			2000			1999
			(Amounts in thousands)
Balance at beginning of period			$	1,750,280		$	1,007,614		$	939,967
	Division net income			8,046			85,956			142,077
	Allocation of tax benefits generated by:
		Genzyme Biosurgery		24,593			28,023			26,994
		Genzyme Molecular Oncology		11,904			7,476			7,812
	Allocated proceeds from issuance of Genzyme General Stock under stock plans			86,705			85,345			59,587
	Allocated proceeds from issuance of Genzyme General Stock from the exercise of warrants and stock purchase rights			2,291			—			—
	Allocation of cash:
		to Genzyme Molecular Oncology for Molecular Oncology designated shares (1)		(4,040	)		(15,000	)		—
		to Genzyme Molecular Oncology in exchange for the reallocation of diagnostic assets from Genzyme Molecular Oncology to Genzyme General		(32,000	)		—			—
		to Genzyme Surgical Products for Surgical Products designated shares (1)		—			—			(176,706	)
		to Genzyme Tissue Repair for Tissue Repair designated shares (1)		—			(9,910	)		(4,937	)
		to Genzyme Biosurgery for research program		—			—			(100	)
		to Genzyme Biosurgery for transfer of interest in joint venture		—			—			(25,000	)
		to Genzyme Biosurgery for Biosurgery designated shares (1)		(12,000	)		—			—
	Allocated tax benefit from disqualified dispositions			50,176			17,041			24,238
	Allocation for the acquisition of GelTex			—			541,615			—
	Allocation for the acquisition of Novazyme			115,652			—
	Conversion of $250.0 million 51/4 convertible subordinated notes			246,072			—			—
	Conversion of $21.2 million 5% convertible subordinated debentures			21,200			—			—
	Allocated stock compensation expense			10,130			1,682			58
	Allocated equity adjustments			1,343			438			13,624
	Balance at end of period		$	2,280,352		$	1,750,280		$	1,007,614

(1)

Designated shares are shares of our common stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to the division corresponding to that series of stock. As of December 31, 2001, there were approximately

GG-68

3.2 million Biosurgery designated shares and approximately 1.7 million Molecular Oncology designated shares.

Interdivisional Financing Arrangements

Genzyme Biosurgery

        Our board of directors has made $25.0 million of Genzyme General's cash available to Genzyme Biosurgery. Under this arrangement, Genzyme Biosurgery is able to draw down funds as needed each quarter in exchange for designated shares based on the fair market value (as defined in our charter) of Biosurgery Stock at the time of the draw. Genzyme Biosurgery has made the following draws during the past three fiscal years:

•

In 1999—none;



•

In 2000—two draws aggregating $10.0 million in exchange for a reserve of approximately 1.7 million Tissue Repair designated shares, which were converted into approximately 0.6 million Biosurgery designated shares;



•

In 2001—$12.0 million in exchange for an additional reserve of approximately 1.9 million Biosurgery designated shares.

At December 31, 2001, $3.0 million remained available to Genzyme Biosurgery under this arrangement.

Genzyme Molecular Oncology

        Our board of directors has made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed each quarter in exchange for designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. Genzyme Molecular Oncology has made the following draws during the past three fiscal years:

•

In 1999—none;



•

In 2000—$15.0 million in exchange for a reserve of approximately 0.7 million Molecular Oncology designated shares;



•

In 2001—$4.0 million in exchange for an additional reserve of approximately 0.3 million Molecular Oncology designated shares.

At December 31, 2001, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

Stock Compensation Plans

        We apply APB Opinion No. 25 and related interpretations in accounting for our five stock-based compensation plans: the 1990 Equity Incentive Plan, the 1997 Equity Incentive Plan, the 2001 Equity Incentive Plan, the 1998 Director Stock Option Plan (each of which are stock option plans), the 1990 Employee Stock Purchase Plan and the 1999 Employee Stock Purchase Plan. We do not recognize compensation expense for options granted and shares purchased under the provisions of these plans for

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options granted to employees fixed terms with an exercise price greater than or equal to fair market value at the date of grant.

        The following table sets forth division net income (loss) data for Genzyme General as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS 123 based on the fair value at the grant dates of the awards, and the compensation expense related to Genzyme General Stock awards was allocated to Genzyme General in accordance with our allocation policies:

		December 31,
		2001			2000		1999
		(Amounts in thousands)
Division net income (loss):
	As reported	$	44,543		$	85,956	$	142,077
	Pro forma		(7,345	)		50,553		124,417

        Note L., "Stockholders' Equity," to our consolidated financial statements contains information regarding the assumptions we made in calculating pro forma compensation expense in accordance with SFAS 123. The effects of applying SFAS 123 are not likely to be representative of the effects on reported division net income in future years.

NOTE N.    RESEARCH AND DEVELOPMENT AGREEMENTS

        Genzyme General's revenue from its material research and development agreements was as follows:

2001	2000	1999
$3.3 million	$0.5 million	$1.5 million

        Note I, "Investments" and Note M., "Research and Development Agreements," to our consolidated financial statements contains information regarding Genzyme General's:

•

relationships with Genzyme Transgenics Corporation; and



•

investments in the following joint ventures:



•

BioMarin/Genzyme LLC;



•

Diacrin/Genzyme LLC;



•

Pharming/Genzyme LLC; and



•

Genzyme/Pharming Alliance LLC;



•

ATIII LLC; and



•

RenaGel LLC.

We incorporate that information in this note by reference.

GG-70

NOTE O.    COMMITMENTS AND CONTINGENCIES

        We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims against us as of December 31, 2001 which, if adversely decided, would have a material adverse effect on Genzyme General's results of operations, financial condition or liquidity.

        As of December 31, 2001, we had approximately $7.7 million of capital commitments related to manufacturing capacity expansion, all of which were allocated to Genzyme General.

NOTE P.    INCOME TAXES

        Genzyme General's income before income taxes and the related income tax expense (benefit) are described in the following table:

		2001			2000			1999
		(Amounts in thousands)
Domestic		$	36,445		$	165,266		$	210,097
Foreign			20,100			13,329			16,380
	Total	$	56,545		$	178,595		$	226,477
Currently payable:
Federal		$	96,766		$	90,483		$	77,779
State			6,576			4,737			4,302
Foreign			8,123			3,607			5,733
	Total	$	111,465		$	98,827		$	87,814
Deferred:
Federal		$	(41,416	)	$	(2,930	)	$	1,041
State			(2,770	)		(182	)		(181	)
Foreign			(14,613	)		(3,076	)		(4,274	)
	Total	$	(58,799	)	$	(6,188	)	$	(3,414	)
Provision for income taxes		$	52,666		$	92,639		$	84,400

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        Genzyme General's provisions for income taxes were at rates other than the U.S. federal statutory tax rate for the following reasons:

	2001		2000		1999
Tax at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Losses in foreign subsidiary and less than 80% owned subsidiaries with no current tax benefit	—		(1.9	)	0.1
State taxes, net	6.7		2.0		1.3
Foreign sales corporation	(18.3	)	(4.4	)	(2.3	)
Nondeductible amortization	19.3		1.2		0.8
Benefit of tax credits	(6.5	)	(1.7	)	(1.5	)
Utilization of operating loss carryforwards	(3.8	)	—		—
Charge for purchased research and development	57.6		23.3		0.9
Foreign rate differential	1.8		(0.9	)	—
Other, net	1.3		(0.7	)	3.0
Effective tax rate	93.1	%	51.9	%	37.3	%

        The components of net deferred tax assets are described in the following table:

		December 31,
		2001			2000
		(Amounts in thousands)
Deferred tax assets:
	Net operating loss carryforwards	$	34,211		$	35,769
	Tax credits		19,448			13,304
	Inventory		40,206			26,997
	Reserves, accruals and other		32,388			15,822
	Allocation of tax asset from Genzyme Biosurgery		11,779			12,123
	Allocation of tax asset from Genzyme Molecular Oncology		269			437
Gross deferred tax asset			138,301			104,452
Valuation allowance			—			(13,592	)
Deferred tax asset			138,301			90,860
Deferred tax liabilities:
	Depreciable assets		(17,108	)		(21,149	)
	Realized and unrealized capital gains		(8,640	)		(7,530	)
	Deferred gains		(898	)		(878	)
	Intangibles		(122,155	)		(134,684	)
	Investments in unconsolidated subsidiaries		—			(4,396	)
Deferred tax liability			(148,801	)		(168,637	)
Net deferred tax liability		$	(10,500	)	$	(77,777	)

        As of December 31, 2000, Genzyme General had valuation allowances of $13.6 million against otherwise recognizable deferred tax assets, primarily consisting of capital losses from the purchase of

GG-72

in-process research and development, as the realizability of the assets was not sufficiently assured. As a result of the resolution of several tax audit matters in 2001, Genzyme General was able to recognize these deferred tax assets and, therefore, released the related valuation allowances. The resolution of these matters resulted in the recognition of $2.2 million of net tax benefits in the second quarter of 2001.

        Our ability to realize the benefit of net deferred tax assets is dependent on our generating sufficient taxable income before loss carryforwards expire. While it is not assured, we believe that it is more likely than not that we will be able to realize all of our net deferred tax assets. The amount we can realize, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

        At December 31, 2001 Genzyme General had for U.S. income tax purposes allocated net operating loss carryforwards of $97.7 million and an allocated tax credit carryforward of $16.8 million. The net operating loss carryforwards expire between 2007 and 2021 and, prior to expiration, Genzyme General's ability to use this carryforward may be limited under U.S. tax laws.

NOTE Q.    BENEFIT PLANS

        Note P., "Benefit Plans," to our consolidated financial statements contains information regarding our 401(k) and other pension plans. We incorporate that information into this note by reference.

NOTE R.    SEGMENT INFORMATION

        In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", we present segment information in a manner consistent with the method we use to report this information to our management. Applying SFAS No. 131, Genzyme General has two reportable segments:

•

Therapeutics, which develops, manufactures and distributes human therapeutic products with an expanding focus on products which treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and other specialty therapeutics. The business derives substantially all of its revenue from sales of Cerezyme enzyme and Renagel phosphate binder; and



•

Diagnostic products, which provides diagnostic products to niche markets, focusing on in vitro diagnostics.

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        We have provided information concerning the operations in these reportable segments in the following table:

			December 31,
			2001			2000			1999
			(Amounts in thousands)
Revenues:
	Therapeutics (1)		$	783,736		$	600,679		$	488,705
	Diagnostic products (2)			76,858			61,469			57,971
	Other (3)			118,008			89,371			86,409
	Eliminations/Adjustments (3)			3,324			964			2,281
		Total	$	981,926		$	752,483		$	635,366
Depreciation and amortization expense:
	Therapeutics (1,4)		$	75,884		$	8,913		$	13,069
	Diagnostic products (2,4)			7,819			4,940			1,909
	Other (3)			7,066			7,226			6,422
	Eliminations/Adjustments (3)			27,184			20,127			20,835
		Total	$	117,953		$	41,206		$	42,235
Equity in net loss of unconsolidated affiliates:
	Therapeutics (5)		$	(30,214	)	$	(42,801	)	$	(30,094	)
	Diagnostic products			—			—			—
	Other (3)			126			(64	)		56
	Eliminations/Adjustments (6)			(4,277	)		(2,100	)		(7,385	)
		Total	$	(34,365	)	$	(44,965	)	$	(37,423	)
Income tax (expense) benefits:
	Therapeutics (1)		$	(17,522	)	$	(53,046	)	$	(84,859	)
	Diagnostic products(2)			1,269			(2,056	)		(2,485	)
	Other (3)			(4,818	)		1,006			2,952
	Eliminations/Adjustments (3)			(31,595	)		(38,543	)		(8	)
		Total	$	(52,666	)	$	(92,639	)	$	(84,400	)
Division net income:
	Therapeutics (1,7,8)		$	81,937		$	94,065		$	133,854
	Diagnostic products (2,9)			(1,075	)		3,004			3,915
	Other (4,10)			8,383			(1,790	)		(4,661	)
	Eliminations/Adjustments (11)			(85,366	)		(9,323	)		8,969
	Division net income before cumulative effect of change in accounting principle			3,879			85,956			142,077
	Cumulative effect of change in accounting principle, net of tax (12)			4,167			—			—
		Division net income	$	8,046		$	85,956		$	142,077

GG-74

(1)

In December 2000 we acquired GelTex. The results of operations of GelTex are included in our Therapeutics segment beginning on December 14, 2000, the date of acquisition. See Note E., "Acquisitions," above.

(2)

In June 2001, we acquired Wyntek and allocated the acquisition to Genzyme General. The results of operations of Wyntek are included in our Diagnostic products business segment beginning on June 1, 2001, the date of acquisition. See Note E., "Acquisitions," above.

(3)

Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General. Eliminations/adjustments consist primarily of amounts related to Genzyme General's research and development and administrative activities that we do not specifically allocate to a particular segment of Genzyme General.

(4)

In 2001, includes the amortization of the intangible assets generated by the acquisition of Wyntek beginning on June 1, 2001. In 2000, includes the amortization of the intangible assets generated by the GelTex acquisition beginning on December 14, 2000. See Note E., "Acquisitions," above.

(5)

In 2000, includes Genzyme General's 50% portion of the losses of RenaGel LLC through December 13, 2000. In connection with the acquisition of GelTex, we acquired GelTex's 50% interest in RenaGel LLC and, as a result, consolidated the activities of the joint venture for the period from December 14, 2000 through December 31, 2000. See Note E., "Acquisitions," above.

(6)

Represents our portion of the net loss of Genzyme Transgenics, an unconsolidated affiliate, which we do not specifically allocate to a particular segment of Genzyme General.

(7)

In September 2001, we acquired Novazyme and allocated the acquisition to Genzyme General. The results of operations of Novazyme are included in our Therapeutics business segment beginning on September 26, 2001, the date of acquisition. See Note E., "Acquisitions," above.

(8)

Therapeutics net income includes charges for IPR&D of:

•

in 2001—$86.8 million related to the acquisition of Novazyme;



•

in 2000—$118.0 million related to the acquisition of GelTex; and



•

in 1999—$5.4 million related to the acquisition of Peptimmune.

See Note E., "Acquisitions," above.

(9)

Diagnostic products' net loss for 2001 includes an $8.8 million charge for IPR&D related to the acquisition of Wyntek. See Note E., "Acquisitions," above. Diagnostic products' net income for 1999 includes a pre-tax gain on the sale of a product line of $0.5 million in 1999. See Note D., "Disposition of Assets," above.

(10)

Other income for 1999 includes a $7.5 million pre-tax gain on the sale of a product line. See Note D., "Dispositions of Assets," above.

(11)

Includes the net income (loss) of Genzyme General's corporate administrative and research and development activities which we do not specifically allocate to a particular segment of Genzyme General including the following (pre-tax):

•

gains on affiliate sale of stock of $0.2 million in 2001, $22.7 million in 2000 and $6.7 million in 1999, recognized in accordance with our policy pertaining to affiliate sales of stock, all of

GG-75

which resulted from the sale of common stock by Genzyme Transgenics, an unconsolidated affiliate;

•

losses on equity investments of $26.0 million in 2001, including a charge of $8.5 million to write-off our investment in Pharming Group, a charge of $11.8 million to write down our investment in Cambridge Antibody Technology and a charge of $4.5 million to write down an investment in Targeted Genetics;



•

net gains on investments in equity securities of $23.2 million in 2000 and $2.0 million in 1999 resulting from sales of a portion of our investment portfolio in each period; and



•

in 2000, net proceeds of $5.1 million received in connection with the settlement of a lawsuit and in 1999, a $14.4 million gain upon receipt of a payment associated with the termination of the agreement to acquire Cell Genesys.

(12)

On January 1, 2001, in connection with the adoption of SFAS No. 133, Genzyme General recorded a cumulative-effect adjustment of $4.2 million, net of tax, to recognize the fair value of certain common stock warrants held on January 1, 2001.

        We provide information concerning the assets of Genzyme General's segments in the following table:

		December 31,
		2001		2000		1999
		(Amounts in thousands)
Segment assets(1):
	Therapeutics (2)	$	1,347,494	$	1,341,656	$	338,960
	Diagnostic products (3)		196,571		89,236		40,266
	Other (4)		84,239		77,153		83,088
	Eliminations/Adjustments (4)		1,596,950		991,008		937,269
Total		$	3,225,254	$	2,499,053	$	1,399,583

(1)

Segment assets for Genzyme General include primarily cash and investments, accounts receivable, inventory and certain fixed and intangible assets.

(2)

Segment assets for 2000 include $1.1 billion of additional assets resulting from the acquisition of GelTex, including $465.1 million of intangible assets, $449.6 million of goodwill and $45.5 million of property, plant and equipment. See Note E., "Acquisitions," above.

(3)

Segment assets for Diagnostic products for 2001 include $71.5 million of assets resulting from the acquisition of Wyntek, including $20.3 million of goodwill and $39.4 million of other intangible assets. See Note E., "Acquisitions," above.

(4)

The Other category includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General. Eliminations/Adjustments for

GG-76

Genzyme General consists of the differences between the total assets for Genzyme General's segments and the total combined assets for Genzyme General as follows:

	December 31,
	2001		2000		1999
	(Amounts in thousands)
Cash, cash equivalents, and short- and long-term investments	$	870,662	$	339,259	$	513,905
Due from Genzyme Biosurgery		29,513		18,645		7,089
Due from Genzyme Molecular Oncology		7,086		4,660		3,793
Deferred tax assets—current		70,196		46,836		41,195
Intangibles, net		5,143		30,197		34,341
Property, plant and equipment, net		420,684		332,423		172,165
Investment in equity securities		88,686		119,648		94,719
Deferred tax assets—noncurrent		—		—		18,631
Other		104,980		99,340		51,431
Total Eliminations/Adjustments	$	1,596,950	$	991,008	$	937,269

        Genzyme General operates in the healthcare industry, and manufactures and markets its products primarily in the United States and Europe. Genzyme General's principal manufacturing facilities are located in the United States, the United Kingdom, Switzerland and Germany. It purchases products from our subsidiaries in the United Kingdom and Switzerland for sale to customers in the United States. Genzyme General sets transfer prices from our foreign subsidiaries to allow it to produce profit margins commensurate with its sales and marketing effort. Our subsidiary in Ireland is Genzyme General's primary distributor of therapeutic products in Europe.

        No subsidiary in any individual foreign country has revenue from sales of Genzyme General's products and services to external customers in excess of 10% of Genzyme General's total revenue. The following contains certain financial information by geographic area:

		2001		2000		1999
		(Amounts in thousands)
Revenues:
	U.S.	$	604,740	$	436,001	$	412,611
	Europe		271,345		223,933		158,428
	Other		105,841		92,549		64,327
Total		$	981,926	$	752,483	$	635,366
Long-lived assets:
	U.S.	$	1,409,395	$	868,916	$	647,024
	Other		113,499		47,674		52,541
Total		$	1,522,894	$	916,590	$	699,565

        Genzyme General's results of operations are highly dependent on sales of Ceredase and Cerezyme enzymes. Sales of these products represented 63% of Genzyme General's product revenue in 2001,

GG-77

78% of product revenue in 2000 and 84% of product revenue in 1999. We manufacture Cerezyme at a single manufacturing facility in Allston, Massachusetts. Genzyme General sells these products directly to physicians, hospitals and treatment centers as well as through an unaffiliated distributor. Distributor sales represented approximately 33% of Ceredase and Cerezyme enzyme revenues in 2001 and approximately 28% in both 2000 and 1999. We believe that our credit risk associated with trade receivables is mitigated as a result of the fact that these products are sold to a large number of customers in a number of different industries and over a broad geographic area.

        Although sales of Genzyme General's Gaucher disease therapies continue to increase, the decline as a percentage of total product revenue is a result of the growth in the sales of Renagel phosphate binder. Driven primarily by the accelerating adoption of the product by neprologists worldwide and the significant progress made with the post-approval clinical development program, sales of Renagel phosphate binder represented approximately 20% of Genzyme General's product revenue in 2001 and approximately 7% of product revenue in 2000. Prior to 2000, revenues from Renagel phosphate binder were recorded by RenaGel LLC, our joint venture with GelTex.

NOTE S.    QUARTERLY RESULTS (UNAUDITED)

	1st Quarter 2001		2nd Quarter 2001		3rd Quarter 2001			4th Quarter 2001
	(Amounts in thousands)
Net revenue	$	222,693	$	238,998	$	255,052		$	265,183
Gross profit		162,260		179,259		193,501			200,425
Division net income		29,312		21,718		(81,706	)		38,722

	1st Quarter 2000		2nd Quarter 2000		3rd Quarter 2000		4th Quarter 2000
Net revenue	$	170,626	$	186,694	$	192,165	$	202,998
Gross profit		129,411		140,536		137,651		142,817
Division net income		45,309		63,990		50,973		(74,316	)

NOTE T.    SUBSEQUENT EVENT

        On February 1, 2002, Genzyme Biosurgery paid to Genzyme General $27.1 million, representing $20.0 million of the $25.0 million, plus accrued interest of 13.5% per annum, Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC. The refund obligation arose because Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc., failed to initiate a phase 3 trial of NeuroCell-PD for Parkinson's disease by June 30, 2001.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Genzyme Corporation:

        In our opinion, the accompanying combined balance sheets and the related combined statements of operations and of cash flows present fairly, in all material respects, the financial position of Genzyme General (as described in Note A) at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        As more fully described in Note A to these financial statements, Genzyme General is a division of Genzyme Corporation; accordingly, the combined financial statements of Genzyme General should be read in conjunction with the audited consolidated financial statements of Genzyme Corporation and Subsidiaries.

Boston, Massachusetts
February 14, 2002

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FINANCIAL STATEMENTS GENZYME GENERAL A DIVISION OF GENZYME CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME GENERAL'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENZYME GENERAL A DIVISION OF GENZYME CORPORATION COMBINED STATEMENTS OF OPERATIONS
GENZYME GENERAL A DIVISION OF GENZYME CORPORATION COMBINED BALANCE SHEETS
GENZYME GENERAL A DIVISION OF GENZYME CORPORATION COMBINED STATEMENTS OF CASH FLOWS
GENZYME GENERAL A DIVISION OF GENZYME CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS

EX-13.3

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EXHIBIT 13.3

FINANCIAL STATEMENTS
GENZYME BIOSURGERY
A DIVISION OF GENZYME CORPORATION

	Page No.
Combined Selected Financial Data	GBS-2
Management's Discussion and Analysis of Genzyme Biosurgery's Financial Condition and Results of Operations	GBS-6
Combined Statements of Operations—For the Years Ended December 31, 2001, 2000, and 1999	GBS-30
Combined Balance Sheets—December 31, 2001 and 2000	GBS-31
Combined Statements of Cash Flows—For the Years Ended December 31, 2001, 2000 and 1999	GBS-32
Notes to Combined Financial Statements	GBS-33
Report of Independent Accountants	GBS-55

GBS-1

GENZYME BIOSURGERY
A DIVISION OF GENZYME CORPORATION

COMBINED SELECTED FINANCIAL DATA

        These selected financial data have been derived from the audited combined financial statements of Genzyme Biosurgery. You should read the following information in conjunction with the audited financial statements and related notes of Genzyme Biosurgery and Genzyme contained elsewhere in this annual report. These selected financial data may not be indicative of Genzyme Biosurgery's future financial condition due to the risks and uncertainties described under the caption "Management's Discussion and Analysis of Genzyme Biosurgery's Financial Condition and Results of Operations—Factors Affecting Future Operating Results" below.

        Genzyme Biosurgery is our operating division that develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedic and cardiothoracic markets.

        A series of our common stock, Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock" is designed to reflect the value and track the financial performance of this division. Biosurgery Stock is common stock of Genzyme Corporation, not of Genzyme Biosurgery; Genzyme Biosurgery is a division, not a company or legal entity, and therefore does not and cannot issue stock. The chief mechanisms intended to cause Biosurgery Stock to "track" the performance of Genzyme Biosurgery are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to Genzyme Biosurgery into the determination of the amount available to pay dividends on Biosurgery Stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock if all or substantially all of the assets allocated to Genzyme Biosurgery are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Biosurgery Stock is defined in our charter as the net income or loss of Genzyme Biosurgery determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme Biosurgery in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among the divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to Biosurgery Stock are based on the income or losses attributable to Genzyme Biosurgery, we include financial statements and management's discussion and analysis of Genzyme Biosurgery to aid investors in evaluating its performance. The following combined selected financial data reflects the results of operations and financial position of Genzyme Biosurgery and should be read in conjunction with the combined financial statements of Genzyme Biosurgery and accompanying notes.

        In November 2001, we sold the Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery, for $15.9 million in net cash. The purchaser acquired all of the assets directly

GBS-2

associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a carrying value of approximately $41.0 million at the time of the sale. We recorded a loss of $25.0 million in connection with this sale.

        On June 30, 2001, we acquired the remaining outstanding shares of Focal Inc. common stock that we had not previously acquired. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as consideration, valued at approximately $9.5 million. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Accordingly, the results of operations of Focal are included in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery from the date of acquisition.

        In January 2001, we acquired the outstanding Class A limited partnership interests in Genzyme Development Partners, L.P. (GDP), a limited partnership engaged in developing, producing and commercializing Sepra products, for an aggregate of $25.7 million plus royalties on sales of certain Sepra products for ten years. In August 2001, we purchased the remaining outstanding GDP partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus additional royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, the results of operations of GDP are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

        On December 18, 2000, we acquired Biomatrix, Inc., a publicly-held company engaged in the development and, manufacture of viscoelastic biomaterials for use in orthopaedic and other medical applications for an aggregate purchase price of $482.4 million. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Immediately prior to the acquisition, we combined two of our operating divisions, Genzyme Surgical Products and Genzyme Tissue Repair, to form a new division called Genzyme Biosurgery. We allocated the acquired assets and liabilities of Biomatrix to Genzyme Biosurgery. The combination of Genzyme Surgical Products and Genzyme Tissue Repair to form Genzyme Biosurgery did not result in any adjustments to the book values of the net assets of the divisions because they remained divisions of the same corporation. We present the financial statements of Genzyme Biosurgery as though the divisions had been combined for all periods presented, and include the operations of Biomatrix from December 18, 2000, the date of acquisition.

GBS-3

COMBINED STATEMENTS OF OPERATIONS DATA (1)

			For the Years Ended December 31,
			2001			2000			1999			1998			1997
			(Amounts in thousands)
Revenues:
	Net product sales		$	211,523		$	121,870		$	111,951		$	103,958		$	100,835
	Net service sales			23,614			23,321			20,305			17,008			10,856
	Revenues from research and development contracts			5			23			97			109			—
		Total revenues		235,142			145,214			132,353			121,075			111,691
Operating costs and expenses:
	Cost of products sold (2)			113,250			69,489			67,212			72,274			59,802
	Cost of services sold			12,733			12,298			13,237			13,438			11,788
	Selling, general and administrative			122,020			92,238			87,841			81,876			79,632
	Research and development			47,159			37,000			36,075			29,050			22,132
	Amortization of intangibles			46,828			7,096			5,750			5,748			5,647
	Purchase of in-process research and development (3)			—			82,143			—			—			—
	Charge for impaired asset (4)			—			4,321			—			—			—
		Total operating costs and expenses		341,990			304,585			210,115			202,386			179,001
Operating loss				(106,848	)		(159,371	)		(77,762	)		(81,311	)		(67,310	)
Other income (expenses):
	Equity in net loss of unconsolidated affiliates (5,6)			(1,316	)		—			(3,403	)		(7,680	)		(6,797	)
	Loss on investments in equity securities (7)			—			(7,300	)		—			—			—
	Loss on sale of product line (8)			(24,999	)		—			—			—			—
	Other			124			(15	)		138			60			236
	Investment income			1,753			5,833			4,808			1,320			1,077
	Interest expense			(13,884	)		(1,364	)		(1,858	)		(2,631	)		(2,930	)
		Total other income (expenses)		(38,322	)		(2,846	)		(315	)		(8,931	)		(8,414	)
Division net loss			$	(145,170	)	$	(162,217	)	$	(78,077	)	$	(90,242	)	$	(75,724	)

COMBINED BALANCE SHEET DATA (1)(9)

	December 31,
	2001		2000		1999		1998		1997
	(Amounts in thousands)
Cash and investments	$	38,623	$	78,163	$	135,498	$	7,732	$	32,890
Working capital		59,800		98,819		110,577		26,253		65,902
Total assets		704,671		811,600		390,572		253,170		299,792
Long-term debt, capital lease obligations and convertible debt		245,629		229,453		18,000		12,579		31,089
Division equity		394,454		511,106		350,463		210,692		255,172

        There were no cash dividends paid.

GBS-4

(1)

We formed Genzyme Biosurgery as a separate division of Genzyme on December 18, 2000 by combining two of our divisions, Genzyme Surgical Products and Genzyme Tissue Repair and simultaneously acquiring Biomatrix, Inc. These data reflect the financial position, results of operations and cash flows attributable to Genzyme Biosurgery as if it had been accounted for as a separate division of the corporation for all periods presented as it relates to Genzyme Surgical Products and Genzyme Tissue Repair. The results of operations of Biomatrix are included in Genzyme Biosurgery's results from the date of acquisition, December 18, 2000.

(2)

Cost of products sold for 1998 includes a $10.4 million charge to write-down our Sepra products inventory to net realizable value.

(3)

Charges for in-process research and development were incurred in connection with the acquisition of Biomatrix in 2000.

