10-K

Use these links to rapidly review the document
TABLE OF CONTENTS

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

FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002

Commission File No. 0-14680

GENZYME CORPORATION
(Exact name of registrant as specified in its charter)

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

(617) 252-7500
(Registrant's telephone number, including area code)

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

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

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

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES ý NO o

Aggregate market value of voting stock held by non-affiliates of the Registrant as of June 28, 2002: $4,320,206,618

Number of shares of Genzyme General Stock outstanding as of March 1, 2003: 215,119,078
Number of shares of Biosurgery Stock outstanding as of March 1, 2003: 40,583,935
Number of shares of Molecular Oncology Stock outstanding as of March 1, 2003: 16,940,769

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the 2002 Genzyme General, Genzyme Biosurgery and Genzyme Molecular Oncology Annual Reports are incorporated by reference into Parts I, II and IV of this Form 10-K. Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 29, 2003 are incorporated by reference into Part III of this Form 10-K.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•

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



•

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



•

sales and marketing plans;



•

assessments of competitors and potential competitors;



•

estimates of the capacity of, and the projected timetable of approvals for, manufacturing and other facilities to support our products and services;



•

expected future revenues, operations and expenditures;



•

allocations of revenue, expenses, liabilities and income tax benefits;



•

maintenance of financial covenants contained in our credit facility;



•

assessment of the outcome of litigation and other governmental proceedings;



•

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



•

projected cash needs.

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

•

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



•

our ability to manufacture sufficient amounts of our products for development and commercialization activities and to do so in a timely and cost-effective manner;



•

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



•

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



•

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



•

market acceptance of our products and services;



•

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



•

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



•

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



•

decisions made by the U.S. Federal Trade Commission, the U.K. Competition Appeal Tribunal, and other judicial bodies;



•

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

2

•

the outcome of our ongoing discussions with the FDA and other regulatory authorities in connection with our marketing applications and ongoing clinical trials for Fabrazyme® and Aldurazyme® enzymes and manufacturing facilities for those products and Renagel® phosphate binder;



•

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



•

our ability to expand manufacturing capacity for Renagel phosphate binder and Myozyme™ enzyme;



•

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



•

our ability to effectively manage wholesaler inventories of Renagel phosphate binder and the levels of compliance with our inventory management programs;



•

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



•

the continued funding and operation of our joint ventures by our partners;



•

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



•

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



•

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

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

NOTE REGARDING REFERENCES TO GENZYME DIVISIONS

        Throughout this Annual Report on Form 10-K, the words "we," "us," "our" and "Genzyme" refer to Genzyme Corporation and all of its operating divisions taken as a whole, and "our board of directors" refers to the board of directors of Genzyme Corporation. In addition, we refer to our three operating divisions as follows:

•

Genzyme General Division = "Genzyme General;"



•

Genzyme Biosurgery Division = "Genzyme Biosurgery;" and



•

Genzyme Molecular Oncology Division = "Genzyme Molecular Oncology."

NOTE REGARDING INCORPORATION BY REFERENCE

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

3

NOTE REGARDING TRADEMARKS

        Genzyme®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Contrast®, N-geneous®, GlyPro®, InSight®, AFP3®, AFP4®, Carticel®, Pleur-evac®, Tevdek®, Polydek®, Deklene®, SaphLITE®, NextStitch®, Seprafilm®, Sepragel®, and Epicel® are registered trademarks of Genzyme. Myozyme™, CF87™, Sahara™, Immobilizer™, RadLITE™, Sepra™, Sepramesh™, Seprapack™, SAGE™, LongSAGE™, and SPHERE™ are trademarks of Genzyme. WelChol® is a registered trademark of Sankyo Pharma, Inc. Aldurazyme® is a registered trademark of BioMarin/Genzyme LLC. Renagel® is a registered trademark and Cholestagel™ is a trademark of GelTex Pharmaceuticals, Inc. Synvisc®, Hylaform® and Hylashield® are registered trademarks, and Hylashield Nite™ is a trademark, of Genzyme Biosurgery Corporation. Focal® and FocalSeal® are registered trademarks of Focal, Inc. AVONEX® is a registered trademark of Biogen, Inc. Zavesca® is a registered trademark of Oxford Glycosciences, Inc. Replagal™ is a trademark of Transkaryotic Therapies, Inc. Hylagan® is a registered trademark of Fidia S.p.A. Orthovisc® is a registered trademark of Anika Therapeutics, Inc. Artz® and Supartz® are registered trademarks of Seikagaku Kogyo. Durolane® is a registered trademark of Q-Med AB, Anthrease® is a registered trademark of Bio-Technology General Corp. Interceed® is a registered trademark and Intergel™ and ClearGlide™ are trademarks of Johnson & Johnson Corporation. Spraygel® is a registered trademark of Confluent Surgical, Inc. Oxiplex® is a registered trademark of FzioMed, Inc. Botox® is a registered trademark of Allergan, Inc. Octopus® is a registered trademark of Medtronic, Inc. VasoView® is a registered trademark and Axius™ is a trademark of Guidant Corporation. KM Mice™ is a trademark of Kirin Brewery Co., Ltd. All rights reserved.

4

TABLE OF CONTENTS

PART I
ITEM 1.	BUSINESS
	Introduction
	Genzyme General—Products and Development Programs
	Genzyme Biosurgery—Products and Development Programs
	Genzyme Molecular Oncology—Technology Platforms and Development Programs
	Competition
	Patents, License Agreements and Trademarks
	Government Regulation
	Employees
	Financial Information Regarding Segment Reporting
	Research and Development Costs
	Sales by Geographic Area, Significant Customers and Products
ITEM 1A.	EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 2.	PROPERTIES
ITEM 3.	LEGAL PROCEEDINGS
PART II
ITEM 5.	MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6.	SELECTED FINANCIAL DATA
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11.	EXECUTIVE COMPENSATION
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14.	CONTROLS AND PROCEDURES
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
	15(a)(1) Financial Statements
	15(a)(2) Financial Statement Schedules
	15(a)(3) Exhibits
	15(b) Reports on Form 8-K
	15(c) Exhibits

5

PART I

ITEM 1.    BUSINESS

Introduction

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

•

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



•

Genzyme Biosurgery, which develops and markets biotherapeutic and biomaterial products, with an emphasis on orthopaedics, heart disease and broader surgical applications. Biosurgery Stock is listed on the NASDAQ® National Market under the symbol "GZBX;" and



•

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

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

Genzyme General—Products and Development Programs

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

Therapeutics

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

6

provides summary information on these products and certain late-stage clinical development programs as of March 1, 2003.

Product	Indication	Status	Licensor/Collaborator
Cerezyme® (imiglucerase for injection) and Ceredase® (alglucerase injection)	Type I Gaucher disease	Ceredase marketed since 1991; Cerezyme marketed since 1994; distributed in 79 countries	None
Fabrazyme® (agalsidase beta)	Fabry disease	Marketed in Europe since 2001; available in 26 countries worldwide; BLA submitted to the FDA in June 2000; post marketing phase 4 trial ongoing	Mt. Sinai School of Medicine
Thyrogen® (thyrotropin alfa for injection)	Adjunctive diagnostic agent in the follow-up of patients with well-differentiated thyroid cancer	Marketed in U.S. since 1998; approved in Puerto Rico in 1999, Europe, Israel and Brazil in 2000, and Canada, Australia and Korea in 2001	National Institutes of Health; Sloan Kettering
WelChol®/Cholestagel™ (colesevelam hydrochloride)	Reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia	Marketed in U.S. since 2000; MAA submitted to the EMEA in 2002	Sankyo Pharma, Inc. (U.S. only)
Aldurazyme® (laronidase)	MPS I	BLA submitted to the FDA and MAA submitted to the EMEA in 2002	BioMarin Pharmaceutical, Inc.
AVONEX® (Interferon beta 1-a)	Relapsing forms of multiple sclerosis	BLA submitted to Japanese Ministry of Health in early 2003	Biogen, Inc.
Myozyme™ enzyme	Pompe disease	Opened enrollment in clinical trial; pivotal trial expected to commence in 2003	None
tolevamer toxin binder	Clostridium difficile associated diarrhea	Phase 2 trial ongoing	None
DX-88	Hereditary angioedema	Phase 2 trials ongoing	Dyax Corp.
CAT-192 antibody	Diffuse systemic scleroderma	Phase 1-2 trial ongoing	Cambridge Antibody Technology Ltd.
GT 56-252	Iron overload disorders	Phase 1 trial ongoing	University of Florida

7

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

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

        Genzyme General is marketing these products directly to physicians, hospitals and treatment centers worldwide through a highly trained sales force. This marketing effort is directed at identifying and initiating treatment for the estimated 5,000 Gaucher patients we believe exist worldwide. We distribute Cerezyme enzyme in 79 countries worldwide. Our results of operations are highly dependent on sales of these products. Sales of Cerezyme and Ceredase enzymes totaled approximately $619.2 million in 2002, which represented approximately 52% of our consolidated product revenues in that year. Sales of these products totaled approximately $569.9 million, or 51% of our consolidated product revenues, in 2001 and $536.9 million, or 66% of our consolidated product revenues, in 2000. Please refer to our discussion on Ceredase and Cerezyme enzymes under the heading "Competition" on page 22.

        Fabrazyme® (agalsidase beta).    Genzyme General is developing Fabrazyme enzyme, a recombinant form of the human enzyme alpha-galactosidase, as a treatment for Fabry disease. Fabry disease is a lysosomal storage disorder that is estimated to affect 1 in 40,000 males worldwide, with an estimated 5,000 patients worldwide. We filed for marketing approval for Fabrazyme enzyme in the United States and in Europe in 2000. In August 2001, we received marketing approval in Europe for Fabrazyme enzyme as a long-term enzyme replacement therapy in patients with a confirmed diagnosis of Fabry disease. We have now launched Fabrazyme enzyme in 26 countries outside of the United States and plan to continue product launches on a country-by-country basis as additional pricing and reimbursement approvals are obtained. Where it is approved, Fabrazyme enzyme is sold by our existing Cerezyme sales force, which maintains close relationships with physicians who specialize in the treatment of genetic disorders.

        We submitted our Biologics License Application, or BLA, for Fabrazyme enzyme to the FDA in June 2000 and the FDA accepted our application for review under an accelerated approval mechanism. Following submission of additional information that was requested by the FDA, the Endocrinologic and Metabolic Drugs Advisory Committee of the FDA met in January 2003 to review our BLA for Fabrazyme enzyme. While this advisory panel was not asked by the FDA to vote on whether to approve the product, the panel affirmed, by a vote of 14-1, that the primary endpoint studied in our phase 3 trial for Fabrazyme enzyme was an appropriate surrogate marker for purposes of accelerated approval. The advisory panel also:

•

determined that the available data on antibody formation to Fabrazyme enzyme did not suggest a waning of the enzyme's effect, and that it is reasonable to permit longer-term data on antibody formation to be collected after marketing approval;



•

concluded, in general, that the potential benefits of Fabrazyme enzyme's use outweigh the risks presented by the infusion reactions associated with administration of the enzyme;

8

•

agreed that the benefits of providing accelerated approval of Fabrazyme enzyme outweigh the risk that the ongoing phase 4, post-marketing verification study we are currently conducting may yield inconclusive data on clinical effects; and



•

recommended that we do the best we can to complete the ongoing placebo-controlled phase 4 study of Fabrazyme enzyme as currently designed.

        The FDA will review the advisory panel's input and make a determination about the next steps for marketing approval of Fabrazyme enzyme in the United States. We expect formal FDA action by the end of April 2003. Please refer to our discussion on Fabrazyme enzyme under the heading "Competition" on page 22.

        Thyrogen® (thyrotropin alfa for injection).    Thyrogen hormone is an adjunctive diagnostic agent used in the follow-up of patients with well-differentiated thyroid cancer. It was developed by Genzyme General to allow patients to continue taking their thyroid hormone supplements while they are being screened for residual or recurring thyroid cancer, which helps patients avoid the debilitating effects of hypothyroidism. Genzyme General began marketing Thyrogen hormone in the United States in 1998 and pursues its marketing efforts through a direct sales force. In the United States, physicians order approximately 150,000 thyroglobulin tests and 30,000 radioiodine imaging whole body scans each year for thyroid cancer patients. Brazil has the highest incidence of thyroid cancer in the developed world, outside of the United States. Physicians order approximately 28,000 thyroglobulin tests and 12,000 radioiodine imaging whole body scans each year in Brazil for thyroid cancer patients. We market the product in Brazil through a distributor. Genzyme General began marketing Thyrogen hormone in Europe in August 2001. Physicians order approximately 110,000 thyroglobulin tests and 25,000 radioiodine imaging whole body scans each year in Europe for thyroid cancer patients. In Europe, the product is sold primarily by our existing specialty therapeutics sales force.

        Genzyme General is actively pursuing additional indications for Thyrogen hormone, including its use with radioiodine in post-thyroidectomy thyroid cancer ablation, and for nontoxic multinodal goiter.

        WelChol®/Cholestagel™ (colesevelam hydrochloride).    We received marketing approval for WelChol bile acid binder from the FDA in May 2000 for administration alone or in combination with an HMG-CoA reductase inhibitor, also known as a "statin," as adjunctive therapy to diet and exercise for the reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia. While the risks of high cholesterol are well recognized, the condition remains significantly under-treated worldwide. An estimated 25 million Americans require drug therapy to achieve adequate reductions in cholesterol levels. However, only approximately 14 million Americans are receiving cholesterol-reducing drugs, and it is estimated that more than 60% of this population is not at their appropriate National Cholesterol Education Program LDL cholesterol goal. Worldwide, it is estimated that approximately one-third of the individuals who should be receiving cholesterol-reducing drugs are receiving therapy. Sankyo Pharma, Inc. has been marketing WelChol bile acid binder in the United States since its launch in September 2000. In August 2002, Genzyme General submitted a Marketing Authorization Application, or MAA, to the European Agency for the Evaluation of Medicinal Products, or EMEA, for the compound. A final decision by the EMEA is expected by the end of 2003. If approved in the European Union, the product will be marketed under the trademark Cholestagel™.

        Aldurazyme® (laronidase).    Genzyme General and BioMarin Pharmaceutical, Inc. have formed a joint venture to develop and market Aldurazyme enzyme, a recombinant form of the human enzyme alpha-L-iduronidase, to treat a lysosomal storage disorder known as mucopolysaccharidosis I, or MPS I. We believe that approximately 3,000 to 4,000 people in the developed world have MPS I. The joint venture filed for marketing approval in Europe, the United States, Australia and Canada in 2002.

        The Endocrinologic and Metabolic Drugs Advisory Committee of the FDA met in January 2003 to review the BLA for Aldurazyme enzyme. While the FDA did not ask the advisory panel to vote on

9

whether or not to recommend Aldurazyme enzyme's approval, the panel voted unanimously that the companies' phase 3 trial of Aldurazyme showed a meaningful treatment effect in each of two primary endpoints. Later in that month, the FDA issued a complete response letter to our joint venture partner which noted that the data submitted in the BLA supported the safety and efficacy of Aldurazyme enzyme and that additional clinical data was not required to be submitted. The letter did request, however, additional information on post-marketing commitments, final product labeling, and completion of the manufacturing inspection process. This information has been submitted to the FDA. The FDA has set April 30, 2003 as the formal action date by which it will respond to the BLA for Aldurazyme enzyme. In addition, the Committee for Proprietary Medicinal Products of the EMEA issued a positive opinion on the MAA for Aldurazyme enzyme in February 2003. This non-binding opinion has been forwarded to the European Commission for consideration, and a final decision is expected later in 2003 regarding the marketing and sale of Aldurazyme enzyme in the European Union for treating the non-neurological manifestations of MPS I in patients with a confirmed diagnosis of the disease.

        AVONEX® (Interferon-beta 1a).    In September 1998, we entered into an agreement with Biogen, Inc. under which Genzyme General will, following regulatory approval, exclusively distribute AVONEX in Japan. AVONEX is Biogen's treatment for relapsing forms of multiple sclerosis. Genzyme General is managing the clinical development program for AVONEX in Japan and is working to obtain registration and reimbursement approvals for the product. Genzyme General completed a bridging study of the product during 2002 and submitted a regulatory dossier to the Japanese Ministry of Health, Labor and Welfare seeking approval of the product in Japan in the first quarter of 2003. Review of the regulatory filing is expected to last approximately one year. Genzyme General estimates that there are 5,000 multiple sclerosis patients in Japan.

        Myozyme™ enzyme.    Genzyme General is developing a potential therapy for Pompe disease, which is a lysosomal storage disorder that is estimated to affect between 5,000 and 10,000 people worldwide. As part of its efforts to develop a safe and effective therapy for patients suffering with Pompe disease as quickly as possible, Genzyme General has devoted resources to the development of several potential therapies. In 2002, Genzyme General began to transition patients participating in the phase 2 trial of transgenically-derived human alpha-glucosidase to a product produced in CHO cells. Genzyme General will continue supplying its remaining inventory of the transgenic product. Genzyme General has also begun scaling up manufacturing of Myozyme enzyme, a recombinant form of human alpha-glucosidase. Genzyme General has met with the FDA to outline a plan for initiating additional clinical trials in infantile and delayed-onset Pompe patients and to discuss the regulatory pathway going forward. Following these meetings, Genzyme General launched a clinical trial of Myozyme enzyme for use in children between six months and three years of age. It also anticipates initiating a pivotal clinical trial of Myozyme enzyme in the United States, Europe and Asia for children less than six months old during 2003. Genzyme General expects to pursue product registrations globally based on the results of these two trials and previous studies of other enzyme replacement therapies for Pompe disease.

        Tolevamer toxin binder.    Genzyme General is developing a toxin binder for diarrhea associated with Clostridium difficile, also known as C. difficile. C. difficile is a major cause of antibiotic associated colitis, a condition common in hospitals and nursing homes. C. difficile is estimated to affect over 300,000 patients each year in the United States, resulting in prolonged hospital stays and increased costs, and is the cause of an estimated 5,000 deaths annually. In December 2001, Genzyme General launched a phase 2 trial of this toxin binder and expects preliminary data from this trial to be available in the second half of 2003.

        Other Development Programs.    Genzyme General has several ongoing preclinical and research programs. During 2003, Genzyme General plans to file INDs for clinical testing of an enzyme replacement therapy for Type B Niemann-Pick disease, an antibody to transforming growth factor

10

(TGF)-beta for an additional fibrotic condition, and small molecule therapies for lysosomal storage diseases and multiple sclerosis. Further, Genzyme General is engaged in research of next-generation enzyme replacement therapies for Type I Gaucher and Pompe diseases, small molecule products for multiple sclerosis, transplant rejection and inflammatory bowel disease, and gene therapies for lysosomal storage diseases and other genetic diseases.

Renal

        Genzyme General's Renal segment consists primarily of Renagel® (sevelamer hydrochloride). Renagel phosphate binder is used for the reduction of serum phosphorus in patients with end-stage renal disease on hemodialysis. Three formulations of the product have been approved by the FDA—the 403 mg. capsules were launched in the fourth quarter of 1998 and the 400 and 800 mg. tablets were launched in September 2000. Renagel phosphate binder was also approved for sale in Israel in 1999, Europe in 2000, Brazil in 2001 and Japan in January 2003. There are an estimated 320,000 end-stage renal disease patients in the United States, approximately 95% of whom receive a phosphate control product. There are also an estimated 170,000 end-stage renal disease patients in Europe, 50,000 in Brazil and 200,000 in Japan. Genzyme General is marketing Renagel phosphate binder capsules and tablets in the United States, Europe and Brazil directly to nephrologists, renal dieticians and payors through a dedicated sales force. Chugai Pharmaceutical Co., Ltd. and its partner, Kirin Brewery Co., Ltd., have rights to develop and market Renagel phosphate binder in Japan, China and other Pacific Rim countries, and Chugai plans to launch commercial sales in Japan later in 2003 following receipt of reimbursement approval.

        During 2002, Genzyme General implemented arrangements that successfully reduced wholesaler inventory levels for Renagel phosphate binder. This process of inventory reduction impacted revenues for the year, but Genzyme General believes that, based on prescription rates, end-user demand for the product increased during that period. Our results of operations are becoming increasingly dependent on sales of Renagel phosphate binder, which totaled approximately $156.8 million, or 13% of our consolidated product revenues, in 2002, $176.9 million, or 16% of our consolidated product revenues, in 2001, and approximately $56.0 million, or 6% of our consolidated product revenues, in 2000.

        Data from the "Treat-to-Goal" study funded by Genzyme General, which compared Renagel phosphate binder to the standard calcium-based phosphate binders, were published in July 2002. These data demonstrated that the patients treated with Renagel phosphate binder had notably less progression in cardiac calcification than patients who took calcium-based phosphate binders, thus suggesting that calcium-based phosphate binders taken by hemodialysis patients may contribute to the progression of cardiac calcification. The patients who took Renagel phosphate binder in this study also experienced a lipid-lowering effect, with a marked reduction in their levels of both LDL and total cholesterol.

        In addition, Genzyme General is conducting a 2,000-patient post-marketing study of Renagel phosphate binder to evaluate the ability of the product to improve patient morbidity and mortality. The trial, which is expected to be completed in 2004, compares Renagel phosphate binder to calcium-based phosphate binders with respect to overall morbidity and mortality. Further studies being conducted by Genzyme General are directed to expanding the use of the product into larger populations, notably for patients who have chronic kidney disease but have not progressed to kidney failure.

        Renal Research Programs.    Genzyme General is also engaged in a number of early-stage research programs directed to kidney disease, including a small molecule therapy for polycystic kidney disease, gene therapy for AV shunt failure in renal dialysis patients, and TGF-beta antagonists for renal diseases.

11

Diagnostic Products

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

        Qualitative Rapid Tests.    Genzyme General's qualitative rapid test portfolio expanded with the acquisition of Wyntek Diagnostics, Inc., in June 2001. In addition to private label products, Wyntek's sales include multiple formats of pregnancy, Strep A and infectious mono rapid tests. Adding these products to the current hCG rapid pregnancy test, the Contrast® rapid tests, and the combination rapid test for giardia and cryptosporidium broadened Genzyme General's position as a premier supplier of rapid tests. In this regard, during 2002 Genzyme General was awarded an exclusive contract from the government of France to supply a rapid test for Strep A infection. Genzyme General also has three rapid tests for infectious disease planned for introduction by early 2004, including a test for C. difficile colitis.

        Quantitative Rapid Tests.    Expanding on its rapid test product offerings, Genzyme General is developing cardiac and stroke quantitative point of care, rapid tests. We anticipate submitting the cardiac point-of-care product to the FDA in the second half of 2003. This product is expected to combine with Genzyme General's first instrument platform and to afford the footprint to offer other, quantitative point of care products in the future. Because heart disease is the leading cause of death in the United States, rapid identification and management of acute coronary syndromes at the point of care meets an important medical need. Genzyme General also is developing a quantitative stroke panel. Following FDA marketing clearance, Genzyme General intends to exclusively manufacture and sell the product worldwide. It is expected that, as a result of launch of the cardiac product, the stroke product will be Genzyme General's second quantitative panel, and will utilize the instruments already in place in the field. Stroke is the third leading cause of death in the United States, affecting approximately 700,000 people annually with a similar incidence in both Europe and Japan. Approximately 150,000 Americans die as a result of a stroke each year.

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

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

        Diagnostic Intermediates.    Genzyme General produces intermediates such as diagnostic enzymes and substrates for use in diagnostic kits. Complimentary to Genzyme General's unique formulated

12

reagents, the raw materials are formulated by its instrument and reagent manufacturer partners into finished reagents for use on mainframe clinical chemistry analyzers in the clinical lab. Genzyme General is also a primary supplier of cholesterol enzymes used in testing for coronary heart disease.

Other Genzyme General Products and Services

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

Genetic Services

        Genzyme General applies advanced biotechnology to develop and provide high quality, sophisticated genetic diagnostic services in the United States and Japan. These services are promoted through a direct sales force in the United States with testing provided by Genzyme General's clinical laboratories, which are located throughout the United States. Our wholly-owned Japanese subsidiary services the Japanese market through a direct sales force and distributors, with testing services provided for Japan by Genzyme General's clinical laboratory in Santa Fe, New Mexico. Genzyme General employs over 120 board-certified genetics professionals who interpret results and provide genetic counseling and support services to medical practitioners and their patients. Genzyme General offers three types of genetic diagnostic services. We have described those services below.

        Cytogenetic Testing.    Most of Genzyme's cytogenetic testing is routine chromosome analysis done through karyotyping. Karyotyping is an analysis of the chromosomes in a single cell from one individual. Genzyme General's InSight® test utilizes Fluorescence In Situ Hybridization (FISH) technology to expand the capabilities of routine chromosome analysis in prenatal testing. It is used by cytogenetics laboratories and physicians as an adjunct to traditional chromosome analysis, and permits preliminary identification of the most frequently occurring numerical chromosomal abnormalities within 48 hours. Classical cytogenetic testing typically takes one to two weeks. Traditional cytogenetic and FISH molecular cytogenetic tests are routinely used to identify genetic abnormalities in pregnancy as well as hematologic cancers.

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

        Molecular Genetics (DNA) Testing.    Genzyme General's test menu includes over 20 DNA tests used in the screening and diagnosis of single gene disorders and hematological cancers. Genzyme General's CF87™ mutation analysis screens for 87 genetic mutations associated with cystic fibrosis. The American College of Obstetricians and Gynecologists (ACOG) guidelines include a recommendation that all Caucasian women who are pregnant and couples considering pregnancy be offered a genetic test to determine if they are carriers of cystic fibrosis. In 2002, Genzyme General expanded its menu of tests for childhood genetic diseases found disproportionately among people of Ashkenazi Jewish descent, which currently include tests for, among other diseases, Tay-Sachs disease, Cystic Fibrosis, Gaucher disease, Niemann-Pick disease, and Familial Dysautonomia.

        Genzyme General also has in vitro diagnostic rights to cancer markers which have been identified, or may be identified through 2006, using Genzyme Molecular Oncology's antigen discovery program. In addition, it has access to Genzyme Molecular Oncology's Serial Analysis of Gene Expression (SAGE™) database to identify diagnostic cancer markers, and options to diagnostic-related discoveries found through research collaborations with laboratories at The Johns Hopkins University and other

13

institutions. Genzyme General is conducting clinical trials of the most promising subset of these novel markers.

