EX-13.2 9 a2073695zex-13_2.htm EXHIBIT 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

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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.

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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.

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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

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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.

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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.

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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.

	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

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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,

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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.

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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;

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•: 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

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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.

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.

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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.

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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.

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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.

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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.

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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

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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 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.

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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

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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;

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•: $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.

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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	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:

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•: 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;

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•: 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.

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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

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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.

	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.

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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

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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.

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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

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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

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(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

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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

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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,

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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)

	1^st Quarter 2001		2^nd Quarter 2001		3^rd Quarter 2001			4^th 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

	1^st Quarter 2000		2^nd Quarter 2000		3^rd Quarter 2000		4^th 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

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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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