(4)

Represents a charge to write off abandoned equipment at our Springfield Mills manufacturing facility in the United Kingdom.

(5)

Operations of Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc., commenced in October 1996. In May 1999, we reallocated our ownership interest in the joint venture from Genzyme Biosurgery to Genzyme General.

(6)

In January 2001, Focal, Inc. exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We recorded our portion of the results of Focal in equity in net loss of unconsolidated affiliate. We allocated this investment to Genzyme Biosurgery. On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock and have included Focal's results in Genzyme Biosurgery's results of operations since that date. We allocated the acquired assets and liabilities to Genzyme Biosurgery and accounted for the acquisition as a purchase.

(7)

Represents a charge for the write-down of our investment in Focal common stock because we considered its decline in fair value to be other than temporary.

(8)

Represents the loss from the sale of the Snowden-Pencer line of surgical instruments in the fourth quarter of 2001.

(9)

In January 2001, we purchased all of the outstanding Class A limited partnership interests of GDP for a payment of approximately $25.7 million in cash plus royalties payable over ten years on sales of certain Sepra products.

GBS-5

MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME BIOSURGERY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

        This discussion contains forward-looking statements. Actual results could differ materially from those anticipated by the forward-looking statements due to the risks and uncertainties described under the caption "Factors Affecting Future Operating Results" for Genzyme Biosurgery and Genzyme included in this annual report. You should consider carefully each of these risks and uncertainties in evaluating the financial condition and results of operations of Genzyme Biosurgery and Genzyme. We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements except as required by law.

        Genzyme Biosurgery is our operating division that develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedic and cardiothoracic markets.

        We prepare the combined financial statements of Genzyme Biosurgery in accordance with generally accepted accounting principles. We present financial information and accounting policies specific to Genzyme Biosurgery in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should read our consolidated financial statements in conjunction with the combined financial statements of Genzyme Biosurgery. Note A., "Summary of Significant Accounting Policies," to our consolidated financial statements contains our accounting policies.

        Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," is a series of our common stock that is designed to reflect the value and track the performance of Genzyme Biosurgery. The chief mechanisms intended to cause Biosurgery Stock to "track" the financial performance of Genzyme Biosurgery are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to Genzyme Biosurgery into the determination of the amount available to pay dividends on Biosurgery Stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock if all or substantially all of the assets allocated to Genzyme Biosurgery are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of Biosurgery Stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Biosurgery Stock is defined in our charter as the net income or loss of Genzyme Biosurgery determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme Biosurgery in accordance with our management and accounting policies. Our charter also requires that all income and expenses of Genzyme be allocated among the divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to Biosurgery Stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to Biosurgery Stock are based on the income or losses attributable to Genzyme

GBS-6

Biosurgery, we provide financial statements and management's discussion and analysis of Genzyme Biosurgery to aid investors in evaluating its performance.

        While Biosurgery Stock is designed to reflect Genzyme Biosurgery's performance, it is common stock of Genzyme Corporation and not Genzyme Biosurgery; Genzyme Biosurgery is a division, not a company or legal entity, and therefore does not and cannot issue stock. Consequently, holders of Biosurgery Stock have no specific rights to assets allocated to Genzyme Biosurgery. Genzyme Corporation continues to hold title to all of the assets allocated to Genzyme Biosurgery and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to Genzyme Biosurgery. Holders of Biosurgery Stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to Genzyme Biosurgery are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of Biosurgery Stock and other tracking stockholders would only have the rights of common stockholders in the combined assets of Genzyme.

        Our charter requires us to manage and account for transactions between Genzyme Biosurgery and our other divisions and with third parties, and any resulting reallocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our divisional management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitudes and extent of allocations to each series of common stock without shareholder approval.

Disposition

        In November 2001, we sold the Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery, for $15.9 million in net cash. The purchaser acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a net carrying value of approximately $41.0 million at the time of the sale. We recorded a loss of $25.0 million in connection with this sale.

Acquisitions

        In January 2001, Focal, Inc. exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock not previously acquired. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as consideration, valued at approximately $9.5 million. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Accordingly, the results of operations of Focal are included in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery from the date of acquisition.

        In January 2001, we acquired the outstanding Class A limited partnership interests in Genzyme Development Partners, L.P. (GDP), a limited partnership engaged in developing, producing and commercializing Sepra products, for an aggregate of $25.7 million plus royalties on sales of certain Sepra products for ten years. In August 2001, we purchased the remaining outstanding GDP partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus additional

GBS-7

royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, the results of operations of GDP are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

        In December 2000, we acquired Biomatrix, Inc., a public company engaged in the development and commercialization of viscoelastic products made of biological polymers called hylans for use in therapeutic medical applications and skin care for an aggregate purchase price of $482.4 million. We accounted for the acquisition as a purchase. Immediately prior to the acquisition, we combined two of our operating divisions, Genzyme Surgical Products and Genzyme Tissue Repair, to form a new division called Genzyme Biosurgery. We allocated the acquired assets and liabilities of Biomatrix to Genzyme Biosurgery. The combination of Genzyme Surgical Products and Genzyme Tissue Repair to form Genzyme Biosurgery did not result in any adjustments to the book values of the net assets of the divisions because they remained divisions of the same corporation. We present the financial statements of Genzyme Biosurgery as though the divisions had been combined for all periods presented, and include the operations of Biomatrix from December 18, 2000, the date of acquisition.

        In connection with the formation of Genzyme Biosurgery, we created Genzyme Biosurgery Stock. Genzyme Biosurgery Stock is designed to track the performance of our Genzyme Biosurgery division. We converted each outstanding share of Surgical Products Stock into 0.6060 of a share of Biosurgery Stock, and each outstanding share of Tissue Repair Stock into 0.3352 of a share of Biosurgery Stock. We converted all outstanding options to purchase Surgical Products Stock and Tissue Repair Stock into options to purchase Biosurgery Stock at the applicable conversion rate.

CRITICAL ACCOUNTING POLICIES

        The preparation of the combined financial statements of Genzyme Biosurgery under generally accepted accounting principles requires us to make certain estimates and judgments that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in these financial statements. Our actual results could differ from these estimates under different assumptions and conditions.

        We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of Genzyme Biosurgery's combined financial statements:

•

Policies Relating to Tracking Stocks;



•

Revenue Recognition;



•

Inventories;



•

Long-Lived Assets; and



•

Asset Impairments.

Policies Relating to Tracking Stocks

Allocation of Revenue, Expenses, Assets, and Liabilities

        Our charter sets forth which operations and assets were initially allocated to Genzyme Biosurgery and states that going forward the division will also include all business, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between Genzyme Biosurgery and our other divisions and with third parties, and any resulting reallocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that

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all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to that division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to that division;



•

actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the service is performed on a cost basis. Such charges are generally based on direct labor hours;



•

proportionate usage—costs incurred which benefit more than one division are allocated based on management's estimate of the proportionate benefit each division receives. Such costs include facilities, legal, finance, human resources, executive and investor relations; or



•

board directed—programs and products, both internally developed and acquired, are allocated to divisions by the board of directors. The board also allocates long-term debt and strategic investments.

        Any future changes that our board of directors may make to the methods for allocating revenue, expenses, assets, and liabilities among our divisions could materially change the results of operations or the financial condition of Genzyme Biosurgery.

Income Tax Allocation Policy

        If at the end of any fiscal quarter, 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 other divisions in proportion to their taxable income without any compensating payments or allocation to the division generating the benefit. Genzyme Biosurgery has not yet generated taxable income, and thus has not had the ability to use any projected annual tax benefits. Genzyme General has generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery. Consistent with our policy, we have allocated the tax benefits generated by Genzyme Biosurgery to Genzyme General without any compensating payments or allocations to Genzyme Biosurgery.

        We anticipate that the losses of Genzyme Biosurgery will decline in the future. As these losses decline, the tax benefits allocated to other profitable divisions will also decline. In addition, if our board of directors decided to change our tax allocation policy, it could reduce the tax benefits allocated to any division that is profitable at the time the change becomes effective, and reduce the earnings allocated to the associated series of tracking stock.

        Deferred tax assets and liabilities can arise from purchase accounting that relate to a division that does not satisfy the realizability criteria of SFAS No. 109, "Accounting for Income Taxes." Such deferred tax assets and liabilities are allocated to the division to which the acquisition was allocated. As a result, the periodic changes in the deferred tax assets and liabilities do not result in a tax expense or benefit to that division. However, the change in the deferred tax asset or liability is added to division

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net income for purposes of determining net income allocated to a tracking stock. If our board of directors modified the policy for allocating changes in these assets and liabilities, the income attributable to each series of tracking stock could be materially different.

Revenue Recognition

        Genzyme Biosurgery recognizes revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, and title and risk of loss have passed to the customer. Genzyme Biosurgery recognizes revenue from service sales when we have finished providing the service. Genzyme Biosurgery recognizes revenue from research and development contracts over the term of the applicable contract and as we incur costs related to that contract. Genzyme Biosurgery recognizes non-refundable up-front license fees over the related performance period or at the time it has no remaining performance obligations.

        Genzyme Biosurgery receives royalties related to the manufacture, sale or use of its products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, Genzyme Biosurgery recognizes revenue based on estimates of royalties earned during the applicable period and adjusts for differences between the estimated and actual royalties in the following quarter. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, Genzyme Biosurgery recognizes revenue upon receipt of royalty statements from the licensee.

        The timing of product shipments and receipts can have a significant impact the amount of revenue recognized in a period. Also, some of Genzyme Biosurgery's products are sold through distributors. Revenue could be adversely affected if distributor inventories increased to an excessive level. If this were to happen we could experience reduced purchases in subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand, or expiration.

        Allowances are recorded for product returns, and for any applicable third party contractual allowances, rebates, or discounts. These allowances are recorded as reductions of revenue. These allowances require Genzyme Biosurgery to make significant judgments and estimates, which could require adjustments in the future. Such adjustments could have a material effect on Genzyme Biosurgery's reported revenues.

        Genzyme Biosurgery does not recognize revenue unless collectibility is reasonably assured. Genzyme Biosurgery maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Genzyme Biosurgery's customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

Inventories

        Genzyme Biosurgery values inventories at cost or, if lower, fair value. It determines cost using the first-in, first-out method. Genzyme Biosurgery analyzes inventory levels quarterly and writes down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements. Inventory with a life in excess of its shelf life is disposed of and the related costs are written off. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

        Genzyme Biosurgery capitalizes inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If a product is not approved for sale, it would result in the write-off of the inventory and a charge to earnings.

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Long-Lived Assets

        In the ordinary course of our business, Genzyme Biosurgery incurs substantial costs to purchase and construct property, plant and equipment. The treatment of costs to purchase or construct such assets depends on the nature of the costs and the stage of construction. Costs incurred in the initial design and evaluation phase, such as the cost of performing feasibility studies and evaluating alternatives, are charged to expense. Qualifying costs incurred in the committed project planning and design phase, and in the construction and installation phase, are capitalized as part of the cost of the asset. Genzyme Biosurgery stops capitalizing costs when an asset is substantially complete and ready for its intended use. Determining the appropriate period during which to capitalize costs, and assessing whether particular costs qualify for capitalization, requires Genzyme Biosurgery to make significant judgments. These judgments can have a material impact on its reported results.

        For products Genzyme Biosurgery expects to be commercialized, it capitalizes the cost of validating new equipment for the underlying manufacturing process. Genzyme Biosurgery begins capitalization when Genzyme Biosurgery considers the product to have demonstrated technological feasibility, and ends capitalization when the asset is substantially complete and ready for its intended use. Costs capitalized include incremental labor and direct material, and incremental fixed overhead and interest. Determining whether to capitalize validation costs requires judgment, and can have a significant impact on Genzyme Biosurgery's reported results. Also, if Genzyme Biosurgery were unable able to successfully validate the manufacturing process for any future product, it would have to write-off to current operating expense any validation costs that had been capitalized during the unsuccessful validation process. To date, all of Genzyme Biosurgery's manufacturing process validation efforts have been successful.

        Genzyme Biosurgery generally depreciates plant and equipment using the straight-line method over its estimated economic life, which ranges from 3 to 10 years. Determining the economic lives of plant and equipment requires it to make significant judgments that can materially impact Genzyme Biosurgery's operating results. For certain specialized manufacturing plant and equipment, Genzyme Biosurgery uses the units-of-production depreciation method. The units-of-production method requires Genzyme Biosurgery to make significant judgments and estimates, including estimates of the number of units that will be produced using the assets. There can be no assurance that Genzyme Biosurgery's estimates are accurate. If these estimates require adjustment, it could have a material impact on Genzyme Biosurgery's reported results.

        In accounting for acquisitions, Genzyme Biosurgery allocates the purchase price to the fair value of the acquired tangible and intangible assets, including acquired in-process research and development (IPR&D). This requires Genzyme Biosurgery to make several significant judgments and estimates. For example, it generally estimates the value of acquired intangible assets and IPR&D using a discounted cash flow model, which requires it to make assumptions and estimates about, among other things:

•

the time and investment that will be required to develop products and technologies;



•

the ability to develop and commercialize products before its competitors develop and commercialize products for the same indications;



•

revenues that will be derived from the products; and



•

appropriate discount rates to use in the analysis.

        Use of different estimates and judgments could yield materially different results in this analysis, and could result in materially different asset values and IPR&D charges.

        As of December 31, 2001, there were approximately $525.2 million of intangible assets on Genzyme Biosurgery's balance sheet. Genzyme Biosurgery amortizes acquired intangible assets using the straight-line method over their estimated economic lives, which range from 1.5 to 40 years.

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Determining the economic lives of acquired intangible assets requires Genzyme Biosurgery to make significant judgment and estimates, and can materially impact its operating results.

Asset Impairments

        Genzyme Biosurgery periodically evaluates long-lived assets for potential impairment under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of." Genzyme Biosurgery performs these evaluations whenever events or changes in circumstance suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•

a significant change in the manner in which an asset is used;



•

a significant decrease in the market value of an asset;



•

a significant adverse change in its business or industry; and



•

a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If Genzyme Biosurgery believes an indicator of potential impairment exists, it tests to determine whether the impairment recognition criterion of SFAS No. 121 has been met. In evaluating long-lived assets for potential impairment, Genzyme Biosurgery makes several significant estimates and judgments, including:

•

determining the appropriate grouping of assets at the lowest level for which cash flows are available;



•

estimating future cash flows associated with the asset or group of assets; and



•

determining an appropriate discount rate to use in the analysis.

        Use of different estimates and judgments could yield significantly different results in this analysis, and could result in materially different asset impairment charges.

        Effective January 1, 2002, Genzyme Biosurgery adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives. Unlike SFAS No. 121, goodwill impairment tests performed under SFAS No. 142 do not involve an initial test comparing the projected undiscounted cash flows to the carrying amount of the goodwill. Instead, SFAS No. 142 requires that goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value.

        Genzyme Biosurgery will perform transitional impairment tests under SFAS No. 142 in 2002 for the $236.6 million of goodwill recorded as of December 31, 2001. For all of its acquisitions, various analysis, assumptions, and estimates were made at the time of acquisition specifically regarding product development, market conditions, and cash flows that were used to determine the valuation of goodwill and intangibles. The possibility exists that those estimates could prove to be inaccurate, which could result in an impairment of goodwill. Also, because the goodwill impairment test required by SFAS No. 142 is different than the test Genzyme Biosurgery had been required to perform under SFAS 121, transitional impairment tests performed under SFAS No. 142 may yield different results than previous tests performed under SFAS No. 121. This charge would be recorded as an expense to the income

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statement at the time of impairment. Genzyme Biosurgery anticipates that our goodwill impairment test in 2002 will result in an impairment loss recognition of between $80.0 million and $90.0 million related mainly to our cardiothoracic reporting unit. This charge will be reflected in our statement of operations in 2002.

Results of Operations

        The following discussion summarizes the key factors our management believes are necessary for an understanding of Genzyme Biosurgery's financial statements.

Revenues

			2001		2000		1999		01/00 Increase/(Decrease) % Change		00/99 Increase/(Decrease) % Change
			(Amounts in thousands, except percentage data)
Product revenue:
	Cardiothoracic		$	69,118	$	76,406	$	77,936	(10	%)	(2%	)
	Orthopaedics			83,373		4,159		—	1,905	%	N/A
	Biosurgical specialties			59,032		41,305		34,015	43	%	21%
		Total product revenue		211,523		121,870		111,951	74	%	9%
Service revenue:
	Orthopaedics			18,417		18,229		15,213	1	%	20%
	Biosurgical specialties			5,197		5,092		5,092	2	%	— %
		Total service revenue		23,614		23,321		20,305	1	%	15%
Research and development revenue:
	Biosurgical specialties			5		23		97	(78	%)	(76%	)
		Total research and development revenue		5		23		97	(78	%)	(76%	)
		Total revenues	$	235,142	$	145,214	$	132,353	62	%	10%

2001 As Compared to 2000

        Cardiothoracic products include fluid management (chest drainage) systems, surgical closures, biomaterials, and instruments for conventional and minimally invasive cardiac surgery. The decrease in cardiothoracic product revenue in 2001 as compared to 2000 was due to decreased sales of chest drainage systems resulting from competitive pricing pressures in that market, as well as our withdrawal from certain commodity suture lines in Europe. The decrease was offset, in part, by the continued growth in sales of minimally invasive cardiac surgery products and sales revenue from FocalSeal-L surgical sealant. We added FocalSeal-L surgical sealant to the cardiothoracic product category in the third quarter of 2000 pursuant to a distribution and marketing agreement with Focal which, prior to our acquisition of Focal in June 2001, provided us with exclusive distribution rights for this product in North America.

        The orthopaedics product revenue increased in 2001 as compared to 2000 due to the sales of Synvisc viscosupplementation product, which we added to the orthopaedics product category in December 2000 through our acquisition of Biomatrix.

        The increase in biosurgical specialties product revenue in 2001 as compared to 2000 was due primarily to increases in sales of Seprafilm bioresorbable membrane and Sepramesh biosurgical composite. An increase in sales of products sold to original equipment manufacturers and sales

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generated from Hylaform biomaterial and other skin care products, which were added to the biosurgical specialties product category in December 2000, also contributed to the overall increase in biosurgical specialties product revenue. The increase in sales was partially offset by a decrease in sales of instruments for plastic surgery due to the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001.

        International revenue as a percentage of total revenue in 2001 was 20% as compared to 25% in 2000. International revenue as a percentage of total revenue decreased during the year due primarily to the addition of sales of Synvisc viscosupplementation product, which is sold predominantly in the United States. In addition, the average exchange rate for the Euro declined 3% during the period.

2000 As Compared to 1999

        The decrease in cardiothoracic product revenue in 2000 as compared to 1999 was due to the competitive pricing pressures in the chest drainage market. These factors were offset, in part, by the continued growth in minimally invasive cardiothoracic products and the revenue generated from FocalSeal-L, which was added to the cardiothoracic product line in the third quarter of 2000.

        The increase in orthopaedics revenue was due to the continued growth in sales of Carticel chondrocytes and the sales of Synvisc viscosupplementation product, which was added to the orthopaedic line in 2000 as a result of the acquisition of Biomatrix. The increase in sales of Carticel chondrocytes was a result of continued increases in the number of patients treated and surgeons trained as well as an increase in the number of insurance reimbursement approvals.

        Biosurgical specialties product revenue increased as a result of continued revenue growth in sales of Seprafilm bioresorbable membrane and Sepramesh biosurgical composite. An increase in revenues from Genzyme Biosurgery's Snowden-Pencer line of instruments for general and plastic surgery and products sold to original equipment manufacturers, including sutures, also contributed to the overall increase in biosurgical specialties product revenue.

        International revenues as a percentage of total revenues in 2000 were 25% as compared to 28% in 1999. This decrease was primarily due to a 13% decline in the average exchange rate of the Euro for the year ended December 31, 2000 as compared to the year ended December 31, 1999.

Margins

		2001			2000			1999			01/00 Increase/(Decrease) % Change		00/99 Increase/(Decrease) % Change
		(Amounts in thousands, except percentage data)
Product margin		$	98,273		$	52,381		$	44,739		88	%	17%
	% of product revenue		46	%		43	%		40	%
Service margin		$	10,881		$	11,023		$	7,068		(1	%)	56%
	% of service revenue		46	%		47	%		35	%
Total gross margin		$	109,154		$	63,404		$	51,807		72	%	22%
	% of total product and service revenue		46	%		44	%		39	%

2001 As Compared to 2000

        Genzyme Biosurgery provides a broad range of healthcare products and services. As a result, Genzyme Biosurgery's gross margins may vary significantly depending on the market conditions of each product or service.

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        Genzyme Biosurgery recorded charges to cost of products sold in 2001 of $11.3 million relating to the increased basis of the inventory obtained in connection with our acquisition of Biomatrix in December 2000, and $1.4 million relating to the increased basis of the inventory obtained in connection with our acquisition of Focal in June 2001. Additionally, Genzyme Biosurgery included a $0.8 million charge related to the underfunding of an acquired retirement plan in cost of products sold in 2001. Excluding the adjustments described above, product margins increased in 2001 as compared to 2000, as a result of an increase in sales of higher margin products such as Synvisc viscosupplementation product and devices for minimally invasive cardiac surgery.

        Service margins for services allocated to Genzyme Biosurgery decreased in 2001 as compared to 2000 due primarily to a significant decline in the volume of Epicel skin graft services due to an increase in discounts and cancellations. This decrease is partially offset by the increase in service margin for Carticel chondrocytes due to higher average sales prices resulting from a price increase and continued controlled spending efforts.

2000 As Compared to 1999

        Product margin increased in 2000 as compared to 1999 due to sales of higher margin products such as instruments for minimally invasive cardiac surgery. Service margin also increased in 2000 as compared to 1999 as a result of cost reduction initiatives and increased sales of Carticel chondrocytes.

Operating Expenses

2001 As Compared to 2000

        The increase in selling, general and administrative expenses in 2001 as compared to 2000 was primarily due to the addition of expenses related to the Biomatrix business, which we acquired in December 2000, and an increase in patent litigation costs, which were $4.1 million. In addition, Genzyme Biosurgery recorded $7.2 million in costs associated with the consolidation of European operations.

        Genzyme Biosurgery's research and development expenses increased in 2001 as compared to 2000 due to increased spending on the orthopaedics and cardiothoracic development programs. The increase in spending was primarily a result of the addition of Synvisc viscosupplementation product to the orthopaedics line in December 2000 and FocalSeal-L surgical sealant to the cardiothoracic line in June 2001.

2000 As Compared to 1999

        Genzyme Biosurgery's selling, general and administrative expenses increased in 2000 as compared to 1999 due to increased spending on the marketing of the cardiothoracic products, including the launch of three new products for the cardiothoracic market, and corporate branding efforts associated with the creation of Genzyme Biosurgery. The increase was offset, in part, by efforts to streamline operations relating to the provision of Carticel chondrocytes and Epicel skin grafts.

        Research and development expenses were maintained at a consistent level for 2000 when compared to 1999.

Amortization of Intangibles

        The increase in amortization of intangibles for the year ended December 31, 2001 is primarily attributable to intangible assets acquired in connection with our acquisitions of:

•

Biomatrix in December 2000;



•

Genzyme Development Partners, L.P. limited partnership interests in 2001; and

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•

Focal in June 2001.

Purchase of In-Process Research and Development

        In connection with our acquisition of Biomatrix, we allocated approximately $82.1 million to IPR&D, which Genzyme Biosurgery recorded as a charge to expense in its combined statement of operations for the year ended December 31, 2000. As of December 31, 2001, the technological feasibility of the Biomatrix IPR&D projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

        Below is a brief description of the Biomatrix IPR&D projects, including an estimation of when management believes we may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication	Development Status at December 31, 2001	Value at Acquisition Date (in millions)		Estimated Cost to Complete (in millions)	Year of Expected Product Launch
Visco-supplementation	Use of elastoviscous solutions and viscoelastic gels in disease conditions to supplement tissues and body fluids, alleviating pain and restoring normal function.	•  Preclinical for knee indications •  Presubmission in Europe for hip indications	$	33.8	(1)	2002 to 2006
Visco-augmentation and Visco-separation	Use of viscoelastic gels to provide scaffolding for tissue regeneration and to separate tissues and decrease formation of adhesions and excessive scars after surgery.	•  Preclinical—gynecological and pelvic indications •  Phase 2—spine indications •  Phase 3—abdominal indications		48.3	(1)	2003 to 2006
			$	82.1

(1)

Costs to complete are not estimable due to the early stage of these programs.

        Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once developed, each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give you assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

Charge for Impaired Assets

        In 2000, we recorded a $4.3 million charge for abandoned equipment at our Springfield Mills manufacturing facility located in the United Kingdom. The write-off of equipment was related to the

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Sepra product line and did not have other alternative uses. We allocated this charge to Genzyme Biosurgery.

Other Income and Expenses

		2001			2000			1999			01/00 Increase/(Decrease) % Change		00/99 Increase/(Decrease) % Change
		(Amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliates		$	(1,316	)	$	—		$	(3,403	)	N/A		(100%	)
Loss on investments in equity securities			—			(7,300	)		—		(100	%)	N/A
Loss on sale of product line			(24,999	)		—			—		N/A		— %
Other			124			(15	)		138		(927	%)	(111%	)
Investment income			1,753			5,833			4,808		(70	%)	21%
Interest expense			(13,884	)		(1,364	)		(1,858	)	918	%	(27%	)
	Total other income (expenses)	$	(38,322	)	$	(2,846	)	$	(315	)	1,247	%	803%

2001 As Compared to 2000

Equity in Net Loss of Unconsolidated Affiliate

        In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated our investment in Focal to Genzyme Biosurgery. Genzyme Biosurgery recorded in equity in net loss of unconsolidated affiliate its portion of the results of Focal. Genzyme Biosurgery's equity in net loss of unconsolidated affiliate increased in 2001 when compared to 2000 because Genzyme Biosurgery did not account for our interest in Focal under the equity method of accounting in 2000. On June 30, 2001, we acquired the remaining 78% of the outstanding shares in an exchange of shares of Biosurgery Stock for shares of Focal common stock, at which time we began accounting for Focal as a wholly-owned subsidiary.

Loss on Investments in Equity Securities

        In 2000, Genzyme Biosurgery recorded a $7.3 million charge for the write-down of Genzyme Biosurgery's investment in the common stock of Focal, because we considered the decline in the value of this investment to be other than temporary. Genzyme Biosurgery had no similar charge in 2001.

Loss on Sale of Product Line

        In November 2001, we sold the Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery for $16.0 million in cash. The purchaser acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a carrying value of approximately $41.0 million at the time of the sale. Genzyme Biosurgery recorded a loss of $25.0 million in connection with this sale.

Investment Income

        Investment income decreased in 2001 when compared to 2000 as a result of lower average cash balances.

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Interest Expense

        Interest expense increased primarily as a result of the $234.0 million of debt outstanding as of December 31, 2001, under the portion of our revolving credit facility that we allocated to Genzyme Biosurgery. In December 2000, we drew $200.0 million under this facility and allocated the proceeds to Genzyme Biosurgery to finance a portion of the cash component of the Biomatrix merger consideration. In November 2001, we drew $17.0 million under this facility and allocated the proceeds to Genzyme Biosurgery. We repaid $1.0 million of these borrowings in December 2001 using cash allocated to Genzyme Biosurgery.

2000 As Compared to 1999

Equity in Net Loss of Unconsolidated Affiliate

        The decrease in equity in net loss of unconsolidated affiliate in 2000 as compared to 1999 is due to the reallocation of Genzyme's ownership interest in Diacrin/Genzyme LLC from Genzyme Biosurgery to Genzyme General in May 1999.

Loss on Investments in Equity Securities

        Genzyme Biosurgery recorded a $7.3 million charge in 2000 in connection with the write-down of Genzyme Biosurgery's investment in the common stock of Focal, Inc., because we considered the decline in the value of this investment to be other than temporary. Genzyme Biosurgery had no similar charge in 1999.

Investment Income

        Investment income increased in 2000 when compared to 1999 as Genzyme Biosurgery had a higher average cash balance during 2000.

Research and Development Programs

        Before we can commercialize our development-stage products, we will need to:

•

conduct substantial research and development;



•

undertake preclinical and clinical testing; and



•

pursue regulatory approvals.

        This process is risky, expensive, and may take several years. We cannot guarantee that we will be able to successfully develop any product, or that we would be able to recover our development costs upon commercialization of a product that we successfully develop.

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        Below is a brief description of our significant research and development programs that have been allocated to Genzyme Biosurgery:

Program	Program Description or Indication	Development Status at December 31, 2001	Year of Expected Product Launch
HIF-1 a	Angiogenic gene therapy to treat coronary artery disease and peripheral arterial disease	Phase 1 clinical trials ongoing	2008
Cardiac Cell Therapy	Tissue regeneration therapy to treat congestive heart failure	Preclinical; IND expected to be filed in 2002	2010
Synvisc (Hylan G-F20)(1)	Next stage viscosupplementation products to treat osteoarthritis of the knee, hip and other joints	• Preclinical for knee indications • Pre-submission in Europe for hip indications	2002 through 2006
Sepra technologies(1)	Next stage products to prevent surgical adhesions for various indications	• Preclinical – gynecological and pelvic indications • Phase 2 – spine indications • Phase 3 – abdominal indications	2003 through 2006

        The aggregate actual and estimated research and development expense for the above programs is as follows (in millions):

Costs incurred for the year ended December 31, 2000	$14.3
Costs incurred for the year ended December 31, 2001	$19.8
Cumulative costs incurred as of December 31, 2001	$70.3
Estimated costs to complete as of December 31, 2001(2)	$135.0 to $150.0

(1)

Includes programs acquired in connection with the December 2000 acquisition of Biomatrix, Inc.