Pharmaceuticals

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

Genzyme Biosurgery—Products and Development Programs

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

Orthopaedics

        Synvisc® (hylan G-F 20).    Synvisc viscosupplementation product is a hyaluronan-based biomaterial used to treat the pain associated with osteoarthritis of the knee. An estimated 9 million of the 13.6 million people in the United States with osteoarthritis of the knee may be candidates for treatment with Synvisc viscosupplementation product. Synvisc viscosupplementation product is approved in approximately 60 countries and is sold in more than 35 countries, both directly and through marketing and distribution agreements with several companies, including Wyeth Laboratories in the United States and parts of Europe, Bayer AG in Israel, Australia, New Zealand and parts of the Pacific Rim, and Novartis Pharma AG in Latin America.

        In 2002, we received European authorization to market Synvisc viscosupplementation product for treating osteoarthritis-induced pain in the hip. During 2003, we plan to initiate a pivotal clinical trial evaluating Synvisc viscosupplementation product as a treatment for osteoarthritis of the hip in the United States, and to conduct clinical trials in Europe and possibly the United States to evaluate Synvisc in other joints such as the shoulder, ankle, and digits. We are also continuing preclinical development of an improved formulation of the product.

14

        Carticel® (autologous cultured chondrocytes).    Carticel chondrocytes are used to treat damaged articular cartilage in the knee. Genzyme Biosurgery employs a proprietary process to grow a patient's own, or "autologous," cartilage cells (chondrocytes) for use in repairing damaged knee cartilage in patients who have had an inadequate response to a prior surgical procedure. The cells are implanted into the damaged area of the knee in a surgical procedure called autologous chondrocyte implantation. Genzyme Biosurgery markets Carticel chondrocytes to orthopedic surgeons in the United States and Europe directly and through distributors. Genzyme Biosurgery also sells biopsy kits and a variety of disposable instruments and sutures that are typically used in the implantation procedure. Sales of Carticel chondrocytes are usually lower in the summer months as fewer operative procedures are typically performed during those months. Genzyme Biosurgery is continuing development of a next-generation product intended to allow the procedure to be performed less invasively, thus decreasing the length of surgical and rehabilitation time for patients.

Cardiothoracic

        Minimally Invasive Cardiovascular Surgery Systems.    Genzyme Biosurgery markets products for minimally invasive cardiovascular surgery, with a focus on beating-heart surgery and vein harvesting. In beating-heart surgery, procedures are performed on the heart without stopping the heart and without the use of a heart/lung machine to circulate blood and supply oxygen. Genzyme Biosurgery's Immobilizer™ System for beating-heart surgery consists of a reusable retractor with disposable coronary artery stabilization and heart manipulation devices. Genzyme Biosurgery's SaphLITE® and RadLITE™ systems are used to remove the saphenous vein from a patient's leg or the radial artery from the patient's arm, respectively, in minimally-invasive procedures for use as a graft during a coronary artery bypass graft operation.

        FocalSeal®-L Surgical Sealant.    Genzyme Biosurgery launched FocalSeal-L surgical sealant in 2000 for use in pulmonary procedures. FocalSeal-L surgical sealant is a synthetic biomaterial approved for use in preventing air leaks following surgery. Approximately 180,000 lung surgeries are performed in the United States annually, with almost all patients at risk for debilitating air leaks. Genzyme Biosurgery markets FocalSeal-L surgical sealant in North America through its existing sales force. In other parts of the world where it is approved for sale, Genzyme Biosurgery sells the product directly or markets it through distributors.

        Chest Drainage Systems, Sutures and Aortic Punches.    Genzyme Biosurgery's products for traditional cardiothoracic surgery include a portfolio of products, including fluid management (chest drainage) systems, coronary bypass and valve sutures, and aortic punches. Its line of chest drainage systems consists of self-contained, disposable devices that utilize either wet suction or dry suction technology, or a combination of both, and are used to drain blood from the chest cavity following open-heart and lung surgery. The chest drainage products are primarily sold under the Pleur-evac® and Sahara™ brand names. Genzyme Biosurgery has entered into selling agreements for its chest drainage devices with several hospital group purchasing organizations. Genzyme Biosurgery also markets specialty cardiovascular sutures, including the Tevdek®, Polydek® and NextStitch® valve sutures and Deklene® sutures for coronary anastomoses. Additionally, Genzyme Biosurgery sells aortic punches, which are used during bypass surgery to make clean, precise openings in the aorta prior to bypass grafting.

        Biotherapeutics.    During 2002, Genzyme Biosurgery, in collaboration with Myosix, S.A. of France and Assistance Publique-Hospitaux de Paris, commenced a double-blind, placebo-controlled phase 2 clinical trial of an experimental cell therapy product designed to prevent the progression of heart failure in patients who have had a heart attack by harvesting autologous skeletal muscle cells (myoblasts) prior to bypass surgery through a small biopsy in the leg, multiplying the cells over the course of three weeks in the laboratory, and injecting them into a scarred region of the heart during a coronary artery bypass operation. The phase 2 trial is currently open for enrollment in France under

15

the direction of Dr. Phillippe Menasche, the study's principal investigator. Genzyme Biosurgery expects that patient enrollment elsewhere in Europe, as well as in the United States and Canada, will commence in 2003.

        Genzyme Biosurgery is developing a gene therapy approach to ischemia, or inadequate circulation caused by blood vessel constriction or blockage, for coronary artery disease (CAD) and peripheral arterial disease (PAD). Genzyme Biosurgery currently is testing this approach in two phase 1 clinical trials to investigate the effect of HIF-1 alpha (hypoxia inducible factor-1), a proprietary gene, in stimulating angiogenesis, or new blood vessel growth. In preclinical studies, HIF-1 alpha has been shown to activate growth factors associated with angiogenesis. Enrollment of patients in the PAD phase 1 clinical trial has been completed, and preliminary results are expected to be available later in 2003. Genzyme Biosurgery anticipates that enrollment will be complete in its CAD phase 1 clinical trial in the first half of 2003.

Biosurgical Specialties

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

        The chart set forth below provides summary information on certain of Genzyme Biosurgery's biomaterial products and development programs as of March 1, 2003.

Product	Indication	Status
Seprafilm® Adhesion Barrier	Reduction of the incidence, extent and severity of postoperative adhesions after abdominal/pelvic surgery.	Approved and marketed in the U.S. and Europe since 1996, in Canada and Israel since 1997, and in Japan since 1998. Phase 4 clinical trial ongoing to assess reduction of small bowel obstructions
Seprafilm® II Adhesion Barrier	Reduction of the incidence, extent and severity of postoperative adhesions after abdominal/pelvic surgery.	Approved and marketed in Europe since 1999. Pivotal clinical trial in the U.S. completed in 2002
CV Seprafilm® II	Reduction of incidence, extent and severity of postoperative adhesions after cardiac surgery.	Approved and marketed in Europe since 1998
Sepramesh™ Biosurgical Composite	Soft tissue deficiency repair, such as hernia repair.	Approved and marketed since 2000 in the U.S., Europe and Canada
Seprapack™ Bioresorbable Nasal Packing and Sinus Stent	Space occupying stent to prevent adhesions in the nasal cavity following surgery.	Marketed in the U.S. since 2002; approved in Europe and Canada
Sepragel® Sinus Bioresorbable Nasal Packing and Sinus Stent	Space occupying stent to prevent adhesions in the nasal cavity following surgery.	Marketed in the U.S. and Europe since 2002; approved in Europe and Canada
Hylaform® Product	Facial wrinkle correction.	Approved in Europe in 1995; approved in Canada, Israel and Chile in 1997, in Argentina in 1998 and in Australia and China in 1999. U.S. clinical trial ongoing
Hylaform® Plus	Larger facial wrinkle correction.	Approved in Europe in 2001; approved in Canada in 2002
Hylaform® Fineline	Smaller facial wrinkle correction.	Approved in Europe in 2001; approved in Canada in 2002
Hylashield® and Hylashield Nite™ Products	Relief from symptoms of ocular surface discomfort.	Approved in Canada and Europe since 1996

16

        The Sepra products are aimed primarily at preventing or reducing adhesions (scar tissue) following surgery. These products are based on hyaluronan, which is a substance that is naturally created in the body to lubricate and protect tissue.

        Seprafilm adhesion barrier, a bioresorbable membrane, is the only FDA-approved product clinically proven to reduce the incidence, extent and severity of postsurgical adhesions in the abdomen and pelvis. There are approximately 4,000,000 abdominal and pelvic procedures performed annually in the United States. Genzyme Biosurgery is conducting a multi-center phase 4 clinical trial to evaluate the use of Seprafilm adhesion barrier for the reduction of adhesion-related postoperative bowel obstruction following abdominal and pelvic surgery. The study, which tracks patient outcomes for two years after surgery, is expected to be completed at the end of 2003. Seprafilm adhesion barrier is also approved for marketing in Japan for use in patients with colorectal cancer.

        Seprafilm II adhesion barrier is a modified form of Seprafilm adhesion barrier designed to have improved handling and ease of use. Seprafilm II adhesion barrier currently is marketed in Europe, Canada and other countries for use in open and laproscopic abdominal and pelvic surgery to reduce the incidence, extent and severity of postoperative adhesions. Genzyme Biosurgery completed enrollment in its pivotal study of Seprafilm II adhesion barrier in abdominal surgery during 2002, and intends to submit an application seeking FDA approval in 2003.

        Sepragel Sinus and Seprapack bioresorbable nasal packing and sinus stents, designed to prevent nasal adhesions and control minimal bleeding after sinus surgery, were launched in 2002. Genzyme Biosurgery estimates that annually approximately 360,000 patients worldwide could be helped by one or both of these products. Genzyme Biosurgery has entered into an agreement with Gyrus ENT LLC for the exclusive worldwide distribution of Sepragel Sinus and Seprapack bioresorbable nasal packing and sinus stents.

        Hylaform is a hyaluronan-based biomaterial used to correct facial wrinkles by injection directly into the dermal tissue. Inamed Corporation sells this product in Europe and Canada and has the right to sell the product in the United States, Japan, Australia, Israel and other designated countries. Genzyme Biosurgery, in collaboration with Inamed, expects to complete its pivotal clinical trial of Hylaform in 2003 and to file an application for FDA approval by the end of the year. Inamed also distributes Hylaform® Plus and Hylaform® Fineline, closely associated products to Hylaform, outside the United States.

        Epicel® (cultured epidermal autografts).    Genzyme Biosurgery's Epicel skin grafts are cultured autologous skin cells used for permanent skin replacement for patients with severe burns. These epidermal grafts are grown from a patient's own skin cells. The primary candidates for Epicel skin grafts are the approximately 1,500 patients each year in the United States who survive burn injuries covering more than 60% of their body surface area. Genzyme Biosurgery markets Epicel skin grafts to burn centers in the United States and in parts of Europe through its own direct sales force and in Japan through a distributor. Sales of Epicel skin grafts fluctuate from quarter to quarter depending on a number of unpredictable factors, including the number of severe burn patients and their survival rate prior to treatment with Epicel skin grafts.

Genzyme Molecular Oncology—Technology Platforms and Development Programs

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

17

Technology Platforms

        Antigen Discovery.    Genzyme Molecular Oncology has built a proprietary, state-of-the-art platform for the discovery of antigens—molecular markers in tumor cells that enable the body's immune system to recognize and respond to these cells as "foreign." The power of this platform is its ability to combine antigen identification and validation in one step, thus enabling Genzyme Molecular Oncology to rapidly and efficiently incorporate antigens into novel antigen-specific peptide and gene-based cancer vaccines and to generate antibodies which recognize that antigen. During 2002, Genzyme Molecular Oncology received a U.S. patent covering the SPHERE™ method, one of the key components of the antigen discovery platform.

        The primary focus of Genzyme Molecular Oncology's internal program is on antigens that are highly prevalent across a wide range of cancers and which either stimulate a cellular immune response against tumors (for which vaccines presenting tumor-specific antigens to the immune system may be a suitable treatment method) or are located on the surface of cells (which may serve as targets for antibody-based therapies).

        In addition to using its antigen discovery platform for its internal programs, Genzyme Molecular Oncology has used it to enter into strategic alliances. To date, Genzyme Molecular Oncology has identified and submitted more than three dozen antigens under its antigen discovery and licensing arrangement with Purdue Pharma L.P. Purdue has selected several of these antigens for validation and launched a formal preclinical research program for certain antigens. Under this arrangement, Purdue may select up to 20 cancer antigens for use with its proprietary delivery platforms, with Genzyme Molecular Oncology retaining all rights to these antigens for use in its gene, cell, protein and peptide-based therapeutics, as well as to all antigens not selected for development by Purdue.

        SAGE™ Technology.    Genzyme Molecular Oncology has exclusive commercial rights to the patented SAGE (Serial Analysis of Gene Expression) technology, which is a high-throughput, high efficiency method of simultaneously detecting and measuring the expression level of virtually all genes expressed in a cell at a given time. The SAGE technology detects and quantifies expression of novel as well as known genes and, because of its high efficiency and sensitivity, the SAGE technology can detect genes expressed at low levels. Some of the uses of the SAGE technology are comparison of disease tissue with healthy tissue, comparison of genes expressed at different stages of disease, elucidation of disease pathways and measurement of response to and toxicity of drug candidates. In early 2003, a U.S. patent issued covering LongSAGE™, an expansion of the SAGE technique that allows for the matching of gene expression data directly with genomic information, thereby enabling the rapid and conclusive identification of previously unknown genes.

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

        Genzyme Molecular Oncology also employs the SAGE technologies extensively in its own drug discovery and development efforts to identify genes that are functionally relevant. In its cancer vaccine program, Genzyme Molecular Oncology combines the SAGE technologies with other proprietary tools to identify tumor-associated antigens. In the field of anti-angiogenesis, Genzyme Molecular Oncology is using the SAGE technologies to identify genes overexpressed in tumor vasculature relative to normal vasculature and to dissect the biological pathways resulting in angiogenesis.

        Genzyme Molecular Oncology also uses the SAGE technologies to generate revenue. Genzyme Molecular Oncology constructs SAGE and LongSAGE libraries on behalf of third parties on a

18

fee-for-service basis and has granted rights to Invitrogen Corporation to market reagent kits that enable the use of the SAGE technology.

Development Programs

        Genzyme Molecular Oncology is developing products primarily focused on vaccines that aim to treat cancer by stimulating the body's immune system to fight tumor cells, and anti-angiogenic drugs that aim to treat cancer by preventing the formation and development of blood vessels that tumors require for growth. The following chart describes the status of Genzyme Molecular Oncology's development programs as of March 1, 2003:

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

*

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

Cancer Vaccines

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

•

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



•

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

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

19

Patient-Specific Cancer Vaccines

        Genzyme Molecular Oncology is developing a number of patient-specific cancer vaccines. These vaccines are referred to as "fusion vaccines" because the product is made by fusing the patient's own tumor cells with dendritic cells, which are potent stimulators of the immune system. Through licenses from the Dana-Farber Cancer Institute and BruCells, S.A./N.V., Genzyme Molecular Oncology has a leading patent position around the fusion vaccines.

        Fusion Vaccine (Chemical Production Method).    During 2002, researchers at the Beth Israel Deaconess Medical Center and Dana-Farber Cancer Institute in Boston, with Genzyme Molecular Oncology's support, completed phase 1-2 trials of the fusion vaccine in each of metastatic breast cancer, melanoma and renal cell carcinoma (kidney cancer). In each of these trials, a chemical process was used to fuse the patient's tumor cells with dendritic cells isolated from that patient. The end points for these trials were safety, immunologic response and clinical response. The following chart summarizes the results of these trials:

Indication	No. Patients	Results
Breast cancer	10	One partial response with measurable tumor regression; two patients with stable disease for six months following vaccination; immunologic response in majority of patients
Melanoma	11	No clinical responses; immunologic response in a minority of assessed patients
Kidney cancer	13	Four patients exhibited stable disease, including one for more than seven months following vaccination; immunologic response in majority of patients

        There were no serious adverse events in any of these studies, and all related adverse events were reported as mild or moderate.

        Fusion Vaccine (Electrofusion Production Method).    In 2002, Genzyme Molecular Oncology launched a multi-center phase 1-2 clinical trial of an additional fusion vaccine for advanced kidney cancer. Up to 20 patients are expected to be treated in the trial, which will assess the vaccine's safety profile as well as measure any clinical or immunological response in the treated patients. The methods used in this trial differ in several respects from the earlier fusion vaccine trials, including that the dendritic cell component of the vaccine is derived from a source other than the patient to test the hypothesis that the immune response may be enhanced by the presence of donor cells, and that the cells are being fused using an electrical, rather than chemical, process. We expect to complete patient enrollment in this trial in the second half of 2003. The comparison of these two fusion vaccine strategies will help guide the further development of this platform.

Antigen-Specific Cancer Vaccines

        Melan-A/MART-1 and gp100 Antigen-Specific Vaccines.    Genzyme Molecular Oncology has completed a phase 1-2 trial in melanoma patients at Massachusetts General Hospital/Dana-Farber Partners CancerCare. This trial involved isolating and expanding dendritic cells from the patient and combining these cells with adenoviral vectors encoding the Melan-A/MART-1 and gp100 genes outside of the patient (ex vivo). The gene-modified dendritic cells were then administered to the patient as a vaccine. Data from this trial were announced in January 2003. Fifteen of the 21 patients treated demonstrated some clinical or immunologic response, with one patient having an ongoing pathologic complete response, another having a partial response to the vaccine, and a third demonstrating stable

20

disease. Some non-serious related adverse events were reported, and asymptomatic changes to the retina were the only reported treatment-related serious adverse events.

        Genzyme Molecular Oncology has also completed treatment in an additional phase 1-2 melanoma trial of adenoviral vectors encoding the Melan-A/MART-1 and gp100 tumor antigens. In this trial, the vaccine was delivered directly to the patient intradermally (in vivo), where large populations of dendritic cells reside. Genzyme Molecular Oncology is assessing safety with this in vivo vaccine delivery approach and monitoring patients' immune responses in order to elucidate whether direct, in vivo vaccine delivery warrants further clinical development. Genzyme Molecular Oncology expects safety and immunologic data from this study to be available in the second quarter of 2003.

        SPHERE™ Peptide Vaccines.    Genzyme Molecular Oncology has identified numerous proprietary peptides through its antigen discovery program. It is currently evaluating these peptides for multiple cancer indications in preclinical studies, and in 2003 plans to complete the preclinical work necessary to support its first Investigational New Drug application for a phase 1 trial using its proprietary SPHERE peptides in melanoma.

Angiogenesis Inhibitors

        Genzyme Molecular Oncology is pursuing multiple approaches to anti-angiogenesis, which is the treatment of cancer by cutting off the blood supply that tumors need to survive or by targeting the tumor vasculature. Genzyme Molecular Oncology's collaborators at The Johns Hopkins University used the SAGE technology to identify 46 tumor endothelial markers (TEMs), or genes involved in the growth of tumor blood vessels. Genzyme Molecular Oncology believes that some of these genes will yield targets for the development of cancer therapeutics.

        Genzyme Molecular Oncology is engaged in a strategic antibody collaboration around the TEMs with the pharmaceutical division of Kirin Brewery Co., Ltd. of Japan. The collaboration is focused on the development and commercialization of fully human monoclonal antibodies to a subset of the TEMs that can be used as therapies in the areas of antiangiogenesis and vascular-targeted cancer drug delivery. Product candidates will be generated by immunizing KM Mice™—Kirin's proprietary breed of transgenic mice—with a subset of TEMs that are both expressed on the cell surface and validated as antibody targets. Genzyme Molecular Oncology anticipates that, during 2003, an antibody candidate will be selected for further development under the collaboration.

        During 2002, Genzyme Molecular Oncology's portfolio of TEMs increased to over 400. Genzyme Molecular Oncology is investigating these additional TEMs to determine which of them would be the most suitable targets for antibody or small molecule-based therapeutics, and plans to enter into an additional collaboration during 2003 around small-molecule inhibitors of certain TEMs. In addition, it has begun to develop model systems that are more representative of human tumor endothelium than those employing commonly used cell lines in order to improve preclinical testing of drug candidates.

21

Competition

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

Genzyme General—Therapeutics

        Cerezyme and Ceredase Enzymes.    Genzyme General is aware of companies that have initiated efforts to develop competitive products for the treatment of Gaucher disease. Oxford GlycoSciences plc, for example, is developing Zavesca®, a small molecule drug candidate for the treatment of Gaucher disease. Zavesca has been granted orphan drug status in the United States for treatment of Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Gaucher disease. In July 2002, the FDA issued a "non-approvable" letter to Oxford Glycosciences in response to its NDA for Zavesca; in November 2002, however, the agency agreed to examine additional data in support of that NDA. Also in November 2002, the European Commission approved Oxford GlycoSciences' MAA for Zavesca as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement therapy is unsuitable. Oxford Glycosciences is required to submit follow-up safety data on the product as a condition of such approval. Oxford Glycosciences has transferred the European marketing authorization to Actelion Ltd. In January 2003, a licensee of Oxford Glycosciences, Teva Pharmaceutical Industries Ltd., submitted an application for approval of Zavesca with the Israeli Ministry of Health.

        Other competitors could develop competitive products based on protein replacement therapy, small molecule or gene therapy approaches. Genzyme General believes that its proprietary production techniques give it a number of advantages over potential competitors using protein replacement therapy for the treatment of Gaucher disease. In addition, gene therapy approaches are still in experimental stages. Genzyme General believes that the principal factors that will affect competition for Cerezyme and Ceredase enzymes will be clinical effectiveness and absence of adverse side effects.

        Fabrazyme Enzyme.    Genzyme General is aware of other companies developing products for the treatment of Fabry disease. Transkaryotic Therapies Inc. also has an application for marketing approval for its Replagal™ | product for Fabry disease pending before the FDA, which was originally filed shortly before our BLA for Fabrazyme enzyme. If Transkaryotic Therapies or any other company receives FDA approval for a Fabry disease therapy with orphan drug designation before we receive FDA approval for Fabrazyme enzyme, the Orphan Drug Act may preclude us from selling Fabrazyme enzyme in the United States for up to seven years. In Europe, we received marketing approval for Fabrazyme enzyme at the same time that Transkaryotic Therapies' product received marketing approval for Replagal. Both products have been granted 10 years of market exclusivity in Europe. We currently are involved in litigation with Transkaryotic Therapies related to its product. For more information about this litigation, you should read the section of this Annual Report on Form 10-K entitled "Item 3. Legal Proceedings."

        WelChol Bile Acid Binder.    Products are currently available that address many of the needs of the cholesterol-reduction market. These products include other bile acid sequestrants, HMG-CoA reductase inhibitors, fibric acid derivatives and niacin-based products. In October 2002, Merck/Schering-Plough Pharmaceuticals received marketing approval in Germany and FDA approval in the United States for

22

its product, ezetimibe, as a second line therapy for use alone and with all marketed statins for the treatment of elevated cholesterol levels. The introduction of this product in the United States may adversely affect the future growth of bulk sales and royalties earned on sales of WelChol bile acid binder.

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

Genzyme General—Renal

        Phosphate binders, such as Renagel phosphate binder, are currently the only available treatment for hyperphosphatemia. There are several phosphate binders available or under development. A prescription calcium acetate preparation is currently the only other product approved in the United States for the control of elevated phosphorus levels in patients with chronic kidney failure and on hemodialysis. Other products used as phosphate binders include over-the-counter calcium- and aluminum-based antacids and dietary calcium supplements. The doses necessary for calcium acetate and calcium carbonate, the most commonly used agents, to achieve adequate reductions in phosphate absorption can lead to constipation and patient noncompliance. In addition, calcium therapy requires frequent monitoring because its use can cause hypercalcemia and evidence suggests that increasing doses of calcium-based binders may lead to cardiac calcification. Aluminum hydroxide is more effective at lower doses than calcium acetate or calcium carbonate, but it is infrequently used because aluminum absorbed from the intestinal tract accumulates in the tissues of patients with chronic kidney failure, causing aluminum-related osteomalacia, anemia and dialysis dementia. Genzyme General is aware of one other company, Shire Pharmaceuticals, Inc., that is developing a phosphate binder for the treatment of hyperphosphatemia in patients with chronic renal failure. Shire has filed for marketing approval of this product in the United States, the European Union and Canada, and received an "approvable" letter from the FDA in March 2003 requesting additional data and analysis on the product.

Genzyme General—Diagnostic Products and Other

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

        Genetic Diagnostic Services.    The United States market for prenatal cytogenetic and biochemical testing is divided among approximately 500 laboratories, many of which offer both types of testing. Of this total group, less than 20 laboratories market their services nationally. Genzyme General believes that the industry as a whole is still quite fragmented, with the top 20 laboratories accounting for approximately 50% of market revenues. Genzyme General estimates that it accounts for approximately 10% of the total market. Genzyme General believes, however, that the industry will experience increasing consolidation as smaller laboratories face the challenges of more complex and stringent regulation.

        Competitive factors in the genetic diagnostics services business generally include reputation of the laboratory, range of services offered, pricing, convenience of sample collection and pick-up, quality of analysis and reporting and timeliness of delivery of completed reports. Genzyme General believes that its research and development program, which has enabled it to develop and introduce testing services

23

based on new technology, and its active sales and marketing force have played significant roles in the growth of its genetic diagnostics services business.

Genzyme Biosurgery—Orthopaedics

        Synvisc Viscosupplementation Product.    Current competition for Synvisc viscosupplemetation product includes Hylagan®, produced by Fidia S.p.A. and marketed in the United States by Sanofi-Synthelabo, Orthovisc®, produced and marketed outside of the United States by Anika Therapeutics, Inc. and Artz®, a product manufactured by Seikagaku Kogyo that is sold in Japan by Kaken Pharmaceutical Co. and in the United States by Smith & Nephew Orthopaedics under the name Supartz®. Two other potential competitive products which have received European marketing authorization and are in the process of seeking approval in the United States are Durolane®, manufactured by Q-Med AB, and Arthrease®, manufactured by Bio-Technology General Corp. and distributed by the DuPuy Orthopaedics division of Johnson & Johnson. Durolane and Arthrease are produced by bacterial fermentation, as opposed to Synvisc viscosupplementation product, which is derived from chicken combs. Further, the treatment protocol for Durolane is a single injection, as compared to Synvisc viscosupplementation product's three injection regimen. Production via bacterial fermentation and treatment with a reduced number of injections may represent competitive advantages for these products if they are approved and launched in competition with Synvisc viscosupplementation product. Genzyme Biosurgery is aware of various other viscosupplementation products on the market, or in development, but is unaware of any other products that have physical properties of viscosity, elasticity or molecular weight comparable to those of Synvisc viscosupplementation product.