(2)

Excludes estimated costs to complete cardiac cell therapy, Synvisc and certain Sepra product applications due to the early stage of these programs.

        Our current estimates of the time and investment required to develop these products may change depending on the approach we take to pursue them, the results of preclinical and clinical studies, and the content and timing of decisions made by the FDA and other regulatory authorities. We cannot provide assurance that any of these programs will ever result in products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indication. If certain of our development-stage programs do not result in commercially viable products, our results of operations could be materially affected.

Liquidity and Capital Resources

        At December 31, 2001, Genzyme Biosurgery had cash and cash equivalents of $38.6 million, a decrease of approximately $39.5 million from December 31, 2000.

        Genzyme Biosurgery's operating activities used $44.1 million of cash for 2001. Operating activities were impacted by Genzyme Biosurgery's division net loss of $145.2 million offset primarily by:

•

$60.9 million of depreciation and amortization, of which $14.1 million resulted from the depreciation of the property, plant and equipment and $46.8 million resulted from the amortization of intangible assets, including intangible assets acquired in connection with our acquisitions of Biomatrix and Focal; and

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•

$13.0 million attributable to the net change in working capital.

        Genzyme Biosurgery's investing activities in 2001 utilized $27.3 million in cash in 2001.

        Investing activities used:

•

$12.9 million of cash to fund capital expenditures;



•

$23.8 million of cash, net of $2.3 million of cash acquired in connection with our acquisition of Focal, to fund acquisitions, of which $25.9 million was used to purchase all of the GDP Class A and Class B limited partnership interests as described below; and



•

$5.0 million of cash to purchase Focal common stock.

        Investing activities generated $15.9 million of net cash from the disposition of the Snowden-Pencer line.

        During 2001, Genzyme Biosurgery received $1.6 million in cash from the exercise of stock options and the purchase of shares under the employee stock plans. We also received $2.8 million from the partial payment of notes receivable from our stockholders. Our financing activities used $0.4 million of cash to repay bank overdrafts.

        In November 2001, Genzyme Biosurgery sold the Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery for $15.9 million in net cash. The purchaser, Snowden-Pencer, Inc. acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a net carrying value of approximately $41.0 million at the time of the sale. Genzyme Biosurgery recorded a loss of $25.0 million in connection with this sale.

        In January 2001, we acquired the outstanding Class A limited partnership interests of GDP for an aggregate of $25.7 million in cash plus royalties on sales of certain Sepra products for ten years. In August 2001, we purchased the remaining outstanding GDP partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, the results of operations of GDP are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

        Genzyme Biosurgery, together with our other operating divisions, has access to our $350.0 million revolving credit facility, all of which matures in December 2003. Prior to November 2001, this was a $500.0 million credit facility, $150.0 million of which matured in December 2001 and $350.0 million of which matures in December 2003. At December 31, 2000 $18.0 million was outstanding under the portion of the facility that matured in December 2001, all of which was allocated to Genzyme Biosurgery and $350.0 million was outstanding under the portion of the facility maturing in December 2003, $150.0 million of which was allocated to Genzyme General and $200.0 million of which was allocated to Genzyme Biosurgery. In May 2001, Genzyme General repaid the $150.0 million it had drawn under this facility in December 2000 to finance the cash component of the GelTex merger consideration. In September 2001, we decided to rollover the $18.0 million outstanding under the portion of the facility that matured in December 2001 into the portion of the facility that matures in December 2003. In November 2001, we drew an additional $17.0 million under this facility and allocated the borrowings to Genzyme Biosurgery. We repaid $1.0 million of this amount in 2001. We allowed the $150.0 million portion of the credit facility to expire without renewal at its December 12, 2001 maturity date. At December 31, 2001 $234.0 million remained outstanding under this facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin. The terms of our revolving credit facility include various covenants including

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financial covenants, which require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants and do not anticipate falling out of compliance. Genzyme Biosurgery will use a large part of its cash flow to make principal and interest payments on this debt. If Genzyme Biosurgery's cash flow from operations is insufficient to meet these obligations, it may need to borrow additional funds to make these payments.

        In connection with our acquisition of Biomatrix, we assumed a 6.9% convertible subordinated note in favor of UBS Warburg LLC that matures in May 2003. At December 31, 2001, $10.0 million of the principal of this note remained outstanding. Genzyme Biosurgery will use a part of its cash flow to satisfy debt service on this note. If all or a portion of the note is not converted at the option of the holder into Biosurgery Stock, at maturity Genzyme Biosurgery's cash reserves will be diminished by the amount necessary to repay the outstanding principal of the note.

        In July 2001, Genzyme Biosurgery drew down $12.0 million of the $15.0 million still available to it under the $25.0 million interdivisional financing arrangement with Genzyme General in exchange for an additional reserve of approximately 1.9 million Biosurgery designated shares. Genzyme Biosurgery used $8.5 million of the proceeds to pay a portion of the amounts it owes to Genzyme General. Under the terms of this arrangement, Genzyme Biosurgery may draw down funds as needed each quarter in exchange for Biosurgery designated shares based on the fair market value (as defined in our charter) of Biosurgery Stock at the time of the draw. Biosurgery designated shares are shares of Biosurgery Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Biosurgery. At December 31, 2001, $3.0 million remained available to Genzyme Biosurgery under this arrangement.

        Prior to our acquisition of Biomatrix, Biomatrix sold 744,000 shares of its common stock to certain of its employees, directors and consultants in exchange for ten-year, full recourse promissory notes. The notes accrue interest at rates ranging from 5.30% to 7.18% and mature at various dates from May 2007 through September 2009, upon which all outstanding principal and accrued interest becomes payable to us. As a result of the acquisition, these shares were converted into 532,853 shares of Biosurgery Stock and Genzyme Biosurgery recorded $14.7 million of outstanding principal and accrued interest to division equity because notes were received in exchange for the issuance of stock. As of December 31, 2001, the outstanding balance of these notes was $10.2 million, all of which was allocated to Genzyme Biosurgery.

        Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc. did not initiate a Phase 3 clinical trial of NeuroCell-PD for Parkinson's disease by June 30, 2001. Because a Phase 3 trial of the product candidate was not initiated by June 30, 2001, Genzyme General had the right to elect to receive a refund of $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in the joint venture, plus accrued interest thereon at a rate of 13.5% per annum. On August 2, 2001, Genzyme Biosurgery received notification from Genzyme General of its election to receive the refund. Genzyme Biosurgery can pay the refund amount in cash, Biosurgery designated shares or both. The refund was due and payable within 90 days after Genzyme Biosurgery received the notice from Genzyme General. Genzyme General and Genzyme Biosurgery agreed to extend Genzyme Biosurgery's deadline to refund the $20.0 million to Genzyme General to February 1, 2002.

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        As of December 31, 2001, we were committed to make the following payments under contractual obligations using cash allocated to Genzyme Biosurgery:

	Payments Due by Period
Contractual Obligations	Total		2002		2003		2004		2005		2006		After 2006
	(Amounts in millions)
Long-term debt	$	244.0	$	—	$	244.0	$	—	$	—	$	—	$	—
Capital lease obligations		1.6		0.9		0.7		—		—		—		—
Operating leases		20.9		4.6		4.6		3.5		2.8		2.8		2.6
Unconditional purchase obligations		—		—		—		—		—		—		—
Research and development agreements		1.4		1.4		—		—		—		—		—
Other contractual obligations		27.1		27.1		—		—		—		—		—
Total contractual cash obligations	$	295.0	$	34.0	$	249.3	$	3.5	$	2.8	$	2.8	$	2.6

        We believe that Genzyme Biosurgery's cash resources, together with the revenues generated from its products and distribution agreements, will be sufficient to finance its planned operations and capital requirements through the fourth quarter of 2002. Genzyme Biosurgery intends to use substantial portions of its available cash for:

•

research and development;



•

product development and marketing, including for Synvisc viscosupplementation product;



•

expanding manufacturing capacity;



•

expanding facilities; and



•

working capital.

        Genzyme Biosurgery's cash needs may differ from those planned as a result of many factors, including the:

•

results of research and development efforts;



•

ability to establish and maintain strategic alliances;



•

ability to enter into licensing arrangements and additional distribution arrangements;



•

ability to share costs of product development with research and marketing partners;



•

costs involved in enforcing patent claims and other intellectual property rights;



•

market acceptance of novel approaches and therapies;



•

success of its initiatives to reduce expenses and streamline its operations;



•

development of competitive products; and



•

ability to satisfy regulatory requirements of the FDA and other governmental authorities.

        Genzyme Biosurgery will require significant additional financing to continue operations at anticipated levels. We cannot guarantee that Genzyme Biosurgery will be able to obtain any additional financing, extend any existing financing arrangements, or obtain either on terms we consider favorable. If Genzyme Biosurgery has insufficient funds or is unable to raise additional funds, it may delay, scale back or eliminate certain of its programs. Genzyme Biosurgery may also have to sell to, or co-develop with third parties, rights to commercialize technologies or products that it would otherwise have sought to commercialize itself.

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New Accounting Pronouncements and Market, Interest Rate, Foreign Exchange and Equity Price Risk

        See "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" included in this annual report.

Factors Affecting Future Operating Results

        The future operating results of Genzyme Biosurgery could differ materially from the results described above due to the risks and uncertainties described below and under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report.

A failure to increase sales of Synvisc viscosupplementation product could have a negative effect on the price of Biosurgery Stock.

        Genzyme Biosurgery expects to generate a substantial portion of its product revenues from sales of Synvisc viscosupplementation product. Net product sales of Synvisc viscosupplementation product totaled $83.3 million for the year ended December 31, 2001, representing approximately 35% of Genzyme Biosurgery's total revenues for that year and $0.1 million for the 13-day period beginning December 18, 2000 (date of Genzyme Biosurgery's inception) to December 31, 2000, representing approximately 0.08% of Genzyme Biosurgery's total revenues for that year.

        Failure to achieve sales growth for Synvisc viscosupplementation product may cause the value of Biosurgery Stock to decline. Revenues from Synvisc viscosupplementation product could be impacted negatively if competitive treatments for the symptoms of osteoarthritis of the knee are deemed more efficacious, more convenient to use or cost effective. Products competitive to Synvisc viscosupplementation product are currently being sold. Some companies are developing competitive products, and other companies may do so in the future.

        The commercial success of Synvisc viscosupplementation product also will depend on many other factors, including:

•

The availability of third-party reimbursement.

An important factor to achieving sales growth for Synvisc viscosupplementation product is the availability of reimbursement from third party payors, including managed care organizations, private health insurers and government healthcare administrative authorities. Genzyme Biosurgery has been generally successful in obtaining and maintaining broad coverage and adequate reimbursement in the United States for Synvisc viscosupplementation product. Medicare carriers in all 50 states provide benefits for Synvisc viscosupplementation product. Approximately 90% of commercial insurers also cover the product. Genzyme Biosurgery is working to expand existing coverage to plans that do not provide benefits for Synvisc viscosupplementation product and in situations where coverage policies may be limited in scope. Outside the United States, reimbursement is often provided by government healthcare administrative authorities. Reimbursement is not offered by any such authority outside the United States. Genzyme Biosurgery continues to seek coverage for Synvisc viscosupplementation product from such authorities, particularly in Canada, Europe and Australia. To manage and reduce healthcare costs, third party payors increasingly seek opportunities to contain healthcare costs. These efforts include challenging the price of healthcare products, limiting coverage and the level of coverage that will be provided, and shifting reimbursable costs to other parties through copayment, coinsurance and other risk sharing arrangements. We cannot guarantee that any third-party payor that currently provides reimbursement for Synvisc viscosupplementation product will continue to provide coverage or reimbursement at

GBS-23

adequate levels, or that additional third-party payors will begin to provide coverage or reimbursement at adequate levels.

•

Continued relations with marketing partners.

Genzyme Biosurgery has entered into several distribution agreements for marketing and distributing Synvisc viscosupplementation product. Genzyme Biosurgery has in the past and may in the future periodically reacquire distribution rights in some territories if partners fail to perform under agreements relating to these territories. Genzyme Biosurgery may not be able to maintain or replace these marketing partners. In this event, there may be disruptions in sales associated with restructuring Genzyme Biosurgery's distribution arrangements.

        The future commercial success of Synvisc viscosupplementation product, as well as the other marketed products allocated to Genzyme Biosurgery, is highly uncertain. For additional details concerning the risks associated with commercializing novel biotechnology products, you should review the factors described under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report.

The commercial success of Carticel chondrocytes is uncertain.

        Carticel cartilage repair service involves a proprietary process for growing autologous chondrocytes (a patient's own cartilage cells) to replace those that are damaged or lost. Revenues from Carticel chondrocytes services total $18.4 million for the year ended December 31, 2001, representing approximately 8% of Genzyme Biosurgery's total revenue for that year. The commercial success of Carticel chondrocytes will depend on many factors, including the following:

•

Positive results from post-marketing studies.

If three ongoing post-marketing studies do not demonstrate that treatment with Carticel chondrocytes is superior to the alternatives studied, the FDA may suspend or withdraw its approval of Carticel chondrocytes.

•

FDA approval of related device.

Genzyme Biosurgery has developed a device to improve the procedure for implanting Carticel chondrocytes and has filed for marketing approval with the FDA. We cannot guarantee that the FDA will approve this device, that this device will improve the procedure for implanting Carticel chondrocytes, or that this device will gain commercial acceptance.

•

The availability of third-party reimbursement.

Since the FDA approved Carticel chondrocytes, we have seen a substantial increase in the number of third party payors who cover it. Some third-party payers, however, do not cover Carticel 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 treatments. One independent association that conducts evaluations is the Blue Cross Blue Shield Association. The Blue Cross Blue Shield Association's Technology Assessment Committee has issued an evaluation indicating that Carticel chondrocytes do not meet all of its published criteria for new treatments. We

GBS-24

believe that Carticel chondrocytes do meet these 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 chondrocytes without a favorable evaluation by the Blue Cross Blue Shield Association, many Blue Cross Blue Shield plans have delayed approving coverage for Carticel chondrocytes under their policies as a result of this unfavorable evaluation. Since these remaining plans represent a significant percentage of insured lives in the Untied States, this evaluation has continued to restrict our access to a substantial portion of the market for Carticel chondrocytes. Some payors that cover Carticel chondrocytes as a matter of medical policy may nonetheless fail to provide separate or adequate reimbursement. Thus, providers who elect to use Carticel chondrocytes for patients who are insured by these payors are forced to absorb most or all of the cost.

•

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 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 chondrocytes. If a competitor were to develop such ability and obtain FDA approval for a competitive product or service, Genzyme Biosurgery's results of operations would be negatively impacted. We are aware of at least three other companies that have competitive cell-based therapies for cartilage repair in the European market. Further, at least three other companies are engaged in research on cultured cartilage cell products. Also, several pharmaceutical and biotechnology companies are developing alternative treatments for knee cartilage damage. One or more of these companies may develop products or services superior to Carticel chondrocytes.

•

Market acceptance by orthopaedic surgeons.

We are marketing Carticel chondrocytes to orthopaedic surgeons. We cannot guarantee that we will train enough surgeons who incorporate Carticel chondrocytes into their practice to make it commercially successful.

•

Fluctuating revenues due to seasonal factors.

We expect that the revenues from the sale of the Carticel chondrocytes will fluctuate based on our 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 chondrocytes will be lower in the summer months because fewer operations are typically performed during those months.

•

Reliance on key collaborators.

Carticel chondrocytes were developed based on the work of a group of Swedish physicians. Individuals who are familiar with the know-how underlying Carticel chondrocytes through their association with these physicians may disclose the information to our competitors. This event could have an adverse effect on Genzyme Biosurgery's results of operations.

Genzyme Biosurgery maintains consulting and sponsored research arrangements with the University of Gothenburg in Sweden and certain physicians, including the two physicians who lead the group that developed Carticel chondrocytes. The purpose of these

GBS-25

arrangements is to conduct additional research on Carticel chondrocytes. The arrangements prohibit members of the research team from disclosing any information proprietary to Genzyme Biosurgery and require all inventions conceived or reduced to practice during the course of such research shall be Genzyme Biosurgery's property.

Genzyme Biosurgery has and will continue to devote significant resources to develop novel products and treatments that may not be commercially successful.

        Genzyme Biosurgery has devoted 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 Biosurgery expects to develop 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 Biosurgery's ability to educate cardiothoracic surgeons about its effectiveness and to facilitate the training of cardiothoracic surgeons in minimally invasive cardiovascular surgery techniques.

        Similarly, until recently surgeons have not used products designed to reduce the incidence and extent of postoperative adhesions. Since 1996, when Seprafilm adhesion barrier was introduced, market acceptance of anti-adhesion products has been slow. To increase sales of the Sepra products, Genzyme Biosurgery has had to educate surgeons and hospital administrators about the problems of, and costs associated with, adhesions and the benefits of preventing adhesions. Genzyme Biosurgery also has had to, and continues to have to, train surgeons on the proper handling and use of these products.

        We cannot guarantee that Genzyme Biosurgery's continued 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 Biosurgery's products.

Adverse events in the field of gene therapy may negatively affect regulatory approval or public perception of Genzyme Biosurgery's gene therapy products.

        The death of a patient undergoing gene therapy using an adenoviral vector to deliver a therapeutic gene has been widely publicized. Although this patient was not part of a Genzyme Biosurgery clinical trial, deaths 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 Biosurgery's gene therapy products.

        The commercial success of any gene therapy products that Genzyme Biosurgery develops 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;



•

stricter clinical trial oversight;



•

tighter commercial product labeling requirements of gene therapies; and



•

a decrease in the demand for any gene therapy product that Genzyme Biosurgery may develop.

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Because Genzyme Biosurgery has significant fixed payments, it will need to devote a substantial portion of its cash flow to make the payments and may need to borrow money in the future to make debt payments and operate its business.

        As of December 31, 2001, we had allocated to Genzyme Biosurgery approximately $234.0 million borrowed under our corporate credit facility. Genzyme Biosurgery will use a large part of its cash flow to make principal and interest payments on this debt. If Genzyme Biosurgery's cash flow from operations is insufficient to meet these obligations, we may need to borrow additional funds on behalf of Genzyme Biosurgery to make these payments. We cannot guarantee that such additional financing will be available or available on favorable terms.

        In addition to amounts borrowed under the credit facility, significant cash obligations allocated to Genzyme Biosurgery include the following:

•

Genzyme General.

Genzyme Biosurgery is obligated to pay back to Genzyme General $20.0 million of the $25.0 million, plus accrued interest of 13.5% per annum, Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC. The refund obligation arose because Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc., failed to initiate a phase 3 trial of NeuroCell-PD for Parkinson's disease by June 30, 2001. This refund is due by February 1, 2002.

•

UBS Warburg LLC.

In connection with our acquisition of Biomatrix, we assumed a 6.9% convertible subordinated note in favor of UBS Warburg LLC that matures in May 2003. At December 31, 2001, $10.0 million principal amount of this note remained outstanding, all of which we allocated to Genzyme Biosurgery. Genzyme Biosurgery will use a part of its cash flow to satisfy debt service on this note. If all or a portion of the note is not converted at the option of the holder into Biosurgery Stock, at maturity Genzyme Biosurgery's cash reserves will be diminished by the amount necessary to repay the outstanding principal of the note.

Genzyme Biosurgery anticipates future losses and may never become profitable.

        Genzyme Biosurgery expects to have operating losses before amortization of intangibles through at least the second quarter of 2002 as it continues to spend substantial amounts of money on, among other things, conducting research, development, regulatory and commercialization activities to support its expanded product lines. This strategy involves risks, which include supporting higher levels of operating expenses, attracting and retaining employees, and dealing with other management difficulties that arise from rapid growth and operating loss. If Genzyme Biosurgery cannot increase revenues and/or reduce operating expenses effectively, it may not become profitable.

If Genzyme Biosurgery 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 Biosurgery's current cash resources, together with revenues generated from product and service sales, will be sufficient to fund its operations through at least the fourth quarter of 2002.

        Genzyme Biosurgery's cash needs may differ from those planned because of many factors, including the:

•

results of research and development efforts;

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•

ability to establish and maintain strategic alliances;



•

ability to enter into and maintain licensing arrangements and additional distribution arrangements;



•

ability to share costs of product development with research and marketing partners;



•

achievement of milestones under strategic alliances;



•

costs involved in enforcing patent claims and other intellectual property rights;



•

market acceptance of novel approaches and therapies;



•

success of its initiatives to reduce expenses and streamline its operations;



•

development of competitive products; and



•

ability to satisfy regulatory requirements of the FDA and other government authorities.

        Genzyme Biosurgery will require significant additional financing to continue operations at anticipated levels. We cannot guarantee that Genzyme Biosurgery will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on terms we consider favorable. If Genzyme Biosurgery has insufficient funds or is unable to raise additional funds, it may delay, scale back or eliminate certain of its programs. Genzyme Biosurgery may also have to sell to, or co-develop with third parties, rights to commercialize technologies or products that it would otherwise have sought to commercialize itself.

Changes in Genzyme Biosurgery's manufacturing capabilities could significantly reduce its ability to deliver its products.

        Genzyme Biosurgery is engaged in the production of a wide variety of products and services. Genzyme Biosurgery's manufacturing processes are highly complex and are regulated by the government. It is possible that Genzyme Biosurgery will have problems maintaining or expanding its facilities in the future. These problems could cause delays in production or delivery. Any significant disruption in Genzyme Biosurgery's manufacturing operations or in its ability to manufacture products cost effectively could have an adverse effect on its business, results of operations and financial condition.

Competition from other medical device and technology companies could hurt Genzyme Biosurgery's performance.

        The human health care products and services industry is extremely competitive. Major medical device and technology companies compete or may compete with Genzyme Biosurgery. These include such companies as:

•

Atrium Medical Corporation and Sherwood-Davis & Geck, a division of Tyco International, Ltd., in the cardiovascular fluid management market;



•

Ethicon Inc., a Johnson & Johnson company, 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

GBS-28

•

Fidia S.p.A., Q-Med AB, Sanofi and OrthoLogic Corp., Anika Therapeutics, Inc., Zimmer, Inc., and Seikagiku Corporation, Bio-Technology General Corp. and Smith & Nephew in the viscosupplementation product market.

        These competitors may have superior research and development, marketing and production capabilities. Some competitors also may have greater financial resources than Genzyme Biosurgery. The division is likely to incur significant costs developing and marketing new products without any guarantee that they will be competitively successful in one or more markets. The future success of Genzyme Biosurgery 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 Biosurgery's 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 more comprehensive product lines to these larger purchasing groups. In order to market successfully its products to larger purchasing groups, Genzyme Biosurgery 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 Genzyme Biosurgery will be able to employ either of these initiatives or that, when employed, these initiatives will increase the marketability of its products.

We face litigation that could have a material adverse effect on Genzyme Biosurgery's business, financial condition and results of operations.

        We encourage you to read the material under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results—In connection with our acquisition of Biomatrix, we assumed litigation faced by Biomatrix" included in this annual report. That material describes a securities lawsuit filed against Biomatrix prior to our acquisition of Biomatrix.

Subsequent Event

        On February 1, 2002, Genzyme Biosurgery paid to Genzyme General $27.1 million, representing $20.0 million of the $25.0 million, plus accrued interest of 13.5% per annum, Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC. The refund obligation arose because Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc., failed to initiate a phase 3 trial of NeuroCell-PD for Parkinson's disease by June 30, 2001.

GBS-29

GENZYME BIOSURGERY
A DIVISION OF GENZYME CORPORATION

COMBINED STATEMENTS OF OPERATIONS

				For the Years Ended December 31,
				2001			2000			1999
				(Amounts in thousands)
Revenues:
	Net product sales			$	211,523		$	121,870		$	111,951
	Net service sales				23,614			23,321			20,305
	Revenues from research and development contracts				5			23			97
		Total revenues			235,142			145,214			132,353
Operating costs and expenses:
	Cost of products sold				113,250			69,489			67,212
	Cost of services sold				12,733			12,298			13,237
	Selling, general and administrative				122,020			92,238			87,841
	Research and development				47,159			37,000			36,075
	Amortization of intangibles				46,828			7,096			5,750
	Purchase of in-process research and development				—			82,143			—
	Charge for impaired asset				—			4,321			—
		Total operating costs and expenses			341,990			304,585			210,115
Operating loss					(106,848	)		(159,371	)		(77,762	)
Other income (expenses):
	Equity in net loss of unconsolidated affiliates				(1,316	)		—			(3,403	)
	Loss on investments in equity securities				—			(7,300	)		—
	Loss on sale of product line				(24,999	)		—			—
	Other				124			(15	)		138
	Investment income				1,753			5,833			4,808
	Interest expense				(13,884	)		(1,364	)		(1,858	)
		Total other expenses			(38,322	)		(2,846	)		(315	)
Division net loss				$	(145,170	)	$	(162,217	)	$	(78,077	)
Comprehensive loss, net of tax:
	Division net loss			$	(145,170	)	$	(162,217	)	$	(78,077	)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			979			(332	)		—
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period		97			(5,558	)		(1,839	)
			Reclassification adjustment for losses included in division net loss		—			7,300			—
			Unrealized gains (losses) on securities, net		97			1,742			(1,839	)
	Other comprehensive income (loss)				1,076			1,410			(1,839	)
Comprehensive loss				$	(144,094	)	$	(160,807	)	$	(79,916	)

The accompanying notes are an integral part of these combined financial statements.

GBS-30

GENZYME BIOSURGERY
A DIVISION OF GENZYME CORPORATION

COMBINED BALANCE SHEETS

			December 31,
			2001		2000
			(Amounts in thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	38,623	$	78,163
	Accounts receivable, net			38,293		38,952
	Inventories			43,545		61,574
	Prepaid expenses and other current assets			2,734		9,543
		Total current assets		123,195		188,232
Property, plant and equipment, net				53,794		57,409
Intangibles, net				525,178		562,635
Investment in equity securities				—		1,603
Other noncurrent assets				2,504		1,721
		Total assets	$	704,671	$	811,600
LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accounts payable		$	7,835	$	6,074
	Accrued expenses			25,142		46,245
	Due to Genzyme General			29,513		18,645
	Current portion of long-term debt and capital lease obligations			905		18,449
		Total current liabilities		63,395		89,413
Long-term debt and capital lease obligations				234,724		201,004
Convertible notes				10,000		10,000
Other noncurrent liabilities				2,098		77
		Total liabilities		310,217		300,494
Commitments and contingencies (See Notes J, L and N)
Division equity (Note M)				394,454		511,106
		Total liabilities and division equity	$	704,671	$	811,600

The accompanying notes are an integral part of these combined financial statements.

GBS-31

GENZYME BIOSURGERY
A DIVISION OF GENZYME CORPORATION

COMBINED STATEMENTS OF CASH FLOWS

					For the Years Ended December 31,
					2001			2000			1999
					(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Division net loss				$	(145,170	)	$	(162,217	)	$	(78,077	)
	Reconciliation of division net loss to net cash used in operating activities:
		Depreciation and amortization				60,931			11,622			9,367
		Non-cash compensation expense				66			—			—
		Provision for bad debt				701			1,359			559
		Charges for in-process research and development				—			82,143			—
		Equity in net loss of unconsolidated affiliates				1,316			—			3,403
		Loss on sale of product line				24,999			—			—
		Accrued interest/amortization of marketable securities				—			2,294			—
		Loss on investments in equity securities				—			7,300			—
		Other				25			443			1,305
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			(361	)		(6,904	)		(5,898	)
			Inventories			13,097			(7,561	)		(8,233	)
			Prepaid expenses and other current assets			6,502			(1,178	)		2,365
			Accounts payable and accrued expenses			(17,118	)		6,975			2,558
			Due to Genzyme General			10,868			10,906			6,541
				Net cash used in operating activities		(44,144	)		(54,818	)		(66,110	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of investments					—			(96,456	)		(15,161	)
	Sales and maturities of investments					—			198,593			36,878
	Purchase of equity securities					(5,000	)		(5,000	)		(4,000	)
	Purchase of property, plant and equipment					(12,874	)		(2,850	)		(4,771	)
	Sale of property, plant and equipment					1,047			26			—
	Proceeds from sale of product line					15,862			—			—
	Acquisitions, net of cash acquired					(23,805	)		(196,284	)		—
	Purchase of technology rights					—			(75	)		(1,400	)
	Investment in unconsolidated affiliate					—			—			(3,594	)
	Other					(2,554	)		(11,479	)		471
				Net cash provided by (used in) investing activities		(27,324	)		(113,525	)		8,423
CASH FLOWS FROM FINANCING ACTIVITIES:
	Allocated proceeds from issuance of Biosurgery Stock					1,562			299			—
	Allocated proceeds from issuance of Surgical Products Stock					—			910			—
	Allocated proceeds from issuance of Tissue Repair Stock					—			797			462
	Proceeds from issuance of debt					17,000			200,000			—
	Payments of debt and capital lease obligations					(1,765	)		—			(96	)
	Net cash allocated from Genzyme General					11,993			9,910			79,451
	Bank overdraft					443			2,783			2,405
	Payments of notes receivable from stockholders					2,841			—			—
	Other					81			(54	)		(221	)
				Net cash provided by financing activities		32,155			214,645			82,001
Effect of exchange rate changes on cash						(227	)		(185	)		—
Increase (decrease) in cash and cash equivalents						(39,540	)		46,117			24,314
Cash and cash equivalents at beginning of period						78,163			32,046			7,732
Cash and cash equivalents at end of period					$	38,623		$	78,163		$	32,046
Supplemental disclosures of cash flows:
Cash paid during the year for:
	Interest				$	11,916		$	1,620		$	1,629
Supplemental disclosures of non-cash transactions:
Other Charges—Note C
Acquisitions and disposition—Notes D, E
In conjunction with the acquisitions of Focal, Biomatrix and GDP, liabilities were assumed as follows:
	Fair value of assets acquired				$	33,506		$	375,732
	Goodwill					9,779			112,262
	Acquired in-process research and development					—			82,143
	Deferred compensation					—			66
	Issuance of common stock and options					(9,801	)		(217,895	)
	Net cash paid for acquisition and acquisition costs					(24,223	)		(208,371	)
	Existing equity investment					(5,488	)		—
	Liabilities for exit activities and integration					—			(6,716	)
	Net deferred tax liability assumed					—			(106,122	)
	Net liabilities assumed				$	3,773		$	31,099

The accompanying notes are an integral part of these combined financial statements.

GBS-32

GENZYME BIOSURGERY
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

        Genzyme Biosurgery is our operating division that develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedics and cardiothoracic markets.

        In December 2000, we acquired Biomatrix, Inc., a public company that develops, manufactures, markets and sells a series of proprietary viscoelastic and viscosupplementation products based on hyaluronan technology that are used in therapeutic medical applications and skin care, for an aggregate purchase price of $482.4 million. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Immediately prior to the acquisition, we combined two of our operating divisions, Genzyme Surgical Products and Genzyme Tissue Repair, to form a new division called Genzyme Biosurgery. We allocated the acquired assets and liabilities of Biomatrix to Genzyme Biosurgery. The combination of Genzyme Surgical Products and Genzyme Tissue Repair to form Genzyme Biosurgery did not result in any adjustments to the book values of the net assets of the divisions because they remained divisions of the same corporation. We present the financial statements of Genzyme Biosurgery as though the divisions had been combined for all periods presented, and include the operations of Biomatrix from December 18, 2000, the date of acquisiton.

        In connection with the formation of Genzyme Biosurgery, we created Genzyme Biosurgery Stock. Biosurgery Stock is designed to track the performance of our Genzyme Biosurgery division. We converted each outstanding share of Surgical Products Stock into 0.6060 of a share of Biosurgery Stock, and each outstanding share of Tissue Repair Stock into 0.3352 of a share of Biosurgery Stock. We converted all outstanding options to purchase Surgical Products Stock and Tissue Repair Stock into options to purchase Biosurgery Stock at the applicable conversion rate.

Basis of Presentation

        The combined financial statements of Genzyme Biosurgery for each period include the balance sheets, results of operations and cash flows of the businesses we allocate to Genzyme Biosurgery. We also allocate a portion of our corporate operations to Genzyme Biosurgery using methods described in our allocation policy below. These combined financial statements are prepared using amounts included in our consolidated financial statements included in this annual report. We have reclassified certain 2000 and 1999 data to conform with the 2001 presentation.

        We prepare the combined financial statements of Genzyme Biosurgery in accordance with generally accepted accounting principles. We present financial information and accounting policies specific to Genzyme Biosurgery in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should read our consolidated financial statements in conjunction with the combined financial statements of Genzyme Biosurgery. Note A., "Summary of Significant Accounting Policies," to our consolidated financial statements contains a summary of our accounting policies. We incorporate that information into this note by reference.

Tracking Stock

        Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," is a series of our common stock that is designed to reflect the value and track the performance of Genzyme

GBS-33

Biosurgery. The chief mechanisms intended to cause Biosurgery Stock to "track" the financial performance of Genzyme Biosurgery are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to Genzyme Biosurgery into the determination of the amount available to pay dividends on Biosurgery Stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock if all or substantially all of the assets allocated to Genzyme Biosurgery are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of Biosurgery Stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        To determine earnings per share, we allocate Genzyme's earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Biosurgery Stock are defined in our charter as the net income or loss of Genzyme Biosurgery determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme Biosurgery in accordance with our management and accounting policies. Our charter also requires that all income and expenses of Genzyme be allocated among the divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to Biosurgery Stock are based on the income or losses attributable to Genzyme Biosurgery, we include financial statements and management's discussion and analysis of Genzyme Biosurgery to aid investors in evaluating its performance.

        While Biosurgery Stock is designed to reflect Genzyme Biosurgery's performance, it is common stock of Genzyme Corporation and not Genzyme Biosurgery; Genzyme Biosurgery is a division, not a company or legal entity, and therefore does not and cannot issue stock. Consequently, holders of Biosurgery Stock have no specific rights to assets allocated to Genzyme Biosurgery. Genzyme Corporation continues to hold title to all of the assets allocated to Genzyme Biosurgery and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to Genzyme Biosurgery. Holders of Biosurgery Stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of Genzyme liquidation, insolvency or similar event, holders of Biosurgery Stock and other tracking stockholders would only have the rights of common stockholders in the combined assets of Genzyme.

Allocation Policy

        Our charter sets forth what operations and assets are initially allocated to Genzyme Biosurgery and states that going forward the division will also include all businesses, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between Genzyme Biosurgery and our other divisions and with third

GBS-34

parties, and any resulting reallocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our divisional management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to the division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to a division;



•

actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the services are performed on a cost basis. Such charges are generally based upon direct labor hours;



•

proportionate usage—costs incurred which benefit more than one division are allocated based upon management's estimate of the proportionate benefit each division receives. Such costs include facilities, legal, finance, human resources, executive and investor relations; or



•

board directed—programs and products, both internally developed and acquired, are allocated to divisions by the board of directors. The board of directors also allocates long-term debt and strategic investments.

        Note B., "Policies Governing the Relationship of Genzyme's Operating Divisions," further describes our policies concerning interdivisional transactions and income tax allocations.

        We believe that the divisional allocations are reasonable and have been consistently applied. However, the division's results of operations may not be indicative of what would have been realized if the division was a stand-alone entity.

Translation of Foreign Currencies

        We translate the financial statements of foreign subsidiaries allocated to Genzyme Biosurgery from local currency into U.S. dollars and record translation adjustments for these subsidiaries to division equity. Genzyme Biosurgery records gains and losses on foreign currency transactions in its results of operations.

        We include exchange gains and losses on intercompany balances which are long-term in nature in division equity. Gains and losses on all other transactions are included in results of operations.

GBS-35

Revenue Recognition

        We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, and title and risk of loss have passed to the customer. Allowances are recorded for product returns, and for any applicable third party contractual allowances, rebates, or discounts. These allowances are recorded as reductions of revenue. Outbound shipping charges to customers are included in revenues.

        We recognize revenue from service sales when we have finished providing the service. Revenue from research and development contracts is recognized over the term of the applicable contract and as we incur costs related to that contract. Advance payments received in excess of amounts earned are classified as deferred revenue until earned. We recognize non-refundable up-front license fees over the related performance period or at the time we have no remaining performance obligations.

        Revenue from milestone payments for which we have no continuing performance obligations is recognized upon achievement of the related milestone. When we have continuing performance obligations, we recognize milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;



•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and



•

the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

        If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

        We receive royalties related to the manufacture, sale or use of our products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following quarter. Historically, such adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize royalties upon receipt of royalty statements from the licensee.

        We do not recognize revenue under any circumstances unless collectibility is reasonably assured. We believe our revenue recognition policies are in compliance with Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements."

Net Income (Loss) Per Share

        Earnings per share is calculated for each series of Genzyme stock using the two-class method, as further described in the notes to the consolidated financial statements. We present earnings per share data only in the consolidated financial statements of Genzyme because Genzyme Corporation is the issuer of the securities. Our divisions do not and cannot issue securities because they are not companies or legal entities.

GBS-36

NOTE B.    POLICIES GOVERNING THE RELATIONSHIP OF GENZYME'S OPERATING DIVISIONS

        Because each of our operating divisions is a part of a single company, our board of directors has adopted policies to address issues that may arise among divisions and to govern the management of, and the relationships between each division. With some exceptions that are mentioned specifically in this note, our board of directors may modify or rescind these policies, or adopt additional policies, in its sole discretion without stockholder approval, subject only to our board of directors' fiduciary duty to stockholders. Generally accepted accounting principles require that any change in policy be preferable (in accordance with these principles) to the previous policy.

Interdivisional Asset Transfers

        Our board of directors may at any time reallocate any program, product or other asset from one division to any other division. We account for interdivisional asset transfers at book value. The consideration paid for an asset transfer generally must be fair value as determined by our board of directors. The difference between the consideration paid and the book value of the assets transferred is recorded in division equity. Our board of directors determines fair value using either a risk-adjusted discounted cash flow model or a comparable transaction model.

        The risk-adjusted discounted cash flow model estimates fair value by taking the discounted value of all the cash inflows and outflows related to a program or product over a specified period of time, generally the economic life of the project, adjusted for the probabilities of certain outcomes occurring or not occurring. In performing this analysis, we consider various factors that could affect the success or failure of the program including:

•

the duration, cost and probability of success of each phase of development;



•

the current and potential size of the market and barriers to entry into the market;



•

the maximum number of patients likely to be treated with the product and the speed with which that maximum number will be reached;



•

reimbursement policies and pricing limitations;



•

current and potential competitors;



•

the net proceeds received by us upon the sale of the program or product; and



•

the costs of manufacturing and marketing the product or program.

        The comparable transaction model estimates fair value through comparison to valuations established for other transactions within the biotechnology and biosurgical areas involving similar programs and products having similar terms and structure. In identifying comparable transactions, we consider, among other factors, the following:

•

the similarity of market opportunity;



•

the comparability of the medical needs addressed;



•

the similarity of the regulatory, reimbursement and competitive environment;



•

the stage of products or program development; and

GBS-37

•

the risk profile of successfully commercializing the product or program.

        We customarily use the comparable transaction model to corroborate valuations derived under the risk-adjusted discounted cash flow model.

        When determining the fair value of a program under development using either model, our board of directors also takes 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 time of the realization; and



•

other matters that our board of directors and its financial advisors, if any, deem relevant.

        One division may compensate another division for a reallocation with cash or other consideration having a value equal to the fair market value of the reallocated assets. In the case of a reallocation of assets from Genzyme General to Genzyme Biosurgery, our board of directors may elect instead to account for the reallocation as an increase in Biosurgery designated shares in accordance with the provisions of our charter. Biosurgery designated shares are shares of Biosurgery Stock that are not issued and outstanding, but which our board of directors may issue, sell, or distribute without allocating the proceeds to Genzyme Biosurgery. No gain or loss is recognized as a result of these transfers.

        Our policy regarding transfers of assets between divisions may not be changed by our board of directors without the approval of the holders of Biosurgery Stock voting as a separate class unless the policy change does not affect Genzyme Biosurgery.

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 are subject to the following conditions:

•

We 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 direct costs to the division for which we incur them. We allocate direct labor and indirect costs in reasonable and consistent manners based on the use by a division of relevant services.



•

We charge the manufacturing of goods and performance of services by one division exclusively for another division to the division for which it is performed on a cost basis. To perform this calculation, we determine gross fixed assets for the facility used at the beginning of each fiscal year and apply our short-term borrowing rate. We allocate direct labor and indirect costs in

GBS-38

reasonable and consistent manners based on the benefit received by a division of related goods and services.

•

Other than transactions involving research and development, manufacturing, distribution, sales, marketing, general and administrative services, which are addressed above, all interdivisional transactions are performed on terms and conditions obtainable in arm's length transactions with third parties. Divisions performing services for other divisions do not recognize revenue for the services they perform.



•

Our board of directors must approve interdivisional transactions that are performed on terms and conditions other than as described above and are material to one or more of the participating divisions. In giving its approval, our board of directors 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 $1.0 million or less matures within 18 months and accrues interest at the best borrowing rate available to the corporation for a loan of like type and duration. Our board of directors must approve any loan in excess of $1.0 million. In giving its approval, our board of directors must determine that the material terms of the 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 are set forth in a written agreement that is signed by an authorized member of the management team of each division involved in the transaction.

        On December 31, 2001, Genzyme Biosurgery owed Genzyme General approximately $29.5 million in connection with these services. On December 31, 2000, approximately $18.6 million was owed.

Tax Allocations

        We file a consolidated tax return and 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. We assess the realizability of our deferred tax assets at the division level. As a result, our consolidated tax provision may not equal the sum of the divisions' tax provisions. As of the end of any fiscal quarter, however, if Genzyme Biosurgery 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.

Access to Technology and Know-How

        Genzyme Biosurgery has unrestricted access to all technology and know-how owned or controlled by Genzyme Corporation that may be useful in its business, subject to any obligations or limitations that apply to the corporation generally.

NOTE C.    OTHER CHARGES

        In 2000, Genzyme Biosurgery recorded a $4.3 million charge for the write-off of abandoned equipment at our Springfield Mills manufacturing facility located in the United Kingdom. The write-off of equipment related to the Sepra product line and did not have other alternative uses.

GBS-39

NOTE D.    DISPOSITION

        In November 2001, we sold the Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery for $15.9 million in net cash, which was allocated to Genzyme Biosurgery. The purchaser acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a net carrying value of approximately $41.0 million at the time of the sale. Genzyme Biosurgery recorded a loss of $25.0 million in connection with this sale.

NOTE E.    ACQUISITIONS

Focal

        In January 2001, Focal, a public company and developer of synthetic biopolymers used in surgery, exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated this investment to Genzyme Biosurgery. On June 30, 2001, we acquired the remaining 78% of the outstanding shares in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as merger consideration. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We allocated the acquired assets and liabilities to Genzyme Biosurgery and accounted for the acquisition as a purchase. Accordingly, we included the results of operations of Focal in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from June 30, 2001, the date of acquisition.

        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (dollars in thousands):

Issuance of 2,086,151 shares of Biosurgery Stock	$	9,450
Issuance of options to purchase 231,566 shares of Biosurgery Stock		351
Acquisition costs		638
Existing equity investment in Focal		5,488
Cash paid to selling security holder		11
Total purchase price	$	15,938
Cash and cash equivalents	$	2,331
Other current assets		6,003
Property, plant and equipment		1,568
Intangible assets (to be amortized over 3 to 12 years)		7,909
Goodwill		1,365
Assumed liabilities		(3,773	)
Note receivable from stockholders		535
Allocated purchase price	$	15,938

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Genzyme Development Partners, L.P.

        In January 2001, we acquired the outstanding Class A limited partnership interests in GDP for an aggregate of $25.7 million in cash plus royalties on sales of certain Sepra products for ten years. In August 2001, we purchased the remaining outstanding GDP partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, we include the results of operations of GDP in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition.

        We allocated the purchase prices to the fair value of the intangible assets acquired as follows (amounts in thousands):

		Total
Patents (to be amortized over 8 years)		$	5,909
Trademarks (to be amortized over 10 years)			2,755
Technology (to be amortized over 10 years)			8,827
Goodwill			8,414
	Total	$	25,905

Biomatrix

        In December 2000, we completed the acquisition of Biomatrix, a public company engaged in the development and manufacturing of viscoelastic biomaterials for use in orthopaedic and other medical applications. Concurrently with the acquisition, we created Genzyme Biosurgery as a new division. We reallocated the businesses of two of our operating divisions—Genzyme Surgical Products and Genzyme Tissue Repair—to Genzyme Biosurgery and allocated the acquired businesses of Biomatrix to Genzyme Biosurgery. As a result of this transaction, we amended our charter to create Biosurgery Stock and eliminated Surgical Products and Tissue Repair Stock. Each outstanding share of, and option to purchase, Surgical Product Stock was converted into the right to receive 0.6060 of a share of, or option to purchase, Biosurgery Stock and each outstanding share of, or option to purchase, Tissue Repair Stock was converted into the right to receive 0.3352 of a share of, or option to purchase, Biosurgery Stock.

        We accounted for the acquisition as a purchase and accordingly, the results of operations of Biomatrix are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from December 18, 2000, the date of acquisition.

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        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (in thousands):

Cash paid		$	252,421
Issuance of 17.5 million shares of Biosurgery Stock.			206,522
Issuance of options and warrants to purchase 1.7 million shares of Biosurgery Stock			11,373
Acquisition costs			12,087
	Total purchase price.	$	482,403
Cash and cash equivalents		$	56,137
Current assets			37,639
Property, plant & equipment			39,504
Intangible assets (to be amortized straight-line over 1.5 to 11 years)			284,854
Goodwill			114,759
In-process research and development			82,143
Deferred tax asset			922
Deferred compensation			66
Assumed liabilities			(31,347	)
Liabilities for exit activities and integration			(8,216	)
Notes receivable from stockholders			14,760
Deferred tax liability			(108,818	)
	Allocated purchase price	$	482,403

        The approximately 17.5 million shares of Biosurgery Stock issued in exchange for all of the outstanding shares of Biomatrix common stock were valued using the combined five day average closing prices of Surgical Products Stock and Tissue Repair Stock, divided by the applicable exchange ratio. Options and warrants to purchase approximately 1.7 million shares of Biosurgery Stock, issued in exchange for options and warrants to purchase Biomatrix common stock were valued at $11.4 million using the Black-Scholes model. The intrinsic value of the portion of the unvested options related to the future service period was de minimis.

        Prior to the acquisition, Biomatrix sold 744,000 shares of its common stock to certain of its employees, directors and consultants in exchange for ten-year, full recourse promissory notes. The notes accrue interest at rates ranging from 5.30% to 7.18% and mature at various dates from May 2007 through September 2009, upon which all outstanding principal and accrued interest becomes payable. As a result of the acquisition, these shares were converted into 532,853 shares of Biosurgery Stock and we recorded $14.7 million of outstanding principal and accrued interest to division equity because the notes were received in exchange for the issuance of stock.

        At the date of acquisition, we began to implement plans for certain exit and integration activities, including workforce reductions and the closure of Biomatrix's Canadian facility. Accordingly, we recorded liabilities of $6.7 million for severance and related integration costs and assigned to Biomatrix's Canadian facility a value equal to the amount we estimated we would obtain upon disposal

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or sale. In 2001, we recorded adjustments to and charges against the restructuring reserve as follows (amounts in thousands):

Liabilities for exit activities and integration recorded at acquisition	$	6,716
Payments in 2000		(746	)
Balance at December 31, 2000		5,970
Additional reserve recorded in 2001		1,500
Payments in 2001		(5,891	)
Balance at December 31, 2001	$	1,579

        In October 2001, we completed the sale of the Canadian facility for net proceeds of $1.0 million, which we allocated to Genzyme Biosurgery. We adjusted the allocated fair value of the Canadian facility to equate to the proceeds of the disposal.

        As of December 31, 2001, a total of $6.6 million of costs had been charged against the accrual for exit activity and integration costs. We expect to complete this restructuring in 2002.

        In connection with the purchase of Biomatrix, we allocated approximately $82.1 million of the purchase price to IPR&D. Although management ultimately is responsible for determining the fair value of the acquired IPR&D, we engaged an independent third-party appraisal company to assist in the valuation of the intangible assets acquired.

        The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected to result from each project once it has reached technological feasibility. A 38% discount rate was used which is consistent with the risks of each project. In estimating future cash flows, management considered other tangible and intangible assets, including core technology, required for successful exploitation of the technology resulting from each purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased research and development was the amount attributable to the efforts of Biomatrix up to the time of acquisition. This amount was estimated through application of the "stage of completion" calculation, which calculation involves multiplying total estimated revenue for IPR&D by the percentage of completion of each purchased research and development project at the time of acquisition.

        The significant assumptions underlying the valuations included potential revenues, costs of completion, the timing of product approvals and the selection of appropriate probability of success and discount rate. None of Biomatrix's IPR&D projects had reached technological feasibility at the date of acquisition nor did they have any alternative future use. Consequently, in accordance with generally accepted accounting principles, the amount allocated to IPR&D was charged as an expense in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery for the year ended December 31, 2000. Genzyme Biosurgery is amortizing the remaining acquired intangible assets arising from the acquisition on a straight-line basis over their estimated lives, which range from 1.5 years to 11 years. As of December 31, 2001, the technological feasibility of the acquired projects had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

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        Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technical feasibility. In addition, once research is completed, each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue and on the results of preclinical and clinical studies. We cannot give you assurances that any of these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operation could be materially affected.

Unaudited Pro Forma Financial Summary

        The following unaudited pro forma financial summary is presented as if the acquisitions of Biomatrix and Focal were completed as of January 1, 2001 and 2000. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated at those dates, or of the future operations of the combined entities. Material nonrecurring charges related to these acquisitions, such as the acquired IPR&D charge of $82.1 million related to our Biomatrix acquisition, are not reflected in the following unaudited pro forma financial summary:

	For the Years Ended December 31,
	2001			2000
	(Amounts in thousands)
Total revenues	$	235,289		$	221,103
Division net loss		(155,724	)		(144,159	)

NOTE F.    ACCOUNTS RECEIVABLE AND INTANGIBLE ASSETS

        Genzyme Biosurgery's trade receivables primarily represent amounts due from distributors and healthcare service providers. Genzyme Biosurgery performs credit evaluations of its customers on an ongoing basis and generally does not require collateral. Genzyme Biosurgery states accounts receivable at fair value after reflecting an allowance for doubtful accounts. This allowance was $1.9 million at December 31, 2001 and $2.4 million at December 31, 2000.

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        The following table contains information on Genzyme Biosurgery's intangible assets for the periods presented:

	December 31, 2001			Weighted Average Estimated Useful Life (Years)	December 31, 2000			Weighted Average Estimated Useful Life (Years)
	(Amounts in thousands, except useful life data)
Goodwill	$	236,621		25	$	242,109		27
Tradenames		85,228		22		94,624		25
Distribution agreements		13,950		8		13,950		8
Patents		173,379		11		75,196		11
Technology		79,423		11		159,624		11
Other		5,011		4		4,622		7
		593,612				590,125
Less accumulated amortization		(68,434	)			(27,490	)
Intangible assets, net	$	525,178			$	562,635

NOTE G.    INVENTORIES

		December 31,
		2001		2000
		(Amounts in thousands)
Raw materials		$	13,301	$	21,270
Work-in-process			11,517		25,640
Finished products			18,727		14,664
	Total	$	43,545	$	61,574

NOTE H.    PROPERTY, PLANT AND EQUIPMENT

	December 31,
	2001			2000
	(Amounts in thousands)
Plant and equipment	$	32,221		$	22,506
Land and buildings		38,891			40,039
Leasehold improvements		2,720			3,083
Furniture and fixtures		7,001			7,023
Construction-in-progress		1,112			564
		81,945			73,215
Less accumulated depreciation		(28,151	)		(15,806	)
Property, plant and equipment, net	$	53,794		$	57,409

        Genzyme Biosurgery's depreciation expense was $14.1 million in 2001, $4.3 million in 2000, and $3.6 million in 1999.

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NOTE I.    INVESTMENTS

        Investments in marketable securities consisted of the following:

		December 31,
		2001				2000
		Cost		Market Value		Cost		Market Value
		(Amounts in thousands)
Cash equivalents:(1)
	Money market fund (2)	$	33,838	$	33,838	$	74,035	$	74,035
	Investment in equity securities (3)	$	—	$	—	$	1,603	$	1,603

(1)

Cash equivalents are included as part of cash and cash equivalents on our balance sheets.

(2)

Genzyme Biosurgery's investments in money market funds have contractual maturities within one year.

(3)

In 2000, we determined that our investment in the common stock of Focal, Inc., which we allocated to Genzyme Biosurgery, was permanently impaired. As a result, we recorded a charge to operations of $7.3 million in 2000, which we allocated to Genzyme Biosurgery.

        Genzyme Biosurgery records gross unrealized holding gains and losses in division equity. Genzyme Biosurgery did not record any such amounts in 2001 and 2000.

        Note I., "Investments," to our consolidated financial statements contains information regarding Genzyme Biosurgery's equity investment in Focal. We incorporate that information into this note by reference.

NOTE J.    NEUROCELL JOINT VENTURE REFUND

        Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc. did not initiate a Phase 3 clinical trial of NeuroCell-PD for Parkinson's disease by June 30, 2001. Because a Phase 3 trial of the product was not initiated by June 30, 2001, Genzyme General had the right to elect to receive a refund of $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in the joint venture plus accrued interest thereon at a rate of 13.5% per annum. On August 2, 2001, Genzyme Biosurgery received notification from Genzyme General of its election to receive the refund. Genzyme Biosurgery can pay the refund amount in cash, Biosurgery designated shares or both. The refund was due and payable within 90 days after Genzyme Biosurgery received the notice from Genzyme General. Genzyme General and Genzyme Biosurgery agreed to extend Genzyme Biosurgery's deadline to refund the $20.0 million to February 1, 2002. The repayment will be recorded as a reduction to Genzyme Biosurgery's division equity.

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NOTE K.    ACCRUED EXPENSES

	December 31,
	2001		2000
	(Amounts in thousands)
Compensation	$	11,507	$	12,180
Bank overdrafts		2,330		2,783
Royalties		4,522		3,200
Restructuring costs		2,160		5,970
Acquisition related costs		—		8,897
Other		4,623		13,215
Total	$	25,142	$	46,245

NOTE L.    LONG-TERM DEBT AND LEASES

        Our long-term debt and capital lease obligations consist of the following:

	December 31,
	2001			2000
	(Amounts in thousands)
Revolving credit facility maturing in December 2003	$	234,000		$	200,000
Revolving credit facility maturing in December 2001		—			18,000
6.9% convertible subordinated note due in May 2003		10,000			10,000
Capital leases		1,629			1,453
		245,629			229,453
Less current portion		(905	)		(18,449	)
	$	244,724		$	211,004

        Note K., "Long-Term Debt and Leases," to our consolidated financial statements contains information regarding our:

•

revolving credit facility;



•

6.9% convertible subordinated note; and



•

capital leases resulting from the acquisition of Biomatrix.

We incorporate that information into this note by reference.

Operating Leases

        Genzyme Biosurgery leases facilities and personal property under operating leases with terms in excess of one year. Genzyme Biosurgery's total expense under operating leases was (amounts in millions):

2001	2000	1999
$3.3	$2.7	$1.9

        Over the next five years, Genzyme Biosurgery will be required to repay the following amounts under operating leases (amounts in millions):

2002	2003	2004	2005	2006	After 2006
$4.6	$4.6	$3.5	$2.8	$0.5	$2.4

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NOTE M.    DIVISION EQUITY

        The following table contains the components of division equity for Genzyme Biosurgery for the periods presented:

	December 31,
	2001			2000			1999
	(Amounts in thousands)
Balance at beginning of period	$	511,106		$	350,463		$	210,692
Division net loss		(145,170	)		(162,217	)		(78,077	)
Allocated tax benefits		18,189			448			—
Allocation of proceeds from issuance of Tissue Repair Stock under stock plans		—			798			461
Allocation of proceeds from issuance of Surgical Products Stock under stock plans		—			910			—
Allocation of proceeds from issuance of Biosurgery Stock under stock plans		1,555			298			—
Allocation of cash from Genzyme General to Genzyme Biosurgery for Biosurgery designated shares (1)		12,000			—			—
Allocation of cash from Genzyme General to Genzyme Surgical Products for Surgical Products designated shares (1)		—			—			176,706
Allocation of cash from Genzyme General to Genzyme Tissue Repair for Tissue Repair designated shares (1)		—			9,910			5,001
Allocated value of Biosurgery Stock issued upon acquisition of Biomatrix		—			217,895			—
Allocated value of Biosurgery Stock issued upon acquisition of Focal		9,801			—			—
Tax benefit related to acquisition		1,774			107,044			—
Amortization of deferred tax benefit		(18,189	)		—			—
Notes receivable from stockholders		(535	)		(14,760	)		—
Payment of notes receivable from stockholders		2,841			—			—
Allocated stock compensation expense		66			—			—
Payment from Genzyme General for transfer of research program		—			—			100
Payment from Genzyme General for transfer of interest in joint venture		—			—			25,000
Conversion of 51/4% convertible notes		7			—			—
Allocated value of Tissue Repair Stock issued upon conversion of convertible debt		—			—			12,483
Issuance of Tissue Repair Stock in connection with research programs		—			289			—
Allocated equity adjustments		1,009			28			(1,903	)
Balance at end of period	$	394,454		$	511,106		$	350,463

(1)

Designated shares are shares of our common stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to the division

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corresponding to that series of stock. As of December 31, 2001, there were approximately 3.2 million Biosurgery designated shares.

        As a result of recording a deferred tax liability related to the purchase of Biomatrix, Genzyme Biosurgery released a corresponding deferred tax asset valuation allowance totaling $107.0 million. This reversal was recorded to division equity.

Stock Compensation Plans

        We apply APB Opinion 25 and related interpretations in accounting for our five stock-based compensation plans: the 1990 Equity Incentive Plan, the 1997 Equity Incentive Plan, the 2001 Equity Incentive Plan and the 1998 Director Stock Option Plan (each of which are stock option plans), the 1990 Employee Stock Purchase Plan and the 1999 Employee Stock Purchase Plan. We do not recognize compensation expense for options granted under the provisions of these plans for options granted to employees with fixed terms and an exercise price greater than or equal to fair market value at the date of grant.