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

Genzyme Biosurgery—Biosurgical Specialties

        Sepra Products.    The Sepra products face competition from other products based on hyaluronan as well as from other products and changes in surgical techniques. Genzyme Biosurgery believes that the principal factor that will affect competition in this area is acceptance of the product by surgeons, which depends, in large part, upon product efficiency, safety and price.

        Seprafilm adhesion barrier does not have significant direct competition in the abdominal surgery field. Gynecare markets Interceed®, an anti-adhesion barrier that may have properties similar to the Seprafilm product, but is indicated only for selected gynecological indications. Interceed has been shown to lose its anti-adhesion properties in the presence of blood. Lifecore Biomedical, Inc. and Gynecare's Intergel™ product, a gel-based anti-adhesion product, is marketed in the United States and Europe. Life Medical Sciences, Inc. is developing REPEL for gynecologic surgery and REPEL-CV for cardiovascular surgery. These adhesion barrier membranes are in early clinical trials. Confluent Surgical, Inc. has completed a pilot clinical trial in the United States of Spraygel®, and anti-adhesion product for laproscopic gynocological surgery. Sprayagel is approved for sale in Europe and other countries. FzioMed, Inc. has initiated pivotal trials for two Oxiplex® anti-adhesion products for use following pelvic and spinal surgery.

24

        Hylaform, Hylaform Plus and Hylaform Fineline.    Competition in the facial dermal filler market is intense and is expected to increase. Hylaform, Hylaform Plus and Hylaform Fineline compete in Europe primarily with collagen-based fillers marketed worldwide by Inamed Corporation, Botox®, which is marketed worldwide by Allergan, Inc., bovine collagen based synthetic spheres marketed in Europe by Artes Medical, and haluronan based fillers marketed in Europe by Q-MED AB. Competitive factors affecting product adoption include the need for skin testing prior to use, patient allergenic reactions, ease of use, duration of clinical effect, compatibility with other cosmetic facial surgical products, physician preference and price.

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

Genzyme Biosurgery—Cardiothoracic

        Minimally Invasive Cardiovascular Surgery.    Genzyme Biosurgery faces competitors in the minimally invasive cardiovascular surgical field. The Immobilizer™ system competes with two other significant product systems in the beating heart surgery market: Medtronic's Octopus® 4 and the Guidant Corporation Axius™. All three companies compete on product innovation, quality, features and price. In the vein harvesting market, Genzyme Biosurgery's SaphLite system competes directly with the Guidant VasoView® system and the Ethicon ClearGlide™ system. Unlike the Guidant and Ethicon systems, the SaphLite system relies upon direct vision and does not require the use of endoscopic visioning. This important product differentiation, together with other product features and pricing, are the primary areas in which these products compete.

        Chest Drainage Systems.    Genzyme Biosurgery's fluid management products face intense competition from several companies, including principally Atrium Medical Corporation and the Kendall division of Tyco Healthcare. Genzyme Biosurgery and Atrium currently maintain predominant and roughly equivalent overall market share positions. In the wet/wet and dry/wet product segments, Atrium and Kendall offer competitive products. In the dry/dry product segment, Atrium offers a competitive product. Genzyme Biosurgery, Atrium and Kendall compete aggressively in areas of technology innovation, product features, pricing and the ability to offer a full line of fluid management products that cover all three product segments. A critical factor for each company is the ability to procure designation as a sole source or preferred provider to group purchasing organizations for its fluid management products.

        Sutures and Aortic Punches.    Genzyme Biosurgery's suture products are focused on specialty cardiovascular surgical closures. The Ethicon division of Johnson & Johnson and the U.S. Surgical division of Tyco are the two largest suppliers of surgical sutures in the world, competing across the full line of sutures in all surgical applications. In its area of focus Genzyme Biosurgery competes on the basis of quality, brand recognition, surgeon loyalty and the ability to manufacture custom suture packages to meet the preferences of individual cardiac surgeons. Competitive factors that affect Genzyme Biosurgery in this market include the marketing strength and large sales force capacity of Ethicon and U.S. Surgical, and the ability of Ethicon and U.S. Surgical to obtain designation as a sole or preferred suture provider to group purchasing organizations. Genzyme Biosurgery aortic punches compete primarily with Medtronic's products.

25

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

        Therapies for Peripheral Arterial Disease.    Genzyme Biosurgery is aware of a number of companies and research institutions that are developing or considering the development of gene or protein therapies for the treatment of peripheral arterial disease. Genzyme Biosurgery envisions potential competition in this area from Aventis, Inc., Collateral Therapeutics, Inc., GenVec, Inc., and Valentis, Inc. as each of these companies are advancing angiogenic agents through clinical development.

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

Genzyme Molecular Oncology

        Competition in the field of cancer therapeutics is intense. Genzyme Molecular Oncology faces, and will continue to face, significant competition from organizations such as large pharmaceutical and biotechnology companies, universities, government agencies and other research institutions. Competition can arise from the use of the same or similar technologies as those currently used or contemplated to be used by Genzyme Molecular Oncology, as well as from existing therapies. Any or all of these may be more effective or less expensive than those developed by Genzyme Molecular Oncology.

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

Patents, License Agreements and Trademarks

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

•

Fabrazyme enzyme;

26

•

Thyrogen hormone;



•

Aldurazyme enzyme;



•

AVONEX (Interferon-beta 1a);



•

autologous chondrocyte graft technology;



•

DX-88;



•

small molecules for lysosomal storage disorders;



•

TGF-beta antagonists;



•

GT 56-252 compound;



•

HIF-1 alpha;



•

autologous cell therapy for heart disease;



•

NextStitch sutures;



•

Epicel skin grafts;



•

SAGE technology;



•

fusion vaccines;



•

drug delivery technology; and



•

various cancer related genes.

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

•

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



•

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

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

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

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

•

"Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" in the 2002 Genzyme General Annual Report;



•

"Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" in the 2002 Genzyme Biosurgery Annual Report; and



•

"Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations" in the 2002 Genzyme Molecular Oncology Annual Report.

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

27

        Our products and services are sold around the world under brand-name trademarks and service marks. Trademark protection continues in some countries as long as the mark is used; in other countries, as long as its registered. Registrations generally are for fixed, but renewable, terms. We consider our registered trademarks Genzyme®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Aldurazyme®, Renagel®, Contrast®, N-geneous®, GlyPro®, InSight®, AFP3®, AFP4®, Synvisc®, Carticel®, Focal®, FocalSeal®, Pleur-evac®, Tevdek®, Polydek®, Deklene®, SaphLITE®, NextStitch®, Seprafilm®, Sepragel®, Hylaform®, Hylashield® and Epicel®, together with our trademarks, Cholestagel™, Myozyme™, CF87™, Sahara™, Immobilizer™, RadLITE™, Sepra™, Sepramesh™, Seprapack™, Hylashield Nite™, SAGE™, LongSAGE™ and SPHERE™, in the aggregate, to be of material importance to our business.

Government Regulation

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

FDA Regulation

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

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

•

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



•

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



•

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



•

the submission of a New Drug Application (NDA) for a drug or a Biologic License Application (BLA) for a biologic; and



•

the approval by the FDA of the NDA or BLA.

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

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

•

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



•

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

28

•

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



•

the submission of a Pre-Marketing Approval application (PMA); and



•

the approval by the FDA of the PMA.

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

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

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

Regulation Outside of the United States

        For marketing outside the United States, we are subject to foreign regulatory requirements governing human clinical testing and marketing approval for our products. These requirements vary by jurisdiction, differ from those in the United States and may require us to perform additional pre-clinical or clinical testing regardless of whether FDA approval has been obtained. The amount of time required to obtain necessary approvals may be longer or shorter than that required for FDA approval. In many foreign countries, pricing and reimbursement approvals are also required.

        Our initial focus for obtaining marketing approval outside the United States is typically the European Union. European Union Regulations and Directives generally classify health care products either as medicinal products, medical devices or in vitro diagnostics. For medicinal products, marketing approval may be sought using either the centralized procedure of the EMEA or the decentralized, mutual recognition process. The centralized procedure, which is mandatory for biotechnology derived products, results in a recommendation in all member states, while the European Union multi-state process involves country by country approval. European Union regulations for products classified as medical devices have been implemented. Devices such as our Sepra products must receive market approval through a centralized procedure, in which the device receives a CE Mark allowing distribution to all member states of the European Union. The CE mark certification requires us to receive International Standards Organization certification for each facility involved in the manufacture or distribution of the device. This certification comes only after the development of an all inclusive quality system, which is reviewed for compliance to International Quality Standards by a licensed "Notified Body" working within the European Union. After certification is received a product dossier is reviewed which attests to the product's compliance with European Union directive 93/42/EEC for medical devices. Only after this point is a CE Mark granted.

29

Other Government Regulation

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

        Orphan Drug Act.    The Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases and conditions affecting fewer than 200,000 persons in the United States at the time of application for orphan drug designation. The first developer to receive FDA marketing approval for an orphan drug is entitled to a seven-year exclusive marketing period in the United States for that product. However, a drug that the FDA considers to be clinically superior to or different from another approved orphan drug, even though for the same indication, is not barred from sale in the United States during the seven-year exclusive marketing period. Similar legislation has been enacted in the European Union for rare diseases and conditions affecting fewer than five out of 10,000 persons in the European Union, but the market exclusivity granted under this legislation is for ten years.

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

        Regulation of Diagnostic Services.    The Clinical Laboratories Improvement Act provides for the regulation of clinical laboratories by the U.S. Department of Health and Human Services. Regulations promulgated under the act affect our genetics laboratories. The Secretary of Health and Human Services Advisory Committee on Genetic Testing recently published recommendations for increased oversight by the Centers for Disease Control and the FDA for all genetic testing. This oversight will be similar to that of the current non-genetic diagnostic products.

        Regulation of Gene Therapy Products.    In addition to FDA requirements, the National Institutes of Health have established guidelines providing that transfers of recombinant DNA into human subjects at NIH laboratories or with NIH funds must be approved by the NIH Director. The NIH has established the Recombinant DNA Advisory Committee to review gene therapy protocols. We expect that all of our gene therapy protocols will be subject to review by the Recombinant DNA Advisory Committee. In the United Kingdom, our gene therapy protocols will be subject to review by the Gene Therapy Advisory Committee and in Germany, these protocols will be subject to review by the Commission for Somatic Cell Therapy. Greater government regulation of gene therapy products may lead to regulatory delays, increased development costs, and negative public perception of the gene therapy products we are developing.

        Tissue and Organ Bank Laws.    A federal criminal statute prohibits the transfer of any human organ for valuable consideration for use in human transplantation, but permits recovery of reasonable costs associated with transplant activities. This statute has not been applied to Carticel chondrocytes or Epicel skin grafts. Certain states have laws requiring the licensure of tissue and organ banks and laws governing the sale of human organs and the safety and efficacy of drugs, devices and biologics, including skin. These state laws could be interpreted to apply to Genzyme Biosurgery's production and distribution of cultured tissue products. Provisions in certain states' statutes prohibit the receipt of valuable consideration in connection with the sale of human tissue by a tissue bank, but permit licensed tissue banks, including companies, to recover their reasonable costs associated with human tissue sales. The application of these or other regulations to Genzyme Biosurgery could result in significant expense

30

to Genzyme Biosurgery, limit reimbursement for Genzyme Biosurgery's services and otherwise materially adversely affect Genzyme Biosurgery's results of operations.

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

Employees

        As of December 31, 2002, we (together with all of our consolidated subsidiaries) had approximately 5,600 employees. We consider our employee relations to be excellent.

Financial Information Regarding Segment Reporting

        We have provided the information required by Item 101(b) of Regulation S-K in Note R., "Segment Information," to our Consolidated Financial Statements in the 2002 Genzyme General Annual Report set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.

Research and Development Costs

        We have provided the information required by Item 101(c)(1)(xi) of Regulation S-K in Part II, Item 8 "Financial Statements and Supplementary Data" and specifically in the Genzyme Corporation and Subsidiaries Consolidated Statements of Operations and in Note J., "Investments in Marketable Equity Securities and Strategic Equity Investments" to our Consolidated Financial Statements in the 2002 Genzyme General Annual Report set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.

Sales by Geographic Area, Significant Customers and Products

        We have provided the information required by Items 101(c)(1)(i) and (vii) and 101(d) of Regulation S-K in the 2002 Genzyme General Annual Report under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" and in Note R., "Segment Information," to our Consolidated Financial Statements set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.

Available Information

        We file electronically with the SEC our annual report on Form 10-K, our quarterly reports on Form 10-Q, and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may read or copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information about issuers that file reports electronically with the SEC. The address of that site is http://www.sec.gov.

        You may obtain a free copy of our annual report on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we file them with the SEC, on our website at http://www.genzyme.com or by contacting our Investor Relations department at 1-617-252-7570. The reference to our website is not intended to incorporate information on our website into this document by reference.

31

ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT

        The following people are our current executive officers:

Name	Age	Title
Henri A. Termeer	57	Chairman of the Board; President; and Chief Executive Officer
Earl M. Collier, Jr.	55	Executive Vice President; President, Genzyme Biosurgery
Zoltan A. Csimma	61	Senior Vice President, Human Resources
Richard A. Moscicki, M.D.	51	Chief Medical Officer; Senior Vice President, Clinical, Medical and Regulatory Affairs
Alan E. Smith, Ph.D.	57	Chief Scientific Officer; Senior Vice President, Research
G. Jan van Heek	53	Executive Vice President, Therapeutics, Genetics and Pharmaceuticals
Peter Wirth	52	Chief Legal Officer; Executive Vice President, Corporate Development, Genzyme Molecular Oncology, GelTex and Legal; Clerk
Michael S. Wyzga	48	Chief Financial and Accounting Officer; Senior Vice President, Finance

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

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

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

        Dr. Moscicki joined us in March 1992 as Medical Director, became Vice President, Medical Affairs in early 1993 and was named Vice President, Clinical, Medical and Regulatory Affairs in December 1993. In September 1996 he became Senior Vice President, Clinical, Medical and Regulatory Affairs and Chief Medical Officer. Since 1979, he has also been a physician staff member at the Massachusetts General Hospital and a faculty member at the Harvard Medical School.

32

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

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

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

        Mr. Wyzga joined us in February 1998 as Vice President and Corporate Controller, served as Senior Vice President, Corporate Controller and Chief Accounting Officer since January 1999, and as Senior Vice President, Finance and Chief Financial Officer since July 1999. Prior to joining us, from February 1997 to February 1998, Mr. Wyzga served as Chief Financial Officer of Sovereign Hill Software, Inc., a software company, and from 1991-1997 held various senior management positions with CACHELINK Corporation and Lotus Development Corp.

ITEM 2. PROPERTIES

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

•

the United States;



•

the United Kingdom;



•

Ireland;



•

the Netherlands;



•

Belgium;



•

Canada;



•

Switzerland; and



•

Germany.

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

•

Geel, Belgium;



•

Coventry, Connecticut;

33

•

Haverhill and West Malling, England;



•

Boston, Massachusetts;



•

Fall River, Massachusetts;



•

Framingham, Massachusetts;



•

Ridgefield, New Jersey;



•

Santa Fe, New Mexico; and



•

Waterford, Ireland (land subject to 999 year leasehold).

        Our principal properties are:

•

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



•

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

        Our selling and marketing activities are concentrated at facilities we have leased in Cambridge, Massachusetts and in the Netherlands. We conduct our research and development activities primarily at our laboratory facilities in the United States. Leases for our facilities contain typical commercial lease provisions including renewal options, rent escalators and tenant responsibility for operating expenses. We believe that we have or are in the process of developing or acquiring adequate manufacturing capacity to support our requirements for the next several years.

Genzyme General

Therapeutics

        We manufacture Cerezyme and Fabrazyme enzymes at our multiproduct manufacturing facility at Allston Landing in Boston, Massachusetts. This facility, which we own and which contains extensive sterile filling capacity, is built on land that we hold under a 60-year lease.

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

        In connection with our acquisition of GelTex Pharmaceuticals, Inc. in December 2000, we assumed leases and a mortgage for office and laboratory space in Waltham, Massachusetts. In connection with our acquisition of Novazyme Pharmaceuticals, Inc. in September 2001, we assumed a lease for office and laboratory space in Oklahoma City, Oklahoma.

        In October 2001, we acquired a protein manufacturing facility and pilot plant located in Geel, Belgium. We are currently updating and expanding this facility and expect it to become operational in 2004.

Renal

        We manufacture a portion of our supply requirements for sevelamer hydrochloride, the active ingredient in Renagel phosphate binder, in our facilities in Haverhill, England. We are expanding this facility to increase its capacity for producing sevelamer hydrochloride and expect to receive regulatory approval for this facility in late 2003. We are also constructing a manufacturing facility in Waterford, Ireland for use in manufacturing the tablet formulation of Renagel phosphate binder. We received

34

European regulatory approval for this facility in March 2003 and expect it to be fully operational and approved by the appropriate U.S. regulatory authorities in the first half of 2003.

Diagnostic Products

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

        We produce diagnostic enzymes and other fermentation products in a multi-purpose fermentation and purification facility in Maidstone, England. We conduct research and development and support sales and marketing efforts at our facility in West Malling, England.

Other Genzyme General Products and Services

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

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

Genzyme Biosurgery

        We produce Seprafilm bioresorbable membrane, CV Seprafilm II adhesion barrier, Sepramesh biosurgical composite, and Seprapack bioresorbable nasal packing at commercial scale from the hyaluronan powder in our manufacturing facility in Framingham, Massachusetts.

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

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

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

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

Genzyme Molecular Oncology

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

35

ITEM 3. LEGAL PROCEEDINGS

        We filed a lawsuit on July 25, 2000 seeking injunctive relief and damages against Transkaryotic Therapies, Inc. in the U.S. District Court in Wilmington, Delaware for patent infringement resulting from Transkaryotic Therapies' manufacture and use of Replagal, its enzyme replacement therapy for Fabry disease. The suit alleges infringement of U.S. Patent No. 5,356,804, which we exclusively licensed from Mount Sinai School of Medicine. The patent is directed to methods of making alpha-galactosidase in mammalian cells, as well as the genetically engineered cells themselves. On September 19, 2000, Transkaryotic Therapies filed a lawsuit against Genzyme and Mount Sinai in the U.S. District Court in Boston, Massachusetts seeking declaratory judgments that the manufacture, use and sale of Replagal does not infringe the patent we licensed from Mount Sinai and that the Mount Sinai patent is invalid. On March 7, 2001, Transkaryotic Therapies moved to transfer the Massachusetts litigation to the U.S. District Court in Delaware for consolidation with the Delaware action we had initiated. On February 20, 2002, the Delaware Court entered summary judgment in favor of Transkaryotic Therapies. We appealed that decision to the U.S. Court of Appeals on March 20, 2002. Oral arguments in connection with this appeal were made on January 8, 2003 and the parties are awaiting a decision from the Appeals Court.

        The staff of the U.S. Federal Trade Commission is investigating our acquisition of Novazyme Pharmaceuticals, Inc. The FTC is one of the agencies responsible for enforcing federal antitrust laws. While we do not believe that the acquisition should be deemed to contravene these laws, we have been cooperating with the FTC in its investigation, which is currently ongoing.

        In 2001, our wholly-owned subsidiary in the United Kingdom established a home nursing and infusion service to support patients receiving Cerezyme enzyme and our other enzyme replacement therapies following the expiration of a contract with a third party service provider. This third party lodged a complaint with the Office of Fair Trading in the United Kingdom. The OFT is a non-governmental organization empowered to enforce certain consumer and competition legislation in the United Kingdom. The OFT commenced an investigation of this service, alleging that it contravened competition laws in the United Kingdom. While we believe that the provision of home healthcare services by our subsidiary and our pricing for Cerezyme enzyme in the United Kingdom fully complies with applicable laws, we cooperated in this investigation. On March 27, 2003, the OFT ruled that this service did, in fact, violate U.K. competition law, and as a result fined our subsidiary approximately 6.8 million Pounds Sterling and required modifications to our pricing structure for Cerezyme enzyme in the United Kingdom. We do not believe the OFT followed a fair procedure in conducting its investigation, nor do we believe its ruling is supported by either law or fact. We have notified the Competition Commission Appeal Tribunal that we will appeal the OFT's ruling. Based on the advice of counsel, management does not believe it is probable that we will be required to pay a material fine or modify our Cerezyme pricing structure.

        We are currently a party to other legal proceedings as well. While our management currently believes that the ultimate outcome of any of these proceedings will not have a material adverse effect on our financial position or results of operations, litigation is subject to inherent uncertainty, and we could experience such a material adverse impact. In addition, litigation consumes both cash and management attention.

36

PART II

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

        We have three series of common stock:

•

Genzyme General Stock;



•

Biosurgery Stock; and



•

Molecular Oncology Stock.

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

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

        As of March 1, 2003, there were 2,364 stockholders of record of Genzyme General Stock, 6,452 stockholders of record of Biosurgery Stock and 1,921 stockholders of record of Molecular Oncology Stock.

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

			High		Low
Genzyme General Stock
	2002
		First Quarter	$	58.55	$	38.70
		Second Quarter		44.20		17.75
		Third Quarter		25.83		15.64
		Fourth Quarter		36.55		19.90
	2001
		First Quarter	$	47.75	$	34.34
		Second Quarter		64.00		42.49
		Third Quarter		59.89		39.61
		Fourth Quarter		61.64		43.37
Biosurgery Stock
	2002
		First Quarter	$	7.20	$	5.21
		Second Quarter		6.84		2.75
		Third Quarter		4.72		1.75
		Fourth Quarter		3.20		1.79
	2001
		First Quarter	$	9.13	$	5.43
		Second Quarter		8.40		3.95
		Third Quarter		8.30		3.49
		Fourth Quarter		6.62		3.84

37

Molecular Oncology Stock
	2002
		First Quarter	$	9.00	$	5.70
		Second Quarter		5.99		1.80
		Third Quarter		2.72		0.77
		Fourth Quarter		2.91		0.75
	2001
		First Quarter	$	12.19	$	6.63
		Second Quarter		16.00		6.99
		Third Quarter		13.45		6.88
		Fourth Quarter		10.15		7.05

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

ITEM 6. SELECTED FINANCIAL DATA

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

•

the 2002 Genzyme General Annual Report under the headings "Genzyme Corporation—Selected Financial Data" and "Genzyme General—Combined Selected Financial Data;"



•

the 2002 Genzyme Biosurgery Annual Report under the heading "Genzyme Biosurgery—Combined Selected Financial Data;" and



•

the 2002 Genzyme Molecular Oncology Annual Report under the heading "Genzyme Molecular Oncology—Combined Selected Financial Data."

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

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

•

the 2002 Genzyme General Annual Report under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations—Genzyme Corporation and Subsidiaries" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Genzyme General;"



•

the 2002 Genzyme Biosurgery Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations—Genzyme Biosurgery;" and



•

the 2002 Genzyme Molecular Oncology Annual Report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations—Genzyme Molecular Oncology."

38

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We incorporate our Quantitative and Qualitative Disclosures About Market Risk by reference into this section from the section entitled "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—New Accounting Pronouncements," "—Market Risk," "—Interest Rate Risk," "—Foreign Exchange Risk," and "—Equity Price Risk" included in Exhibit 13.1 to this Annual Report on Form 10-K, which is included in the 2002 Genzyme General Annual Report, 2002 Genzyme Biosurgery Annual Report and 2002 Genzyme Molecular Oncology Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

•

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



•

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



•

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



•

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

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

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

39

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        We incorporate information regarding our directors and executive officers into this section by reference from the section entitled "Executive Officers of the Registrant" in Part I, Item 1A of this Annual Report on Form 10-K and the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the proxy statement for our 2003 annual meeting of stockholders.

ITEM 11. EXECUTIVE COMPENSATION

        We incorporate information regarding the compensation of our directors and executive officers into this section by reference from the sections entitled "Election of Directors," "Director Compensation" and "Executive Compensation" in the proxy statement for our 2003 annual meeting of stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        We incorporate information regarding the ownership of our securities by our directors, executive officers and 5% stockholders into this section by reference from the sections entitled "Stock Ownership" and "Equity Plans" in the proxy statement for our 2003 annual meeting of stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        We incorporate information regarding transactions with related parties into this section by reference from the section entitled "Certain Transactions" in the proxy statement for our 2003 annual meeting of stockholders.

ITEM 14. CONTROLS AND PROCEDURES

        Our chief executive officer and our chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-14(c) and 15(d)-14(c) under the Securities Exchange Act of 1934) as of a date (the "Evaluation Date") within 90 days before the filing date of this annual report. Based upon that evaluation, our chief executive officer and our chief financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in ensuring that they timely received the information that we and our consolidated subsidiaries are required to disclose in the reports filed or submitted by us under the Securities Exchange Act of 1934. There were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date.

40

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)(1). FINANCIAL STATEMENTS

        We are incorporating the following financial statements (and related notes) of Genzyme Corporation and Subsidiaries and Genzyme General into this section by reference from the 2002 Genzyme General Annual Report:

		Page*
Genzyme Corporation and Subsidiaries
	Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000	GCS-71
	Consolidated Balance Sheets as of December 31, 2002 and 2001	GCS-73
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000	GCS-74
	Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2002, 2001 and 2000	GCS-76
	Notes to Consolidated Financial Statements	GCS-79
	Report of Independent Accountants	GCS-157
Genzyme General
	Combined Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000	GG-46
	Combined Balance Sheets as of December 31, 2002 and 2001	GG-48
	Combined Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000	GG-49
	Notes to Combined Financial Statements	GG-52
	Report of Independent Accountants	GG-96

*

References are to page numbers in the 2002 Genzyme General Annual Report. The financial statements (and related notes) are incorporated by reference from the 2002 Genzyme General Annual Report included in Exhibits 13.1 and 13.2 to this Annual Report on Form 10-K.

        We are incorporating the following financial statements (and related notes) of Genzyme Biosurgery into this section by reference from the 2002 Genzyme Biosurgery Annual Report:

		Page*
Genzyme Biosurgery
	Combined Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000	GBS-31
	Combined Balance Sheets as of December 31, 2002 and 2001	GBS-32
	Combined Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000	GBS-33
	Notes to Combined Financial Statements	GBS-35
	Report of Independent Accountants	GBS-64

*

References are to page numbers in the 2002 Genzyme Biosurgery Annual Report. The financial statements (and related notes) are incorporated by reference from the 2002 Genzyme Biosurgery Annual Report included in Exhibit 13.3 to this Annual Report on Form 10-K.