        The following table sets forth division net loss data for Genzyme Biosurgery as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS 123 based on the fair value at the grant dates of the awards. The resulting compensation expense would be allocated to Genzyme Biosurgery in accordance with our allocation policies:

		December 31,
		2001			2000			1999
		(Amounts in thousands)
Net loss:
	As reported	$	(145,170	)	$	(162,217	)	$	(78,077	)
	Pro forma		(154,290	)		(166,623	)		(83,875	)

        Note L., "Stockholders' Equity," to our consolidated financial statements contains information regarding the assumptions we made in calculating pro forma compensation expense in accordance with SFAS 123.

Interdivisional Financing Arrangement

        Our board of directors has made $25.0 million of Genzyme General's cash available to Genzyme Biosurgery. Under this arrangement, Genzyme Biosurgery is able to draw down funds as needed each quarter in exchange for designated shares based on the fair market value (as defined in our charter) of Biosurgery Stock at the time of the draw. Genzyme Biosurgery has made the following draws during the past three fiscal years:

•

In 1999—none;



•

In 2000—two draws aggregating $10.0 million in exchange for a reserve of approximately 1.7 million Tissue Repair designated shares, which were converted into approximately 0.6 million Biosurgery designated shares.

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•

In 2001—$12.0 million in exchange for an additional reserve of approximately 1.9 million Biosurgery designated shares.

At December 31, 2001, $3.0 million remained available to Genzyme Biosurgery under this arrangement.

NOTE N.    COMMITMENTS AND CONTINGENCIES

        We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims against us as of December 31, 2001 which, if adversely decided, would have a material adverse effect on Genzyme Biosurgery's results of operations, financial condition or liquidity.

NOTE O.    INCOME TAXES

        Genzyme Biosurgery's provisions for income taxes were at rates other than the U.S. federal statutory tax rate for the following reasons:

	2001		2000		1999
Tax provision (benefit) at U.S. statutory rate	(35.0	)%	(35.0	)%	(35.0	)%
State taxes, net	(1.3	)%	(1.0	)%	(1.2	)%
Benefit of tax credits	0.0	%	0.0	%	0.0	%
Nondeductible amortization	3.2	%	0.9	%	1.4	%
Other, net	0.3	%	0.2	%	0.2	%
Charge for purchase of in-process research and development	0.0	%	17.7	%	0.0	%
Write-off of non-deductible goodwill	3.6	%	0.0	%	0.0	%
Deductions subject to deferred tax valuation	29.2	%	17.2	%	34.6	%
Effective tax rate	0.0	%	0.0	%	0.0	%

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        The components of net deferred tax assets are described in the following table:

		December 31,
		2001			2000
		(Amounts in thousands)
Deferred tax assets:
	Net operating loss carryforwards	$	151,970		$	125,386
	Tax credits		2,414			2,366
	Inventory		9,611			10,300
	Reserves and other		4,431			3,971
Gross deferred tax asset			168,426			142,023
Valuation allowance			(73,733	)		(34,104	)
Net deferred tax asset		$	94,693		$	107,919
Deferred tax liabilities:
	Intangible amortization	$	(92,430	)	$	(105,770	)
	Depreciable assets		(2,263	)		(2,149	)
Net deferred tax liabilities		$	—		$	—

        We had valuation allowances of $73.7 million in 2001 and $34.1 million in 2000 against otherwise recognizable deferred tax assets, primarily consisting of operating loss carryforwards, and capital losses from the purchase of in-process research and development as the realizability of these assets was not sufficiently assured.

        As Genzyme Biosurgery recognizes these deferred tax assets in accordance with generally accepted accounting principles, the benefits of those assets are reflected in its tax provision. However, the benefit of these deferred tax assets has previously been allocated to Genzyme General in accordance with our management and accounting policies, and will be reflected as a reduction of Genzyme Biosurgery's net loss to determine net loss attributable to Biosurgery Stock.

NOTE P.    BENEFIT PLANS

        Note P., "Benefit Plans", to our consolidated financial statements contains information regarding our 401(k) and other pension plans. We incorporate that information into this note by reference.

NOTE Q.    SEGMENT INFORMATION

        In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", we present segment information in a manner consistent with the method we use to report this information to our management. Applying SFAS 131, Genzyme Biosurgery has three reportable segments:

•

Cardiothoracic, which includes chest drainage systems, lung sealants, instruments and closures used in coronary artery bypass, valve replacement, lung surgery and other cardiothoracic surgeries;

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•

Orthopaedics, which includes Synvisc viscosupplementation product and Carticel chondrocytes; and



•

Biosurgical Specialties, which includes Sepra products and Epicel skin grafts.

        We have provided information concerning the operations in these reportable segments in the following table:

		December 31,
		2001		2000		1999
		(Amounts in thousands)
Revenues(1):
	Cardiothoracic(2)	$	69,118	$	76,406	$	77,936
	Orthopaedics		101,790		22,388		15,213
	Biosurgical Specialties		64,229		46,397		39,107
	Other(3)		5		23		97
Total		$	235,142	$	145,214	$	132,353
Gross Profit(1):
	Cardiothoracic(2)	$	21,945	$	30,536	$	33,360
	Orthopaedics		71,214		9,998		5,693
	Biosurgical Specialties		15,995		22,870		12,754
	Other(3)		5		23		97
Total		$	109,159	$	63,427	$	51,904

(1)

In December 2000, we acquired Biomatrix. The results of operations of Biomatrix are included in the results of Genzyme Biosurgery from the date of acquisition.



(2)

On June 30, 2001, we acquired Focal and allocated the acquisition to Genzyme Biosurgery's Cardiothoracic segment. The results of operations of Focal are included in the results of Genzyme Biosurgery from the date of acquisition.



(3)

The Other category includes revenue from Genzyme Biosurgery's research and development contracts which we do not allocate to a particular segment of Genzyme Biosurgery.

Segment Assets

        We do not allocate assets within Genzyme Biosurgery for purposes of segment information. Total assets for Genzyme Biosurgery at December 31, 2001 of $704.7 million include:

•

$25.9 million of assets resulting from the acquisition of the Class A and Class B limited partnership interests of GDP, including $8.4 million of goodwill and $17.5 million of other intangible assets;



•

$19.2 million of assets resulting from the acquisition of Focal, including $1.4 million of goodwill and $7.9 million of other intangible assets; and

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•

$532.1 million of assets resulting from the acquisition of Biomatrix, including $114.0 million of goodwill and $284.9 million of other intangible assets.

        The following table contains revenue information by geographic area:

			December 31,
			2001		2000		1999
			(Amounts in thousands)
Revenues:
	U.S.		$	187,966	$	109,132	$	95,124
	Europe			34,987		24,554		28,234
	Other			12,189		11,528		8,995
		Total	$	235,142	$	145,214	$	132,353

        All long-lived assets are in the United States.

        Genzyme Biosurgery markets its products directly to physicians and hospitals. Genzyme Biosurgery also markets its products through distributors and had the following sales to three unaffiliated distributors:

				December 31,
				2001		2000		1999
				(Amounts in thousands)
Revenues:
	Cardiothoracic
		Distributor A		$	10,060	$	17,579	$	20,188
		Distributor B			5,096		9,888		10,031
			Total		15,156		27,467		30,219
	Orthopaedics
		Distributor C			68,990		—		—
	Total			$	84,146	$	27,467	$	30,219

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NOTE R.    QUARTERLY RESULTS (UNAUDITED)

	1stQuarter 2001			2ndQuarter 2001			3rdQuarter 2001			4thQuarter 2001
	(Amounts in thousands)
Net revenue	$	54,156		$	60,364		$	63,219		$	57,403
Gross profit		22,381			25,422			32,943			28,413
Division net loss		(35,327	)		(37,608	)		(21,525	)		(50,710	)

	1stQuarter 2000			2ndQuarter 2000			3rdQuarter 2000			4thQuarter 2000
	(Amounts in thousands)
Net revenue	$	34,949		$	36,256		$	34,607		$	39,402
Gross profit		15,887			16,641			13,165			17,734
Division net loss		(15,014	)		(14,398	)		(19,524	)		(113,281	)

NOTE S.    SUBSEQUENT EVENT

        On February 1, 2002, Genzyme Biosurgery paid to Genzyme General $27.1 million, representing $20.0 million of the $25.0 million, plus accrued interest of 13.5% per annum, Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC. The refund obligation arose because Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc., failed to initiate a phase 3 trial of NeuroCell-PD for Parkinson's disease by June 30, 2001.

GBS-54

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Genzyme Corporation:

        In our opinion, the accompanying combined balance sheets and the related combined statements of operations and of cash flows present fairly, in all material respects, the financial position of Genzyme Biosurgery (as described in Note A) at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        As more fully described in Note A to these financial statements, Genzyme Biosurgery is a division of Genzyme Corporation; accordingly, the combined financial statements of Genzyme Biosurgery should be read in conjunction with the audited consolidated financial statements of Genzyme Corporation and Subsidiaries.

Boston, Massachusetts
February 14, 2002

GBS-55

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FINANCIAL STATEMENTS GENZYME BIOSURGERY A DIVISION OF GENZYME CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME BIOSURGERY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENZYME BIOSURGERY A DIVISION OF GENZYME CORPORATION COMBINED STATEMENTS OF OPERATIONS
GENZYME BIOSURGERY A DIVISION OF GENZYME CORPORATION COMBINED BALANCE SHEETS
GENZYME BIOSURGERY A DIVISION OF GENZYME CORPORATION COMBINED STATEMENTS OF CASH FLOWS
GENZYME BIOSURGERY A DIVISION OF GENZYME CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS

EX-13.4

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EXHIBIT 13.4

FINANCIAL STATEMENTS
GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION

	Page No.
Combined Selected Financial Data	GMO-2
Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations	GMO-4
Combined Statements of Operations—For the Years Ended December 31, 2001, 2000 and 1999	GMO-15
Combined Balance Sheets—December 31, 2001 and 2000	GMO-16
Combined Statements of Cash Flows—For the Years Ended December 31, 2001, 2000 and 1999	GMO-17
Notes to Combined Financial Statements	GMO-18
Report of Independent Accountants	GMO-32

GMO-1

GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION

COMBINED SELECTED FINANCIAL DATA

        These selected financial data have been derived from the audited, combined financial statements of Genzyme Molecular Oncology. You should read the following information in conjunction with the audited financial statements and related notes of Genzyme Molecular Oncology and Genzyme contained elsewhere in this annual report. These selected financial data may not be indicative of Genzyme Molecular Oncology's future financial condition due to the risks and uncertainties described under the caption "Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations—Factors Affecting Future Operating Results" below.

        Genzyme Molecular Oncology is our operating division that is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        A series of our common stock, Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock", is designed to reflect the value and track the performance of this division. Molecular Oncology Stock is common stock of Genzyme Corporation, not of Genzyme Molecular Oncology; Genzyme Molecular Oncology is a division, not a company or legal entity, and therefore does not and cannot issue stock. The chief mechanisms intended to cause Molecular Oncology Stock to "track" the performance of Genzyme Molecular Oncology are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to Genzyme Molecular Oncology into the determination of the amount available to pay dividends on Molecular Oncology Stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Molecular Oncology Stock if all or substantially all of the assets allocated to Genzyme Molecular Oncology are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Molecular Oncology Stock is defined in our charter as the net income or loss of Genzyme Molecular Oncology determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme Molecular Oncology in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of common stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to Molecular Oncology Stock are based on the income or losses attributable to Genzyme Molecular Oncology, we include financial statements and management's discussion and analysis of Genzyme Molecular Oncology to aid investors in evaluating its performance.

GMO-2

GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION

COMBINED SELECTED FINANCIAL DATA

COMBINED STATEMENTS OF OPERATIONS DATA

		For the Years Ended December 31,
		2001			2000			1999			1998			1997
		(Amounts in thousands)
Revenues:
Service revenue		$	700		$	—		$	1,920		$	2,229		$	467
Service revenue—related party			—			—			50			466			—
Research and development revenue—related party			—			—			496			2,177			315
Research and development revenue			3,412			584			—			3,256			—
Licensing revenue			2,302			4,936			2,125			11,275			—
Royalty revenue			148			151			28			4			—
	Total revenues		6,562			5,671			4,619			19,407			782
Operating costs and expenses:
Cost of service revenues			273			—			620			1,374			50
Cost of research and development and licensing revenues			2,803			826			698			4,073			287
Selling, general and administrative			7,552			5,851			5,529			7,155			2,118
Research and development			26,540			18,908			15,997			12,743			5,341
Amortization of intangibles			—			5,420			11,825			11,983			5,127
Purchase of in-process research and development (1)			—			—			—			—			7,000
	Total operating costs and expenses		37,168			31,005			34,669			37,328			19,923
Operating loss			(30,606	)		(25,334	)		(30,050	)		(17,921	)		(19,141	)
Other income (expenses):
Equity in net loss of unconsolidated affiliate (2)			—			—			(1,870	)		(1,647	)		(258	)
Interest income			945			1,211			469			782			392
Interest expense			(57	)		(187	)		(28	)		(2,968	)		(1,663	)
	Total other income (expenses)		888			1,024			(1,429	)		(3,833	)		(1,529	)
Loss before income taxes			(29,718	)		(24,310	)		(31,479	)		(21,754	)		(20,670	)
Tax benefit			—			1,214			2,647			2,647			1,092
Division net loss		$	(29,718	)	$	(23,096	)	$	(28,832	)	$	(19,107	)	$	(19,578	)

COMBINED BALANCE SHEET DATA

	December 31,
	2001		2000		1999			1998		1997
	(Amounts in thousands)
Cash and investments	$	41,135	$	30,151	$	3,587		$	11,900	$	21,229
Working capital		28,807		22,100		(5,889	)		9,189		11,953
Total assets		42,419		30,752		9,692			35,952		53,801
Long-term debt and convertible debt		—		—		—			—		24,606
Division equity		26,813		19,526		(1,215	)		23,364		13,466

(1)

A $7.0 million charge for the purchase of in-process research and development was incurred in connection with the acquisition of PharmaGenics, Inc. in 1997.

(2)

StressGen/Genzyme LLC was dissolved in 1999.

GMO-3

MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME MOLECULAR ONCOLOGY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

        This discussion contains forward-looking statements. Actual results could differ materially from those anticipated by the forward-looking statements due to the risks and uncertainties described under the caption "Factors Affecting Future Operating Results" for Genzyme Molecular Oncology and Genzyme Corporation included in this annual report. You should consider carefully each of these risks and uncertainties in evaluating the financial condition and results of operations of Genzyme Molecular Oncology and Genzyme. We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements except as required by law.

        Genzyme Molecular Oncology is our operating division that is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        We prepare the combined financial statements of Genzyme Molecular Oncology in accordance with generally accepted accounting principles. We present financial information and accounting policies specific to Genzyme Molecular Oncology in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should, therefore, read our consolidated financial statements in conjunction with the combined financial statements of Genzyme Molecular Oncology. Note A., "Summary of Significant Accounting Policies," to our consolidated financial statements contains a summary of our accounting policies.

        Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock," is a series of our common stock that is designed to reflect the value and track the performance of Genzyme Molecular Oncology. The chief mechanisms intended to cause Molecular Oncology Stock to "track" the financial performance of Genzyme Molecular Oncology are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to Genzyme Molecular Oncology into the determination of the amount available to pay dividends on Molecular Oncology Stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Molecular Oncology Stock if all or substantially all of the assets allocated to Genzyme Molecular Oncology are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of Molecular Oncology Stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Molecular Oncology Stock is defined in our charter as the net income or loss of Genzyme Molecular Oncology determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme Molecular Oncology in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock or change our earnings allocation methodology. However, at the present time,

GMO-4

we have no plans to do so. Because the earnings allocated to Molecular Oncology Stock are based on the income or losses attributable to Genzyme Molecular Oncology, we include financial statements and management's discussion and analysis of Genzyme Molecular Oncology to aid investors in evaluating its performance.

        While Molecular Oncology Stock is designed to reflect Genzyme Molecular Oncology's performance, it is common stock of Genzyme Corporation and not Genzyme Molecular Oncology; Genzyme Molecular Oncology is a division, not a company or legal entity, and therefore does not and cannot issue stock. Consequently, holders of Molecular Oncology Stock have no specific rights to assets allocated to Genzyme Molecular Oncology. Genzyme Corporation continues to hold title to all of the assets allocated to Genzyme Molecular Oncology and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to Genzyme Molecular Oncology. Holders of Molecular Oncology Stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to Genzyme Molecular Oncology are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of Molecular Oncology Stock and other tracking stockholders would only have the rights of common stockholders in the combined assets of Genzyme.

        Our charter requires us to manage and account for transactions between Genzyme Molecular Oncology and our other divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our divisional management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

CRITICAL ACCOUNTING POLICIES

        The preparation of the combined financial statements of Genzyme Molecular Oncology under generally accepted accounting principles requires us to make certain estimates and judgments that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in our financial statements. Actual results could differ from these estimates under different assumptions and conditions.

        We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of Genzyme Molecular Oncology's combined financial statements:

•

Policies Relating to Tracking Stocks; and



•

Revenue Recognition.

Policies Relating to Tracking Stocks

Allocation of Revenue, Expenses, Assets and Liabilities

        Our charter sets forth which operations and assets were initially allocated to Genzyme Molecular Oncology and states that going forward the division will also include all business, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between Genzyme Molecular Oncology and our other divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors,

GMO-5

however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to that division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to that division;



•

actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the service is performed on a cost basis. Such charges are generally based on direct labor hours;



•

proportionate usage—costs incurred which benefit more than one division are allocated based on management's estimate of the proportionate benefit each division receives. Such costs include facilities, legal, finance, human resources, executive and investor relations; or



•

board directed—programs and products, both internally developed and acquired, are allocated to divisions by the board of directors. The board also allocates long-term debt and strategic investments.

        Any future changes that our board of directors may make to the methods for allocating revenue, expenses, assets, and liabilities among our divisions could materially change the results of operations or the financial condition of Genzyme Molecular Oncology.

Income Tax Allocation Policy

        If at the end of any fiscal quarter, 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 other divisions in proportion to their taxable income without any compensating payments or allocation to the division generating the benefit. Genzyme Molecular Oncology has not yet generated taxable income, and thus has not had the ability to use any projected annual tax benefits. Genzyme General has generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Molecular Oncology. Consistent with our policy, we have allocated the tax benefits generated by Genzyme Molecular Oncology to Genzyme General without any compensating payments or allocations to Genzyme Molecular Oncology.

        Deferred tax assets and liabilities can arise from purchase accounting that relate to a division that does not satisfy the realizability criteria of SFAS No. 109, "Accounting for Income Taxes." Such deferred tax assets and liabilities are allocated to the division to which the acquisition was allocated. As a result, the periodic changes in the deferred tax assets and liabilities do not result in a tax expense or benefit to that division. However, the change in the deferred tax asset or liability is added to division net income for purposes of determining net income allocated to a tracking stock. If our board of directors modified the policy for allocating changes in these assets and liabilities, the income attributable to each series of tracking stock could be materially different.

GMO-6

Revenue Recognition

        Genzyme Molecular Oncology recognizes revenue from service sales when it has finished providing the service. Genzyme Molecular Oncology recognizes revenue from research and development contracts over the term of the applicable contract and as it incurs costs related to that contract. It recognizes non-refundable up-front license fees over the related performance period or at the time it has no remaining performance obligations.

        Genzyme Molecular Oncology receives royalties related to the manufacture, sale or use of products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, it recognizes revenue based on estimates of royalties earned during the applicable period and adjusts for differences between the estimated and actual royalties in the following quarter. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, Genzyme Molecular Oncology recognizes revenue upon receipt of royalty statements from the licensee.

        Genzyme Molecular Oncology does not recognize revenue unless collectibility is reasonably assured. It maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Genzyme Molecular Oncology's customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

Results of Operations

        The following discussion summarizes the key factors management believes are necessary for an understanding of Genzyme Molecular Oncology's financial statements.

Revenues

		2001		2000		1999		01/00 Increase/ (Decrease) % Change	00/99 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Service revenue		$	700	$	—	$	1,970	N/A	(100)%
Research and development revenue			3,412		584		496	484 %	18 %
Licensing revenue			2,302		4,936		2,125	(53)%	132 %
Royalty revenue			148		151		28	(2)%	439 %
	Total revenues	$	6,562	$	5,671	$	4,619	16 %	23 %

2001 As Compared to 2000

        Genzyme Molecular Oncology's service revenue is comprised of amounts received under an agreement with a pharmaceutical company around an improvement to the SAGE technology. This was Genzyme Molecular Oncology's first agreement related to the improved technology, so no such revenues were recorded in 2000.

        Research and development revenue in 2001 is attributable to research performed on behalf of Purdue Pharma, L.P. under the cancer antigen discovery agreement that was initiated in October 2000 and on behalf of Kirin Brewery Co., Ltd. under a collaboration agreement around the tumor endothelial marker (TEM) program that was initiated in November 2001. Research and development revenue increased in 2001 as compared to 2000 as a result of the performance of a full year of research under the Purdue agreement and the commencement of work under the Kirin agreement.

GMO-7

        Licensing revenue in 2001 consisted primarily of technology access fees Genzyme Molecular Oncology received from Purdue and Kirin upon entry into those collaborations. Because Genzyme Molecular Oncology is amortizing these fees over the course of the associated research programs, it recognized one-third of the technology access fee it received from Purdue and approximately 6% of the fee it received from Kirin during 2001. Genzyme Molecular Oncology also recognized licensing revenue in 2001 from licenses of rights to the SAGE technology and under its diagnostic patent estate. Because Genzyme Molecular Oncology transferred its in vitro cancer diagnostic assets to Genzyme General in December 2001, it will not be receiving license revenue under that patent estate in the future.

        Licensing revenue decreased in 2001 compared to 2000, notwithstanding the fact that Genzyme Molecular Oncology recognized a larger portion of the Purdue technology access fee, as a result of a $2.0 million milestone payment it received from Schering-Plough Ltd. in 2000.

        Royalty revenue consists of royalties received under licenses to the SAGE technology and under Genzyme Molecular Oncology's diagnostic assets. Because Genzyme Molecular Oncology transferred its in vitro cancer diagnostic assets to Genzyme General in December 2001, it will not be receiving royalty revenue generated by those assets in the future.

2000 As Compared to 1999

        As a result of a planned shift in the focus of Genzyme Molecular Oncology's SAGE business in late 1999 from one in which it provided services for third parties to one in which it granted licenses to practice the technology, it did not record service revenues in 2000.

        Research and development revenue in 2000 is attributable to research performed on behalf of Purdue, with 1999 amounts attributable to work performed on behalf of StressGen/Genzyme LLC, Genzyme Molecular Oncology's joint venture with StressGen Biotechnologies Corporation to develop stress gene therapies for cancer. This joint venture was dissolved in December 1999.

        Licensing revenue in 2000 consisted primarily of a portion of the technology access fee Genzyme Molecular Oncology received from Purdue and the $2.0 million milestone payment it received from Schering-Plough. The increase in licensing revenue over 1999 is primarily attributable to that milestone payment.

Cost of Revenues

        Genzyme Molecular Oncology's cost of revenues for all periods presented includes:

•

costs associated with work performed under funded research and development agreements, including those with Purdue, Kirin and the StressGen joint venture;



•

costs associated with the performance of services using the SAGE technology on behalf of third parties; and



•

royalties payable to third parties, most notably The Johns Hopkins University for technology that Genzyme Molecular Oncology has licensed from them.

2001 As Compared to 2000

        Cost of revenues increased in 2001 as compared to 2000 primarily as a result of the performance of a full year of work under the Purdue agreement as well as the initiation of the Kirin collaboration.

GMO-8

2000 As Compared to 1999

        Cost of revenues decreased in 2000 as compared to 1999, notwithstanding the initiation of the Purdue collaboration in October 2000, primarily as a result of the dissolution of the StressGen joint venture and the change in focus of Genzyme Molecular Oncology's SAGE business.

SG&A and R&D Expenses

2001 As Compared to 2000

        Genzyme Molecular Oncology's selling, general and administrative expenses increased as a result of enhanced business development efforts and increased expenses related to information technology, legal, accounting and general management services.

        Genzyme Molecular Oncology's research and development expense increased as a result of:

•

expansion of preclinical and clinical efforts in its antigen-specific and patient-specific cancer vaccine programs;



•

enhanced support for its antigen discovery program, particularly for its strategic collaboration with Purdue; and



•

increased spending in support of its antiangiogenesis program, including the initiation of its strategic collaboration with Kirin.

2000 As Compared to 1999

        Genzyme Molecular Oncology's selling, general and administrative expense increased primarily as a result of increased professional service fees, combined with $0.4 million in audit and legal fees related to the registration of a public stock offering that was subsequently withdrawn.

        Genzyme Molecular Oncology's research and development expense increased as a result of:

•

research and development expenses directed toward its antigen discovery, immunotherapy and antiangiogenesis programs;



•

the initiation of three additional clinical trials in its immunotherapy program; and



•

an increase in the number of research personnel and related expenses required to support the continued development of its cancer vaccine and antiangiogenesis programs.

Research and Development Programs

        Before we can commercialize our development-stage products, we will need to:

•

conduct substantial research and development;



•

undertake preclinical and clinical testing; and



•

pursue regulatory approvals.

        This process is risky, expensive, and may take several years. We cannot guarantee that we will be able to successfully develop any product, or that we would be able to recover our development costs upon commercialization of a product that we successfully develop.

GMO-9

        Below is a brief description of our significant research and development programs that have been allocated to Genzyme Molecular Oncology:

Program	Program Description or Indication	Development Status at December 31, 2001	Year of Expected Product Launch
Dendritic/tumor cell fusion vaccines	Multiple cancer indications	Phase 1/2 trials in process	2007 to 2009
Melan-A/MART-1 and gp100 antigen-specific cancer vaccines	Melanoma	Phase 1/2 trials in process	2006 to 2008

        The aggregate actual and estimated research and development expense for the above programs is as follows (amounts in millions):

Costs incurred for the year ended December 31, 2000	$6.4
Costs incurred for the year ended December 31, 2001	$12.6
Cumulative costs incurred as of December 31, 2001	$28.3
Estimated costs to complete as of December 31, 2001	$125.0 to $175.0

        Our current estimates of the time and investment required to develop these products may change depending on the approach we take to pursue them, the results of preclinical and clinical studies, and the content and timing of decisions made by the FDA and other regulatory authorities. We cannot provide assurance that any of these programs will ever result in products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indication. If certain of our development-stage programs do not result in commercially viable products, our results of operations could be materially affected.

Amortization of Intangibles

        Genzyme Molecular Oncology's amortization of intangibles is attributable to intangible assets acquired in connection with the acquisition of PharmaGenics, Inc. in June 1997. These assets were fully amortized by the end of the second quarter of 2000.

Other Income and Expenses

2001 As Compared to 2000

        Genzyme Molecular Oncology's other income decreased in 2001 due to a decrease in interest income that is attributable to lower average cash balances during most of the year. Interest expense decreased in 2001 in comparison to 2000 due to the repayment, in May 2000, of $5.0 million that Genzyme Molecular Oncology borrowed under our revolving credit facility in 1999. This amount was outstanding during the first quarter of 2000.

2000 As Compared to 1999

        Genzyme Molecular Oncology's other income increased in 2000 due to the absence of any expenses from the StressGen joint venture that was dissolved in December 1999 and an increase in interest income due to higher average cash balances. Interest expense increased in 2000 due to $5.0 million that was borrowed under our revolving credit facility at the end of 1999. This amount was repaid in May 2000.

GMO-10

Liquidity and Capital Resources

        At December 31, 2001, Genzyme Molecular Oncology had cash and cash equivalents of $41.1 million, an increase of $18.9 million from cash, cash equivalents and short-term investments of $22.2 million at December 31, 2000.

        In 2001, Genzyme Molecular Oncology's operating activities used $26.0 million of cash. This is primarily due to Genzyme Molecular Oncology's division net loss of $29.7 million for the year ended December 31, 2001, offset in part by the net changes in working capital.

        In 2001, Genzyme Molecular Oncology's investing activities provided $7.9 million from the sales and maturities of investments.

        During the year ended December 31, 2001, Genzyme Molecular Oncology received $1.0 million of allocated proceeds from the issuance of Molecular Oncology Stock attributable to the exercise of stock options and shares issued under our stock purchase program.

        At December 31, 2001, Genzyme Molecular Oncology, together with our other operating divisions, has access to our $350.0 million revolving credit facility that matures in December 2003, of which $116.0 million remained available for borrowing. Borrowings under this facility bear interest at LIBOR plus an applicable margin. The terms of our revolving credit facility include various covenants, including financial covenants, which require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants and do not anticipate falling out of compliance.

        Our board of directors has made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed in exchange for designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. Genzyme Molecular Oncology has made the following draws during the past three fiscal years:

•

In 1999—none;



•

In 2000—$15.0 million in exchange for a reserve of approximately 0.7 million Molecular Oncology designated shares;



•

In 2001—$4.0 million in exchange for an additional reserve of approximately 0.3 million Molecular Oncology designated shares.

At December 31, 2001, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

        In December 2001, we reallocated certain intellectual property rights and licenses related to in vitro cancer diagnostics from Genzyme Molecular Oncology to Genzyme General. In exchange for the reallocation, Genzyme General paid to Genzyme Molecular Oncology $32.0 million in cash and undertook the obligation to pay Genzyme Molecular Oncology an additional $1.0 million if a specified milestone is met. As a result of this reallocation, royalty revenue under license agreements in the field of in vitro cancer diagnostics that previously had been allocated to Genzyme Molecular Oncology will be allocated to Genzyme General going forward. Management does not believe that the reallocation of these assets and the associated revenues will have a material impact on Genzyme Molecular Oncology's financial position or liquidity.

        Genzyme Molecular Oncology has research and development obligations of approximately $1.8 million in 2002 under agreements associated with the significant research and development programs identified above.

GMO-11

        We anticipate that Genzyme Molecular Oncology's current cash resources, together with amounts available from the following sources, will be sufficient to fund its operations through the third quarter of 2004:

•

committed research funding from collaborators;



•

the $11.0 million remaining under the interdivisional financing arrangement with Genzyme General; and



•

amounts available to Genzyme Molecular Oncology under our revolving credit facility.

        Genzyme Molecular Oncology plans to spend substantial amounts of funds on, among other things:

•

research and development;



•

preclinical and clinical testing;



•

pursuing regulatory approvals; and



•

working capital.

        Genzyme Molecular Oncology's 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 licensing arrangements;



•

ability to establish and maintain additional strategic collaborations and licensing arrangements;



•

costs involved in enforcing patent claims and other intellectual property rights;



•

market acceptance of novel approaches and therapies;



•

development of competing products and services; and



•

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 Genzyme Molecular Oncology will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on terms that we consider favorable. 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 sell or give to third parties rights to commercialize technologies or products that it would otherwise have sought to commercialize itself.

New Accounting Pronouncements and Market Risk

        See "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" included in this annual report.

Factors Affecting Future Operating Results

        The future operating results of Genzyme Molecular Oncology could differ materially from the results described above due to the risks and uncertainties described below and under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report.

GMO-12

Genzyme Molecular Oncology may never be able to successfully develop or commercialize any of its cancer therapies.

        Genzyme Molecular Oncology does not have any cancer therapies on the market and its only therapies in clinical development are at an early stage. Before commercializing any cancer therapies, Genzyme Molecular Oncology will need to conduct substantial additional research and development, including, in some cases, the replication of studies performed by third parties, undertake preclinical and clinical testing and obtain regulatory approvals. This process involves a high degree of uncertainty and may take several years. Its 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 Genzyme Molecular Oncology will successfully develop any particular product or that any product it successfully develops will gain market acceptance.

Genzyme Molecular Oncology anticipates future losses and may never become profitable.

        Genzyme Molecular Oncology has not generated significant revenues to date and does not expect to do so for several years. As of December 31, 2001, Genzyme Molecular Oncology had an accumulated deficit of approximately $121.8 million. 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: 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.

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 some of its products and services includes entering into various arrangements with academic and corporate collaborators and licensees. It 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 important rights to its corporate collaborators and licensees. These collaborators and licensees could choose not to devote resources to these arrangements or, under certain circumstances, may terminate them early. In addition, these collaborators and licensees, outside of their arrangements with Genzyme Molecular Oncology, may develop technologies or products that are competitive with those that Genzyme Molecular Oncology is developing. As a result, we cannot guarantee that Genzyme Molecular Oncology will receive revenues from these relationships or that any of its strategic collaborations will continue or not terminate early. In addition, we cannot guarantee that Genzyme Molecular Oncology will be able to enter into collaborations in the future.

Genzyme Molecular Oncology 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.

        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 made available on acceptable terms or at all. If these licenses are not available, Genzyme Molecular Oncology's ability to commercialize its products and services may be impaired.

        In its cancer vaccine program, Genzyme Molecular Oncology is in the process of evaluating the therapeutic administration of peptide products and genes that encode specific tumor antigens, including

GMO-13

MART-1 and gp100. Genzyme Molecular Oncology is aware of two issued U.S. patents directed to the gene that encodes MART-1. While it has obtained rights under one of these patents, Genzyme Molecular Oncology is still in the process of evaluating the scope and validity of the other to determine whether it needs to obtain a license. 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 that 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.

Genzyme Molecular Oncology may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

        If Genzyme Molecular Oncology or one of its strategic collaborators initiates litigation to enforce Genzyme Molecular Oncology's patent or license rights, or is required to defend these rights in response to third party claims, its business or financial position may be negatively affected. Genzyme Molecular Oncology has licensed its 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 Genzyme Molecular Oncology's ability to receive future milestones and product royalties under its agreement with Schering-Plough.

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 death of a patient undergoing gene therapy using an adenoviral vector to deliver a therapeutic gene has been widely publicized. Although this patient was not part of a Genzyme Molecular Oncology clinical trial, deaths 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 products.

        The commercial success of any gene therapy products that Genzyme Molecular Oncology develops 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;



•

stricter clinical trial oversight;



•

tighter commercial product labeling requirements of gene therapies; and



•

a decrease in the demand for any gene therapy product that Genzyme Molecular Oncology may develop.

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GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION

COMBINED STATEMENTS OF OPERATIONS

		For the Years Ended December 31,
		2001			2000			1999
		(Amounts in thousands, except per share amounts)
Revenues:
Service revenue		$	700		$	—		$	1,920
Service revenue—related party			—			—			50
Research and development revenue			3,412			584			—
Research and development revenue—related party			—			—			496
Licensing revenue			2,302			4,936			2,125
Royalty revenue			148			151			28
	Total revenues		6,562			5,671			4,619
Operating costs and expenses:
Cost of service revenues			273			—			620
Cost of research and development and licensing revenue			2,803			826			698
Selling, general and administrative			7,552			5,851			5,529
Research and development			26,540			18,908			15,997
Amortization of intangibles			—			5,420			11,825
Total operating costs and expenses			37,168			31,005			34,669
Operating loss			(30,606	)		(25,334	)		(30,050	)
Other income (expenses):
Equity in net loss of unconsolidated affiliate			—			—			(1,870	)
Interest income			945			1,211			469
Interest expense			(57	)		(187	)		(28	)
	Total other income (expenses)		888			1,024			(1,429	)
Loss before income taxes			(29,718	)		(24,310	)		(31,479	)
Tax benefit			—			1,214			2,647
Division net loss		$	(29,718	)	$	(23,096	)	$	(28,832	)
Comprehensive loss, net of tax:
Division net loss		$	(29,718	)	$	(23,096	)	$	(28,832	)
Foreign currency translation adjustments			(1	)		—			—
	Comprehensive loss	$	(29,719	)	$	(23,096	)	$	(28,832	)

The accompanying notes are an integral part of these combined financial statements.

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GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION

COMBINED BALANCE SHEETS

		December 31,
		2001		2000
		(Amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	41,135	$	22,209
Short term investments			—		7,942
Accounts receivable, net			463		231
Prepaid expenses and other current assets			702		126
	Total current assets		42,300		30,508
Equipment, net			119		244
	Total assets	$	42,419	$	30,752
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accrued expenses		$	1,400	$	1,540
Due to Genzyme General			7,086		4,660
Deferred revenue—current portion			5,007		2,208
	Total current liabilities		13,493		8,408
Deferred tax liability			—		—
Deferred revenue—long term portion			2,113		2,818
	Total liabilities		15,606		11,226
Commitment and contingencies (Note I)
Division equity			26,813		19,526
	Total liabilities and division equity	$	42,419	$	30,752

The accompanying notes are an integral part of these combined financial statements.

GMO-16

GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION

COMBINED STATEMENTS OF CASH FLOWS

				For the Years Ended December 31,
				2001			2000			1999
				(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Division net loss				$	(29,718	)	$	(23,096	)	$	(28,832	)
	Reconciliation of division net loss to net cash used in operating activities:
	Depreciation and amortization				125			5,572			12,057
	Provision for bad debts				113			—			256
	Equity in net loss of unconsolidated affiliate				—			—			1,870
	Gain on sale of equipment				—			—			(54	)
	Deferred income tax benefit				—			(1,214	)		(2,647	)
	Other				6			(142	)		20
	Increase (decrease) in cash from working capital:
		Accounts receivable			(345	)		(231	)		5,675
		Prepaid and other current assets			(576	)		92			(75	)
		Accrued expenses, deferred revenue and other			1,954			5,665			(1,927	)
		Due to Genzyme General			2,426			938			(980	)
			Net cash used in operating activities		(26,015	)		(12,416	)		(14,637	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments					—			(30,175	)		—
Sales and maturities of investments					7,942			22,383			1,022
Purchase of equipment					—			—			(43	)
Sale of equipment					—			—			188
Final distribution from joint venture					—			—			881
			Net cash provided by (used in) investing activities		7,942			(7,792	)		2,048
CASH FLOWS FROM FINANCING ACTIVITIES:
Allocated proceeds from issuance of Molecular Oncology Stock					959			28,830			308
Allocated proceeds from issuance of debt					—			—			5,000
Repayments of debts					—			(5,000	)		—
Net cash allocated from Genzyme General					36,040			15,000			—
			Net cash provided by financing activities		36,999			38,830			5,308
Increase (decrease) in cash and cash equivalents					18,926			18,622			(7,281	)
Cash and cash equivalents at beginning of period					22,209			3,587			10,868
Cash and cash equivalents at end of period				$	41,135		$	22,209		$	3,587

The accompanying notes are an integral part of these combined financial statements.

GMO-17

GENZYME MOLECULAR ONCOLOGY

A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

        Genzyme Molecular Oncology is our operating division that is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

Basis of Presentation

        The combined financial statements of Genzyme Molecular Oncology for each period include the balance sheets, results of operations and cash flows of the businesses we allocate to Genzyme Molecular Oncology. We also allocate a portion of our corporate operations to Genzyme Molecular Oncology using methods described in our allocation policy below. These combined financial statements are prepared using amounts included in our consolidated financial statements included in this annual report. We have reclassified certain 2000 and 1999 data to conform with the 2001 presentation. We prepare the financial statements of Genzyme Molecular Oncology in accordance with generally accepted accounting principles. We present financial information and accounting policies specific to Genzyme Molecular Oncology in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should read our consolidated financial statements in conjunction with the financial statements of Genzyme Molecular Oncology. Note A., "Summary of Significant Accounting Policies," to our consolidated financial statements contains a summary of our accounting policies. We incorporate that information into this note by reference.

Tracking Stock

        Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock," is a series of our common stock that is designed to reflect the value and track the performance of Genzyme Molecular Oncology. The chief mechanisms intended to cause Molecular Oncology Stock to "track" the financial performance of Genzyme Molecular Oncology are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to Genzyme Molecular Oncology into the determination of the amount available to pay dividends on Molecular Oncology Stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Molecular Oncology Stock if all or substantially all of the assets allocated to Genzyme Molecular Oncology are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of Molecular Oncology Stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Molecular Oncology Stock is defined in our charter as the net income or loss of Genzyme Molecular Oncology determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme Molecular Oncology in accordance with our management and accounting

GMO-18

policies. Our charter also requires that all of our income and expenses be allocated among its divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to Molecular Oncology Stock are based on the income or losses attributable to Genzyme Molecular Oncology, we include financial statements and management's discussion and analysis of Genzyme Molecular Oncology to aid investors in evaluating its performance.

        While Molecular Oncology Stock is designed to reflect Genzyme Molecular Oncology's performance, it is common stock of Genzyme Corporation and not Genzyme Molecular Oncology; Genzyme Molecular Oncology is a division, not a company or legal entity, and therefore does not and cannot issue stock. Consequently, holders of Molecular Oncology Stock have no specific rights to assets allocated to Genzyme Molecular Oncology. Genzyme Corporation continues to hold title to all of the assets allocated to Genzyme Molecular Oncology and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to Genzyme Molecular Oncology. Holders of Molecular Oncology Stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of Molecular Oncology Stock and other tracking stockholders would only have the rights of common stockholders in the combined assets of Genzyme.

Allocation Policy

        Our charter sets forth what operations and assets were initially allocated to Genzyme Molecular Oncology and states that going forward the division will also include all businesses, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between Genzyme Molecular Oncology and our other divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors.

        Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval. Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to that division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to that division;

GMO-19

•

actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the service is performed on a cost basis. Such charges are generally based on direct labor hours;



•

proportionate usage—costs incurred which benefit more than one division are allocated based on management's estimate of the proportionate benefit each division receives. Such costs include facilities, legal, finance, human resources, executive and investor relations; or



•

board directed—programs and products, both internally developed and acquired, are allocated to divisions by the board of directors. The board of directors also allocates long-term debt and strategic investments.

        Note B., "Policies Governing the Relationship of Genzyme's Operating Divisions," further describes our policies concerning interdivisional transactions and income tax allocations. We believe that the divisional allocations are reasonable and have been consistently applied. However, a division's results of operations may not be indicative of what would have been realized if the division was a stand-alone entity.

Revenue Recognition

        We recognize revenue from service sales when we have finished providing the service. Revenue from research and development contracts is recognized over the term of the applicable contract and as we incur costs related to that contract. Advance payments received in excess of amounts earned are classified as deferred revenue until earned. We recognize non-refundable up-front license fees over the related performance period or at the time we have no remaining performance obligations.

        Revenue from milestone payments for which we have no continuing performance obligations is recognized upon achievement of the related milestone. When we have continuing performance obligations, we recognize milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;



•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and



•

the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

        If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

        We receive royalties related to the manufacture, sale or use of our products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following quarter.

GMO-20

Historically, such adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize royalties upon receipt of royalty statements from the licensee.

        We do not recognize revenue under any circumstances unless collectibility is reasonably assured. We believe our revenue recognition policies are in compliance with Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements."

Net Income (Loss) Per Share

        Earnings per share is calculated for each series of Genzyme stock using the two-class method, as further described in the notes to our consolidated financial statements. We present earnings per share data only in our consolidated financial statements because Genzyme Corporation is the issuer of the securities. Our divisions do not and cannot issue securities because they are not companies or legal entities.

NOTE B.    POLICIES GOVERNING THE RELATIONSHIP OF GENZYME'S OPERATING DIVISIONS

        Because each of our operating divisions is a part of a single company, our board of directors has adopted policies to address issues that may arise among divisions and to govern the management of and the relationships between each division. With some exceptions that are mentioned specifically in this note, our board of directors may modify or rescind these policies, or adopt additional policies, in its sole discretion without stockholder approval, subject only to our board of directors' fiduciary duty to stockholders. Generally accepted accounting principles require that any change in policy be preferable (in accordance with these principles) to the previous policy.

Interdivisional Asset Transfers

        Our board of directors may at any time reallocate any program, product or other asset from one division to any other division, except in the case of certain enumerated key programs allocated to Genzyme Molecular Oncology, which may not be transferred out of Genzyme Molecular Oncology without a class vote of Molecular Oncology Stock unless such program has application outside of oncology, in which case it may be transferred out only for the non-oncology applications. We account for interdivisional asset transfers at book value. The consideration paid for an asset transfer generally must be fair value as determined by our board of directors. The difference between the consideration paid and the book value of the assets transferred is recorded in division equity. Our board of directors determines fair value using either a risk-adjusted discounted cash flow model or a comparable transaction model.

        The risk-adjusted discounted cash flow model estimates fair value by taking the discounted value of all the cash inflows and outflows related to a program or product over a specified period of time, generally the economic life of the project, adjusted for the probabilities of certain outcomes occurring or not occurring. In performing this analysis, we consider various factors that could affect the success or failure of the program including:

•

the duration, cost and probability of success of each phase of development;

GMO-21

•

the current and potential size of the market and barriers to entry into the market;



•

the maximum number of patients likely to be treated with the product and the speed with which that maximum number will be reached;



•

reimbursement policies and pricing limitations;



•

current and potential competitors;



•

the net proceeds received by us upon the sale of the program or product; and



•

the costs of manufacturing and marketing the product or program.

        The comparable transaction model estimates fair value through comparison to valuations established for other transactions within the biotechnology and biosurgical areas involving similar programs and products having similar terms and structure. In identifying comparable transactions, we consider, among other factors, the following:

•

the similarity of market opportunity;



•

the comparability of the medical needs addressed;



•

the similarity of the regulatory, reimbursement and competitive environment;



•

the stage of product or program development; and



•

the risk profile of successfully commercializing the product or program.

        We customarily use the comparable transaction model to corroborate valuations derived under the risk-adjusted discounted cash flow model. When determining the fair value of a program under development using either model, our board of directors also takes into account the following criteria:

•

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 time of the realization; and



•

other matters that our board of directors and its financial advisors, if any, deem relevant.

        One division may compensate another division for a reallocation with cash or other consideration having a value equal to the fair market value of the reallocated assets. In the case of a reallocation of assets from Genzyme General to Genzyme Molecular Oncology, our board of directors may elect instead to account for the reallocation as an increase in Molecular Oncology designated shares in accordance with the provisions of our charter. Molecular Oncology designated shares are authorized but unissued shares of Molecular Oncology Stock that our board of directors may from time to time issue, sell or otherwise distribute without allocating the proceeds to Genzyme Molecular Oncology. No gain or loss is recognized as a result of these transfers.

GMO-22

        Our policy regarding transfers of assets between divisions may not be changed by our board without the approval of the holders of Molecular Oncology Stock voting as a separate class unless the policy change does not affect Genzyme Molecular Oncology.

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. The division providing these products and services does not recognize revenue on any of these transactions unless it provides them to unrelated third parties in the ordinary course of business. These transactions are subject to the conditions described below:

•

We 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 direct costs to the division for which we incur them. We allocate direct labor and indirect costs in reasonable and consistent manners based on the use by a division of relevant services.



•

We charge the manufacturing of goods and performance of services by one division exclusively for another division to the division for which it is performed on a cost basis. To perform this calculation, we determine gross fixed assets for the facility used at the beginning of each fiscal year and apply our short-term borrowing rate. We allocate direct labor and indirect costs in reasonable and consistent manners based on the benefit received by a division of related goods and services.



•

Other than transactions involving research and development, manufacturing, distribution, sales, marketing, general and administrative services, which are addressed above, all interdivision transactions are performed on terms and conditions obtainable in arm's length transactions with third parties.



•

Our board of directors must approve interdivision transactions that are performed on terms and conditions other than as described above and are material to one or more of the participating divisions. In giving its approval, our board of directors 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 $1.0 million or less matures within 18 months and accrues interest at the best borrowing rate available to the corporation for a loan of like type and duration. Our board of directors must approve any loan in excess of $1.0 million. In giving its approval, our board of directors must determine that the material terms of the 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.

GMO-23

•

All material interdivision transactions are set forth in a written agreement that is signed by an authorized member of the management team of each division involved in the transaction.

        On December 31, 2001, Genzyme Molecular Oncology owed Genzyme General approximately $7.1 million in connection with these services. On December 31, 2000, approximately $4.7 million was owed to Genzyme General.

Tax Allocations

        We file a consolidated tax return and allocate income taxes to Genzyme Molecular Oncology 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. We assess the realizability of our deferred tax assets at the division level. As a result, our consolidated tax provision may not equal the sum of the divisions' tax provision. As of the end of any fiscal quarter, however, if Genzyme Molecular Oncology 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.

Access to Technology and Know-How

        Genzyme Molecular Oncology has access to all technology and know-how owned or controlled by Genzyme Corporation that may be useful in its business, subject to any obligations or limitations that apply to the corporation generally.

NOTE C.    ACCOUNTS RECEIVABLE

        Genzyme Molecular Oncology's trade receivables primarily represent amounts due from third party collaborators. Genzyme Molecular Oncology performs credit evaluations of its customers on an on-going basis and generally does not require collateral. Genzyme Molecular Oncology states accounts receivable at fair value after reflecting an allowance for doubtful accounts. This allowance was $0.4 million at December 31, 2001 and $0.3 million at December 31, 2000.

GMO-24

NOTE D.    EQUIPMENT

	December 31,
	2001			2000
	(Amounts in thousands)
Equipment	$	824		$	824
Furniture and fixtures		13			13
		837			837
Less accumulated depreciation		(718	)		(593	)
Equipment, net	$	119		$	244

        Genzyme Molecular Oncology's depreciation expense was $125,000 in 2001, $152,000 in 2000 and $232,000 in 1999.

NOTE E.    RESEARCH AND DEVELOPMENT AGREEMENTS

Kirin

        In November 2001, we entered into a collaboration with Kirin Brewery Co., Ltd. of Japan to develop and commercialize fully human monoclonal antibodies to be used as therapies in the areas of antiangiogenesis and vascular targeted cancer drug delivery. Product candidates will be generated using Genzyme Molecular Oncology's portfolio of proprietary tumor endothelial markers as targets. Upon entering into the agreement, we received a $2 million up-front fee, along with committed funding to fully support a research program for two years. Because Genzyme Molecular Oncology is amortizing the up-front fee over the course of the research program, it recognized approximately 6% of the fee as licensing revenue in 2001. Genzyme Molecular Oncology will receive milestone payments from Kirin upon satisfaction of certain research milestones during the two-year research period.

Purdue Pharma

        In October 2000, we entered into an arrangement with Purdue Pharma L.P. relating to the discovery and development of cancer antigens. Under this arrangement, we received approximately $12.0 million in cash, in the form of an up-front fee, research funding and an equity investment, and will receive approximately $9.0 million in committed research funding over the course of a research period expiring in 2003. The equity portion of this arrangement provided for two affiliates of Purdue Pharma to purchase an aggregate of 532,066 shares of Molecular Oncology Stock at a premium to the market price for those shares. We allocate our antigen discovery program to Genzyme Molecular Oncology.

NOTE F.    INVESTMENTS IN MARKETABLE SECURITIES

        Cash and cash equivalents for Genzyme Molecular Oncology as of December 31, 2001 include approximately $40 million of investments in money market funds with contractual maturities within one year.

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NOTE G.    INVESTMENT IN STRESSGEN/GENZYME LLC

        In July 1997, together with StressGen Biotechnologies Corp. and the Canadian Medical Discoveries Fund, Inc., or CMDF, we established StressGen/Genzyme LLC, a joint venture to develop stress gene therapies for the treatment of cancer. Because CMDF had the right to require StressGen and Genzyme Molecular Oncology to purchase its membership interest in the joint venture, Genzyme Molecular Oncology recorded 50% of the net operating losses of the joint venture. In 1999, CMDF exercised its put right and StressGen and Genzyme Molecular Oncology were required to purchase its membership interest in the joint venture at an aggregate price of $10.0 million (Canadian). As a result, Genzyme Molecular Oncology was obligated to repurchase one-half of the CMDF's interest in the joint venture for approximately $3.9 million ($5.0 million Canadian). To record the exercise of the put option, Genzyme Molecular Oncology recorded:

•

a $1.9 million increase to its liability related to the joint venture;



•

a $0.9 million increase to its investment in the joint venture to reflect its 50% interest in the net assets of the joint venture; and



•

a $1.0 million charge to equity in net loss of unconsolidated affiliate because, at that time, it was expected that the joint venture would be dissolved and the joint venture interest would have no value beyond the cash it held.

        Genzyme Molecular Oncology dissolved StressGen/Genzyme LLC in December 1999 and in connection with the dissolution the joint venture received a cash distribution of $0.9 million, which was equal to Genzyme Molecular Oncology's investment in the joint venture at that time. Genzyme Molecular Oncology does not present summary financial information for StressGen/Genzyme LLC because the impact of its activities are not considered to be material to their operations for the year ended December 31, 1999.

NOTE H.    LONG-TERM DEBT INSTRUMENTS

        Genzyme Molecular Oncology, together with our other operating divisions, has access to our revolving credit facility. At December 31, 2001 and 2000, no amounts borrowed under this facility were allocated to Genzyme Molecular Oncology. At December 31, 2001, $234.0 million was outstanding under our $350.0 million revolving credit facility that matures in December 2003, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin.

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NOTE I.    DIVISION EQUITY

        The following table contains the components of division equity for Genzyme Molecular Oncology for the periods presented:

	December 31,
	2001			2000			1999
	(Amounts in thousands)
Balance at beginning of period	$	19,526		$	(1,215	)	$	23,364
Division net loss		(29,718	)		(23,096	)		(28,832	)
Allocated proceeds from issuance of Molecular Oncology Stock under stock plans		959			1,833			308
Allocation of cash from Genzyme General for Molecular Oncology designated shares (1)		4,040			15,000			—
Allocation of cash from Genzyme General in exchange for the re-allocation of diagnostic assets from Genzyme Molecular Oncology to Genzyme General		32,000			—			—
Allocated proceeds from sale of Molecular Oncology Stock		—			27,001			—
Allocated stock compensation expense		5			3			10
Allocated value of Molecular Oncology Stock issued upon repurchase of joint venture interest		—			—			3,935
Allocated equity adjustments		1			—			—
Balance at end of period	$	26,813		$	19,526		$	(1,215	)

(1)

Molecular Oncology designated shares are shares of Molecular Oncology Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Molecular Oncology. As of December 31, 2001, there were approximately 1.7 million Molecular Oncology designated shares.

Offering of Molecular Oncology Stock

        In July 2000, we sold approximately 1.6 million shares of Molecular Oncology Stock to a limited number of purchasers at a price of $12.91 per share. We received approximately $20.8 million in net proceeds from the offering, which we allocated to Genzyme Molecular Oncology. The proceeds of this offering will be used primarily to fund Genzyme Molecular Oncology's research, preclinical and clinical development programs, and for its working capital and general corporate purposes.

Stock Compensation Plans

        We apply APB Opinion No. 25 and related interpretations in accounting for our five stock-based compensation plans: the 1990 Equity Incentive Plan, the 1997 Equity Incentive Plan and the 1998 Director Stock Option Plan (each of which are stock option plans), the 1990 Employee Stock Purchase Plan and the 1999 Employee Stock Purchase Plan. We do not recognize compensation expense for options granted and shares purchased under the provisions of these plans for options granted to employees with an exercise price greater than or equal to fair market value.

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        The following table sets forth division net loss data for Genzyme Molecular Oncology as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS 123 based on the fair value at the grant dates of the awards, and the compensation expense related to Molecular Oncology Stock awards would be allocated to Genzyme Molecular Oncology in accordance with our allocation policies:

		December 31,
		2001			2000			1999
		(Amounts in thousands)
Division net loss:
	As reported	$	(29,718	)	$	(23,096	)	$	(28,832	)
	Pro forma		(34,512	)		(26,023	)		(29,973	)

        Note L., "Stockholders' Equity," to our consolidated financial statements contains information regarding the assumptions we made in calculating pro forma compensation expense in accordance with SFAS 123.

Interdivisional Financing Arrangement

        Our board of directors has made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed each quarter in exchange for designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. Genzyme Molecular Oncology has made the following draws during the past three fiscal years:

•

In 1999—none;



•

In 2000—$15.0 million in exchange for a reserve of approximately 0.7 million Molecular Oncology designated shares;



•

In 2001—$4.0 million in exchange for an additional reserve of approximately 0.3 million Molecular Oncology designated shares.

        At December 31, 2001, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

Asset Reallocation

        In December 2001, we reallocated certain intellectual property rights and licenses related to in vitro cancer diagnostics from Genzyme Molecular Oncology to Genzyme General. In exchange for the reallocation, Genzyme General paid to Genzyme Molecular Oncology $32.0 million in cash and will pay an additional $1.0 million if a specified milestone is met.

NOTE J.    COMMITMENTS AND CONTINGENCIES

        We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims against us as of December 31, 2001

GMO-28

which, if adversely decided, would have a material adverse effect on Genzyme Molecular Oncology's results of operations, financial condition, or liquidity.

NOTE K.    INCOME TAXES

        There was no provision for income taxes due to Genzyme Molecular Oncology's continuing operating losses. As part of the acquisition of PharmaGenics, Genzyme Molecular Oncology recorded a deferred tax liability of $7.6 million resulting from the difference between the book and tax basis of the completed technology computed at a 38% incremental tax rate. This amount was amortized over three years consistent with the life of the completed technology. Genzyme Molecular Oncology recorded deferred tax benefits of $1.2 million in 2000 and $2.6 million in 1999. Amortization of this deferred tax benefit was completed in 2000.

        The following summarizes Genzyme Molecular Oncology's benefit from income taxes:

		December 31,
		2001		2000			1999
		(Amounts in thousands)
Deferred:
	Federal	$	—	$	(1,118	)	$	(2,438	)
	State		—		(96	)		(209	)
Total income tax benefit		$	—	$	(1,214	)	$	(2,647	)

        The differences between the effective tax rates and the U.S. federal statutory tax rates were as follows:

	2001		2000		1999
Tax provision (benefit) at U.S. statutory rate	(35.0	)%	(35.0	)%	(35.0	)%
State income taxes, net of federal benefit	(1.8	)	(0.9	)	(1.1	)
Tax credits	(3.2	)	(3.1	)	(2.5	)
Nondeductible amortization	—		3.2		5.4
Deductions subject to deferred tax valuation allowance	40.0		30.8		24.8
Effective tax rate—expense	0.0	%	(5.0	)%	(8.4	)%

GMO-29

        The components of net deferred tax assets were as follows:

		December 31,
		2001			2000
		(Amounts in thousands)
Deferred tax assets:
Net operating loss carryforwards		$	31,108		$	21,162
Reserves and other			269			437
Tax credits			4,411			2,956
Gross deferred tax asset			35,788			24,555
Valuation allowance			(35,788	)		(24,555	)
	Net deferred tax assets	$	—		$	—

        As a result of uncertainty surrounding our ability to realize certain tax benefits that primarily relate to operating loss carryforwards, we placed valuation allowances of $35.8 million in 2001 and $24.6 million in 2000 against otherwise recognizable deferred tax assets.