41

        We are incorporating the following financial statements (and related notes) of Genzyme Molecular Oncology into this section by reference from the 2002 Genzyme Molecular Oncology Annual Report:

		Page*
Genzyme Molecular Oncology
	Combined Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000	GMO-17
	Combined Balance Sheets as of December 31, 2002 and 2001	GMO-18
	Combined Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000	GMO-19
	Notes to Combined Financial Statements	GMO-20
	Report of Independent Accountants	GMO-36

*

References are to page numbers in the 2002 Genzyme Molecular Oncology Annual Report. The financial statements (and related notes) are incorporated by reference from the 2002 Genzyme Molecular Oncology Annual Report included in Exhibit 13.4 to this Annual Report on Form 10-K.

(A)(2). FINANCIAL STATEMENT SCHEDULES

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

		Page*
Genzyme Corporation and Subsidiaries
	Schedule II—Valuation and Qualifying Accounts	GCS-158

*

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

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

(A)(3). EXHIBITS

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

(B). REPORTS ON FORM 8-K

        On October 24, 2002, we filed two Current Reports on Form 8-K, each dated as of October 24, 2002.

•

The first was filed to include unaudited, pro forma financial information describing the effect of our acquisitions of Wyntek Diagnostics, Inc., Focal, Inc., and Novazyme Pharmaceuticals, Inc., and the disposition of our 50% ownership interest in ATIII LLC, on our consolidated statement of operations and the combined statements of operations of Genzyme General and Genzyme Biosurgery for the year ended December 31, 2001. We allocated the assets, liabilities and operations of Wyntek, Novazyme and ATIII LLC to Genzyme General and those of Focal to Genzyme Biosurgery.

42

•

The second was filed to include selected financial data and notes thereto describing the impact that Statement of Financial Accounting Standards No. 142 ("Goodwill and Other Intangible Assets") would have had on our consolidated financial statements and the combined financial statements of Genzyme General, Genzyme Biosurgery and Genzyme Molecular Oncology had such standard been adopted as of January 1, 1999.

(C). EXHIBITS

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

43

*10.3—	Lease dated December 20, 1988 for Building 1400, One Kendall Square, Cambridge, Massachusetts between Genzyme and the Trustees of Old Binney Realty Trust, as amended by letters dated December 20, 1988, January 19, 1989 and January 31, 1989. Filed as Exhibit 10.18 to Genzyme's Form 10-K for 1988. Addendum dated September 20, 1991 to Lease for Building 1400, One Kendall Square, Cambridge, Massachusetts. Filed as Exhibit 19.1 to Genzyme's Form 10-Q for the quarter ended September 30, 1991. Addenda dated August 2, 1990 and April 6, 1993 to Lease for Building 1400, One Kendall Square, Cambridge, Massachusetts. Filed as Exhibit 10.3 to Genzyme's Form 10-K for 1993.
*10.4—	Lease dated December 20, 1988 for Building 700, One Kendall Square, Cambridge, Massachusetts between Genzyme and Trustees of Old Kendall Realty Trust, as amended by letters dated December 20, 1988 and January 31, 1989. Filed as Exhibit 10.19 to Genzyme's Form 10-K for 1988.
*10.5—	Lease dated September 30, 1985 for 51 New York Avenue, Framingham, Massachusetts. Filed as Exhibit 10.8 to Genzyme's Form 10-K for 1990. Amendment No. 1, dated October 11, 1990, and Amendment No. 2, dated May 12, 1993, to lease for 51 New York Avenue, Framingham, Massachusetts. Filed as Exhibit 10.5 to Genzyme's Form 10-K for 1993.
*10.6—	Lease dated April 30, 1990 for 64 Sidney Street, Cambridge, Massachusetts between BioSurface Technology, Inc. ("BioSurface") and Forest City 64 Sidney Street, Inc. Filed as Exhibit 10.22 to BioSurface's Registration Statement on Form S-1 (File No. 33-55874).
*10.7—	Sublease Lease dated May 22, 1992 for three buildings at 74-84 New York Avenue, Framingham, Massachusetts between Genzyme and Prime Computer, Inc. Filed as Exhibit 10.7 to Genzyme's Form 10-K for 1993.
*10.8—	Lease dated May 22, 1992 for three buildings at 74-84 New York Avenue, Framingham, Massachusetts between Genzyme and Mark L. Fins, David J. Winstanley and Bruce A. Gurall, tenants in common. Filed as Exhibit 10.8 to Genzyme's Form 10-K for 1993.
*10.9—	Lease dated June 1, 1992 for land at Allston Landing, Allston, Massachusetts between Allston Landing Limited Partnership and the Massachusetts Turnpike Authority. Filed as Exhibit 10.9 to Genzyme's Form 10-K for 1993.
*10.10—	Underlease for Block 13 building at Kings Hill Business Park West Malling Kent among Rouse and Associates Block 13 Limited, Genzyme (UK) Limited and Genzyme. Filed as Exhibit 10.11 to Genzyme's Registration Statement on Form 8-B dated December 31, 1991, filed on March 2, 1992.
*10.11—	Lease dated November 12, 1998 for Metrowest Place, 15 Pleasant Street Connector, Framingham, Massachusetts, between Consolidated Group Service Company Limited Partnership and Genzyme. Filed as Exhibit 10.11 to Genzyme's Form 10-K for 1998.
*10.12—	Agreement and Plan of Merger, dated as of August 6, 2001, among Genzyme, Rodeo Merger Corp. and Novazyme Pharmaceuticals, Inc. Filed as Exhibit 2.1 to Genzyme's Form 8-K filed on August 22, 2001.
*10.13—	Lease dated August 28, 2000 for Building D, Cambridge Research Park, Cambridge, Massachusetts, between Genzyme and Kendall Square LLC. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended September 30, 2000.**

44

*10.14—	Lease dated August 4, 2000 for 11 Pleasant Street Connector, Framingham, Massachusetts between Genzyme and Fafard Real Estate Development Corp. Filed as Exhibit 10.2 to Genzyme's Form 10-Q for the quarter ended September 30, 2000.
*10.15—	Lease Agreement dated February 28, 1997, between GelTex Pharmaceuticals, Inc. ("GelTex") and J.F. White Properties, Inc. Filed as Exhibit 10.16 to GelTex's Annual Report on Form 10-K for 1996 (File No. 0-26872).
*10.16—	Purchase and Sale Agreement between Barry L. Solar and Robert L. Solar as Trustees of 211 Second Avenue Realty Trust and GelTex Pharmaceuticals, Inc., dated as of July 26, 1999. Filed as Exhibit 10.4 to GelTex's Form 10-Q for the quarter ended June 30, 1999 (File No. 0-26872).
*10.17—	Agency Agreement, dated October 21, 1998, between First Security Bank, N.A. and GelTex. Filed as Exhibit 10.1 to GelTex's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 0-26872).
*10.18—	Lease Agreement, dated October 21, 1998, between First Security Bank, N.A. and GelTex. Filed as Exhibit 10.2 to GelTex's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 0-26872).
*10.19—	Partnership Purchase Agreement dated as of November 20, 2000 between Genzyme, Genzyme Development Corporation II, Genzyme Development Partners, L.P. ("GDP") and each Class A Limited Partner of GDP. Filed as Exhibit 10.24 to Genzyme's Form 10-K for 2000.
10.20—	1997 Equity Incentive Plan. Filed herewith.
*10.21—	1998 Director Stock Option Plan, as amended. Filed as Exhibit 10.28 to Genzyme's Form 10-K for 2000.
*10.22—	2001 Equity Incentive Plan. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended June 30, 2001.
*10.23—	1999 Employee Stock Purchase Plan. Filed as Exhibit 10.24 to Genzyme's Form 10-K for 1999.
*10.24—	1996 Directors' Deferred Compensation Plan. Filed as Exhibit 99.1 to Genzyme's Form S-8 dated August 8, 1997 (File No. 333-33251).
*10.25—	Executive Employment Agreement dated as of January 1, 1990 between Genzyme and Henri A. Termeer. Filed as Exhibit 10.32 to Genzyme's Form 10-K for 1990.
*10.26—	Form of Severance Agreement between Genzyme and certain senior executives, together with schedule identifying the provisions applicable to each executive. Filed as Exhibit 10.2 to Genzyme's Form 10-Q for the quarter ended June 30, 2002. Current schedule identifying the executives filed herewith.
*10.27—	Form of Indemnification Agreement between Genzyme and certain senior executives, together with schedule identifying the provisions applicable to each executive. Filed as Exhibit 10.34 to Genzyme's Form 10-K for 1990. Current schedule identifying the executives filed herewith.
*10.28—	Executive Employment Agreement dated as of January 1, 1996 between Genzyme and Peter Wirth. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended March 31, 1996.

45

*10.29—	Technology Transfer Agreement between Genzyme and GTC Biotherapeutics, Inc. ("GTC") dated as of May 1, 1993. Filed as Exhibit 2.1 to the Registration Statement on Form S-1 of GTC (File No. 33-62872).
*10.30—	Research and Development Agreement between Genzyme and GTC dated as of May 1, 1993. Filed as Exhibit 10.1 to the Registration Statement on Form S-1 of GTC (File No. 33-62872).
*10.31—	Services Agreement between Genzyme and GTC dated as of May 1, 1993. Filed as Exhibit 10.2 to the Registration Statement on Form S-1 of GTC (File No. 33-62872).
*10.32—	Series A Convertible Preferred Stock Purchase Agreement between Genzyme and GTC dated as of May 1, 1993. Filed as Exhibit 10.5 to the Registration Statement on Form S-1 of GTC (File No. 33-62872).
*10.33—	Second Amended and Restated Convertible Debt Agreement dated as of December 28, 1998 by and between Genzyme and GTC. Filed as Exhibit 10.37 to Genzyme's Form 10-K for 1998 (File No. 0-21794).
*10.34—	Amended and Restated Credit Agreement dated December 14, 2000 among Genzyme and those of its subsidiaries party thereto, Fleet National Bank, as Administrative Agent. Filed as Exhibit 99.2 to Genzyme's Form 8-K Filed on January 2, 2001.
10.35—	Contract Manufacturing Agreement dated September 14, 2001, as amended on May 15, 2002, between GelTex and The Dow Chemical Company. Filed herewith.†
*10.36—	License Agreement between GelTex and Nitto Boseki Co., Ltd., dated as of June 9, 1997. Filed as Exhibit 10.21 to GelTex's Form 10-Q for the quarter ended June 30, 1997 (File No. 0-26872).**
*10.37—	Supply Agreement dated as of November 9, 1999 by and between Salsbury Chemicals, Inc. and GelTex. Filed as Exhibit 10.32 to GelTex's Form 10-K for 1999 (File No. 0-26872).**
*10.38—	Collaboration Agreement dated September 4, 1998 among Genzyme, BioMarin Pharmaceutical, Inc. ("BioMarin") and BioMarin/Genzyme LLC. Filed as Exhibit 10.24 to BioMarin's Registration Statement on Form S-1 (File No. 333-77701).**
*10.39—	Purchase Agreement dated September 4, 1998 between Genzyme and BioMarin. Filed as Exhibit 10.25 to BioMarin's Registration Statement on Form S-1 (File No. 333-77701).
*10.40—	Operating Agreement of BioMarin/Genzyme LLC. Filed as Exhibit 10.30 to BioMarin's Registration Statement on Form S-1 (File No. 333-77701).
*10.41—	United States Licensing Agreement dated February 7, 1997 between Biomatrix and American Home Products Corporation ("AHP"). Filed as Exhibit 10.1 to the Biomatrix's Form 10-Q for the quarter ended March 31, 1997.**
10.42—	International Licensing Agreement dated February 7, 1997 between Biomatrix and AHP, as amended. Filed herewith.**
10.43—	Supply Agreement dated February 7, 1997 between Biomatrix and AHP, as amended. Filed herewith.**
10.44—	Trademark License Agreement dated February 7, 1997 between Biomatrix and AHP, as amended. Filed herewith.**

46

*10.45—	Contract for Sale, dated June 25, 2001, for the premises located at the Industrial Development Authority Industrial Park, Waterford County, Dublin, Ireland, (comprised in folio 4141L County Waterford) by and between Luxottica Ireland Limited and Genzyme Ireland Limited (f/n/a Gosfend Limited). Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.46—	Lease, dated September 3, 1990, for the land located at the Industrial Development Authority Industrial Park, Waterford Country, Dublin, Ireland (comprised in folio 4917 & 324IF County Waterford) by and between the Industrial Development Authority and Bausch & Lomb Ireland. Filed as Exhibit 10.2 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.47—	Deed of Transfer, dated July 2, 2001, between Luxottica Ireland Limited and Genzyme Ireland Limited, related to the Lease dated September 3, 1990 for the premises located at the Industrial Development Authority Industrial Park, Waterford, Dublin, Ireland (comprised in folio 4141L County Waterford). Filed as Exhibit 10.3 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.48—	Contract for Sale, dated August 2, 2001, for the land located at the Industrial Development Authority Industrial Park, Waterford County, Dublin, Ireland (comprised in folio 4917 County of Waterford) by the Industrial Development Agency (Ireland) and Genzyme Ireland Limited. Filed as Exhibit 10.4 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.49—	Lease, dated August 24, 2001, for the land located at the Industrial Development Authority Industrial Park, Waterford County, Dublin, Ireland (comprised in folio 4917 County of Waterford) by the Industrial Development Agency (Ireland) and Genzyme Ireland Limited. Filed as Exhibit 10.5 to Genzyme's Form 10-Q for the quarter ended September 30, 2001.
*10.50—	License and Collaboration Agreement, dated as of September 27, 2000, between Cambridge Antibody Technology Limited and Genzyme Corporation. Filed as Exhibit 4.7 to Cambridge Antibody's Registration Statement on Form 20-F/A, dated June 5, 2001 (File No. 000-3116).**
*10.51—	Amended and Restated Collaboration Agreement, dated May 31, 2002, between Genzyme and Dyax Corp. Filed as Exhibit 10.3 to Genzyme's Form 10-Q for the quarter ended June 30, 2002.
*10.52—	Lease dated July 26, 2002 for 55 Cambridge Parkway, Cambridge, Massachusetts between Genzyme and CC&F Cambridge Parkway Trust. Filed as Exhibit 10 to Genzyme's Form 10-Q for the quarter ended September 30, 2002.
*10.53—	Lease dated May 9, 2002 for 3400 Computer Drive, Westborough, Massachusetts between EMC Corporation and Genzyme. Filed as Exhibit 10.1 to Genzyme's Form 10-Q for the quarter ended June 30, 2002.
*10.54—	Collaboration Agreement between GelTex and Sankyo Pharma, Inc. dated December 23, 1999. Filed as Exhibit 10.33 to GelTex's Form 10-K for 1999. (File No. 02-26872).**
*10.55—	License Agreement between GelTex and Chugai Pharmaceutical Co., Ltd. dated December 26, 1994. Filed as Exhibit 10.14 to GelTex's Registration Statement on Form S-1 (File No. 33-97322).**

47

13.1—	Portions of the 2002 Genzyme General Annual Report incorporated by reference into Parts I, II and IV of this Form 10-K. Filed herewith.
13.2—	Portions of the 2002 Genzyme General Annual Report incorporated by reference into Parts I, II and IV of this Form 10-K. Filed herewith.
13.3—	Portions of the 2002 Genzyme Biosurgery Annual Report incorporated by reference into Parts I, II and IV of this Form 10-K. Filed herewith.
13.4—	Portions of the 2002 Genzyme Molecular Oncology Annual Report incorporated by reference into Parts I, II and IV of this Form 10-K. Filed herewith.
21—	Subsidiaries of Genzyme. Filed herewith.
23—	Consent of PricewaterhouseCoopers LLP. Filed herewith.
*99.1—	Management and Accounting Policies Governing the Relationship of Genzyme Divisions. Filed as Exhibit 3 to Genzyme's Registration Statement on Form 8-A filed on December 19, 2000 (File No. 333-31548).
99.2—	Factors Affecting Future Operating Results. Filed herewith.
99.3—	Written Statement of the Chief Executive Officer. Filed herewith.
99.4—	Written Statement of the Chief Financial Officer. Filed herewith.

*

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

**

Confidential treatment has been granted for the deleted portions of Exhibits 10.13, 10.36, 10.37, 10.38, 10.41, 10.42, 10.43, 10.44, 10.50, 10.54 and 10.55.

†

Confidential treatment has been requested for the deleted portions of Exhibit 10.35.

EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

        Exhibits 10.21 through 10.28 above are management contracts or compensatory plans or arrangements in which our executive officers or directors participate.

48

SIGNATURES

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

	GENZYME CORPORATION
Dated: March 28, 2003	By:	/s/  MICHAEL S. WYZGA Michael S. Wyzga Senior Vice President, Finance, Chief Financial Officer, and Chief Accounting Officer

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

Name	Title	Date
/s/  HENRI A. TERMEER Henri A. Termeer	Director and Principal Executive Officer	March 28, 2003
/s/  MICHAEL S. WYZGA Michael S. Wyzga	Principal Financial and Accounting Officer	March 28, 2003
/s/  CONSTANTINE E. ANAGNOSTOPOULOS Constantine E. Anagnostopoulos	Director	March 28, 2003
/s/  DOUGLAS A. BERTHIAUME Douglas A. Berthiaume	Director	March 28, 2003
/s/  HENRY E. BLAIR Henry E. Blair	Director	March 28, 2003
/s/  ROBERT J. CARPENTER Robert J. Carpenter	Director	March 28, 2003
/s/  CHARLES L. COONEY Charles L. Cooney	Director	March 28, 2003
/s/  VICTOR J. DZAU Victor J. Dzau	Director	March 28, 2003
/s/  CONNIE MACK III Connie Mack III	Director	March 28, 2003

49

EX-10.20

                                                                   Exhibit 10.20


                               GENZYME CORPORATION

                           1997 EQUITY INCENTIVE PLAN

1. PURPOSE

     The purpose of the Genzyme Corporation 1997 Equity Incentive Plan (the
"Plan") is to attract and retain key employees and consultants of the Company
and its Affiliates, to provide an incentive for them to achieve long-range
performance goals, and to enable them to participate in the long-term growth of
the Company by granting them Awards with respect to the Company's Common Stock.
Certain capitalized terms used herein are defined in section 9 below.

2. ADMINISTRATION

         The Plan shall be administered by the Committee. The Committee shall
select the Participants to receive Awards and shall determine the terms and
conditions of the Awards. The Committee shall have authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the
operation of the Plan as it shall from time to time consider advisable, and to
interpret the provisions of the Plan. The Committee's decisions shall be final
and binding. To the extent permitted by applicable law, the Committee may
delegate to one or more executive officers of the Company the power to make
Awards to Participants and all determinations under the Plan with respect
thereto, provided that the Committee shall fix the maximum amount of such Awards
for all such Participants and a maximum for any one Participant.

3. ELIGIBILITY

     All employees and consultants of the Company or any Affiliate capable of
contributing significantly to the successful performance of the Company are
eligible to be Participants in the Plan, other than persons deemed to be
officers of directors of the Company within the meaning of the corporate
governance rules for Nasdaq National Market companies.

4. STOCK AVAILABLE FOR AWARDS

(a) AMOUNT. Subject to adjustment under subsection (b), Awards may be made under
the Plan for up to 27,100,000 shares of Genzyme General Stock, up to 6,620,342
shares of Genzyme Biosurgery Stock and up to 2,200,000 shares of Genzyme
Molecular Oncology Stock. If any Award expires or is terminated unexercised or
is forfeited or settled in a manner that results in fewer shares outstanding
than were awarded, the shares subject to such Award, to the extent of such
expiration, termination, forfeiture or decrease, shall again be available for
award under the Plan. Common Stock issued through the assumption or substitution
of outstanding grants from an acquired company shall not reduce the shares
available for Awards under the Plan. Shares issued under the Plan may consist in
whole or in part of authorized but unissued shares or treasury shares.

(b) ADJUSTMENT. In the event that the Committee determines that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares or other
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits intended to be provided by the Plan, then the
Committee shall equitably adjust any or all of (i) the number and kind of shares
in respect of which Awards may be made under the Plan, (ii) the number and kind
of shares subject to outstanding Awards and (iii) the exercise price with
respect to any of the foregoing, provided that the number of shares subject to
any Award shall always be a whole number, and if considered appropriate, the
Committee may make provision for a cash payment with respect to an outstanding
Award. Notwithstanding the foregoing, unless otherwise determined by the
Committee, no adjustment will be made for dividends of one series of Common
Stock paid on another series of Common Stock.


                                       1





5. STOCK OPTIONS

(a) GRANT OF OPTIONS. Subject to the provisions of the Plan, the Committee may
grant Options to purchase shares of Common Stock. The Committee shall determine
the number of shares subject to each Option and the exercise price therefor,
which shall not be less than 100% of the Fair Market Value of the Common Stock
as of the Pricing Date. The Plan does not provide for the granting of incentive
stock options meeting the requirements of Section 422 of the Code.

(b) TERMS AND CONDITIONS. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may specify in the
applicable grant or thereafter. The Committee may impose such conditions with
respect to the exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable.

(c) PAYMENT. No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the exercise price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the grant of the Option, by delivery of a note or
other commitment satisfactory to the Committee or shares of Common Stock owned
by the optionee, including Restricted Stock, or by retaining shares otherwise
issuable pursuant to the Option, in each case valued at their Fair Market Value
on the date of delivery or retention, or such other lawful consideration,
including a payment commitment of a financial or brokerage institution, as the
Committee may determine.

6. STOCK EQUIVALENTS

(a) GRANT OF STOCK EQUIVALENTS. Subject to the provisions of the Plan, the
Committee may grant rights to receive payment from the Company based in whole or
in part on the value of the Common Stock. The Committee shall determine at the
time of grant or thereafter whether Stock Equivalents are settled in cash,
Common Stock or other securities of the Company, Awards or other property.

(b) STOCK APPRECIATION RIGHTS. Stock Equivalents may include rights to receive
any excess in value of shares of Common Stock over the exercise price ("Stock
Appreciation Rights" or "SARs") which may be granted in tandem with an Option
(at or after the award of the Option), or alone and unrelated to an Option. SARs
in tandem with an Option shall terminate to the extent that the related Option
is exercised, and the related Option shall terminate to the extent that the
tandem SARs are exercised. The Committee shall fix the exercise price of each
SAR or specify the manner in which the price shall be determined and may define
the manner of determining the excess in value of the shares of Common Stock. An
SAR granted in tandem with an Option shall have an exercise price not less than
the exercise price of the related Option. An SAR granted alone and unrelated to
an Option may not have an exercise price less than 100% of the Fair Market Value
of the Common Stock as of the Pricing Date.

7. STOCK GRANTS

(a) GRANT OF STOCK. Subject to the provisions of the Plan, the Committee may
grant shares of Common Stock upon such terms and conditions as the Committee
determines. Stock Grants may be issued for no cash consideration, such minimum
consideration as may be required by applicable law or such other consideration
as the Committee may determine.

(b) RESTRICTED STOCK. Stock Grants may include shares subject to forfeiture
("Restricted Stock"). The Committee will determine the duration of the period
(the "Restricted Period") during which, and the conditions under which, the
shares may be forfeited to the Company and the other terms and conditions of
such Awards. Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the Committee may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and unless otherwise


                                       2





determined by the Committee, deposited by the Participant, together with a stock
power endorsed in blank, with the Company. At the expiration of the Restricted
Period, the Company shall deliver such certificates to the Participant or if the
Participant has died, to the Participant's Designated Beneficiary.

8. GENERAL PROVISIONS APPLICABLE TO AWARDS

(a) DOCUMENTATION. Each Award under the Plan shall be evidenced by a writing
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the provisions
of the Plan as the Committee considers necessary or advisable to achieve the
purposes of the Plan or to comply with applicable tax and regulatory laws and
accounting principles.

(b) COMMITTEE DISCRETION. Each type of Award may be made alone, in addition to
or in relation to any other Award. The terms of each type of Award need not be
identical, and the Committee need not treat Participants uniformly. Except as
otherwise provided by the Plan or a particular Award, any determination with
respect to an Award may be made by the Committee at the time of grant or at any
time thereafter.

(c) DIVIDENDS AND CASH AWARDS. In the discretion of the Committee, any Award
under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable (in cash or in the form of Awards under the Plan) currently
or deferred with or without interest and (ii) cash payments in lieu of or in
addition to an Award.

(d) TERMINATION OF EMPLOYMENT. The Committee shall determine the effect on an
Award of the disability, death, retirement or other termination of employment of
a Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Designated Beneficiary may
receive payment of an Award or exercise rights thereunder.

(e) CHANGE IN CONTROL. In order to preserve a Participant's rights under an
Award in the event of a change in control of the Company (as defined by the
Committee), the Committee in its discretion may, at the time an Award is made or
at any time thereafter, take one or more of the following actions: (i) provide
for the acceleration of any time period relating to the exercise or payment of
the Award, (ii) provide for payment to the Participant of cash or other property
with a Fair Market Value equal to the amount that would have been received upon
the exercise or payment of the Award had the Award been exercised or paid upon
the change in control, (iii) adjust the terms of the Award in a manner
determined by the Committee to reflect the change in control, (iv) cause the
Award to be assumed, or new rights substituted therefor, by another entity, or
(v) make such other provision as the Committee may consider equitable to
Participants and in the best interests of the Company.

(f) TRANSFERABILITY. In the discretion of the Committee, any Award may be made
transferable upon such terms and conditions and to such extent as the Committee
determines. The Committee may in its discretion waive any restriction on
transferability.

(g) LOANS. The Committee may authorize the making of loans or cash payments to
Participants in connection with the grant or exercise of any Award under the
Plan, which loans may be secured by any security, including Common Stock,
underlying or related to such Award (provided that the loan shall not exceed the
Fair Market Value of the security subject to such Award), and which may be
forgiven upon such terms and conditions as the Committee may establish at the
time of such loan or at any time thereafter.

(h) WITHHOLDING TAXES. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery.


                                       3





(i) FOREIGN NATIONALS. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or to comply with applicable
laws.

(j) AMENDMENT OF AWARD. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization, provided that
the Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.

9. CERTAIN DEFINITIONS

     "Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total voting power or has a significant financial
interest as determined by the Committee.

     "Award" means any Stock Option, Stock Equivalent or Stock Grant granted
under the Plan.

     "Board" means the Board of Directors of the Company.

     "Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor law.

     "Committee" means one or more committees each comprised of not less than
two members of the Board appointed by the Board to administer the Plan or a
specified portion thereof.

     "Common Stock" or "Stock" means the Genzyme General Stock, the Genzyme
Biosurgery Stock, the Genzyme Molecular Oncology Stock and any other series of
common stock, $.01 par value, of the Company.

     "Company" means Genzyme Corporation.

     "Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Committee, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, "Designated Beneficiary"
means the Participant's estate.