NOTE L.    BENEFIT PLANS

        Note P., "Benefit Plans," to our consolidated financial statements contains information regarding our 401(k) plan. We incorporate that information into this note by reference.

NOTE M.    SIGNIFICANT CUSTOMERS

        Genzyme Molecular Oncology has three significant customers. The following table describes the revenue for each customer in comparison to total revenue:

	2001		% of Total Revenue		2000		% of Total Revenue		1999		% of Total Revenue
	(Amounts in thousands, except percentage data)
Customer A	$	4,692	71	%	$	908	16	%		—	—
Customer B	$	700	11	%	$	1,280	23	%	$	2,800	61	%
Customer C	$	—	—	%	$	2,000	35	%		—	—

        The portion of Genzyme Molecular Oncology's revenues related to work performed on behalf of StressGen/Genzyme LLC was $0.5 million, or 11% of total revenues in 1999. In 2001 and 2000, no revenues were earned from this joint venture due to its dissolution in December 1999.

GMO-30

NOTE N.    QUARTERLY RESULTS (UNAUDITED)

	1st Quarter 2001			2nd Quarter 2001			3rd Quarter 2001			4th Quarter 2001
	(Amounts in thousands, except percentage data)
Net revenue	$	1,412		$	1,279		$	1,224		$	2,647
Gross profit		868			794			556			1,268
Division net loss		(6,274	)		(8,331	)		(7,494	)		(7,619	)

	1st Quarter 2000			2nd Quarter 2000			3rd Quarter 2000			4th Quarter 2000
	(Amounts in thousands, except percentage data)
Net revenue	$	2,555		$	963		$	635		$	1,518
Gross profit		2,499			824			531			991
Division net loss		(5,057	)		(7,915	)		(5,504	)		(4,620	)

GMO-31

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Genzyme Corporation:

        In our opinion, the accompanying combined balance sheets and the related combined statements of operations and of cash flows present fairly, in all material respects, the financial position of Genzyme Molecular Oncology (as described in Note A) at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        As more fully described in Note A to these financial statements, Genzyme Molecular Oncology is a division of Genzyme Corporation; accordingly, the combined financial statements of Genzyme Molecular Oncology should be read in conjunction with the audited consolidated financial statements of Genzyme Corporation and Subsidiaries.

Boston, Massachusetts
February 14, 2002

GMO-32

QuickLinks

FINANCIAL STATEMENTS GENZYME MOLECULAR ONCOLOGY A DIVISION OF GENZYME CORPORATION
GENZYME MOLECULAR ONCOLOGY A DIVISION OF GENZYME CORPORATION COMBINED SELECTED FINANCIAL DATA
GENZYME MOLECULAR ONCOLOGY A DIVISION OF GENZYME CORPORATION COMBINED SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME MOLECULAR ONCOLOGY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENZYME MOLECULAR ONCOLOGY A DIVISION OF GENZYME CORPORATION COMBINED STATEMENTS OF OPERATIONS
GENZYME MOLECULAR ONCOLOGY A DIVISION OF GENZYME CORPORATION COMBINED BALANCE SHEETS
GENZYME MOLECULAR ONCOLOGY A DIVISION OF GENZYME CORPORATION COMBINED STATEMENTS OF CASH FLOWS
GENZYME MOLECULAR ONCOLOGY A DIVISION OF GENZYME CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS

EX-21

                                                                      Exhibit 21

                         SUBSIDIARIES OF THE REGISTRANT



                                                                                                        JURISDICTION OF
NAME                                         DIRECT PARENT                      OWNERSHIP                INCORPORATION
- ----                                         -------------                      ---------                -------------
                                                                                             
Allston Landing Corporation                  Genzyme Corporation                     100%                Massachusetts

Allston Landing Corporation II               Genzyme Corporation                     100%                Massachusetts

BioMarin/Genzyme LLC                         Genzyme Corporation                      50%                  Delaware

GelTex Pharmaceuticals, Inc.                 Genzyme Corporation                     100%                Massachusetts

Genzyme Biosurgery Corporation               Genzyme Corporation                     100%                Massachusetts

Genzyme B.V.                                 Genzyme Corporation                     100%               The Netherlands

Genzyme GmbH                                 Genzyme Europe B.V.                     100%                   Germany

Genzyme Ireland Limited                      GelTex Pharmaceuticals, Inc.            100%             Republic of Ireland

Genzyme Limited                              Genzyme Corporation                     100%               United Kingdom

Genzyme Securities Corporation               Genzyme Corporation                     100%                Massachusetts

Genzyme Transgenics Corporation              Genzyme Corporation                      26%                Massachusetts

EX-23

                                                                      EXHIBIT 23

                       CONSENT OF INDEPENDENT ACCOUNTANTS

        We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File Nos. 33-61853, 333-51790, 333-31548, 333-63802,
333-66096, 333-68548) and in the Registration Statements on Form S-8 (File Nos.
33-58359, 33-60437, 333-10003, 333-33249, 333-83677, 333-51906, 33-30007,
33-68208, 333-33265, 333-10005, 333-33251, 333-83669, 333-33291, 33-21241,
333-55126, 333-42371, 333-81275, 333-87967, 333-81277, 333-83673, 333-64103,
333-83681, 333-51872, 333-52202, 333-66130, 333-70310, 333-76762, 333-76766,
333-76768, 333-76770) of our report dated February 14, 2002 relating to the
consolidated financial statements and financial statement schedule of Genzyme
Corporation; of our report dated February 14, 2002 relating to the combined
financial statements of Genzyme General; of our report dated February 14, 2002
relating to the combined financial statements of Genzyme Biosurgery; and of our
report dated February 14, 2002 relating to the combined financial statements of
Genzyme Molecular Oncology, which appear in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 29, 2002

EX-99.2

                                                                  EXHIBIT 99.2

                                  RISK FACTORS

        FROM TIME TO TIME, WE OR OUR MANAGEMENT MAY MAKE FORWARD-LOOKING
STATEMENTS ABOUT OUR OPERATIONS. THESE STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES, AND OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY THAN THOSE
DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES ARE
DESCRIBED BELOW.

        IN THIS DOCUMENT, 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" REFERS TO THE BOARD OF DIRECTORS OF GENZYME
CORPORATION. IN ADDITION, WE REFER TO OUR THREE OPERATING DIVISIONS AS FOLLOWS:

        -  GENZYME GENERAL DIVISION = "GENZYME GENERAL";

        -  GENZYME BIOSURGERY DIVISION = "GENZYME BIOSURGERY"; AND

        -  GENZYME MOLECULAR ONCOLOGY DIVISION = "GENZYME MOLECULAR ONCOLOGY."

                            RISKS RELATED TO GENZYME

        THE FOLLOWING RISK FACTORS RELATE TO US GENERALLY AND AFFECT ALL OF OUR
        DIVISIONS

A REDUCTION IN REVENUE FROM SALES OF PRODUCTS THAT TREAT GAUCHER DISEASE WOULD
HAVE AN ADVERSE EFFECT ON OUR BUSINESS.

        We generate a majority of our product revenue from sales of
enzyme-replacement products for patients with Gaucher disease. We entered this
market in 1991 with Ceredase enzyme. Because production of Ceredase enzyme was
subject to supply constraints, we developed Cerezyme 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 enzyme,
scientists engineer Chinese hamster ovary cells to produce human alpha
glucosidase. We stopped producing Ceredase enzyme, except for small quantities,
during 1998, after substantially all the patients who previously used Ceredase
enzyme converted to Cerezyme enzyme. Sales of Ceredase enzyme and Cerezyme
enzyme totaled $569.9 million for the year ended December 31, 2001, representing
approximately 51% of our consolidated revenues for that year.

        Because our business is highly dependent on Cerezyme enzyme, a decline
in the growth rate of Cerezyme enzyme sales could have an adverse effect on our
operations and may cause the value of our securities to decline substantially.
We will lose revenues from Cerezyme enzyme if competitors develop alternative
treatments for Gaucher disease and these alternative products gain commercial
acceptance. Some companies have initiated efforts to develop competitive
products, and other companies may do so in the future. Oxford Glycosciences plc,
for example, is developing Vevesca (OGT 918), a small molecule drug candidate
for the treatment of Gaucher disease. OGT-918 has been granted orphan drug
status in the United States for treatment in Gaucher and Fabry diseases, and has
been designated as an orphan medicinal product in the European Union for the
treatment of Gaucher disease. In 2001, Oxford Glycosciences submitted

                                        1


a Marketing Authorisation Application (MAA) to the European Agency for the
Evaluation of Medicinal Products (EMEA), as well as a new drug application (NDA)
to the FDA for OGT 918 for the oral treatment of Type 1 Gaucher disease.
Although orphan drug status for Cerezyne enzyme, which provided us with
exclusive marketing rights for Cerezyme enzyme in the United States, expired in
May 2001, we continue to have patents protecting our method of manufacturing
Cerezyme enzyme until 2010 and the composition of Cerezyme enzyme until 2013.
The expiration of market exclusivity and orphan drug status in May 2001 will
likely subject Cerezyme enzyme to increased competition, which may decrease the
amount of revenue we receive from this product or the growth of that revenue.

        In addition, the patient population with Gaucher disease is limited.
Because a significant percentage of that population already uses Cerezyme
enzyme, opportunities for future sales growth are limited. Further, changes in
the methods for treating patients with Gaucher disease, including treatment
protocols that combine Cerezyme enzyme with other therapeutic products or reduce
the amount of Cerezyme enzyme prescribed, could result in a decline in Cerezyme
enzyme sales.

OUR FUTURE EARNINGS GROWTH WILL DEPEND ON OUR ABILITY TO INCREASE SALES OF
RENAGEL PHOSPHATE BINDER.

        In November 1998, we launched, through a joint venture with GelTex,
Renagel phosphate binder, a non-absorbed phosphate binder approved for use by
patients with end-stage renal disease undergoing a form of treatment known as
hemodialysis. We acquired GelTex in December 2000. We are currently conducting
additional clinical trials in order to determine the efficacy and safety of
Renagel phosphate binder when administered to pre-dialysis patients. Our ability
to increase sales of Renagel phosphate binder will depend on a number of
factors, including:

        -  the results of additional clinical trials for additional indications
           and expanded labeling;

        -  acceptance by the medical community of Renagel phosphate binder over
           calcium-based phosphorous binders as the preferred treatment for
           elevated serum phosphorous levels in dialysis patients;

        -  the availability of competing treatments serving the dialysis market;

        -  our ability to manufacture Renagel phosphate binder at a reasonable
           price;

        -  the effectiveness of our sales force;

        -  our ability to manufacture Renagel phosphate binder in sufficient
           quantities to meet demand;

        -  optimal dosing and patient compliance with respect to Renagel
           phosphate binder;

        -  the content and timing of our submissions to and decisions by
           regulatory authorities;

                                        2


        -  our ability to successfully expand manufacturing systems;

        -  the availability of reimbursement from third-party payors, and the
           extent of coverage; and

        -  the accuracy of available information about dialysis patient
           populations and the accuracy of our expectations about growth in this
           population.

GOVERNMENT REGULATION IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE
DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND SERVICES.

        Our success will depend on our ability to satisfy regulatory
requirements. We may not receive required regulatory approvals on a timely basis
or at all. Government agencies heavily regulate the production and sale of
healthcare products and the provision of healthcare services. In particular, the
Food and Drug Administration, commonly referred to as 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
company like Genzyme can first sell a product or may limit how a consumer may
use a product or service or may adversely impact third-party reimbursement. A
company's failure to comply with applicable regulatory approval requirements may
lead regulatory authorities to take action against the company, including:

        -  issuing warning letters;

        -  issuing fines and other civil penalties;

        -  suspending regulatory approvals;

        -  refusing approval of pending applications or supplements to approved
           applications;

        -  suspending product sales in the United States and/or exports from the
           United States;

        -  recalling products; and

        -  seizing products.

Furthermore, therapies that have received regulatory approval for commercial
sale may continue to face regulatory difficulties. The FDA and comparable
foreign regulatory agencies, for example, may require post-marketing clinical
trials or patient outcome studies. In addition, regulatory agencies subject a
marketed therapy, its manufacturer and the manufacturer's facilities to
continual review and periodic inspections. The discovery of previously unknown
problems with a therapy, the therapy's manufacturer or the facility used to
produce the therapy could prompt a regulatory authority to impose restrictions
on the therapy, manufacturer or facility, including withdrawal of the therapy
from the market.

                                        3


LEGISLATIVE CHANGES MAY ADVERSELY IMPACT OUR BUSINESS.

        The FDA has designated some of our products 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 United States for that product. In
recent years Congress has considered legislation to change the Orphan Drug Act
to shorten the period of automatic market exclusivity and to grant marketing
rights to simultaneous developers of the drug. If the Orphan Drug Act is amended
in this manner, any drugs for which we have been granted exclusive marketing
rights under the Orphan Drug Act will face increased competition, which may
decrease the amount of revenue we receive from these products. In addition, the
U.S. government has shown significant interest in pursuing healthcare reform.
Any government-adopted reform measures could adversely affect:

        -  the pricing of therapeutic products and medical devices in the United
           States or internationally; and

        -  the amount of reimbursement available from governmental agencies or
           other third-party payers.

If the U.S. government significantly reduces the amount we may charge for our
products, or the amount of reimbursement available for purchases of our products
declines, our future revenues may decline and we may need to revise our research
and development programs.

THE DEVELOPMENT OF OUR PRODUCTS INVOLVES A LENGTHY AND COMPLEX PROCESS, AND WE
MAY BE UNABLE TO COMMERCIALIZE ANY OF THE PRODUCTS WE ARE CURRENTLY DEVELOPING.

        Before we can commercialize our development-stage products, we will need
to:

        -  conduct substantial research and development;

        -  undertake preclinical and clinical testing; and

        -  pursue regulatory approvals.

        This process involves a high degree of risk and takes several years. Our
product development efforts may fail for many reasons, including:

        -  failure of the product in preclinical studies;

        -  clinical trial data that is insufficient to support the safety or
           effectiveness of the product; or

        -  our failure to obtain the required regulatory approvals.

For these reasons, and others, we may not successfully commercialize any of the
products we are currently developing.

                                        4


ANY MARKETABLE PRODUCTS THAT WE DEVELOP MAY NOT BE COMMERCIALLY SUCCESSFUL.

        Even if we obtain regulatory approval for any of our development-stage
products, those products may not be accepted by the market, or approved for
reimbursement by third-party payers. A number of factors may affect the rate and
level of market acceptance of these products, 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 and extent of reimbursement from third-party payors.

        If our products fail to achieve market acceptance, our profitability and
financial condition will suffer.

WE WILL REQUIRE SIGNIFICANT ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE OR
AVAILABLE ON TERMS FAVORABLE TO US.

        As of December 31, 2001, we had approximately $1.1 billion in cash, cash
equivalents and short and long-term investments, excluding investments in equity
securities. We intend to use substantial portions of our available cash for:

        -  product development and marketing;

        -  expanding facilities and staff;

        -  working capital, including satisfaction of our obligations under
           capital and operating leases; and

        -  strategic business initiatives.

        We may further reduce available cash reserves to pay principal and
interest on the following debt:

        -  $575.0 million in principal under our 3% convertible subordinated
           debentures due May 2021, the entire amount of which is allocated
           to Genzyme General. These debentures may be converted into shares of
           Genzyme General Stock. Holders of debentures may require us to
           repurchase all or part of their debentures for cash on May 15, 2006,
           2011 or 2016, at a price equal to 100% of the principal amount of the
           debentures plus accrued interest through the date prior to the date
           of purchase;

                                        5


        -  $234.0 million in principal under our revolving credit facility with
           a syndicate of commercial banks, all of which is allocated to Genzyme
           Biosurgery; and

        -  $10.0 million in principal under our 6.9% convertible subordinated
           note in favor of UBS Warburg LLC, the entire amount of which is
           allocated to Genzyme Biosurgery. This note matures in May 2003 and is
           convertible into shares of Biosurgery Stock.

If we use cash to pay or redeem all or a portion of 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 may be unable to obtain any additional financing, extend any
existing financing arrangement, or obtain either on terms that we consider
favorable.

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. If we fail to obtain or maintain adequate
intellectual property protections, we may not be able to prevent third parties
from using our proprietary technologies. Our currently pending or future patent
applications may not result in issued patents. In the United States, patent
applications are confidential until patents issue, and because third parties may
have filed patent applications for technology covered by our pending patent
applications without us being aware of those applications, our patent
applications may not have priority over any patent applications of others. 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. If a third party initiates litigation
regarding our patents, our collaborators' patents, or those patents for which we
have license rights, and is successful, a court could revoke our patents or
limit the scope of coverage for those patents.

        The U.S. Patent and Trademark Office, commonly referred to as the USPTO,
and the courts have not consistently treated the breadth of claims allowed in
biotechnology patents. If the USPTO or the courts begin to allow broader claims,
the incidence and cost of patent interference proceedings and the risk of
infringement litigation will likely increase. On the other hand, if the USPTO or
the courts begin to allow narrower claims, the value of our proprietary rights
may be limited. Any changes in, or unexpected interpretations of, the patent
laws may adversely affect our ability to enforce our patent position.

        We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. We protect this information with
reasonable security measures, including the use of confidentiality agreements
with our employees, consultants and corporate collaborators. It is possible that
these individuals will breach these agreements and that any remedies for a
breach will be insufficient to allow us to recover our costs. Furthermore, our
trade secrets, know-how and other technology may otherwise become known or be
independently discovered by our competitors.

                                        6


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 may cover some of the products that we or our
strategic partners are developing or testing. As a result, we or our strategic
collaborators 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 our revenue from these products.
Furthermore, we may not be able to obtain these licenses on acceptable terms or
at all. If we fail to obtain a required license or are unable to alter the
design of our technology to fall outside of a patent, we may be unable to
effectively market some of our technology and services, which could limit our
profitability.

WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.

        A third party may sue us or one of our strategic collaborators for
infringing the third-party's patent rights. Likewise, we or one of our strategic
collaborators may need to resort to litigation to enforce patent rights or to
determine the scope and validity of third-party proprietary rights. If we do not
prevail in this type of litigation, we or our strategic collaborators may be
required to:

        -  pay monetary damages;

        -  stop commercial activities relating to the affected products or
           services;

        -  obtain a license in order to continue manufacturing or marketing the
           affected products or services; or

        -  compete in the market with a substantially similar product.

        Uncertainties resulting from the initiation and continuation of any
litigation could limit our ability to continue some of our operations. In
addition, a court may require that we pay expenses or damages and litigation
could disrupt our commercial activities.

WE MAY BE LIABLE FOR PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE.

        Individuals who use our products or services, including those we acquire
in business combinations, may bring product liability claims against us or our
subsidiaries. While we have taken, and continue to take, what we believe are
appropriate precautions, we may be unable to avoid significant liability
exposure. We have only limited amounts of product liability insurance, which may
not provide sufficient coverage against any product liability claims. We may be
unable to obtain additional insurance in the future, or we may be unable to do
so on acceptable terms. 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's time and attention;

                                        7


        -  expenditure of large amounts of cash on legal fees, expenses and
           payment of damages;

        -  decreased demand for our products and services; and

        -  injury to our reputation.

IN CONNECTION WITH OUR ACQUISITION OF BIOMATRIX, WE ASSUMED LITIGATION FACED BY
BIOMATRIX.

        On July 21 and August 7, 15, and 30, 2000, class action lawsuits
requesting unspecified damages were filed in the U.S. District Court in New
Jersey against Biomatrix, Inc. and two of its officers and directors, Endre A.
Balazs and Rory B. Riggs. In these actions, the plaintiffs seek to certify a
class of all persons or entities who purchased or otherwise acquired Biomatrix
common stock during the period between July 20, 1999 and April 25, 2000. The
plaintiffs allege, among other things, that the defendants failed to accurately
disclose information relating to Biomatrix's Synvisc viscosupplementation
product during the period between July 20, 1999 and April 25, 2000, and assert
causes of action under the Securities Exchange Act of 1934, as amended, and Rule
10b-5 promulgated under that statute. We acquired Biomatrix in December 2000. We
may be required to pay substantial damages or settlement costs to the extent
that those damages or settlement costs are not covered by insurance. Regardless
of their outcome, these actions may cause a diversion of our management's time
and attention.

OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE
SUPERIOR PRODUCTS, MANUFACTURING CAPABILITIES OR MARKETING POSITION.

        The human healthcare products and services industry is extremely
competitive. Our competitors include major pharmaceutical companies and other
biotechnology companies. Some of these competitors may have more extensive
research and development, marketing and production capabilities. Some
competitors also may have greater financial resources than we have. Our future
success will depend on our ability to develop and market effectively our
products against those of our competitors. For instance, we are seeking orphan
drug designation for some of our products that are still in development or are
currently being reviewed by the FDA for marketing approval, including Fabrazyme
enzyme for the treatment of Fabry disease. We are aware of other companies
developing products for the treatment of Fabry disease. Transkaryotic Therapies
Inc. submitted its application for marketing approval for its product to the FDA
approximately one week before we submitted our application for Fabrazyme enzyme.
If Transkaryotic Therapies or any other company receives FDA approval for a
Fabry disease therapy with orphan drug designation before we receive FDA
approval for Fabrazyme enzyme, the Orphan Drug Act may preclude us from selling
Fabrazyme enzyme in the United States for up to seven years. Both Genzyme and
Transkaryotic Therapies received European Medicines Evaluation Agency, or EMEA,
approval for their respective Fabry disease therapies, and were granted the
European equivalent of orphan drug designation in the European Union for up to
ten years. If our products receive marketing approval, but cannot compete
effectively in the marketplace, our profitability and financial position will
suffer.

                                        8


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 enzyme. If we cannot compete effectively in the
marketplace, our profitability and financial position will suffer.

IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR PRODUCTS FROM
THIRD-PARTY PAYORS, 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. As a result of the trend toward managed healthcare in the
United States, as well as legislative proposals to reduce payments under
government insurance programs, third-party payers are increasingly attempting to
contain healthcare costs by:

        -  challenging the prices charged for healthcare products and services;

        -  limiting both coverage and the amount of reimbursement for new
           therapeutic products;

        -  shifting increasing payments for products and services through
           copays, coinsurance and other risk sharing arrangements;

        -  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 payors may not provide adequate
insurance coverage or reimbursement for our products and services, which could
impair our financial results. In addition, third-party payors may not reimburse
patients for newly approved healthcare products, which could decrease demand for
our products. Furthermore, Congress occasionally has discussed implementing
broad-based measures to contain healthcare costs. It is possible that Congress
will enact legislation specifically designed to contain healthcare costs. If
third-party reimbursement is inadequate to allow us to recover our costs or if
Congress passes legislation to contain healthcare costs, our profitability and
financial condition will suffer.

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 35% of our consolidated
revenues for the year ended December 31, 2001, 39% of our consolidated revenues
for the year ended December 31,

                                        9


2000 and 41% of our consolidated revenues for the year ended December 31, 1999.
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 United States,
primarily in the United Kingdom, Europe and Japan. Our international sales and
operations could be limited or disrupted, and the value of our direct
investments may be diminished, by any of the following:

        -  fluctuations in currency exchange rates;

        -  the imposition of governmental controls;

        -  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;

        -  terrorist activities;

        -  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 our reporting currency, the U.S. dollar. We recognize foreign currency
gains or losses arising from our operations in the period in which we incur
those gains or losses. 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.
Because of the number of currencies involved, the variability of currency
exposures and the potential volatility of currency exchange rates, we may suffer
significant foreign currency transaction losses in the future due to the effect
of exchange rate fluctuations on our future operating results.

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

                                       10


particular division, an acquiror would have to obtain control of the entire
corporation. In addition, our board of directors may, in its sole discretion:

        -  exchange shares of Molecular Oncology Stock or Biosurgery Stock for
           Genzyme General 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.

                    RISKS RELATED TO GENZYME TRACKING STOCKS

        WE HAVE THREE SERIES OF TRACKING STOCK DESIGNED TO REFLECT THE VALUE AND
TRACK THE PERFORMANCE OF OUR THREE OPERATING DIVISIONS AS FOLLOWS:

        -  GENZYME GENERAL STOCK DESIGNED TO TRACK THE PERFORMANCE OF GENZYME
           GENERAL;

        -  BIOSURGERY STOCK DESIGNED TO TRACK THE PERFORMANCE OF GENZYME
           BIOSURGERY; AND

        -  MOLECULAR ONCOLOGY STOCK DESIGNED TO TRACK THE PERFORMANCE OF GENZYME
           MOLECULAR ONCOLOGY.

        THE FOLLOWING ARE RISKS RELATED TO OWNING SHARES OF OUR TRACKING STOCK.

HOLDERS OF OUR TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY AND
UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE DIVISION COULD NEGATIVELY AFFECT THE
OTHER DIVISIONS.

        Our divisions are not separate legal entities. Holders of Genzyme
General Stock, together with holders of our other series of 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 three divisions. Genzyme Corporation and its
subsidiaries, however, own all of the assets and are responsible for all of the
liabilities of each division. A holder of Genzyme General 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. 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 HAVE AN UNEQUAL AND ADVERSE EFFECT
ON THE HOLDERS OF ONE OR MORE SERIES OF OUR TRACKING STOCK.

        At times, the interests of the holders of the different series of our
tracking stock may diverge or appear to diverge from each other. We are not
aware of any legal precedent

                                       11


interpreting the fiduciary duties of the directors of a Massachusetts
corporation in that situation. Recent cases in Delaware have established that a
Delaware court will afford considerable deference to business decisions that are
made in good faith by a disinterested and adequately informed board of directors
even when those decisions involve disparate treatment of different series of
tracking stock. These Delaware cases rely upon the premise that the board of
directors owes its fiduciary duties to the corporation and all of its
stockholders and does not owe separate duties to each class or series of
stockholders. If a Massachusetts court were to follow the reasoning in these
Delaware cases, a Genzyme stockholder may not be able to successfully challenge
an action by the board of directors that has a disadvantageous effect on a
particular series of our tracking stock.

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 of directors 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 of directors could properly perform his or her fiduciary
responsibilities to all of our stockholders even if his or her interests in
shares of different series are disproportionate or of unequal values. Our board
of directors may create committees to review matters that raise
conflict-of-interest issues. If a committee is formed, it would report to the
full board of directors.

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 our management and accounting policies. 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.

        As of March 1, 2002, the relative voting power of our tracking stocks
was as follows:



         SERIES                                                  APPROXIMATE PERCENTAGE OF
                                                                    TOTAL VOTING POWER
                                                                         
         Genzyme General Stock ...............................              93%

         Biosurgery Stock ....................................               5%

         Molecular Oncology Stock ............................               2%


                                       12


THE VOTES PER SHARE OF OUR TRACKING STOCKS ARE ADJUSTED EVERY TWO YEARS.

        Under our charter, Genzyme General Stock is entitled to one vote per
share, which is never adjusted. However, the votes per share of our other
tracking stocks are adjusted every two years. Specifically, on January 1, 2003
and every second anniversary thereafter, the vote per share to which each
tracking stock is entitled will be recalculated based on its fair market value
divided by the fair market value of a share of Genzyme General Stock, with "fair
market value" meaning the average closing price over the 20 consecutive trading
days beginning the 30th trading day preceding the January 1st adjustment date.
At the time of an adjustment, the per share voting power of any tracking stock
relative to the other series of tracking stock could decrease materially.
Additionally, during the intervening period between adjustments, the per share
voting power of each tracking stock will remain the same even though its market
price will fluctuate relative to--and could become materially greater than--the
market prices of the other tracking stocks. Currently, Biosurgery Stock is
entitled to 0.28 vote per share and Molecular Oncology Stock is entitled to 0.28
vote per share.

THE LIQUIDATION RIGHTS FOR OUR TRACKING STOCKS ARE NOT ADJUSTED TO REFLECT
CHANGES IN THEIR FAIR MARKET VALUES.

        If we were to 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 would 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 outstanding is as follows:

        -  each share of Genzyme General Stock has 100 liquidation units;

        -  each share of Biosurgery Stock has 100 liquidation units; and

        -  each share of Molecular Oncology Stock has 50 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. Therefore, 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 allocated to that
division.

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 of directors 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 of directors to make changes is

                                       13


limited only by the policies themselves and the board's fiduciary duty to all of
our stockholders. We encourage you to review the full text of our management and
accounting policies, a copy of which is attached as Exhibit 3 to our
Registration Statement on Form 8-A that we filed with the SEC on December 19,
2000.

OUR BOARD CAN REQUIRE INVESTORS TO EXCHANGE THEIR SHARES OF OUR TRACKING STOCK.

        Our board of directors may at any time, in its sole discretion, decide
to exchange shares of Biosurgery Stock and/or Molecular Oncology Stock for any
combination of cash and shares of Genzyme General Stock at a 30% premium over
the exchanged stock's then current market value. At any time that all of a
division's assets are held through a wholly-owned subsidiary, our board can
choose to "spin off" that division by exchanging the outstanding shares of
tracking stock corresponding to that division for shares in the spun off
company, whereupon former tracking stockholders will no longer be Genzyme
stockholders.