     "Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.

     "Genzyme General Stock" means the Genzyme General Division Common Stock.

     "Genzyme Biosurgery Stock" means the Genzyme Biosurgery Division Common
Stock.

     "Genzyme Molecular Oncology Stock" means the Genzyme Molecular Oncology
Division Common Stock.

     "Participant" means a person selected by the Committee to receive an Award
under the Plan.

     "Pricing Date" means the date on which the Award is granted, except that
the Committee may provide that the Pricing Date for an Award granted to a new
employee or consultant shall be the date on which the recipient is hired or
engaged if the grant of the Award occurs within 90 days of the date such
employment or engagement commences.


                                       4





     "Stock Equivalent" means a right to receive payment from the Company based
in whole or in part on the value of the Common Stock awarded to a Participant
under Section 6.

     "Stock Grant" means shares of Common Stock awarded to a Participant under
Section 7.

     "Stock Option" or "Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 5.

10. MISCELLANEOUS

(a) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be
granted an Award. Neither the Plan nor any Award hereunder shall be deemed to
give any employee the right to continued employment or to limit the right of the
Company to discharge any employee at any time.

(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable Award,
no Participant or Designated Beneficiary shall have any rights as a stockholder
with respect to any shares of Common Stock to be distributed under the Plan
until he or she becomes the holder thereof. A Participant to whom Common Stock
is awarded shall be considered the holder of the Stock at the time of the Award
except as otherwise provided in the applicable Award.

(c) EFFECTIVE DATE. The Plan shall be effective on October 16, 1997.

(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan or any
portion thereof at any time.

(e) GOVERNING LAW. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of Massachusetts.


                                       5

EX-10.26

                                                                   EXHIBIT 10.26

                    SCHEDULE TO EXECUTIVE SEVERANCE AGREEMENT

       The following is a list of our senior executive officers who are party to
an Executive Severance Agreement, the form of which was filed as Exhibit 10.2 to
our Form 10-Q for the quarter ended June 30, 2002:

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

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

EX-10.27

                                                                   EXHIBIT 10.27

                      SCHEDULE TO INDEMNIFICATION AGREEMENT

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

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

EX-10.35

                                                                   EXHIBIT 10.35


                        CONTRACT MANUFACTURING AGREEMENT


                                     BETWEEN


                            THE DOW CHEMICAL COMPANY


                                       AND


                          GELTEX PHARMACEUTICALS, INC.



[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.






                                Table of Contents



ARTICLES                                                                PAGE
- --------                                                                ----
                                                                       
ARTICLE 1 - DEFINITIONS...................................................1
ARTICLE 2 - PURPOSE.......................................................4
ARTICLE 3 - TERM..........................................................4
ARTICLE 4 - QUALITY.......................................................5
ARTICLE 5 - QUANTITIES....................................................6
ARTICLE 6 - PRICES FOR PRODUCT............................................8
ARTICLE 7 - DELIVERY, TITLE, TRANSPORTATION...............................9
ARTICLE 8 - INVOICES AND PAYMENT..........................................9
ARTICLE 9 - LIMITED WARRANTY..............................................9
ARTICLE 10 - DISCLAIMER OF WARRANTIES.....................................9
ARTICLE 11 - INSPECTION AND NOTICE OF CLAIMS..............................10
ARTICLE 12 - LIMITATION OF REMEDIES AND LIABILITY.........................10
ARTICLE 13 - INTELLECTUAL PROPERTY........................................10
ARTICLE 14 - INDEMNITY....................................................12
ARTICLE 15 - INSURANCE....................................................13
ARTICLE 16 - DOW FACILITY.................................................14
ARTICLE 17 - PRODUCT STEWARDSHIP..........................................14
ARTICLE 18 - FORCE MAJEURE................................................15
ARTICLE 19 - EARLY TERMINATION............................................15
ARTICLE 20 - ASSIGNMENT...................................................16
ARTICLE 21 - NOTICE.......................................................16
ARTICLE 22 - PLANT VISITS.................................................17
ARTICLE 23 - CONFIDENTIALITY OF INFORMATION...............................18
ARTICLE 24 - EXPORT CONTROL OF TECHNICAL DATA.............................19
ARTICLE 25 - TAXES........................................................19
ARTICLE 26 - INDEPENDENT CONTRACTOR.......................................19
ARTICLE 27 - SEVERABILITY.................................................19
ARTICLE 28 - NON-WAIVER OF DEFAULTS.......................................20
ARTICLE 29 - CREDIT.......................................................20


                                       -i-

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.



                        CONTRACT MANUFACTURING AGREEMENT

This Contract Manufacturing Agreement, effective September 14, 2001, (the
"Effective Date"), is between THE DOW CHEMICAL COMPANY, a Delaware corporation
("DOW"), and GELTEX PHARMACEUTICALS, INC., a Massachusetts corporation
("GELTEX"). In consideration of the mutual covenants set forth in this
Agreement, DOW and GELTEX agree as follows:

ARTICLE 1 - DEFINITIONS

"AFFILIATE" as used in this Agreement with respect to one party, means any
company controlling, controlled by or under common control with such party. For
the purpose of this definition, a company shall be deemed to control another
company when it owns, directly or indirectly, more than 50% of the voting stock
of (or similar interest in) the latter.

"AGREEMENT" means this Contract Manufacturing Agreement, as may be amended from
time to time according to Article 33, and any Schedules to this Agreement. The
terms and conditions of this Agreement shall control over any terms and
conditions included in documents used by GELTEX, or its Affiliates to order
Product, or by DOW in accepting or confirming orders. Any term or condition on a
purchase order, acceptance or any other document which is not in accordance with
this Agreement is invalid.

"ANALYTICAL INFORMATION" means the technology and data existing as of the
effective date of the Original Agreement which was developed by, or was owned
or possessed by GELTEX, as of the effective date of the Original Agreement
for the manufacture of Product [**]. Analytical Information shall not include
any technology or data developed or acquired by GELTEX or any of its
Affiliates after the effective day of the Original Agreement.

"CALENDAR YEAR" means a twelve (12) month period commencing January 1.

"CERCLA" means the Federal Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. 6901 et seq.

"CLAIM(S)" means any legal or equitable causes of action (including but not
limited to negligence; strict liability; other tort; express or implied
warranty, indemnity or contract; contribution; or subrogation) related to or
arising out of the performance or nonperformance of this Agreement.

"DOW FACILITY" means DOW's multi-purpose manufacturing facility located in
Midland, Michigan.

                                  Page 1 of 23

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.



"DOW KNOW-HOW" means DOW's proprietary business and technical information
concerning products and the processes used to manufacture products, including,
but not limited to: (a) production forecasts; (b) product, raw material,
packaging and equipment specifications and samples; (c) process and
manufacturing information consisting of descriptions, NDAs and other pertinent
documents concerning methods, formulae and standards for the manufacture of
products; (d) quality control information and data; (e) analytical procedures
and data; and (f) performance test data.

"DRUG MASTER FILE" or "DMF" has the meaning assigned in 21 Code of Federal
Regulations Section 314.420, et seq.

"EFFECTIVE DATE" means the date stated above.

"EMEA" means the European Medicines Evaluation Agency.

"EXTENSION AGREEMENT" means that Contract Manufacturing Agreement Amendment
entered into between DOW and GELTEX on February 28, 2001.

"FDA" means the United States Food and Drug Administration.

"FFDCA" means the Federal Food, Drug and Cosmetic Act, 21 U.S.C. Sections 301
et seq.

"FORCE MAJEURE EVENT" means any event beyond the reasonable control of the party
affected which significantly interferes with the production, supply,
transportation, consumption or Waste disposal practice of the party at the time
respecting the Product covered by this Agreement, or the inability to obtain on
terms reasonably deemed by DOW to be practicable any supplies, parts or raw
material (including energy or other utilities) used in connection therewith,
such as any accident, mechanical breakdown of facilities, fire, flood, strike,
labor trouble, riot, revolt, war, drought, inability to meet governmental
environmental waste disposal standards, action of governmental authority and
laws, rules, ordinances and regulations (including, but not limited to, those
dealing with pollution, health, ecology, or environmental matters), acts of God,
or other similar types of contingencies.

"GMPS" means current Good Manufacturing Practices as defined in FFDCA and
related regulations.

"IND(S)" means an Investigational New Drug as defined in FFDCA and related
regulations.

"KG" means kilograms.

"MONTH(S)" means a calendar month commencing on the first day of a month.

                                  Page 2 of 23


"MT" means metric tons.

"NDA(S)" means a New Drug Application as defined in FFDCA and related
regulations.

"OPERATING GUIDELINES" means a description of the process for the manufacture of
the Product as contained in the Drug Master File maintained by DOW.

"ORIGINAL AGREEMENT" means that Contract Manufacturing Agreement effective as of
April 21, 1997 entered into between GELTEX and DOW, as amended by that certain
letter dated December 7, 1998 from DOW to GELTEX, and the Extension Agreement.

[**]

"PRICE" means the charge for the contract manufacturing of the Product in United
States dollars as calculated in Article 6.

"PRODUCT" means sevelamer hydrochloride, which is a bulk non-systemic drug
substance used to lower phosphate levels in dialysis patients, manufactured by
DOW for GELTEX or its Affiliates. Over time the parties may agree to add
additional items to the Product list according to Section 5.4.

"PROPRIETARY INFORMATION" means confidential information disclosed or developed
pursuant to the terms of this Agreement.

"QUARTER" means three consecutive Months commencing January 1, April 1, July 1
or October 1.

"RCRA" means the Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901
et seq.

"RESEARCH SERVICE AGREEMENT" means the Research Service Agreement dated
September 1, 1996, as amended, between DOW and GELTEX

"SPECIFICATION(S)" means the agreed-to specifications for the Product as fully
described in Schedule 1. The Specifications may be amended from time to time
upon the mutual written agreement of DOW and GELTEX.

"WASTE(S)" means "hazardous substance which is disposed or released" as defined
in CERCLA, and "waste" as defined in RCRA and includes waste of any kind
including, without limitation, both routine process waste and by-products which
are disposed.

"WORK DAY" means each day of the week excluding Saturday, Sunday and any public
holiday.

                                  Page 3 of 23

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.



ARTICLE 2 - PURPOSE

2.1    DOW agrees to manufacture and sell Product to GELTEX, or its Affiliates,
as directed by GELTEX, and GELTEX agrees that it, or its Affiliates will
purchase and receive Product from DOW, pursuant to the terms and conditions
stated in this Agreement. DOW's manufacturing responsibilities are:

       (a)   unloading, handling and storing raw materials and packaging
             materials at the DOW Facility;

       (b)   manufacturing Product;

       (c)   collecting and retaining for three (3) years lot samples of the
             Product;

       (d)   packaging Product;

       (e)   handling and storing bulk and packaged Product;

       (f)   preparing Product for shipment;

       (g)   making the Product available to a common carrier;

       (h)   keeping records and reporting to GELTEX and applicable governmental
             agencies;

       (i)   handling, storing, treating, and disposing of Wastes generated by
             DOW in DOW's performance of this Agreement; and

       (j)   compliance with all applicable laws and regulations regarding the
             manufacture of the Product, including, but limited to, current
             GMPs.

2.2    GELTEX recognizes and agrees that the ability of DOW to manufacture
Product pursuant to this Agreement depends upon a continuous supply to DOW of
[**]. GELTEX shall provide or make available to DOW a steady supply of [**]
sufficient for the manufacture of the quantity of Products requested by GELTEX.

ARTICLE 3 - TERM

3.1    The term of this Agreement is for an initial term from the Effective Date
until December 31, 2003. Thereafter, this Agreement automatically shall continue
for successive periods of one (1) year, unless terminated by either party as set
forth below.

3.2    DOW shall have the right to terminate this Agreement by providing written
notice of its desire to do so to GELTEX. However, any such notice of termination
provided by

                                  Page 4 of 23

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.



DOW to GELTEX (i) shall not have an effective date of termination prior to
December 31, 2003, and (ii) shall not have an effective date of termination that
is less than twelve (12) months from the date such notice is delivered to
GELTEX. In addition, this Agreement shall terminate upon the failure of GELTEX
to provide for a continuous supply of [**] for a period of ninety (90) days
pursuant to Section 2.2 in sufficient quantities for the manufacture of Product.

3.3    GELTEX shall have the right to terminate this Agreement by providing
written notice of its desire to do so to DOW. However, any such notice of
termination provided by GELTEX to DOW (i) shall not have an effective date of
termination prior to December 31, 2003, and (ii) shall not have an effective
date of termination that is less than six (6) months from the date such notice
is delivered to DOW.

ARTICLE 4 - QUALITY

4.1    The manufacturing process for the Product shall conform to the process
set forth in the Operating Guidelines. DOW may amend the Operating Guidelines
from time to time in the event that (i) the FDA or any other applicable heath
ministry has approved such change; (ii) the FDA or any other applicable health
ministry has permitted the time to provide notice of objection to the change to
lapse or (iii) the change consists of a category of changes that the FDA or
applicable health ministry has approved for immediate distribution upon receipt
by such agency of the notice of change.

4.2    DOW shall test or cause to be tested each batch of Product as specified
in the Specifications before shipment to GELTEX or its designee for compliance
with the Specifications. The completeness and accuracy of the Specifications are
solely GELTEX's responsibility. DOW shall retain a sample of each batch tested
for three (3) years from the date of shipment; however, GELTEX is responsible
for retaining GELTEX's own samples for FDA purposes. For each batch shipped, DOW
shall prepare a certificate of analysis setting forth the items tested, the
Specifications and test results and forward the certificates to GELTEX, or its
designee, at the time the Product is shipped.

4.3    DOW shall label the Product as specified by GELTEX. GELTEX shall procure
all registrations, permits and licenses with respect to packaging, labeling and
Specifications of the Product and use of the Product at GELTEX's expense.
Without limiting the forgoing, GELTEX shall file with the FDA, in GELTEX's own
name, all INDs and NDAs required for Product. DOW shall be responsible for
filing the DMF and ensuring that the DMF meets the requirements of the FDA and
the EMEA. In addition, DOW shall be responsible for filing a DMF, or its
equivalent, that meets the requirements of the applicable regulatory authority
in Canada, Brazil and any other country or territory into which Product will be
sold by GELTEX, or its Affiliates, following the mutual agreement of DOW and
GELTEX.

                                  Page 5 of 23

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.



ARTICLE 5 - EXPANSION AND QUANTITIES

5.1    (a)   Upon expanding the annual capability to manufacture Product at the
DOW Facility from [**] to [**], and subject to the provisions of Section
5.1(b) hereof, DOW shall maintain an annual Product manufacturing capacity level
at the DOW Facility of [**].

(b)    DOW and GELTEX have agreed to a target date of January 31, 2002 for
completion of the expansion of the annual capacity of the DOW Facility.
However, the parties acknowledge that this is only a target date, and DOW
agrees that on or before October 5, 2001, it shall provide GELTEX with
written notice of its commitment of the actual date by which DOW shall have
completed the expansion of the annual capacity of the DOW Facility and shall
have a qualified facility capable of producing Product at an annual capacity
rate of [**]. The parties agree that the date to be provided by DOW in such
notice shall be no later than March 31, 2002. Subject to the provisions set
forth below in this Section 5.1(b), GELTEX shall incur all capital costs for
the [**] expansion to the manufacturing capacity of the DOW Facility for the
manufacture of Product. The capital cost is estimated to be [**]. If the
capital requirements for the construction and expansion of the DOW Facility
exceed the estimated capital expenditure, then DOW shall bear any such excess
costs above [**].

DOW and GELTEX further understand and agree that the capital expenditure
discussed above is required in order to purchase equipment to be used by DOW to
satisfy its obligations to GELTEX for the manufacture of Product under this
Agreement. DOW shall not incur any costs for which GELTEX will be required to
make a capital expenditure without the prior written consent of GELTEX. DOW and
GELTEX mutually will agree on the project scope and the list of major equipment
to be purchased. All equipment purchased by DOW on behalf of GELTEX and charged
to GELTEX as a capital expenditure will be owned by GELTEX and leased by GELTEX
to DOW in accordance with the terms of an amendment to the equipment lease
between GELTEX and DOW and dated April 22, 1997.

5.2    (a)   Provided that DOW has meet its obligation to secure an annual
capacity of [**] by the date set forth in the notice described above, then
during Calendar Year 2002, GELTEX shall be obligated to purchase from DOW,
either itself or through its Affiliates, the maximum amount of Product that
DOW can produce in such Calendar Year up to [**].

       (b)   In Calendar Year 2003, GELTEX shall be obligated to purchase,
either itself or through its Affiliates, [**] of Product from DOW.

                                  Page 6 of 23

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.




       (c)   In the event that GELTEX reasolably anticipates it will need to
purchase more than [**] of Product during Calendar Year 2002 or Calendar Year
2003, DOW and GELTEX will meet and determine how to supply the Product
requirements of GELTEX. DOW shall not not have an obligation to supply
Product to GELTEX in excess of [**] per Calendar Year, nor shall GELTEX have
an obligation to purchase from DOW more than [**] during such Calendar Years.

       (d)   In the event that this Agreement continues beyond 2003, GELTEX
shall be obligated to purchase from DOW, either itself or through its
Affiliates, a minimum of [**] per Calendar Year.

       (e)   If GELTEX, either itself or through its Affiliates, does not place
purchase orders for the quantities it is required to purchase during any
Calendar Year, then GELTEX shall be obligated to pay to DOW an amount as if
GELTEX had purchased from DOW the full quantity it is required to purchase for
that Calendar Year. Notwithstanding the above, should this Agreement terminate
primr to the end of a Calendar Year for any reason, then the amount that GELTEX
shall be obligated to purchase in the Calendar Year in which the termination is
effective shall be pro-rated for the period of the Camendar Year in which the
Agreement was in effect.

5.3    (a)   GELTEX shall use reasonable commercial efforts to purchase Product
evenly during the course of any given Calendar Year during the term of this
Agreement. To this end, forty-five (45) days prior to each Quarter, GELTEX shall
provide a non-binding written forecast to DOW stating the amount of the Product
GELTEX and its Affiliates reasonably anticipate purchasing from DOW for each of
the next eight Quarters broken out by Month.

       (b)   Firm purchase orders for Product shall be placed by GELTEX
and/or its Affiliates within five (5) business days of the end of the Month
preceding the Month in which GELTEX expects shipment of the Product. The firm
purchase orders may differ from the forecast provided by GELTEX; PROVIDED,
HOWEVER, that DOW shall not be obligated to supply GELTEX and/or its
Affiliates in any given Month amounts of Product in excess of [**] of the
amount provided for such Month in the most recent Quarterly forecast provided
by GELTEX.

       (c)   Each firm purchase order shall include (i) the quantity of Product
to be purchased; (ii) the requested delivery date(s) therefore; (iii) any
relevant shipping instructions; and (iv) any other information dictated by the
circumstances of the order. DOW shall accept purchase orders issued to it by
GELTEX that are within the amounts allowed by the restrictions set forth in
5.2(c) and 5.3(b) above within five (5) days after receipt of such purchase
order. DOW shall use commercially reasonable efforts to ship product to GELTEX
in accordance with the terms of the purchase order.

5.4    The parties recognize that detailed and continuing exchanges of
information shall be necessary in order to optimize the administration of this
Agreement and DOW's sale

                                  Page 7 of 23

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.



of Product to GELTEX- consistent with their respective rights and
responsibilities under this Agreement. To that end, each party shall notify the
other of the individual representative or representatives responsible for
exchanging information and for resolving issues which arise affecting the
production of Product by DOW for sale to GELTEX. The designated representatives
of GELTEX and DOW shall conduct a planning meeting at least once per month to
address issues which shall arise under this Agreement, including allowing DOW
the ability to efficiently meet GELTEX's purchase needs. Other topics of
discussion between the parties may include DOW manufacturing, selling and
delivering products in addition to the Product to GELTEX under an amendment to
this Agreement or under separate terms and conditions to be mutually agreed upon
by the parties.

ARTICLE 6 - PRICES FOR PRODUCT

6.1    (a)   Subject always to the payment obligations of GELTEX for Product
contained in Section 5.2(e) and to the provisions of Section 8.2, GELTEX
shall pay [**] for Product purchased during Calendar Years 2002 and 2003.
However, should GELTEX and its Affiliates, combined, purchase more than [**]
in either 2002 or 2003, then the price for quantities of Product above [**]
shall be $[**]. The preceeding sentence is intended to cover circumstances in
which more than [**] of Product is produced by DOW with the [**] capacity
expansion discussed in Section 5.2(a) above. In the event that GELTEX and DOW
agree to further expand the capacity of the DOW facility beyond [**], then
the purchase price for the additional quantities of Product produced by such
additional capacity expansion shall be negotiated between the parties.

       (b)   GELTEX and DOW acknowledge that the capacity expansion being
conducted under this Agreement may enable DOW to produce and sell to GELTEX in
Calendar Year 2001 quantities of Product in excess of the [**] contemplated by
the Extension Agreement. The parties agree that the price for quantities of
Product above [**] purchased by GELTEX and its Affiliates during Calendar Year
2001 shall be $[**].

       (c)   The Product pricing in Sections 6.1(a) assumes a [**] purchase
price of [**] per Kg. If [**] pricing is different, then the Product pricing
will be adjusted accordingly.

6.2    (a)   Subject always to the payment obligations of GELTEX for Product
contained in Section 5.2(e), and except as otherwise provided in Section 6.1,
DOW and GELTEX shall commence discussions regarding the price for Product for
2004, and each Calendar Year thereafter in September of the preceding Calendar
Year. The parties agree to negotiate in good faith to set the Product price for
each Calendar Year following 2003. If, during any Calendar Year during the term
of this Agreement, DOW and GELTEX cannot agree on Product pricing, then the
Product pricing for the Calendar Year in question shall equal the Product
pricing for the immediately preceding Calendar Year.

                                  Page 8 of 23

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.



ARTICLE 7 - DELIVERY, TITLE, TRANSPORTATION

7.1    Title to, and risk of loss for, Product shall transfer to GELTEX upon
delivery by DOW to a common carrier acceptable to DOW and GELTEX.

7.2    Product shall be shipped in mutually acceptable types and sizes of
packaging or other shipping containers. The method of shipment shall be by a
mutually agreed common carrier. GELTEX will pay all freight, which shall be
invoiced separately to GELTEX. Emergency response for any emergencies or other
incidents occurring during transit shall be the responsibility of GELTEX.

ARTICLE 8 - INVOICES AND PAYMENT

8.1    DOW shall invoice GELTEX for Product as such Product is shipped.

8.2    Payment terms are net thirty (30) days from date of invoice. In the
event that payment for an outstanding invoice is made within ten (10) days of
its receipt, then the amount of such invoice shall be reduced by [**].
Invoices past due bear interest calculated per annum from the due date to the
date if actual payment at a fluctuating interest rate equal at all times to
the prime rate of interest announced publicly from time to time by Morgan
Guaranty Trust Company of New York, plus two percent (2%), but in no case
higher than the maximum rate permitted by applicable law.

ARTICLE 9 - WARRANTIES OF GELTEX

9.1    GELTEX warrants that, with regard to the Product, it shall comply with
all applicable laws, including but not limited to the FFDCA and rules and
regulations promulgated by the FDA.

ARTICLE 10 - LIMITED WARRANTY

SUBJECT TO THE LIMITATIONS OF ARTICLES 10, 11 and 12, DOW warrants that, at the
time of delivery, the Product supplied by DOW shall (a) meet the Specification
for the Product; (b) be conveyed with good title, free from any lawful security
interest, lien or encumbrance; (c) be manufactured in accordance with current
GMPs and all other applicable regulatory requirements; and (d) not be
adulterated or misbranded within the meaning of the FFDCA; provided, however,
DOW shall not be liable for misbranding which is due to any labeling,
instructions or package insert text provided to DOW by GELTEX.

ARTICLE 11 - DISCLAIMER OF WARRANTIES

THE LIMITED WARRANTIES CONTAINED IN ARTICLE 10 OF THIS AGREEMENT ARE DOW'S SOLE
WARRANTIES WITH RESPECT TO THE

                                  Page 9 of 23

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.



PRODUCT AND ARE MADE EXPRESSLY IN LIEU OF AND EXCLUDE ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND ALL OTHER EXPRESS OR
IMPLIED REPRESENTATIONS AND WARRANTIES PROVIDED BY COMMON LAW OR STATUTE.

ARTICLE 12 - INSPECTION AND NOTICE OF CLAIMS

Promptly upon receipt of each batch of Product, GELTEX shall inspect, analyze
and test the Product for any damage, defect or shortage and promptly shall
notify Dow whether Product conforms to Specifications. EXCEPT WHERE DOW HAS
PROVIDED WARRANTIES UNDER THIS AGREEMENT, ALL CLAIMS BY GELTEX SHALL BE DEEMED
WAIVED UNLESS MADE BY GELTEX IN WRITING AND RECEIVED BY DOW WITHIN SIXTY (60)
DAYS OF THE RECEIPT OF THE PRODUCT PROVIDED THAT FOR ANY CLAIM WHICH IS NOT
READILY DISCOVERABLE WITHIN SUCH 60-DAY PERIOD SUCH CLAIM SHALL BE DEEMED WAIVED
UNLESS MADE BY GELTEX IN WRITING AND RECEIVED BY DOW WITHIN THREE HUNDRED SIXTY
(360) DAYS AFTER RECEIPT OF THE PRODUCT OR WITHIN THIRTY (30) DAYS AFTER GELTEX
LEARNS OR SHOULD HAVE BEEN REASONABLY AWARE OF FACTS WHICH SHOULD HAVE GIVEN
RISE TO SUCH CLAIM, WHICHEVER FIRST OCCURS.

ARTICLE 13 - LIMITATION OF REMEDIES AND LIABILITY

13.1   EXCEPT AS TO SECTION 15.1 AND SECTION 14.4, GELTEX'S EXCLUSIVE REMEDY AND
DOW'S TOTAL LIABILITY TO GELTEX FOR CLAIMS FOR PRODUCT DELIVERED UNDER THIS
AGREEMENT IS EXPRESSLY LIMITED AS FOLLOWS: GELTEX HAS THE OPTION OF REPLACEMENT
OF, OR REPAYMENT OF THE PRICE PAID FOR, THE PRODUCT WITH RESPECT TO WHICH
DAMAGES ARE CLAIMED. GELTEX WAIVES ALL OTHER CLAIMS BY GELTEX AGAINST DOW FOR
PRODUCT DELIVERED UNDER THIS AGREEMENT.

13.2   NEITHER DOW NOR GELTEX SHALL BE UNDER ANY LIABILITY TO THE OTHER FOR ANY
INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES.

13.3   The provisions of this Article 13 shall survive any termination of this
Agreement.

ARTICLE 14 - INTELLECTUAL PROPERTY

14.1   DOW Know-How is owned by DOW. GELTEX has provided DOW with Analytical
Information concerning the manufacture and packaging of the Product. Analytical
Information is owned by GELTEX. GELTEX grants to DOW a non-exclusive,
non-transferable, royalty-free license to use Analytical Information in order to
manufacture Product for GELTEX and its Affiliates.

                                  Page 10 of 23


14.2   GELTEX will provide DOW with reasonable access to knowledgeable people to
consult with DOW on the implementation of Analytical Information. Such
consultations shall be free of charge and shall occur at mutually agreeable
times and places (either at the DOW Facility or a facility owned and/or operated
by GELTEX).

14.3   GELTEX warrants either (a) there is no patent or copyright covering any
Product or the Analytical Information used by DOW to produce Product or (b)
GELTEX has a right to have Product made by DOW, and to have DOW use the
Analytical Information used to produce Product. GELTEX assumes all
responsibility for use of any design, trademark, trade name, copyright or part
thereof, appearing on the Product at GELTEX's request. GELTEX will indemnify,
defend and hold harmless DOW from and against any and all costs and expenses
(including reasonable attorneys' fees) arising from Claims based on the
representations and warranties of GELTEX in this Section 14.3.

14.4   DOW warrants that it has the right to use DOW Know-How to produce
Product. DOW will indemnify, defend and hold harmless GELTEX from and against
any and all costs and expenses (including reasonable attorneys' fees) arising
from Claims based on the representation and warranty of DOW in this Section
14.4.

14.5   DOW and GELTEX recognize that detailed information, including but not
limited to Analytical Information and DOW Know-How, must be exchanged in order
to optimize the administration of this Agreement and the manufacture and sale of
Product by DOW to GELTEX, consistent with the respective rights and obligations
of DOW and GELTEX under this Agreement. Each party shall deliver to the other
such information as expeditiously as possible in order to manufacture Product in
the quantities defined in Article 5.

14.6   DOW shall retain all right, title and interest in, and GELTEX shall have
no right to, DOW Know-How (except pursuant to the Research Service Agreement)
and in any software, hardware, firmware and other information management and
control systems, including, without limitation, business, research and
manufacturing control and information management systems (such as computers,
computer programs and other computer related technology), and information,
plans, technical data, ideas, discoveries, works of authorship, patentable and
unpatentable inventions, know-how, process improvements, procedures,
specifications, engineering drawings, equipment, packaging etc. that relate to
software, hardware, firmware and other information management and control
systems, resulting from DOW's efforts under this Agreement.

14.7   Any improvements, technology or other know-how developed by DOW outside
of the provisions of the Research Service Agreement (including, but not limited
to, improvements, technology or other know-how developed by DOW in the course of
manufacturing Products under this Agreement) shall be owned by DOW and shall not
be subject to the terms and conditions of the Research Service Agreement.

                                  Page 11 of 23


14.8   The provisions of this Article 14 shall survive termination of this
Agreement.

ARTICLE 15 - INDEMNITY

15.1   DOW shall indemnify, defend and hold GELTEX harmless from and against any
and all liabilities, claims, demands, damages, costs, expenses or money
judgments (including attorneys' fees) incurred by, or rendered against, GELTEX
arising out of any damage to the environment or damage to natural resources at
the DOW Facility or a facility/location chosen by DOW for its disposal of Wastes
generated by DOW in connection with DOW's performance of this Agreement
provided, however, GELTEX shall give DOW notice in writing as soon as
practicable of any such claim or lawsuit and shall permit DOW to undertake the
defense thereof at DOW's expense. For purposes of this Section 15.1,
"liabilities, claims, demands, damages, costs, expenses or money judgments"
shall include assertions involving federal, state and local laws, regulations
and ordinances, including, but not limited to, CERCLA and RCRA, or comparable
and applicable state statutes. DOW has no obligation to indemnify GELTEX
(including under common law) except as specifically set forth in this Section
15.1 and as provided in Section 14.4.

15.2   GELTEX shall cooperate in any defense DOW undertakes pursuant to Section
15.1 by providing access to witnesses and evidence available to GELTEX. GELTEX
shall have the right to participate in any defense to the extent that, in its
judgment, GELTEX may be prejudiced thereby.

15.3   In any claim or suit in which GELTEX sEeks indemnification by DOW, GELTEX
shall not settle, offer to settle or admit liability or damages in any such
claim or suit without the consent of DOW.

15.4   Inasmuch as DOW shall be manufacturing Product pursuant to Specifications
provided by GELTEX, except as specifically set forth in Section 15.1, GELTEX
shall be responsible for any and all property damage or personal injury
(including death) with regard to the Product or raw materials used to
manufacture the Product by DOW for GELTEX under this Agreement. GELTEX shall
indemnify, defend and hold DOW harmless from and against any and all
liabilities, claims, demands, damages, costs, expenses or money judgments
(including attorneys' fees) incurred by or rendered against DOW for property
damage, personal injury, sickness, disease or death or other damages which arise
out of the following: (a) except as specifically set forth in Section 15.1, the
manufacture of the Product according to Specifications and the use of raw
materials specified by GELTEX in the manufacture of the Product unless caused by
the gross negligence or willful misconduct of DOW; (b) after delivery of the
Product by DOW to GELTEX (or GELTEX's designee), the handling, storage, testing,
transportation, promotion, distribution, sale, use, treatment or disposal of the
Product (including other goods which incorporate Product as a component) unless
caused by the gross negligence or willful misconduct of DOW; or (c) GELTEX
visits to the DOW Facility unless caused by the gross negligence or willful
misconduct of DOW; or (d) alleged design, trademark,

                                  Page 12 of 23


trade name or copyright infringement resulting from the use of any design,
trademark, trade name, copyright or part thereof, appearing on the Product at
GELTEX's request; or (e) patent or copyright infringement based on the use by
DOW of the Analytical Information in the manufacture, sale or use of the Product
made for GELTEX pursuant to this Agreement. DOW shall give GELTEX notice in
writing as soon as practicable of any such claim or lawsuit and shall permit
GELTEX to undertake the defense thereof at GELTEX's expense.

15.5   DOW shall cooperate in such defense undertaken by GELTEX pursuant to
Section 15.4 by providing access to witnesses and evidence available to DOW. DOW
shall have the right to participate in any defense to the extent that, in its
judgment, DOW may be prejudiced thereby.

15.6   In any claim or suit in which DOW seeks indemnification by GELTEX, DOW
shall not settle, offer to settle or admit liability or damages in any such
claim or suit without the consent of GELTEX.

15.7   The provisions of this Article 15 shall survive any termination of this
Agreement.

ARTICLE 16 - INSURANCE

16.1   At all times while the Agreement is in effect, GELTEX will procure and
maintain, at its own expense and for its own benefit, Comprehensive/Commercial
General Liability Insurance (including contractual liability, products
liability, and completed operations) with a bodily injury, death, and property
damage combined single limit of $5,000,000 per occurrence. The scope of this
coverage is to be occurrence form, equivalent to standard ISO forms (e.g., 1996
Commercial General Liability ISO occurrence policy form # CG 00 01 01 96, etc.)
with no limiting modifications.

16.2   GELTEX will furnish DOW a certificate(s) from an insurance carrier
(having a minimum AM Best rating of A) showing all insurance set forth above.
The certificate(s) will include the following statement: "The insurance
certified hereunder is applicable to all contracts between The Dow Chemical
Company and the Insured. This insurance may be canceled or altered only after
thirty (30) days written notice to DOW." The insurance, and the certificate(s),
will (1) name DOW (including DOW's officers, directors, employees, affiliates,
agents, successors, and assigns) as additional insureds with respect to matters
arising from this Agreement, (2) provide that such insurance is primary to any
liability insurance carried by DOW, and (3) provide that underwriters and
insurance companies of GELTEX may not have any right of subrogation against DOW
(including DOW's officers, directors, employees, affiliates, agents, successors,
and assigns). The insuran#e will contain an ordinary deductible. Failure of any
of the terms and conditions of this Article 16 will be considered a material
breach under this Agreement.

                                  Page 13 of 23


ARTICLE 17 - DOW FACILITY

17.1   In DOW's performance of its obligations under this Agreement, DOW retains
the obligations to fully comply with all applicable federal, state and local
laws and regulations which are in effect at the time, including FFDCA, and all
applicable regulations promulgated by the FDA thereunder. DOW retains the sole
right and authority to make all decisions with respect to the construction,
maintenance and operation of DOW's Facility. Without limiting DOW's obligations,
GELTEX acknowledges that it may have certain independent obligations in order
for GELTEX to be in compliance with laws, rules and regulations applicable to
GELTEX.

17.2   The DOW Facility is registered with the FDA pursuant to Section 510 of
FFDCA. DOW agrees to maintain a valid FDA Establishment Number for the DOW
Facility. DOW shall keep and maintain records as required by all applicable
federal, state and local laws and regulations including, but not limited to
FFDCA. DOW shall prepare and submit all reports that DOW is required by
applicable federal, state and local laws and regulations to submit. DOW shall
provide GELTEX with a copy of any such reports. DOW shall promptly notify GELTEX
of any incidents involving the raw materials, packaging materials or Product
involving DOW's performance under this Agreement or of any actions or
inspections by the FDA relating to the manufacture of the Product. DOW retains
exclusive ownership and responsibility of all DOW Facility materials, reports
and records.

ARTICLE 18 - PRODUCT STEWARDSHIP

18.1   GELTEX acknowledges that it has requested DOW to contract manufacture
Product for GELTEX pursuant to instructions and specifications provided to DOW
by GELTEX. GELTEX represents that it has used its own independent skill and
expertise in connection with the design, selection and use of the Product
(including other goods which incorporate Product as a component) and that it
possesses skill and expertise in the handling, storage, transportation,
treatment, use and disposal of the Product (including other goods which
incorporate Product as a component). GELTEX shall accept and agree to be bound
by appropriate product stewardship guidelines, including but not limited to: (a)
responsibility for providing Material Safety Data Sheets, (b) following safe
handling, use, selling, storage, transportation, treatment and disposal
practices (including special practices as GELTEX's use of the Product requires)
and instruct its employees, contractors (including DOW), agents and customers in
these practices (including the information contained in the most current
Material Safety Data Sheet), (c) taking appropriate action to avoid spills or
other dangers to persons, property or the environment, and (d) understanding and
complying (and has complied) with all applicable governmental statutes, rules,
regulations and ordinances including, without limitation, those promulgated by
the FDA and EPA.

                                  Page 14 of 23


18.2   DOW shall report to GELTEX, in writing and as promptly as practicable,
any complaints it receives concerning the Product, including any regulatory
complaints. GELTEX shall be responsible for handling such complaints, and DOW
shall cooperate to the extent reasonably requested by GELTEX. GELTEX shall
promptly disclose to DOW any information which becomes available to it relating
to alleged side effects, toxicity or other adverse effects allegedly caused by
the Product (including other goods which incorporate Product as a component).

ARTICLE 19 - FORCE MAJEURE

19.1   The performance of the party impacted by a Force Majeure Event, other
than for payment for Product already delivered, under this Agreement is delayed,
without liability, for the duration of a Force Majeure Event.

19.2   The party whose performance is affected by a Force Majeure Event shall
give prompt notice to the other party stating the details and expected duration
of the event. Once notice is given of a Force Majeure Event, the parties shall
keep each other apprised of the situation until the Force Majeure Event
terminates or this Agreement is terminated, whichever occurs first. Each party
has full management discretion in dealing with its own labor issues, and in
determining how and when to perform obligations (other than payment for work
already performed) under this Agreement when the other party is involved in a
strike, work stoppage or slowdown condition.

19.3   DOW may, during any period of shortage of raw materials (including energy
or other utilities), waste handling capability, labor, or Product due to force
majeure as defined in this Agreement, in DOW's discretion allocate its supply of
such raw materials (including energy or other utilities), waste handling
capability, labor and Product among the various uses therefore in any manner.
DOW shall have no obligation to obtain Product, or raw materials (including
energy or other utilities) from a third party in order to supply DOW's excused
contractual shortfall. The Product, or raw materials (including energy or other
utilities) obtained by DOW from a third party solely for DOW's internal use are
not subject to allocation.

ARTICLE 20 - EARLY TERMINATION

20.1   Either party is entitled (without prejudice to its other rights and
remedies under this Agreement) to terminate this Agreement upon (a) written
notice at any time if the other party breaches a material obligation under this
Agreement and such breach has not be remedied within thirty (30) days after the
non-breaching party provides written notice of such breach to the breaching
party or (b) written notice by the party not affected by a Force Majeure Event
to the party affected by the Force Majeure Event if a Force Majeure Event lasts
for more than sixty (60) days. Further, either party shall be deemed to have
breached this Agreement in the event such party (a) voluntarily or involuntarily
enters a bankruptcy or similar proceeding; (b) passes a resolution for winding
up its business or a Court makes an order to that effect (otherwise than for the
purpose of amalgamation or

                                  Page 15 of 23


reconstruction); or (c) a receiver is appointed in respect of substantially all
of its assets.

20.2   DOW shall incur certain design, engineering and construction costs at the
DOW Facility in order to expand its capacity to [**] for the manufacture the
Products. If this Agreement is terminated by DOW, pursuant to Section 20.1,
then, within thirty (30) days of such termination, GELTEX shall pay to DOW an
amount equal to the costs for which GELTEX was responsible hereunder which were
not already reimbursed by GELTEX for the capacity expansion of the DOW Facility
up to and including the date of the notification of termination; PROVIDED,
HOWEVER, that DOW shall use commercially reasonable efforts to reduce such
design, engineering, construction and other associated costs. If this Agreement
is terminated by GELTEX, pursuant to Section 20.1, then GELTEX shall have no
obligation to pay for such design, engineering, construction and other
associated costs.

ARTICLE 21 - ASSIGNMENT

This Agreement is not assignable or transferable by either party without the
prior written consent of the other party, such consent not to be unreasonably
withheld.

ARTICLE 22 - NOTICE

Any notice to be given under this Agreement shall be in writing and shall be
deemed given when received and may be sent by mail, express courier or facsimile
to:

If to GELTEX:

C/o Genzyme Corporation
15 Pleasant Street Connector
P.O. Box 9322
Framingham, MA  01701
Attn: James Shuman,
Vice President, Materials

Fax (508) 271-3942

With a copy to:

GelTex Pharmaceuticals, Inc.
153 Second Avenue
Waltham, MA  02451
Attn: Elizabeth A. Grammer
Senior Corporate Counsel

Fax (781) 895-4982

                                  Page 16 of 23

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.



If to DOW:

The Dow Chemical Company
Michigan Operations
574 Building
Midland, MI 48674
Attn: Business Director, Pharma Services

Fax 41-1-728-2020

With a copy to:

The Dow Chemical Company
100 Larkin Center
Midland, MI 48674
Attn: Stephen Zier, Counsel

Fax:  (989) 636-5523

Either party may change its location or facsimile number to receive notices upon
ten (10) days prior written notice.

ARTICLE 23 - PLANT VISITS

23.1   Subject to safety and confidentiality limitations and to the provisions
of the TDCC Know-How Agreement entered into between DOW and GELTEX on December
22, 1999, DOW shall permit representatives of GELTEX to visit the DOW Facility
for the purpose of reviewing the manufacture and testing of the Product and
related batch records and of conducting compliance audits associated with GMPs
and other FDA regulations. Employees of GELTEX who enter onto DOW premises must
comply with DOW's safety, security and confidentiality requirements. GELTEX must
give DOW reasonable notice of any proposed visit to the DOW Facility and
identify the individuals who shall be in attendance. DOW is entitled to approve
the individuals who shall visit; however, DOW's approval may not be unreasonably
withheld. GELTEX may not designate contractors for such visits without the prior
written consent of DOW. All visits shall be during normal business hours on Work
Days. DOW may inspect any documents, vehicles, or containers entering or leaving
DOW premises. Each employee and other approved representatives of GELTEX who
visit the DOW Facility, or other DOW premises, must fully comply with the
respective site's standard access requirements.

23.2   During normal business hours on Work Days, DOW shall allow governmental
inspectors (such as inspectors from the FDA or EPA) acting pursuant to statutory
authority to inspect the DOW Facility in connection with the production of
Product and to review required documentation, provided that such inspectors
comply with DOW's

                                  Page 17 of 23


safety, security and confidentiality requirements. All governmental inspectors
to conduct an inspection of DOW Facility shall be subject to the reasonable
approval of DOW prior to the inspection.

ARTICLE 24 - CONFIDENTIALITY OF INFORMATION

24.1   Each of DOW and GELTEX will receive Proprietary Information in order to
fulfill its respective obligations under this Agreement. Any Proprietary
Information should be marked as such. Information not marked as Proprietary
Information but which the party receiving it reasonably should recognize as
Proprietary Information shall be deemed to be Proprietary Information. Each
party shall use reasonable efforts to retain the other party's Proprietary
Information in confidence and not disclose the same to any third party nor use
the same, except as expressly permitted. Excepted from these obligations of
confidence and non use is that information which:

       (a)   is available, or becomes available, to the general public without
             fault of the receiving party;

       (b)   was in the possession of the receiving party on a non-confidential
             basis prior to receipt of the same from the disclosing party;

       (c)   is obtained by the receiving party without an obligation of
             confidence from a third party who is rightfully in possession of
             such information and is under no obligation of confidentiality to
             the disclosing party;

       (d)   the receiving party is legally required to disclose; or

       (e)   is independently developed by the receiving party.

For the purpose of this Section 24.1, a specific item of Proprietary Information
shall not be deemed to be within the foregoing exceptions merely because it is
embraced by more general information in the public domain or in the possession
of the receiving party. In addition, any combination of features shall not be
deemed to be within the foregoing exceptions merely because individual features
are in the public domain or in the possession of the receiving party, but only
if the combination itself and its principle of operation are in the public
domain or in the possession of the receiving party.

24.2   Notwithstanding the provisions of 24.1(d), if the receiving party becomes
legally compelled to disclose any of the disclosing party's Proprietary
Information, the receiving party shall promptly advise the disclosing party of
such Proprietary Information in order that the disclosing party may seek a
protective order or such other remedy as the disclosing party may consider
appropriate in the circumstances. The receiving party shall disclose only that
portion of the disclosing party's Proprietary Information which it is legally
required to disclose.

                                  Page 18 of 23


24.3   All Proprietary Information in whatever form, other than Proprietary
Information consisting of DOW Program Technology (as defined in the Research
Service Agreement) or DOW Know-How licensed to GELTEX pursuant to the Research
Service Agreement, shall be returned to the disclosing party upon termination of
this Agreement, without retaining copies thereof except that one copy of all
such Proprietary Information may be retained by the other party's legal
department solely for the purposes of policing this Agreement. Upon termination
of this Agreement, GELTEX shall be permitted to retain copies of all DOW Program
Technology (as defined in the Research Service Agreement) and DOW Know-How
licensed to GELTEX pursuant to Research Service Agreement.

24.4   The obligation of confidentiality under this Article 24 shall survive for
five (5) years following the expiration or termination of this Agreement.

ARTICLE 25 - EXPORT CONTROL OF TECHNICAL DATA

The parties acknowledge their obligations to adhere to the United States export
laws and regulations, such as Export Administration Regulations, International
Traffic in Arms Regulations and regulations promulgated by the Office of Foreign
Assets Control and the parties agree to adhere to such laws and regulations.

ARTICLE 26 - TAXES

GELTEX shall pay to DOW (a) any applicable sales, use, gross receipts, or
value-added tax that is imposed as a result of, or measured by, the sales, and
(b) the amount of any and all other governmental taxes, duties and/or charges of
every kind, excluding any income tax imposed upon DOW, that is hereafter imposed
or increased, and which DOW may be required to pay with respect to the
production, sale or transportation of Product, with respect to any material used
in the manufacture thereof.

ARTICLE 27 - INDEPENDENT CONTRACTOR

DOW is an independent contractor, with all the attendant rights and liabilities,
and not an agent or employee of GELTEX. The relationship between DOW and GELTEX
shall not constitute a partnership, joint venture or agency. Any provision in
this Agreement, or any action by GELTEX, which may appear to give GELTEX the
right to direct or control DOW in performing under this Agreement means DOW
shall follow the desires of GELTEX in results only. Neither party shall have the
authority to make any statements, representations or commitments of any kind, or
take any action, which shall be binding on the other, without the prior written
consent of the other party.

ARTICLE 28 - SEVERABILITY

If any provision of this Agreement or the application thereof to any person or
circumstance shall, for any reason, and to any extent, be held to be invalid or
unenforceable under applicable law, such provision shall be deemed limited or
modified

                                  Page 19 of 23


to the extent necessary to make the same valid and enforceable under applicable
law. Any invalid or unenforceable provision shall be replaced with such new
provision which shall allow the parties to achieve the intended economic result
in a legally valid and effective manner.

ARTICLE 29 - NON-WAIVER OF DEFAULTS

Any failure by either party at any time to enforce or require strict keeping and
performance of any of the terms or conditions of this Agreement shall not
constitute a waiver of such terms or conditions and shall not affect or impair
such terms or conditions in any way, or the right of either party at any time to
avail itself of such remedies as it may have for any breach or breaches of such
terms or conditions.

ARTICLE 30 - CREDIT

If GELTEX fails to pay any invoice in accordance with the terms of this
Agreement, DOW may defer shipments, alter payment terms or cancel this
Agreement. If GELTEX's financial responsibility becomes unsatisfactory to DOW
and DOW deems itself insecure, DOW may accelerate the due date and demand
immediate payment on any outstanding invoice for Product, or may require cash
payments or satisfactory security for future deliveries. GELTEX agrees to pay
all costs and expenses, including reasonable attorney's fees, incurred by DOW in
the collection of any sum payable by GELTEX to DOW, or in the exercise of any
remedy.

ARTICLE 31 - GOVERNING LAW

The interpretation, validity and performance of this Agreement shall be governed
by Michigan law, including Michigan's adaptation of the Uniform Commercial Code,
without regard to Michigan's conflict-of-law rules.

ARTICLE 32 - HEADINGS

The headings used in this Agreement are for the convenience of the reader and
are not intended to have any substantive meaning.

                                  Page 20 of 23


ARTICLE 33 - ENTIRE AGREEMENT

This Agreement constitutes the full understanding of the parties, and is a
final, complete and exclusive statement of the terms and conditions of their
agreement regarding the subject matter of this Agreement. All representations,
offers, and undertakings, of the parties made prior to the effective date of
this Agreement are merged in this Agreement. All amendments or modifications to
this Agreement must be in writing, identified as an Amendment to this Agreement
and signed by an authorized representative of each party.

ARTICLE 34 - ARBITRATION

34.1   Any Claim arising out of or relating to this Agreement, or any breach
thereof, including, without limitation, the validity of the provisions of this
Article 34, but excluding any Claim regarding technology or patents, shall be
settled in accordance with the Commercial Arbitration Rules of the American
Arbitration Association as amended and in effect January 1, 1990 (the "Rules"),
except as such Rules are modified by this Article 34.

34.2   Any arbitration pursuant to this Article 34 shall occur before a panel of
three (3) arbitrators. Each of DOW and GELTEX shall select one arbitrator within
thirty (30) days of the notice of arbitration. The two arbitrators so selected
then shall have thirty (30) days to select a third arbitrator from a list of
potential arbitrators provided by the American Arbitration Association. If the
two arbitrators cannot select a third arbitrator within the thirty-day period,
then the American Arbitration Association shall select the third arbitrator. The
third arbitrator, regardless of how selected, shall chair the arbitration panel.

34.3   Any arbitration pursuant to this Article 34 shall take place at the
offices of the American Arbitration Association in New York, New York, or at
such other offices in New York, New York, as the American Arbitration
Association may stipulate. The arbitration shall be in English. Each party shall
bear its respective costs (including travel costs, witness and attorneys' fees)
relating to the arbitration. Each party shall bear an equal portion of the
actual arbitration costs including, but not limited to, arbitrator's fees and
administrative fees of the American Arbitration Association.

34.4   Not less than sixty (60) days from the date of any arbitration proceeding
under this Article 34, each party will provide to the other a list of the
witnesses that it intends to produce. The other party, at its expense, shall
have the opportunity to take the deposition of such witnesses prior to the
arbitration. In addition, not less than forty-five (45) days prior to the
arbitration date, each party shall provide to the other copies of the evidence
intended for use during the arbitration. Not less than ten (10) days before the
arbitration date, the parties may move the arbitration panel to exclude certain
evidence, setting forth the grounds for such request. The arbitrators shall
decide on any such motions in accordance with applicable law.

                                  Page 21 of 23


34.5   The arbitrators shall issue a written opinion, setting forth their
decision and its legal and factual basis. The opinion of the arbitrators shall
be binding upon the parties absent manifest error in the understanding of the
facts or the interpretation of applicable law.

34.6   Anything in this Article 34 to the contrary notwithstanding, prior to
initiating any arbitration, a party to this Agreement may seek an injunction,
temporary restraining order, or other similar temporary relief, from a court of
competent jurisdiction in order to protect the assets that are the subject of
dispute.

The parties have caused this Agreement to be executed by their duly authorized
representatives.


GELTEX PHARMACEUTICALS, INC.                   THE DOW CHEMICAL COMPANY


By: /s/ Timothy Noyes                          By: /s/ George J. Biltz
   -------------------------------                ------------------------------

Name: Timothy Noyes                            Name: GEORGE J. BILTZ
     -----------------------------                  ----------------------------

Title: SVP & General Manager                   Title: VP CUSTOM & FINE CHEMICALS
      ----------------------------                   ---------------------------

Date: 9-11-01                                  Date: 18 SEPT. 01
     -----------------------------                  ----------------------------

GENZYME CORPORATION, the parent of GELTEX PHARMACEUTICALS, INC., hereby
guarantees the performance by GELTEX PHARMACEUTICALS, INC. of its obligations
hereunder.


GENZYME CORPORATION

By:   /s/ M Bamforth
     ----------------------------

Name:  M Bamforth
     ----------------------------

Title: SVP - CORPORATE OPERATIONS
      ---------------------------

Date: 9/11/01
     ----------------------------

                                  Page 22 of 23


                                   SCHEDULE 1

                             PRODUCT SPECIFICATIONS

TEST                           METHOD         SPECIFICATION

                                [**]







                                  Page 23 of 23

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.