        If we transfer or sell to a third party all or substantially all of the
assets allocated to Genzyme Biosurgery or Genzyme Molecular Oncology, the board
would have to either redeem, make a dividend payment on or exchange outstanding
Biosurgery Stock or Molecular Oncology Stock, as applicable. Our board will have
sole discretion in deciding whether to effect that redemption, dividend payment
or exchange using Genzyme General Stock or any combination of cash or other
property regardless of the form of consideration paid by the buyer. However, our
charter will require that any exchange for Genzyme General Stock be at a 10%
premium to the exchanged series' average market price following public
announcement of the sale and that any payment of cash or other property be equal
in value to the sale's after-tax net proceeds.

        Also, our board can exchange shares of Biosurgery Stock and/or Molecular
Oncology Stock into Genzyme General Stock at no premium to the exchanged stocks'
market value in the event of certain adverse tax developments, as discussed in
the immediately following risk factor.

WE MAY ELIMINATE TRACKING STOCK IF A CORPORATE OR SHAREHOLDER LEVEL TAX IS
IMPOSED ON THE ISSUANCE OR RECEIPT OF TRACKING STOCK.

        In 1999, the Clinton Administration proposed tax legislation that would
have imposed a corporate level tax on issuances of tracking stock. In 2000, the
Clinton Administration proposed legislation that would tax stockholders upon the
receipt of tracking stock from the issuing corporation as a distribution or in a
tracking stock exchange. Congress has not enacted either of these proposals into
law. If similar proposals are enacted into law or effected through Treasury
Department regulations, we could be taxed on an amount up to the gain realized
in future financings in which we sell tracking stock, including Genzyme General
Stock. Also, any use of our tracking stock to acquire other companies could
result in a tax on us, the stockholders of the target company, or both. 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

                                       14


predict, however, whether Congress will enact legislation, or whether the
Treasury Department will issue regulations effecting these or similar proposals.

WE CANNOT ASSURE THAT TRACKING STOCK WILL "TRACK" THE PERFORMANCE OF THE
CORRESPONDING DIVISION.

        Although we have attempted to design our tracking stocks to "track" the
performance of their corresponding divisions, we cannot assure that the market
prices of these stocks will indeed reflect that performance. The market may
assign values to a tracking stock that are based on factors other than a
corresponding division's reported financial performance. For instance, we cannot
be certain what, if any, valuation the market might place on the mandatory and
optional exchange features or the differing voting rights and liquidation units
of the tracking stocks. In addition, as discussed above under the subheading " -
Holders of our tracking stock are stockholders of a single company and
unfavorable financial trends affecting one division could negatively affect the
other divisions," financial developments in one division, particularly if
significant and/or adverse, may affect other divisions.

THE USE OF OPERATING LOSSES AT UNPROFITABLE DIVISIONS TO LOWER THE REPORTED TAX
LIABILITY OF OUR PROFITABLE DIVISIONS WILL CAUSE THE UNPROFITABLE DIVISIONS TO
REPORT LOWER EARNINGS IN THE FUTURE.

        Genzyme Corporation, rather than our 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 its operating losses or other
projected annual tax benefits to reduce its 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 Biosurgery and Genzyme Molecular
Oncology) 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 carry forward.

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 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. 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.

FUTURE SALES OR DISTRIBUTIONS OF DESIGNATED SHARES MAY SIGNIFICANTLY DILUTE YOUR
OWNERSHIP.

        Our management and accounting policies require that we sell or
distribute any designated shares of a division that may be held by Genzyme
General, subject to certain limitations. Designated shares are created when cash
or other assets are transferred from Genzyme General to another division.
Proceeds from a sale or distribution will be allocated to Genzyme General

                                       15


but the issuance and sale may substantially dilute your ownership of the other
division. Circumstances under which designated shares will be sold or
distributed are described in our management and accounting policies, a copy of
which is attached as Exhibit 3 to our Registration Statement on Form 8-A that we
filed with the SEC on December 19, 2000.

                        RISK RELATING TO GENZYME GENERAL

        THE FOLLOWING RISKS AND UNCERTAINTIES MAY ADVERSELY AFFECT THE BUSINESS
OF GENZYME GENERAL.

GENZYME GENERAL IS SUBSTANTIALLY DEPENDENT UPON SALES OF CEREZYME ENZYME.

        Genzyme General derives a majority of its revenue from sales of Cerezyme
enzyme, our enzyme-replacement therapy for the treatment of Gaucher disease.
Accordingly, the risks described above under the heading "Management's
Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--A reduction in revenue from sales of products that treat Gaucher
disease would have an adverse effect on our business" included in this annual
report may also adversely affect the business of Genzyme General.

FUTURE INCREASES IN GENZYME GENERAL'S EARNINGS WILL DEPEND ON OUR ABILITY TO
INCREASE SALES OF RENAGEL PHOSPHATE BINDER

        We encourage you to read the material under the heading "Management's
Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--Our future earnings growth will depend on our ability to increase sales
of Renagel brand phosphate binder" included in this annual report. That material
describes the factors on which the commercial success of Renagel phosphate
binder depends.

WE MAY NOT SUCCESSFULLY COMMERCIALIZE GENZYME GENERAL'S PRODUCT CANDIDATES.

        Genzyme General is developing or collaborating on the development of
treatments for Fabry disease, mucopolysaccharidosis I (MPS-I) disease, and Pompe
disease, among others. Our ability to secure regulatory approvals for marketing
these product candidates is highly uncertain, as is our ability to successfully
commercialize those that receive regulatory approvals. Because the commercial
success of these product candidates will substantially determine future revenue
and profit at Genzyme General, we encourage you to review the factors described
under the heading "Management's Discussion and Analysis of Genzyme Corporation
and Subsidiaries' Financial Condition and Results of Operations-- Factors
Affecting Future Operating Results" included in this annual report for details
regarding risks that characterize commercialization of our biotechnology product
candidates.

GENZYME GENERAL MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE THYROGEN HORMONE.

        In January 1999, Genzyme General launched U.S. sales of Thyrogen
recombinant thyroid stimulating hormone used to diagnose thyroid cancer. Genzyme
General began marketing Thyrogen hormone in Europe in 2001, and plans to
continue European product launches on a

                                       16


country-by-country basis as pricing and reimbursement approvals are obtained.
The commercial success of Thyrogen hormone will depend on a number of factors,
including:

        -  regulation by the FDA and other regulatory authorities;

        -  our ability to obtain regulatory approvals in foreign countries;

        -  the development and commercial success of competitive products; and

        -  the availability of reimbursement from third-party payers and the
           extent of coverage.

Genzyme General cannot be sure that market penetration of Thyrogen hormone will
increase.

IF GENZYME GENERAL'S STRATEGIC ALLIANCES TO DEVELOP AND COMMERCIALIZE ITS
PRODUCTS ARE UNSUCCESSFUL, GENZYME GENERAL'S EARNINGS GROWTH WILL BE LIMITED.

        Several of Genzyme General's strategic initiatives involve alliances
with other biotechnology companies. These include:

        -  an agreement with Biogen, Inc. for the marketing in Japan of AVONEX
           (Interferon-beta 1a), Biogen's treatment for relapsing forms of
           multiple sclerosis, following regulatory approval; and

        -  a joint venture with BioMarin for the development and
           commercialization of alpha-L-iduronidase for the treatment of the
           lysosomal storage disorder known as MPS-I.

Genzyme General plans to enter into additional alliances in the future. The
success of many of these arrangements is largely dependent on technology and
other intellectual property contributed by Genzyme General's strategic partners
to the alliances or the resources, efforts and skills of Genzyme General's
partners. Genzyme General's strategic partners may:

        -  terminate their agreements and Genzyme General's access to the
           underlying intellectual property;

        -  fail to devote significant financial or other resources to the
           alliances and thereby significantly hinder or delay development,
           manufacturing or commercialization activities; and

        -  fail to successfully develop or commercialize any products.

        -  fail to maintain the financial resources necessary to continue
           financing their portion of the development, manufacturing or
           commercialization costs or their own operations.

        If any of these alliances are terminated and Genzyme General loses
access to the underlying intellectual property, or if Genzyme General and its
partners are unable to successfully develop or commercialize products, Genzyme
General's future earnings will be adversely affected. For example, in August
2001, Genzyme General terminated its strategic

                                       17


alliance with Pharming Group for the development and commercialization of human
alpha-glucosidase produced using a Chinese hamster ovary cell line for the
treatment of Pompe disease as a result of Pharming Group's filing for
receivership. Although Genzyme General retained access to the intellectual
property licensed from Synpac (North Carolina), Inc. that was previously
sublicensed to the joint venture, it lost access to the intellectual property
licensed from Pharming Group in connection with this joint venture.

                      RISKS RELATING TO GENZYME BIOSURGERY

        THE FOLLOWING RISKS AND UNCERTAINTIES MAY ADVERSELY AFFECT THE BUSINESS
OF GENZYME BIOSURGERY.

A FAILURE TO INCREASE SALES OF SYNVISC VISCOSUPPLEMENTATION PRODUCT COULD
HAVE A NEGATIVE EFFECT ON THE PRICE OF BIOSURGERY STOCK.

        Genzyme Biosurgery expects to generate a substantial portion of its
product revenues from sales of Synvisc viscosupplementation product, a
treatment of osteoarthritis of the knee. Net product sales of Synvisc
viscosupplementation product totaled $83.3 million for the year ended
December 31, 2001, representing approximately 35% of Genzyme Biosurgery's
total revenues for that year and $0.1 million for the 13-day period beginning
December 18, 2000 (date of Genzyme Biosurgery's inception) to December 31,
2000, representing approximately 0.08% of Genzyme Biosurgery's total revenues
for that year.

        Failure to achieve sales growth for Synvisc viscosupplementation
product may cause the value of Biosurgery Stock to decline. Revenues from
Synvisc viscosupplementation product could be impacted negatively if
competitive treatments for the symptoms of osteoarthritis of the knee are
deemed more efficacious, more convenient to use or cost effective. Products
competitive to Synvisc viscosupplementation product are currently being sold.
Some companies are developing competitive products, and other companies may
do so in the future.

        The commercial success of Synvisc viscosupplementation product also
will depend on many other factors, including:

        -  THE AVAILABILITY OF THIRD-PARTY REIMBURSEMENT.

           An important factor to achieving sales growth for Synvisc
           viscosupplementation product is the availability of reimbursement
           from third party payors, including managed care organizations,
           private health insurers and government healthcare administrative
           authorities. Genzyme Biosurgery has been generally successful in
           obtaining and maintaining broad coverage and adequate
           reimbursement in the United States for Synvisc
           viscosupplementation product. Medicare carriers in all 50 states
           provide benefits for Synvisc viscosupplementation product.
           Approximately 90% of commercial insurers also cover the product.
           Genzyme Biosurgery is working to expand existing coverage to plans
           that do not provide benefits for Synvisc viscosupplementation
           product and in situations where coverage policies may be limited
           in scope. Outside the United States, reimbursement is often
           provided by government healthcare administrative authorities.
           Reimbursement is not offered by any such authority outside the
           United States. Genzyme Biosurgery continues to seek coverage for
           Synvisc viscosupplementation product from such authorities,
           particularly in Canada, Europe and Australia. To manage and reduce
           healthcare costs, third party payors increasingly seek
           opportunities to contain healthcare costs. These efforts include
           challenging the price of healthcare products, limiting coverage
           and the level of coverage that will be provided, and shifting
           reimbursable costs to other parties through copayment, coinsurance
           and other risk sharing arrangements. We cannot guarantee that any
           third-party payor that currently provides reimbursement for
           Synvisc viscosupplementation product will continue to provide
           coverage or reimbursement at adequate levels, or that additional
           third-party payors will begin to provide coverage or reimbursement
           at adequate levels.

        -  CONTINUED RELATIONS WITH MARKETING PARTNERS.

           Genzyme Biosurgery has entered into several distribution agreements
           for marketing and distributing Synvisc viscosupplementation product.
           Genzyme Biosurgery has in the past and may in the future periodically
           reacquire distribution rights in some territories if partners fail
           to perform under agreements relating to these territories. Genzyme
           Biosurgery may not be able to maintain or replace these marketing
           partners. In this

                                       18


           event, there may be disruptions in sales associated with
           restructuring Genzyme Biosurgery's distribution arrangements.

        The future commercial success of Synvisc viscosupplementation
product, as well as the other marketed products allocated to Genzyme
Biosurgery, is highly uncertain. For additional details concerning the risks
associated with commercializing novel biotechnology products, you should
review the factors described under the heading "Management's Discussion and
Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and
Results of Operations--Factors Affecting Future Operating Results" included
in this annual report.

THE COMMERCIAL SUCCESS OF CARTICEL CHONDROCYTES IS UNCERTAIN.

        Carticel cartilage repair service involves a proprietary process for
growing autologous chondrocytes (a patient's own cartilage cells) to replace
those that are damaged or lost. Revenues from Carticel chondrocytes services
total $18.4 million for the year ended December 31, 2001, representing
approximately 8% of Genzyme Biosurgery's total revenue for that year. The
commercial success of Carticel chondrocytes will depend on many factors,
including the following:

        -  POSITIVE RESULTS FROM POST-MARKETING STUDIES.

           If three ongoing post-marketing studies do not demonstrate that
           treatment with Carticel chondrocytes is superior to the alternatives
           studied, the FDA may suspend or withdraw its approval of Carticel
           chondrocytes.

        -  FDA APPROVAL OF RELATED DEVICE.

           Genzyme Biosurgery has developed a device to improve the procedure
           for implanting Carticel chondrocytes and has filed for marketing
           approval with the FDA. We cannot guarantee that the FDA will approve
           this device, that this device will improve the procedure for
           implanting Carticel chondrocytes, or that this device will gain
           commercial acceptance.

        -  THE AVAILABILITY OF THIRD-PARTY REIMBURSEMENT.

           Since the FDA approved Carticel chondrocytes, we have seen a
           substantial increase in the number of third party payors who cover
           it. Some third-party payers, however, do not cover Carticel
           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 treatments. One independent association that
           conducts evaluations is the Blue Cross Blue Shield Association.
           The Blue Cross Blue Shield Association's Technology Assessment
           Committee has issued an evaluation indicating that Carticel
           chondrocytes do not meet all of its published criteria for new
           treatments. We believe that Carticel chondrocytes do meet these
           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
           chondrocytes without a favorable evaluation by the Blue Cross Blue
           Shield Association, many Blue Cross Blue Shield plans have delayed
           approving coverage for Carticel chondrocytes under their policies
           as a result of this unfavorable evaluation. Since these remaining
           plans represent a significant percentage of insured lives in the
           United States, this evaluation has continued to restrict our
           access to a substantial portion of the market for Carticel
           chondrocytes. Some payors that cover Carticel chondrocytes as a
           matter of medical policy may nonetheless fail to provide separate
           or adequate reimbursement. Thus, providers who elect to use
           Carticel chondrocytes for patients who are insured by these payors
           are forced to absorb most or all of the cost.

                                       19


        -  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
           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
           chondrocytes. If a competitor were to develop such ability and
           obtain FDA approval for a competitive product or service, Genzyme
           Biosurgery's results of operations would be negatively impacted.
           We are aware of at least three other companies that have
           competitive cell-based therapies for cartilage repair in the
           European market. Further, at least three other companies
           are engaged in research on cultured cartilage cell products. Also,
           several pharmaceutical and biotechnology companies are developing
           alternative treatments for knee cartilage damage. One or more of
           these companies may develop products or services superior to
           Carticel chondrocytes.

        -  MARKET ACCEPTANCE BY ORTHOPAEDIC SURGEONS.

           We are marketing Carticel chondrocytes to orthopaedic surgeons. We
           cannot guarantee that we will train enough surgeons who incorporate
           Carticel chondrocytes into their practice to make it commercially
           successful.

        -  FLUCTUATING REVENUES DUE TO SEASONAL FACTORS.

           We expect that the revenues from the sale of the Carticel
           chondrocytes will fluctuate based on our 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 chondrocytes will be lower in the summer
           months because fewer operations are typically performed during those
           months.

        -  RELIANCE ON KEY COLLABORATORS.

           Carticel chondrocytes were developed based on the work of a group of
           Swedish physicians. Individuals who are familiar with the know-how
           underlying Carticel chondrocytes through their association with these
           physicians may disclose the information to our competitors. This
           event could have an adverse effect on Genzyme Biosurgery's results of
           operations.

                                       20


           Genzyme Biosurgery maintains consulting and sponsored research
           arrangements with the University of Gothenburg in Sweden and
           certain physicians, including the two physicians who lead the
           group that developed Carticel chondrocytes. The purpose of these
           arrangements is to conduct additional research on Carticel
           chondrocytes. The arrangements prohibit members of the research
           team from disclosing any information proprietary to Genzyme
           Biosurgery and require all inventions conceived or reduced to
           practice during the course of such research program shall be
           Genzyme Biosurgery's property.

GENZYME BIOSURGERY HAS AND WILL CONTINUE TO DEVOTE SIGNIFICANT RESOURCES TO
DEVELOP NOVEL PRODUCTS AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL.

        Genzyme Biosurgery has devoted 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 Biosurgery expects to develop 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 Biosurgery's ability to educate cardiothoracic surgeons about its
effectiveness and to facilitate the training of cardiothoracic surgeons in
minimally invasive cardiovascular surgery techniques.

        Similarly, until recently surgeons have not used products designed to
reduce the incidence and extent of postoperative adhesions. Since 1996, when
Seprafilm adhesion barrier was introduced, market acceptance of anti-adhesion
products has been slow. To increase sales of the Sepra products, Genzyme
Biosurgery has had to educate surgeons and hospital administrators about the
problems of, and costs associated with, adhesions and the benefits of preventing
adhesions. Genzyme Biosurgery also has had to, and continues to have to, train
surgeons on the proper handling and use of these products.

        We cannot guarantee that Genzyme Biosurgery's continued 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
Biosurgery's products.

ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME BIOSURGERY'S GENE THERAPY PRODUCTS.

        The death of a patient undergoing gene therapy using an adenoviral
vector to deliver a therapeutic gene has been widely publicized. Although this
patient was not part of a Genzyme Biosurgery clinical trial, deaths and any
other adverse events in the field of gene therapy that

                                       21


may occur in the future may result in greater governmental regulation and
potential regulatory delays relating to the testing or approval of Genzyme
Biosurgery's gene therapy products.

        The commercial success of any gene therapy products that Genzyme
Biosurgery develops 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;

        -  stricter clinical trial oversight;

        -  tighter commercial product labeling requirements of gene therapies;
           and

        -  a decrease in the demand for any gene therapy product that Genzyme
           Biosurgery may develop.

BECAUSE GENZYME BIOSURGERY HAS SIGNIFICANT FIXED PAYMENTS, IT WILL NEED TO
DEVOTE A SUBSTANTIAL PORTION OF ITS CASH FLOW TO MAKE THE PAYMENTS AND MAY NEED
TO BORROW MONEY IN THE FUTURE TO MAKE DEBT PAYMENTS AND OPERATE ITS BUSINESS.

        As of December 31, 2001, we had allocated to Genzyme Biosurgery
approximately $234.0 million borrowed under our corporate credit facility.
Genzyme Biosurgery will use a large part of its cash flow to make principal and
interest payments on this debt. If Genzyme Biosurgery's cash flow from
operations is insufficient to meet these obligations, we may need to borrow
additional funds on behalf of Genzyme Biosurgery to make these payments. We
cannot guarantee that such additional financing will be available or available
on favorable terms.

        In addition to amounts borrowed under the credit facility, significant
cash obligations allocated to Genzyme Biosurgery include the following:

        -  GENZYME GENERAL.

           Genzyme Biosurgery is obligated to pay back to Genzyme General
           $20.0 million of the $25.0 million, plus accrued interest of 13.5%
           per annum, Genzyme Biosurgery received from Genzyme General in
           connection with the transfer to Genzyme General of Genzyme
           Biosurgery's interest in Diacrin/Genzyme LLC. The refund
           obligation arose because Diacrin/Genzyme LLC, our joint venture
           with Diacrin, Inc., failed to initiate a phase 3 trial of
           NeuroCell-PD for Parkinson's disease by June 30, 2001. This refund
           is due by February 1, 2002.

                                       22


        -  UBS WARBURG LLC.

           In connection with our acquisition of Biomatrix, we assumed a 6.9%
           convertible subordinated note in favor of UBS Warburg LLC that
           matures in May 2003. At December 31, 2001, $10.0 million principal
           amount of this note remained outstanding, all of which we allocated
           to Genzyme Biosurgery. Genzyme Biosurgery will use a part of its cash
           flow to satisfy debt service on this note. If all or a portion of the
           note is not converted at the option of the holder into Biosurgery
           Stock, at maturity Genzyme Biosurgery's cash reserves will be
           diminished by the amount necessary to repay the outstanding principal
           of the note.

GENZYME BIOSURGERY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE.

        Genzyme Biosurgery expects to have operating losses before
amortization of intangibles through at least the second quarter of 2002 as it
continues to spend substantial amounts of money on, among other things,
conducting research, development, regulatory and commercialization activities
to support its expanded product lines. This strategy involves risks, which
include supporting higher levels of operating expenses, attracting and
retaining employees, and dealing with other management difficulties that
arise from rapid growth and operating loss. If Genzyme Biosurgery cannot
increase revenues and/or reduce operating expenses effectively, it may not
become profitable.

IF GENZYME BIOSURGERY 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 Biosurgery's current cash resources, together
with revenues generated from product and service sales, will be sufficient to
fund its operations through at least the fourth quarter of 2002.

        Genzyme Biosurgery's cash needs may differ from those planned because of
many factors, including the:

        -  results of research and development efforts;

        -  ability to establish and maintain strategic alliances;

        -  ability to enter into and maintain licensing arrangements and
           additional distribution arrangements;

        -  ability to share costs of product development with research and
           marketing partners;

        -  achievement of milestones under strategic alliances;

        -  costs involved in enforcing patent claims and other intellectual
           property rights;

        -  market acceptance of novel approaches and therapies;

        -  success of its initiatives to reduce expenses and streamline its
           operations;

                                       23


        -  development of competitive products; and

        -  ability to satisfy regulatory requirements of the FDA and other
           government authorities.

        Genzyme Biosurgery will require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that Genzyme
Biosurgery will be able to obtain any additional financing, extend any existing
financing arrangement, or obtain either on terms we consider favorable. If
Genzyme Biosurgery has insufficient funds or is unable to raise additional
funds, it may delay, scale back or eliminate certain of its programs. Genzyme
Biosurgery may also have to sell to, or co-develop with third parties, rights to
commercialize technologies or products that it would otherwise have sought to
commercialize itself.

CHANGES IN GENZYME BIOSURGERY'S MANUFACTURING CAPABILITIES COULD SIGNIFICANTLY
REDUCE ITS ABILITY TO DELIVER ITS PRODUCTS.

        Genzyme Biosurgery is engaged in the production of a wide variety of
products and services. Genzyme Biosurgery's manufacturing processes are highly
complex and are regulated by the government. It is possible that Genzyme
Biosurgery will have problems maintaining or expanding its facilities in the
future. These problems could cause delays in production or delivery. Any
significant disruption in Genzyme Biosurgery's manufacturing operations or in
its ability to manufacture products cost effectively could have an adverse
effect on its business, results of operations and financial condition.

COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT
GENZYME BIOSURGERY'S PERFORMANCE.

        The human health care products and services industry is extremely
competitive. Major medical device and technology companies compete or may
compete with Genzyme Biosurgery. These include such companies as:

        -  Atrium Medical Corporation and Sherwood-Davis & Geck, a division of
           Tyco International, Ltd., in the cardiovascular fluid management
           market;

        -  Ethicon Inc., a Johnson & Johnson company, 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


                                       24


        -  Fidia S.p.A., Q-Med AB, Sanofi and OrthoLogic Corp., Anika
           Therapeutics, Inc., Zimmer, Inc., and Seikagiku Corporation,
           Bio-Technology General Corp. and Smith & Nephew in the
           viscosupplementation product market.

        These competitors may have superior research and development, marketing
and production capabilities. Some competitors also may have greater financial
resources than Genzyme Biosurgery. The division is likely to incur significant
costs developing and marketing new products without any guarantee that they will
be competitively successful in one or more markets. The future success of
Genzyme Biosurgery 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 BIOSURGERY'S 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 more comprehensive product lines to these
larger purchasing groups. In order to market successfully its products to larger
purchasing groups, Genzyme Biosurgery 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 Genzyme Biosurgery will be able to
employ either of these initiatives or that, when employed, these initiatives
will increase the marketability of its products.

WE FACE LITIGATION THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON GENZYME
BIOSURGERY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

        We encourage you to read the material under the heading "Management's
Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--In connection with our acquisition of Biomatrix, we assumed litigation
faced by Biomatrix" included in this annual report. That material describes a
securities lawsuit filed against Biomatrix prior to our acquisition of
Biomatrix.

                  RISKS RELATING TO GENZYME MOLECULAR ONCOLOGY

        THE FOLLOWING RISKS AND UNCERTAINTIES MAY ADVERSELY AFFECT THE BUSINESS
OF GENZYME MOLECULAR ONCOLOGY.

GENZYME MOLECULAR ONCOLOGY MAY NEVER BE ABLE TO SUCCESSFULLY DEVELOP OR
COMMERCIALIZE ANY OF ITS CANCER THERAPIES.

        Genzyme Molecular Oncology does not have any cancer therapies on the
market and its only therapies in clinical development are at an early stage.
Before commercializing any cancer therapies, Genzyme Molecular Oncology will
need to conduct substantial additional research and development, including, in
some cases, the replication of studies performed by third parties, undertake
preclinical and clinical testing and obtain regulatory approvals. This process
involves

                                       25


a high degree of uncertainty and may take several years. Its 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 Genzyme Molecular Oncology will successfully develop any
particular product or that any product it successfully develops will gain market
acceptance.

GENZYME MOLECULAR ONCOLOGY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.

        Genzyme Molecular Oncology has not generated significant revenues to
date and does not expect to do so for several years. As of December 31, 2001,
Genzyme Molecular Oncology had an accumulated deficit of approximately $121.8
million. 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: 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.

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 from the following sources, will
be sufficient to fund its operations through the third quarter of 2004:

        -  committed research funding from collaborators;

        -  the $11.0 million remaining under the interdivisional financing
           arrangement with Genzyme General; and

        -  amounts available to Genzyme Molecular Oncology under our
           revolving credit facility.

        Genzyme Molecular Oncology plans to spend substantial amounts of
funds on, among other things:

        -  research and development;

        -  preclinical and clinical testing;

        -  pursuing regulatory approvals; and

        -  working capital.

        Genzyme Molecular Oncology's 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 licensing arrangements;

        -  ability to establish and maintain additional strategic
           collaborations and licensing arrangements;

        -  costs involved in enforcing patent claims and other intellectual
           property rights;

        -  market acceptance of novel approaches and therapies;

        -  development of competing products and services; and

        -  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 Genzyme Molecular Oncology will be able to obtain any additional
financing, extend any existing financing arrangement, or obtain either on
terms that we consider favorable. 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 sell or give to third parties rights to commercialize
technologies or products that it would otherwise have sought to 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 some
of its products and services includes entering into various arrangements with
academic and corporate collaborators and licensees. It 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
important rights to its corporate collaborators and licensees. These
collaborators and licensees could choose not to devote resources to these
arrangements or, under certain circumstances, may terminate them early. In
addition, these collaborators and licensees, outside of their arrangements with
Genzyme Molecular Oncology, may develop technologies or products that are
competitive with those that Genzyme Molecular Oncology is developing. As a
result, we cannot guarantee that Genzyme Molecular Oncology will receive
revenues from these relationships or that any of its strategic collaborations
will continue or not terminate early. In addition, we cannot guarantee that
Genzyme Molecular Oncology will be able to enter into collaborations in the
future.

GENZYME MOLECULAR ONCOLOGY 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.

        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
made available on acceptable terms or at all. If these licenses are not
available, Genzyme Molecular Oncology's ability to commercialize its products
and services may be impaired.

                                       26


        In its cancer vaccine program, Genzyme Molecular Oncology is in the
process of evaluating the therapeutic administration of peptide products and
genes that encode specific tumor antigens, including MART-1 and gp100. Genzyme
Molecular Oncology is aware of two issued U.S. patents directed to the gene that
encodes MART-1. While it has obtained rights under one of these patents, Genzyme
Molecular Oncology is still in the process of evaluating the scope and validity
of the other to determine whether it needs to obtain a license. 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 that 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.

GENZYME MOLECULAR ONCOLOGY MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION
OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.

        If Genzyme Molecular Oncology or one of its strategic collaborators
initiates litigation to enforce Genzyme Molecular Oncology's patent or license
rights, or is required to defend these rights in response to third party claims,
its business or financial position may be negatively affected. Genzyme Molecular
Oncology has licensed its 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 Genzyme Molecular Oncology's ability to receive future
milestones and product royalties under its agreement with Schering-Plough.

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 death of a patient undergoing gene therapy using an adenoviral
vector to deliver a therapeutic gene has been widely publicized. Although this
patient was not part of a Genzyme Molecular Oncology clinical trial, deaths 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 products.

        The commercial success of any gene therapy products that Genzyme
Molecular Oncology develops 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;

        -  stricter clinical trial oversight;

        -  tighter commercial product labeling requirements of gene therapies;
           and

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        -  a decrease in the demand for any gene therapy product that Genzyme
           Molecular Oncology may develop.


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