                                  1ST AMENDMENT
                        CONTRACT MANUFACTURING AGREEMENT

THIS AMENDMENT NUMBER 1 dated as of May 15, 2002 (the "1st Amendment") is made
by and between The Dow Chemical Company, a Delaware corporation ("Dow") and
GelTex Pharmaceuticals, Inc., a Massachusetts corporation ("GelTex"). The
parties wish to amend the Contract Manufacturing Agreement they entered into
effective September 4, 2001 ("Agreement") as hereafter set forth. Capitalized
terms not defined herein shall have the respective meanings ascribed to them in
the Agreement.

                                    RECITALS

WHEREAS, Dow and GelTex have previously entered into the Agreement whereby Dow,
in connection with its obligation to manufacture and supply Product to GelTex,
maintains an annual Product manufacturing capacity level at the Dow Facility of
[**];

WHEREAS, GelTex may desire to purchase up to an additional [**] or more of
Product annually above the current [**] plant capacity and Dow has estimated
it can add the additional capacity by removing plant bottlenecks at a cost of
$[**]; and

WHEREAS, GelTex has agreed to pay the $[**] to Dow and Dow expects to
complete the capacity expansion by the end of May 2002.

NOW THEREFORE, in consideration of the premises and of the covenants herein
contained, Dow and GelTex hereby agree as follows:

   1.  GelTex shall make a lump sum cash payment to Dow in the amount of
$[**] USD and Dow agrees to use the money for removing bottlenecks in the
production of Product at the Dow Facility in order to expand the annual plant
capacity to approximately [**]. Dow will use commercially reasonable efforts
to ensure that the additional annual [**] of capacity is operational by June 1,
2002.

   2.  If so requested by GelTex, Dow agrees to produce an annualized
quantity of [**] of Product during 2002, prorated for the period of time
during 2002 prior to the introduction of the increased capacity. If so requested
by GelTex, Dow agrees to produce [**] of product during 2003. GelTex shall not
be obligated to purchase more than [**] of Product during 2002 and 2003.

   3.  During calendar years 2002 and 2003:

       A) The price for Product quantities in excess of [**] up to [**]
          shall be $[**], subject to adjustment based upon the decrease in
          the cost of the [**]

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.



          as described in Section 6.1(c) of the Agreement; and

       B) The price for Product quantities in excess of [**] shall be $[**],
          with no adjustment to be made for the actual cost of the [**].

       IN WITNESS WHEREOF, the parties hereto have caused this Amendment Number
1 to be executed by their duly authorized representatives effective as of the
date set forth above.

       THE DOW CHEMICAL COMPANY

       By: /s/ George J. Biltz
          --------------------------------

       Name: GEORGE J. BILTZ
            ------------------------------

       Title: V.P CUSTOM & FINE CHEMICALS
             -----------------------------


       GELTEX PHARMACEUTICALS, INC.

       By: /s/ Timothy Noyes
          --------------------------------

       Name: Timothy Noyes
            ------------------------------

       Title: President
             -----------------------------

                                   Page 2 of 2

[**] = Portions of this exhibit have been omitted pursuant to a confidential
treatment request. An unredacted version of this exhibit has been filed
separately with the Commission.

EX-13.1

Use these links to rapidly review the document
TABLE OF CONTENTS 3

EXHIBIT 13.1

FINANCIAL STATEMENTS
GENZYME CORPORATION AND SUBSIDIARIES

	Page No.
Consolidated Selected Financial Data	GCS-2
Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations	GCS-8
Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000	GCS-71
Consolidated Balance Sheets as of December 31, 2002 and 2001	GCS-73
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000	GCS-74
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2002, 2001 and 2000	GCS-76
Notes to Consolidated Financial Statements	GCS-79
Report of Independent Accountants	GCS-157

GCS-1

GENZYME CORPORATION
Consolidated Selected Financial Data

        These selected financial data have been derived from our audited, consolidated financial statements. You should read the following information in conjunction with our audited consolidated financial statements and related notes contained elsewhere in this annual report. These selected financial data may not be indicative of our future financial condition due to the risks and uncertainties described under the caption "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report.

        We have three series of common stock—Genzyme General Division common stock, which we refer to as "Genzyme General Stock," Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," and Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock." We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specified subset of our business operations and its allocated assets, rather than operations and assets of our entire company.

        The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. These provisions factor the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock. In addition, our income tax allocation policy provides that 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.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with accounting principles generally accepted in the United States of America, or U.S., and as adjusted for tax benefits allocated to or from that division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock, combine existing tracking stocks or change our earnings allocation methodology. Because the earnings allocated to each series of stock are based on the income or losses attributable to each corresponding division, we provide financial statements and management's discussion and analysis for the corporation as well as for each of our divisions to aid investors in evaluating our performance and the performance of each of our divisions.

        While each tracking stock is designed to reflect a division's performance, each is common stock of Genzyme Corporation and not of a division. Our divisions are not separate companies or legal entities, and therefore do not and cannot issue stock. Holders of tracking stock have no specific rights to assets allocated to the corresponding division. We continue to hold title to all of the assets allocated to the corresponding division and are responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to any division. Holders of each tracking stock, as common stockholders are, therefore, subject to the risks of investing in the businesses, assets and 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

GCS-2

event of a Genzyme liquidation, insolvency or similar event, holders of each tracking stock would only have the rights of common stockholders in the combined assets of Genzyme.

CONSOLIDATED STATEMENTS OF OPERATIONS DATA

				For the Years Ended December 31,
				2002			2001			2000			1999			1998
				(Amounts in thousands)
Revenues:
	Net product sales			$	1,199,617		$	1,110,254		$	811,897		$	683,482		$	613,685
	Net service sales				114,493			98,370			84,482			79,448			74,682
	Revenues from research and development contracts:
		Related parties			2,747			3,279			509			2,012			5,745
		Other			12,615			11,727			6,432			7,346			15,223
			Total revenues		1,329,472			1,223,630			903,320			772,288			709,335
Operating costs and expenses:
	Cost of products sold				309,634			307,425			232,383			182,337			211,076
	Cost of services sold				66,575			56,173			50,177			49,444			48,586
	Selling, general and administrative(1)				438,035			424,640			264,551			242,797			215,203
	Research and development (including research and
	development related to contracts)				308,487			264,004			169,478			150,516			119,005
	Amortization of intangibles(2)				70,278			121,124			22,974			24,674			24,334
	Purchase of in-process research and development(3)				1,879			95,568			200,191			5,436			—
	Charge for impaired assets(4)				22,944			—			4,321			—			—
			Total operating costs and expenses		1,217,832			1,268,934			944,075			655,204			618,204
Operating income (loss)					111,640			(45,304	)		(40,755	)		117,084			91,131
Other income (expenses):
	Equity in net loss of unconsolidated affiliates				(16,858	)		(35,681	)		(44,965	)		(42,696	)		(29,006	)
	Gain on affiliate sale of stock(5)				—			212			22,689			6,683			2,369
	Gain (loss) on investments in equity securities(6)				(14,497	)		(25,996	)		15,873			(3,749	)		(6	)
	Minority interest in net loss of subsidiary				—			2,259			4,625			3,674			4,285
	Gain (loss) on sale of product line(7)				—			(24,999	)		—			8,018			31,202
	Other(8)				40			(2,205	)		5,188			14,527			—
	Investment income				51,038			50,504			45,593			36,158			25,055
	Interest expense				(27,152	)		(37,133	)		(15,710	)		(21,771	)		(22,593	)
			Total other income (expenses)		(7,429	)		(73,039	)		33,293			844			11,306
Income (loss) before income taxes					104,211			(118,343	)		(7,462	)		117,928			102,437
(Provision for) benefit from income taxes					(19,015	)		2,020			(55,478	)		(46,947	)		(39,870	)
Net income (loss) before cumulative effect of change in accounting for goodwill and derivative financial instruments				$	85,196		$	(116,323	)	$	(62,940	)	$	70,981		$	62,567
Cumulative effect of change in accounting for goodwill(2)					(98,270	)		—			—			—			—
Cumulative effect of change in accounting for derivative financial instruments, net of tax(9)					—			4,167			—			——
Net income (loss)				$	(13,074	)	$	(112,156	)	$	(62,940	)	$	70,981		$	62,567

GCS-3

			For the Years Ended December 31,
			2002			2001			2000			1999			1998
			(Amounts in thousands, except per share amounts)
Net income (loss) per share:
Allocated to Genzyme General Stock(2,10,11,13):
Genzyme General net income before cumulative effect of change in accounting for derivative financial instruments			$	150,731		$	3,879		$	85,956		$	142,077		$	133,052
Cumulative effect of change in accounting for derivative financial instruments, net of tax(9)				—			4,167			—			—			—
Genzyme General net income				150,731			8,046			85,956			142,077			133,052
Genzyme Surgical Products net loss				—			—			—			(27,523	)		(49,856	)
Tax benefit allocated from Genzyme Biosurgery				18,508			24,593			28,023			26,994			34,330
Tax benefit allocated from Genzyme Molecular Oncology				9,287			11,904			7,476			7,812			3,527
Net income allocated to Genzyme General Stock			$	178,526		$	44,543		$	121,455		$	149,360		$	121,053
Net income per share of Genzyme General Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.83		$	0.20		$	0.71		$	0.90		$	0.77
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax(9)		—			0.02			—			——
		Net income per share allocated to Genzyme General Stock	$	0.83		$	0.22		$	0.71		$	0.90		$	0.77
	Diluted:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.81		$	0.19		$	0.68		$	0.85		$	0.74
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax(9)		—			0.02			—			—			—
		Net income per share allocated to Genzyme General Stock	$	0.81		$	0.21		$	0.68		$	0.85		$	0.74
Weighted average shares outstanding(11):
	Basic			214,038			202,221			172,263			166,185			158,127
	Diluted			219,388			211,176			179,366			186,456			171,643
Allocated to Biosurgery Stock(2,10,12):
	Genzyme Biosurgery net loss before cumulative effect of change in accounting for goodwill		$	(79,322	)	$	(145,170	)	$	(87,636	)
	Cumulative effect of change in accounting for goodwill(2)			(98,270	)		—			—
	Genzyme Biosurgery net loss			(177,592	)		(145,170	)		(87,636	)
	Allocated tax benefit			9,706			18,189			448
	Net loss allocated to Biosurgery Stock		$	(167,886	)	$	(126,981	)	$	(87,188	)
	Net loss per share of Biosurgery Stock—basic and diluted:
		Net loss per share before cumulative effect of change in accounting for goodwill	$	(1.74	)	$	(3.34	)	$	(2.40	)
		Per share cumulative effect of change in accounting for goodwill(2)		(2.46	)		—			—
		Net loss per share of Biosurgery Stock—basic and diluted	$	(4.20	)	$	(3.34	)	$	(2.40	)
	Weighted average shares outstanding			39,965			37,982			36,359

GCS-4

		For the Years Ended December 31,
		2002			2001			2000			1999			1998
		(Amounts in thousands, except per share amounts)
Allocated to Molecular Oncology Stock(2,10):
	Net loss	$	(23,714	)	$	(29,718	)	$	(23,096	)	$	(28,832	)	$	(19,107	)
	Net loss per share of Molecular Oncology Stock—basic and diluted	$	(1.41	)	$	(1.82	)	$	(1.60	)	$	(2.25	)	$	(3.81	)
	Weighted average shares outstanding		16,827			16,350			14,446			12,826			5,019
Allocated to Surgical Products Stock(2,10,12,13):
	Net loss							$	(54,748	)	$	(20,514	)
	Net loss per share of Surgical Products Stock—basic and diluted							$	(3.67	)	$	(1.38	)
	Weighted average shares outstanding								14,900			14,835
Allocated to Tissue Repair Stock(2,10,12):
	Net loss							$	(19,833	)	$	(30,040	)	$	(40,386	)
	Net loss per share of Tissue Repair Stock—basic and diluted							$	(0.69	)	$	(1.26	)	$	(1.99	)
	Weighted average shares outstanding								28,716			23,807			20,277

CONSOLIDATED BALANCE SHEET DATA

	December 31,
	2002		2001		2000		1999		1998
	(Amounts in thousands)
Cash and investments	$	1,195,004	$	1,121,258	$	639,640	$	652,990	$	575,729
Working capital(14)		581,234		566,798		559,652		592,249		417,116
Total assets		4,083,049		3,935,745		3,318,100		1,787,282		1,688,854
Long-term debt, capital lease obligations and convertible debt, including current portion(15)		894,775		852,555		685,137		295,702		387,993
Stockholders' equity		2,697,847		2,609,189		2,175,141		1,356,392		1,172,535

There were no cash dividends paid.

(1)

Selling, general and administrative expenses for 2002 includes a $3.3 million charge for severance costs and the reversal of $5.5 million of accruals in excess of currently estimated requirements to fulfill our legal obligation to provide human transgenic alpha-glucosidase during the transition of Pompe clinical trial patients to a product derived from Chinese hamster ovary, or CHO, cells, which we refer to as a CHO-cell product. Research and development expenses for 2002 include a $0.9 million charge for severance costs. 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)

Effective January 1, 2002, in connection with the provisions of Statement of Financial Accounting Standards, or SFAS, No. 142, "Goodwill and Other Intangible Assets," we ceased amortizing goodwill. We recorded $52.5 million in 2001 and $12.3 million in 2000 of amortization expense related to our goodwill. Also, in connection with the adoption of SFAS No. 142, we tested the goodwill of our cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our consolidated statements of operations and the combined statements of operations of Genzyme Biosurgery for the year ended December 31, 2002.

GCS-5

(3)

Charges for in-process research and development, which we refer to as IPR&D, were incurred in connection with the following investment and acquisitions:

•

2002—$1.9 million related to our investment in Myosix SA;

•

2001—$86.8 million from the acquisition of Novazyme Pharmaceuticals, Inc. and $8.8 million from the acquisition of Wyntek Diagnostics, Inc.;

•

2000—$118.0 million from the acquisition of GelTex Pharmaceuticals, Inc. and $82.1 million from the acquisition of Biomatrix, Inc.; and

•

1999—$5.4 million from the acquisition of Peptimmune, Inc.

(4)

Charges for impaired assets includes:

•

2002—$14.0 million to write off engineering and design costs related to a manufacturing facility that was being constructed in Framingham, Massachusetts and $9.0 million to write off the assets at our bulk hyaluronic acid, or HA, manufacturing facility in Haverhill, England; and

•

2000—$4.3 million to write off abandoned equipment at our Springfield Mills manufacturing facility, also in England.

(5)

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, GTC Biotherapeutics, Inc. (formerly Genzyme Transgenics Corporation) which we refer to as GTC. In the years ended December 31, 2001, 1999 and 1998, our gain on affiliate sale of stock represents the gain on our investment in GTC as a result of GTC's various issuances of additional shares of its common stock.

(6)

Gains (losses) on investments in equity securities includes the following gains and losses resulting from the sale of equity investments and impairment charges because we assessed declines in market value to be other than temporary:

•

2002—charges of $9.2 million to write down our investment in GTC, $3.4 million to write down our investment in Cambridge Antibody Technology Group plc, $2.0 million to write down our investment in Dyax Corporation and $0.8 million to write down our investment in Targeted Genetics Corporation;

•

2001—charges of $8.5 million to write off our investment in Pharming Group, $11.8 million to write down our investment in Cambridge Antibody Technology Group and $4.5 million to write down our investment in Targeted Genetics;

•

2000—gains of $16.4 million upon the sale of a portion of our investment in GTC and $7.6 million relating to our investment in Celtrix Pharmaceuticals, Inc. when it was acquired in a stock-for-stock transaction and a charge of $7.3 million for the write down of our investment in Focal, Inc. common stock;

•

1999—gains of $2.0 million resulting from the sales of shares of Techne Corporation common stock that we received when we sold our research products business to Techne, offset by a charge of $5.7 million to write down our investment in Pharming Group; and

•

1998—gain of $3.4 million resulting from the sale of shares of Techne common stock offset by a charge of $3.4 million to write down our investment in Celtrix.

(7)

Gain (loss) on sale of product line includes:

•

2001—a loss of $25.0 million related to the sale of our Snowden-Pencer line of surgical instruments;

•

1999—a gain of $7.5 million, representing 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 a gain of $0.5 million resulting from the sale of our immunochemistry business assets to an operating unit of Sybron Laboratory Products Corp; and

•

1998—a gain of $31.2 million related to the sale of our research products business assets to Techne.

(8)

Other includes:

•

2000—$5.1 million payment received in connection with the settlement of a lawsuit; and

•

1999—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.

GCS-6

(9)

On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our consolidated statements of operations and the combined statement of operations of Genzyme General to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General.

(10)

To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Genzyme General Stock is defined in our charter as the net income or loss of Genzyme General determined in accordance with accounting principles generally accepted in the U.S. and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies. Earnings attributable to Biosurgery Stock and Molecular Oncology Stock are defined similarly and, therefore, are based on the net income or loss of the corresponding division.

(11)

Reflects the two-for-one split of Genzyme General Stock on June 1, 2001.

(12)

We created Genzyme Biosurgery on December 18, 2000. Prior to this date, the operations allocated to Genzyme Biosurgery were included in the operations allocated to our former Genzyme Surgical Products and Genzyme Tissue Repair divisions and as of that date, the operations of Genzyme Surgical Products and Genzyme Tissue Repair ceased. Net loss per share of Biosurgery Stock for 2000 is calculated using the net loss allocated to Biosurgery Stock for the period December 19, 2000 through December 31, 2000 and the weighted average shares of Biosurgery Stock outstanding during the same period. Loss per share data are not presented for Genzyme Biosurgery for the years ended December 31, 1998 and 1999 or for the period from January 1, 2000 to December 18, 2000, as there were no shares of Biosurgery Stock outstanding during those periods.

(13)

We created Genzyme Surgical Products on June 28, 1999. Prior to this date, the operations of Genzyme Surgical Products were included in the operations allocated to Genzyme General and, therefore, in the net income allocated to Genzyme General Stock. Loss per share data are not presented for Genzyme Surgical Products for the years ended December 31, 1998 or for the period from January 1, 1999 to June 28, 1999, as there were no shares of Surgical Products Stock outstanding during those periods.

(14)

At December 31, 2002, $284.0 million in principal drawn under our revolving credit facility and $10.0 million in principal of our 6.9% convertible subordinated note due May 2003 are included in the determination of working capital.

(15)

Long-term debt, capital lease obligations and convertible debt, including current portion, consists primarily of:

•

December 31, 2002—$575.0 million in principal of our 3% convertible subordinated debentures due May 2021, $284.0 million in principal drawn under our revolving credit facility due December 2003, a $25.0 million capital lease obligation and $10.0 million in principal of our 6.9% convertible subordinated note due May 2003;

•

December 31, 2001—$575.0 million in principal of our 3% convertible subordinated debentures, $234.0 million in principal drawn under our revolving credit facility, a $25.0 million capital lease obligation and $10.0 million in principal of our 6.9% convertible subordinated note;

•

December 31, 2000—$250.0 million in principal of our 5¹/4% convertible subordinated notes (which have since been redeemed), $368.0 million of debt drawn under our revolving credit facility, a $25.0 million capital lease obligation and $10.0 million in principal of our 6.9% convertible subordinated note;

•

December 31, 1999—$250.0 million in principal of 5¹/4% convertible subordinated notes and $18.0 million in principal drawn under our revolving credit facility; and

•

December 31, 1998—$250.0 million in principal of 5¹/4% convertible subordinated notes and $12.6 million in principal of our 5% convertible subordinated note due February 2000.

GCS-7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME CORPORATION
AND SUBSIDIARIES' FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described under "Factors Affecting Future Operating Results" below as well as in Exhibit 99.2 to this annual report. These risks and uncertainties could cause actual results to differ materially from those forecast in forward-looking statements or implied by past results and trends. Forward-looking statements are statements that attempt to project or anticipate future developments in our business; we encourage you to review the examples of forward looking statements under "Note Regarding Forward Looking Statements." 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 in light of future developments.

INTRODUCTION

        We are a biotechnology company that develops innovative products and services for significant unmet medical needs. We have three operating divisions:

•

Genzyme General, which develops and markets:



•

therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and other specialty therapeutics;



•

renal products, with a focus on products that treat patients suffering from renal diseases, including chronic renal failure;



•

diagnostic products, with a focus on in vitro diagnostics; and



•

other products and services, such as genetic testing services and pharmaceutical drug materials;




•

Genzyme Biosurgery, which develops and markets biotherapeutic and biomaterial products, with an emphasis on orthopaedics, heart disease and broader surgical applications, and



•

Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. We present financial information and accounting policies specific to the corporation and our operating divisions in the accompanying consolidated financial statements. Note A., "Summary of Significant Accounting Policies," to our accompanying consolidated financial statements contains a summary of our accounting policies.

        We have three series of common stock—Genzyme General Division common stock, which we refer to as "Genzyme General Stock," Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock" and Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock." We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specific subset of our business operations and its allocated assets, rather than operations and assets of our entire company. The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not

GCS-8

exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        The provisions in our charter governing dividends and distributions factor the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock. In addition, our income tax allocation policy provides that 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 allocate the tax benefit to other divisions in proportion to their taxable income without any compensating payments or allocation to the division generating the benefit. Genzyme Biosurgery and Genzyme Molecular Oncology have not yet generated taxable income, and thus have not had the ability to use any projected annual tax benefits. Genzyme General has generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology. Consistent with our policy, we have allocated the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology to Genzyme General without making any compensating payments or allocations to the division that generated the benefit.

        The losses of Genzyme Biosurgery and Genzyme Molecular Oncology may decline in the future. If these losses do decline, and we expect the losses of Genzyme Biosurgery to do so, the tax benefits allocated 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. Any change in the earnings allocated to a tracking stock also impacts the amount available to pay dividends for that tracking stock. Currently, Genzyme General is our only profitable division.

        Deferred tax assets and liabilities can arise from purchase accounting and 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 these deferred tax assets and liabilities do not result in a tax expense or benefit to that division. However, the change in these deferred tax assets and liabilities impacts our consolidated tax provision. Such change 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 deferred tax assets and liabilities, the income attributable to each series of tracking stock could be materially different. As a result of any such changes, the amount available to pay dividends for each of our tracking stocks could also be materially different.

        Within these parameters, and other general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. To date, we have never paid or declared a cash dividend on shares of any of our series of common stock, nor do we anticipate doing so in the foreseeable future. Unless declared, no dividends accrue on our tracking stocks.

        Our charter also requires that distributions be made to holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to that stock's corresponding division are sold to a third party. This mandatory distribution can be in the form of a dividend, a redemption of the division's related tracking stock or an exchange of that tracking stock for Genzyme General Stock, as chosen by our board of directors in its discretion. The distribution, if by dividend or redemption, must equal in value the net after-tax proceeds received from the sale. If our board of directors chooses

GCS-9

to make the distribution by issuing Genzyme General Stock in exchange for the selling division's related tracking stock, then the exchange must be effected at a 10% premium to the corresponding tracking stock's average market price calculated over a ten day period beginning on the first business day following the announcement of the sale.

        Shares of Biosurgery Stock and Molecular Oncology Stock are subject to certain exchange and redemption provisions as set forth in our charter. One of the exchange provisions allows our board of directors to exchange, at any time, shares of Biosurgery Stock and/or Molecular Oncology Stock for cash, shares of Genzyme General Stock, or a combination of both, valued at a 30% premium to the fair market value (as defined in our charter) of the series of stock being exchanged. We encourage you to read our charter for a more complete discussion of the mandatory and optional exchange and redemption provisions of our common stock.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with accounting principles generally accepted in the U.S. and as adjusted for tax benefits allocated to or from that division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create new series of tracking stock, combine existing tracking stock or change our earnings allocation methodology. Because the earnings allocated to each series of stock are based on the income or losses attributable to each corresponding division, we provide financial statements and management's discussion and analysis for the corporation as well as for each of our divisions to aid investors in evaluating our performance and the performance of each of our divisions.

        While each tracking stock is designed to reflect a division's performance, each is common stock of Genzyme Corporation and not of a division. Our divisions are not separate companies or legal entities and therefore do not and cannot issue stock. Holders of tracking stock have no specific rights to assets allocated to the corresponding division. We continue to hold title to all of the assets allocated to the corresponding division and are responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to any division. Holders of each tracking stock, as common stockholders are, therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of each tracking stock would only have the rights of common stockholders in the combined assets of Genzyme.

ACQUISITIONS

        The following acquisitions have been accounted for as purchases. The results of operations of each acquisition are included in our consolidated financial statements from the date of acquisition.

        On September 26, 2001, we acquired all of the outstanding capital stock of Novazyme for 2.6 million shares of Genzyme General Stock valued at $110.6 million, options, stock purchase rights, warrants and other costs valued at $9.9 million and contingent 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 by specified dates. We allocated the acquisition to Genzyme General.

        The staff of the U.S. Federal Trade Commission, which is known as the FTC, is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust

GCS-10

laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there are ongoing costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

        On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal, Inc. common stock in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as merger consideration. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We allocated the acquired assets and liabilities to Genzyme Biosurgery.

        On June 1, 2001, we acquired all of the outstanding capital stock of Wyntek for an aggregate purchase price of $65.4 million. We allocated the acquisition to Genzyme General.

        On January 9, 2001, we acquired the outstanding Class A limited partnership interests in Genzyme Development Partners, L.P., which we refer to as GDP, a limited partnership engaged in developing, producing and commercializing Sepra™ products, for an aggregate of $25.7 million plus royalties on sales of certain Sepra products for ten years. We allocated the acquisition to Genzyme Biosurgery.

        On December 18, 2000, we acquired Biomatrix for 17.5 million shares of Biosurgery Stock valued at $206.5 million, $252.4 million of cash and options and other costs valued at $23.5 million. At the time of the merger, we created Genzyme Biosurgery as a new division. We reallocated the businesses of two of our then-existing divisions—Genzyme Surgical Products and Genzyme Tissue Repair—to Genzyme Biosurgery and allocated the acquired assets and liabilities of Biomatrix to Genzyme Biosurgery. As a result of this transaction, we amended our charter to create Biosurgery Stock and eliminate Genzyme Surgical Products Division common stock, which we refer to as "Surgical Products Stock" and Genzyme Tissue Repair Division common stock, which we refer to as "Tissue Repair Stock."

        On December 14, 2000, we acquired GelTex for $515.2 million of cash, 15.8 million in shares of Genzyme General Stock valued at $491.2 million and options, warrants and other costs valued at $69.7 million. We allocated the acquisition to Genzyme General. As part of the acquisition of GelTex, we acquired all of GelTex's ownership interest in RenaGel LLC, our joint venture with GelTex. Prior to the acquisition of GelTex, we accounted for our investment in RenaGel LLC under the equity method of accounting.

DISPOSITION

        In November 2001, we sold our Snowden-Pencer line of surgical instruments for $15.9 million in net cash. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery in connection with this sale.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

        The preparation of consolidated financial statements under accounting principles generally accepted in the U.S. requires us to make certain estimates and judgments that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in our financial statements. Our actual results could differ from these estimates under different assumptions and conditions.

GCS-11

        We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:

•

Policies Relating to Tracking Stocks;



•

Revenue Recognition;



•

Income Taxes;



•

Inventories;



•

Long-Lived Assets;



•

Asset Impairments;



•

Strategic Equity Investments; and



•

Other Reserve Estimates.

Policies Relating to Tracking Stocks

Earnings Per Share

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with accounting principles generally accepted in the U.S., and as adjusted for tax benefits allocated to or from that division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. However, subject to its fiduciary duties, our board of directors can, at its discretion, change the methods of allocating earnings to each series of common stock. We intend to allocate earnings using our current methods for the foreseeable future.

        If our board of directors decides to change the current method of allocating our earnings, or if we issue a new series or redeem an existing series of common stock, the earnings attributable to each series of our common stock could be materially different. Such a change could have an adverse impact on the earnings attributable to one or more series of our common stock, and the impact could be significant.

Allocation of Revenue, Expenses, Assets and Liabilities

        Our charter sets forth which operations and assets were initially allocated to each division and states that going forward the division will also include all business, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between our divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to that division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories,

GCS-12

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. Our 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, the financial condition of a division and the income allocated to one or more series of our stock.

Income Tax Allocation Policy

        If at the end of any fiscal quarter, a division cannot use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we may allocate the tax benefit to other divisions in proportion to their taxable income without any compensating payments or allocation to the division generating the benefit. Genzyme Biosurgery and Genzyme Molecular Oncology have not yet generated taxable income, and thus have not had the ability to use any projected annual tax benefits. Genzyme General has generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology. Consistent with our policy, we have allocated the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology to Genzyme General without making any compensating payments or allocations to the division that generated the benefit. We allocated $18.5 million in 2002, $24.6 million in 2001 and $28.0 million in 2000 in tax benefits generated by Genzyme Biosurgery to Genzyme General and we allocated $9.3 million in 2002, $11.9 million in 2001 and $7.5 million in 2000 in tax benefits generated by Genzyme Molecular Oncology to Genzyme General.

        The losses of Genzyme Biosurgery and Genzyme Molecular Oncology may decline in the future. If these losses do decline, and we expect the losses of Genzyme Biosurgery to do so, the tax benefits allocated 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. For example, our board could change the tax allocation policy to require that tax benefits remain in the division that generated the benefit, instead of being allocated to divisions based on their taxable income. Currently, Genzyme General is our only profitable division and would, therefore, be most significantly impacted by any change in our tax allocation policy.

        Deferred tax assets and liabilities can arise from purchase accounting and 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 these deferred tax assets and liabilities do not result in a tax expense or benefit to that division. However, if the change in these deferred tax assets and liabilities impacts our consolidated tax provision, such change 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

GCS-13

allocating changes in these deferred tax assets and liabilities, the income attributable to each series of tracking stock could be materially different.

Determination of Available Dividend Amounts

        The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        Within these parameters, and other general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. To date, we have never paid or declared a cash dividend on shares of any of our series of common stock, nor do we anticipate doing so in the foreseeable future. Unless declared, no dividends accrue on our tracking stocks.

        Determining the dividend limit for each series of our stock can involve significant judgments, including assessing the amount that would be legally available for dividends under Massachusetts law. If we concluded that a division would be unable to pay dividends under Massachusetts law as a separate corporation, we would be unable to allocate losses to the corresponding series of our stock. This could materially impact the allocation of income and losses among our three series of tracking stock.

Revenue Recognition

        We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, title and risk of loss have passed to the customer and collection from the customer is reasonably assured. We recognize revenue from service sales, such as Carticel® chondrocyte services and genetic testing services, when we have finished providing the service. We recognize revenue from contracts to perform research and development services and selling and marketing services over the term of the applicable contract and as we complete our obligations under that contract. We recognize non-refundable, up-front license fees over the related performance period or at the time we have no remaining performance obligations.

        We receive royalties related to the manufacture, sale or use of our products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following quarter. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize revenue upon receipt of royalty statements from the licensee.

        The timing of product shipments and receipts can have a significant impact on the amount of revenue that we recognize in a particular period. Also, most of our products, including Cerezyme enzyme, Renagel phosphate binder and Synvisc viscosupplementation product, are sold at least in part through distributors. Inventory in the distribution channel consists of inventory held by distributors, who are our customers, and inventory held by retailers, such as pharmacies and hospitals. Our revenue in a particular period can be impacted by increases or decreases in distributor inventories. If distributor inventories increased to excessive levels, we could experience reduced purchases in subsequent periods,

GCS-14

or product returns from the distribution channel due to overstocking, low end-user demand or product expiration.

        We use a variety of data sources to determine the amount of inventory in our United States distribution channel. For Cerezyme enzyme and Synvisc viscosupplementation product, we receive data on sales and inventory levels directly from our primary distributors. For Renagel phosphate binder, our data sources include prescription and wholesaler data purchased from external data providers and, in some cases, sales and inventory data received directly from distributors. As part of our efforts to limit inventory held by distributors and to gain improved visibility into the distribution channel, we executed revised agreements with our primary Renagel phosphate binder distributors during 2002. These agreements provide incentives for the distributors to limit the amount of inventory that they carry, and to provide us with specific inventory and sales data.

        We record reserves for rebates payable under Medicaid and payor contracts, such as managed care organizations, as a reduction of revenue at the time product sales are recorded. Our Medicaid and payor rebate reserves have two components:

•

an estimate of outstanding claims for end-user sales that have occurred, but for which related claim submissions have not been received; and



•

an estimate of future claims that will be made when inventory in the distribution channel is sold to end-users.

Because the second component is calculated based on the amount of inventory in the distribution channel, our assessment of distribution channel inventory levels impacts our estimated reserve requirements. Our calculation also requires other estimates, including estimates of sales mix, to determine which sales will be subject to rebates and the amount of such rebates. We update our estimates and assumptions each period, and record any necessary adjustment to our reserves. As of December 31, 2002, our reserve for Medicaid and payor rebates was approximately $13.1 million.

        We record allowances for product returns as a reduction of revenue at the time product sales are recorded. The product returns reserve is estimated based on our experience of returns for each of our products, or for similar products. If the history of product returns changes, the reserve is adjusted appropriately. Our estimate of distribution channel inventory is also used to assess the reasonableness of our product returns reserve.

        We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

        In 2002, we adjusted our revenue accounting to comply with the provisions of EITF Issue No. 01-09, "Accounting for Consideration given by a Vendor to a Customer (including a Reseller of a Vendor's Products)." EITF Issue No. 01-09 specifies that cash consideration (including a sales incentive) given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor's products or services and, therefore, should be characterized as a reduction of revenue. That presumption is overcome and the consideration should be characterized as a cost incurred if, and to the extent that, both of the following conditions are met:

•

the vendor receives, or will receive, an identifiable benefit (goods or services) in exchange for the consideration



•

the vendor can reasonably estimate the fair value of the benefit received.

        In 2002, we separated fees paid to our distributors into amounts that were specifically identifiable for payment of services. The fair market value of these services of approximately $8 million was recorded as operating expense.

GCS-15

Income Taxes

        We use the asset and liability method of accounting for deferred income taxes. Our calculation of the tax provision includes significant estimates, including estimates of foreign source income, research and development credits, orphan drug credits and other permanent items. Changes in estimates are reflected in our tax provision in the period of change. On a quarterly basis throughout the fiscal year we make our best estimate of the full year impact of these items on our tax rate. We adjust these estimates as required, including, if necessary, a tax return to provision adjustment.

        We file a consolidated tax return and allocate income taxes to each division based upon the financial statement income, taxable income, credits and other amounts properly allocable to each division under accounting principles generally accepted in the U.S., as if it were a separate taxpayer. In preparing financial statements for our operating divisions we assess the realizability of our deferred tax assets at the division level. Our ability to realize the benefit of net deferred tax assets is dependent on our generating sufficient taxable income before loss carryforwards expire. We believe that we will realize all of our net deferred tax assets.

        We are currently under IRS audit for tax years 1996-1999. We have provided sufficient liabilities for all exposures related to this audit. Favorable settlements may result in a reduction in future tax provisions.

Inventories

        We value inventories at cost or, if lower, fair value. We determine cost using the first-in, first-out method. We analyze our inventory levels quarterly and write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected requirements. Expired inventory 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.

        We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If a product is not approved for sale, it would likely result in the write-off of the inventory and a charge to earnings. At December 31, 2002, our total inventories included $7.5 million of inventory for products that have not yet been approved for sale. In addition, at December 31, 2002, a joint venture in which we have a 50% ownership interest has $17.3 million of inventory for a product that has not yet been approved for sale, of which $8.6 million represents our portion of the unapproved inventory of the joint venture.

Long-Lived Assets

        In the ordinary course of our business, we incur substantial costs to purchase and construct property, plant and equipment. The treatment of costs to purchase or construct these assets depends on the nature of the costs and the stage of construction. Costs incurred in the initial design and evaluation phase, such as the cost of performing feasibility studies and evaluating alternatives, are charged to expense. Qualifying costs incurred in the committed project planning and design phase, and in the construction and installation phase, are capitalized as part of the cost of the asset. We stop capitalizing costs when an asset is substantially complete and ready for its intended use. Determining the appropriate period during which to capitalize costs, and assessing whether particular costs qualify for capitalization, requires us to make significant judgments. These judgments can have a material impact on our reported results. As of December 31, 2002, capitalized validation costs, net of accumulated depreciation, were $15.3 million.

        For products we expect to be commercialized, we capitalize the cost of validating new equipment for the underlying manufacturing process. We begin capitalization when we consider the product to have demonstrated technological feasibility, and end capitalization when the asset is substantially

GCS-16

complete and ready for its intended use. Costs capitalized include incremental labor and direct material, and incremental fixed overhead and interest. Determining whether to capitalize validation costs requires judgment, and can have a significant impact on our reported results. Also, if we were unable to successfully validate the manufacturing process for any future product, we would have to write-off, to current operating expense, any validation costs that had been capitalized during the unsuccessful validation process. To date, all of our manufacturing process validation efforts have been successful.

        We generally depreciate plant and equipment using the straight-line method over the assets estimated economic life, which ranges from 3 years to 15 years. Determining the economic lives of plant and equipment requires us to make significant judgments that can materially impact our operating results. For certain specialized manufacturing plant and equipment, we use the units-of-production depreciation method. The units-of-production method requires us to make significant judgments and estimates, including estimates of the number of units that will be produced using the assets. There can be no assurance that our estimates are accurate. If our estimates require adjustment, it could have a material impact on our reported results.

        In accounting for acquisitions, we allocate the purchase price to the fair value of the acquired tangible and intangible assets, including acquired IPR&D. This requires us to make several significant judgments and estimates. For example, we generally estimate the value of acquired intangible assets and IPR&D using a discounted cash flow model, which requires us to make assumptions and estimates about, among other things:

•

the time and investment that will be required to develop products and technologies;



•

our ability to develop and commercialize products before our competitors develop and commercialize products for the same indications;



•

the amount of revenues that will be derived from the products; and



•

appropriate discount rates to use in the analysis.

Use of different estimates and judgments could yield materially different results in our analysis, and could result in materially different asset values and IPR&D charges.

        As of December 31, 2002, there was approximately $592.1 million of goodwill on our consolidated balance sheet. Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangibles," we ceased amortizing goodwill. As of December 31, 2002, there were approximately $734.5 million of net other intangible assets on our consolidated balance sheet. We amortize acquired intangible assets using the straight-line method over their estimated economic lives, which range from 1.5 years to 40 years. Determining the economic lives of acquired intangible assets requires us to make significant judgment and estimates, and can materially impact our operating results.

Asset Impairments

        We periodically evaluate our long-lived assets for potential impairment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." We perform these evaluations whenever events or changes in circumstances 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 the industry in which it is sold; and

GCS-17

•

a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If we believe an indicator of potential impairment exists, we test to determine whether the impairment recognition criteria in SFAS No. 144 have been met. In evaluating long-lived assets for potential impairment, we make several significant estimates and judgments, including:

•

determining the appropriate grouping of assets at the lowest level for which cash flows are available;



•

estimating future cash flows associated with the asset or group of assets; and



•

determining an appropriate discount rate to use in the analysis.

Use of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

        During 2001, we began constructing a recombinant protein manufacturing facility adjacent to our existing facilities in Framingham, Massachusetts, which we allocated to Genzyme General. During the quarter ended December 31, 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. Throughout 2002, we considered various alternative plans for use of the Framingham manufacturing facility, including contract manufacturing arrangements, and whether the $16.8 million of capitalized engineering and design costs for this facility would be applicable to the future development at this site. In December 2002, due to a change in our plans for future manufacturing capacity requirements, we determined that we would not proceed with construction of the Framingham facility for the foreseeable future. As a result, we recorded a charge in the fourth quarter of 2002, to write off $14.0 million of capitalized engineering and design costs that were specific to the Framingham facility. We allocated this charge to Genzyme General. The remaining $2.8 million of capitalized engineering and design costs were used in the construction of the Belgium manufacturing facility and, accordingly, have been re-allocated as a capitalized cost of that facility.

        During 2002, we conducted impairment tests for approximately $283 million of Genzyme Biosurgery's net other intangible assets. These tests did not result in an impairment charge.

        Effective January 1, 2002, we adopted SFAS No. 142, 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 unless these lives are determined to be indefinite. 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 goodwill. Instead, SFAS No. 142 requires 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. Effective January 1, 2002, we reclassified $4.3 million of acquired workforce intangible assets, previously classified as other intangible assets, net of related deferred tax liabilities, to goodwill as required by SFAS No. 142.

        In November 2001, we sold our Snowden-Pencer line of surgical instruments and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that the goodwill allocated to Genzyme Biosurgery's

GCS-18

cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, upon adoption of SFAS No. 142, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our consolidated statements of operations and the combined statements of operations for Genzyme Biosurgery.

        We completed the transitional and annual impairment tests for the $592.1 million of net goodwill related to our other reporting units in the year ended December 31, 2002, as provided by SFAS No. 142, and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of our acquisitions, various analyses, assumptions, significant judgments and estimates were made at the time of each 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.

Strategic Equity Investments

        We invest in marketable securities as part of our strategy to align ourselves with technologies and companies that fit with Genzyme's future strategic direction. Most often we will collaborate on scientific programs and research with the issuer of the marketable securities. On a quarterly basis we review the fair market value of these marketable securities in comparison to historical cost.

        If the fair market value of a marketable security is less than our carrying value, we consider all available evidence in assessing when and if the value of the investment can be expected to recover to at least its historical cost. This evidence would include:

•

continued positive progress in the issuer's scientific programs;



•

ongoing activity in our collaborations with the issuer;



•

a lack of any other substantial company-specific adverse events causing declines in value; and



•

overall financial condition and liquidity of the issuer of the securities.

        If our review indicates that the decline in value is "other than temporary," we write-down our investment to the then current market value and record an impairment charge in our statements of operations. The determination of whether an unrealized loss is "other than temporary" requires significant judgment and can have a material impact on our reported results.

        In December 2002, we recorded and allocated to Genzyme General the following impairment charges because we considered the decline in value of these investments to be other than temporary:

•

$9.2 million in connection with our investment in the common stock of GTC;



•

$3.4 million in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group;



•

$2.0 million in connection with our investment in the common stock of Dyax; and



•

$0.8 million in connection with our investment in the common stock of Targeted Genetics.

        Given the significance and duration of the declines as of the end of 2002, 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

GCS-19

best indicator of the value of each of these investments. As of December 31, 2002, accumulated other comprehensive income, a component of stockholders' equity, includes $10.0 million of unrealized pre-tax losses on our investments in equity securities.

Other Reserve Estimates

        Determining accruals and reserves requires significant judgments and estimates on the part of management. In addition to the judgments and estimates described above, we made other reserve estimates that had an impact on our financial results:

•

in December 2002, in accordance with a separation agreement for one of our employees, we provided $4.2 million primarily associated with the estimated cost of continuation of medical coverage for the employee's family; and



•

in August 2001, we made the determination to terminate the transgenic portion of our Pompe program and also became responsible for funding all of the operations of Pharming/Genzyme LLC, which in turn was legally obligated to supply transgenically-derived alpha-glucosidase until the patients currently enrolled in the clinical trial of the product can be transitioned to a CHO-cell product. We accrued $16.8 million as estimated costs to fund our contractual obligation to provide patients with the transgenic product until the patients could be transitioned to a CHO-cell product. In December 2002, we determined that we have sufficient quantities on hand to fulfill our legal obligation to supply the remaining three patients in the clinical trial for human transgenic alpha-glucosidase with the transgenic product until they can be transitioned to a CHO-cell product. As a result, we revised our estimated cost of this legal obligation and reversed $5.5 million of amounts in excess of requirements to selling, general and administrative expense in December 2002.

RESULTS OF OPERATIONS

        The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.

REVENUES

		2002		2001		2000		02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Product revenue		$	1,199,617	$	1,110,254	$	811,897	8	%	37	%
Service revenue			114,493		98,370		84,482	16	%	16	%
	Total product and service revenue		1,314,110		1,208,624		896,379	9	%	35	%
Research and development revenue			15,362		15,006		6,941	2	%	116	%
	Total revenues	$	1,329,472	$	1,223,630	$	903,320	9	%	35	%

Product Revenue

        We derive product revenue from sales by:

•

Genzyme General of:



•

therapeutic products, including Cerezyme and Fabrazyme enzymes, Thyrogen® hormone and WelChol® bile acid binder;



•

Renagel phosphate binder;



•

diagnostic products; and



•

other products.

GCS-20

•

Genzyme Biosurgery of:



•

orthopaedic products, including Synvisc viscosupplementation product;



•

biosurgical specialties products, including Seprafilm™ bioresorbable membrane; and



•

cardiothoracic products, including fluid management (chest drainage) systems.

        The following table sets forth our product revenue on a segment basis:

				2002		2001		2000		02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
				(Amounts in thousands, except percentage data)
Genzyme General:
	Therapeutics:
		Cerezyme enzyme		$	619,184	$	569,887	$	536,868	9	%	6	%
		Other therapeutic products			82,248		31,138		15,586	164	%	100	%
			Total Therapeutics		701,432		601,025		552,454	17	%	9	%
	Renal				156,864		176,921		47,891	(11	)%	269	%
	Diagnostic Products				83,065		76,858		61,469	8	%	25	%
	Other				43,228		43,927		28,213	(2	)%	56	%
			Total product revenue—Genzyme General		984,589		898,731		690,027	10	%	30	%
Genzyme Biosurgery:
	Orthopaedics				89,920		83,373		4,159	8	%	1,905	%
	Biosurgical Specialties				53,376		59,032		41,305	(10	)%	43	%
	Cardiothoracic				71,732		69,118		76,406	4	%	(10	)%
			Total product revenue—Genzyme Biosurgery		215,028		211,523		121,870	2	%	74	%
Total product revenues				$	1,199,617	$	1,110,254	$	811,897	8	%	37	%

2002 As Compared to 2001

Genzyme General—Therapeutics

        The increase in Therapeutics product revenue for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was primarily due to continued growth in sales of Cerezyme enzyme for the treatment of Type 1 Gaucher disease and increased sales of other therapeutic products. Other therapeutic products revenue consists primarily of:

•

sales of Thyrogen hormone, which is an adjunctive diagnostic agent in the follow-up of patients with well-differentiated thyroid cancer;



•

sales of Fabrazyme enzyme, which is a recombinant form of the human enzyme alpha-galactosidase used for the treatment of Fabry disease; and



•

bulk sales of and royalties earned on sales of WelChol bile acid binder, which is an adjunctive therapy for the reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia.

        Sales of Cerezyme enzyme were 52% of our total product revenue for the year ended December 31, 2002 as compared to 51% of our total product revenue for the year ended December 31, 2001. The growth in sales of Cerezyme enzyme for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was attributable to our continued identification of new Gaucher

GCS-21

disease patients worldwide, particularly in Europe, resulting from a significant investment in our global sales and marketing infrastructure. The growth in European sales of Cerezyme enzyme for the period was positively impacted by the weakened U.S. Dollar against the Euro. During the year ended December 31, 2002, as compared to the same period a year ago the U.S. Dollar weakened against the Euro on average by approximately 5%, which positively impacted sales of Cerezyme enzyme by $10.6 million.

        Our results of operations are highly dependent on sales of Cerezyme enzyme and a reduction in revenue from sales of this product would adversely affect our 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. Although orphan drug status for Cerezyme enzyme, which provided us with exclusive marketing rights for Cerezyme enzyme in the U.S., 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 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.

        We are aware of companies that have initiated efforts to develop competitive products, and other companies may do so in the future. Oxford GlycoSciences plc (OGS), for example, is developing Zavesca®, a small molecule drug candidate for the treatment of Type 1 Gaucher disease. Zavesca has been granted orphan drug status in the U.S. for treatment of Type 1 Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Type 1 Gaucher disease. In July 2002, the FDA issued a "non approvable" letter to OGS in response to its new drug application (NDA) for Zavesca; in November 2002, however, the agency agreed to examine additional data in support of that NDA. Also in November 2002, the European Commission approved OGS's Marketing Authorisation Application (MAA) for Zavesca as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement therapy is unsuitable. OGS will be required to submit follow-up safety data on the product as a condition of such approval. In January 2003, a licensee of OGS submitted an application for approval of Zavesca with the Israeli Ministry of Health. To date, virtually all Gaucher disease patients who have received enzyme therapy have experienced strong clinical benefit with few side effects, so we do not expect the competition from Zavesca to have a significant impact on our sales of Cerezyme enzyme in Europe.

        Other therapeutic products revenue consists primarily of sales of Thyrogen hormone, Fabrazyme enzyme and bulk sales of and royalties earned on sales of WelChol bile acid binder. The increase in other therapeutic products revenue for the year ended December 31, 2002 as compared to the year ended December 31, 2001 is attributable to:

•

a 51% increase in sales of Thyrogen hormone to $28.3 million primarily due to increased market penetration, particularly in Europe, where sales increased 147% to $8.8 million. 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 (CPMP) of the European Agency for Evaluation of Medicinal Products (EMEA), which was necessary for commercial introduction of the product;



•

a greater than 100% increase in sales of Fabrazyme enzyme in Europe to $26.1 million partially due to the introduction to several new markets in Europe and our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme. The increase also reflects the fact that 2002 was the first full year of sales of Fabrazyme enzyme, which was launched in Europe in August 2001; and



•

an increase in kilograms shipped of WelChol bile acid binder and an increase in royalties earned on sales of WelChol bile acid binder during 2002. These increases were the result of sales to our

GCS-22

U.S. marketing partner, Sankyo Pharma, Inc., which has experienced continued market growth of the product in the U.S. during 2002. In October 2002, Merck/Schering-Plough Pharmaceuticals received marketing approval in Germany and FDA approval in the U.S. for its competitive product, ezetimibe, for use alone and with marketed statins for the treatment of elevated cholesterol levels as a second-line therapy. The introduction of this product in the U.S. may adversely affect the future growth of bulk sales of and royalties earned on sales of our WelChol bile acid binder.

Genzyme General—Renal

        During 2002, we created the Renal reporting segment consisting primarily of amounts attributable to the manufacture and sale of Renagel phosphate binder. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of our Therapeutics reporting segment. We have reclassified our 2001 and 2000 disclosures to conform to our 2002 presentation. We expect sales of Renagel phosphate binder to increase, driven primarily by the continued adoption of the product by nephrologists worldwide. The increase in sales of Renagel phosphate binder will be dependent on several factors, including:

•

acceptance by the medical community of Renagel phosphate binder as the preferred treatment for elevated serum phosphorus levels in end-stage renal disease patients on hemodialysis;



•

our ability to effectively manage wholesaler inventories and the levels of compliance with the inventory management programs we implemented with our wholesalers in 2002;



•

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



•

the availability of reimbursement from third party payors and the extent of coverage;



•

our ability to manufacture sufficient quantities of product to meet demand and to do so at a reasonable price;



•

the results of additional clinical trials for additional indications and expanded labeling;



•

the availability of competing treatments;



•

the efficiencies of our sales force; and



•

the content and timing of our submissions to and decisions by regulatory authorities.

        Sales of Renagel phosphate binder were approximately 13% of our total product revenue for the year ended December 31, 2002 as compared to approximately 16% of our total product revenue for the year ended December 31, 2001. Sales of Renagel phosphate binder for the year ended December 31, 2002 declined by 11% compared to the year ended December 31, 2001 primarily due to a reduction in domestic wholesaler inventory levels of approximately $30.0 million, based on management's estimates of end-user demand.

Genzyme General—Diagnostic Products

        Diagnostic Products product revenue increased 8% to $83.1 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001. The increase was primarily attributable to:

•

a 2% increase in the combined sales of infectious disease testing products, HDL and LDL cholesterol testing products and royalties on product sales by Techne Corporation's biotechnology group to $60.7 million; and

GCS-23

•

a 31% increase in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $22.3 million, primarily due to a full year of sales of additional tests we obtained through our acquisition of Wyntek in June 2001.

Genzyme General—Other Product Revenue

        Other product revenue decreased 2% to $43.2 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001. The slight decrease was primarily attributable to a 7% decrease in sales of hyaluronan-based products to $12.8 million while the combined sales of liquid crystals and amino acid derivatives, both of which are pharmaceutical materials, remained flat at $30.1 million.

Genzyme Biosurgery—Orthopaedics

        Orthopaedics product revenue increased 8% to $89.9 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001 due to an increase in the sales of Synvisc viscosupplementation product. Synvisc viscosupplementation product sales increased primarily due to increased utilization of the product within the existing customer base as well as new accounts. We believe that a potentially significant competitor is currently seeking FDA approval for a viscosupplementation product for possible U.S. launch during the second half of 2003 that could have an adverse effect on future sales of Synvisc viscosupplementation product.

Genzyme Biosurgery—Biosurgical Specialties

        Biosurgical Specialties product revenue decreased 10% to $53.4 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001. The decrease is due to a 95% decrease in sales of surgical instruments to $0.9 million resulting from the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001, partially offset by a 36% increase in sales of Sepra products to $39.1 million primarily due to increased market penetration.

Genzyme Biosurgery—Cardiothoracic

        Cardiothoracic products include fluid management (chest drainage) systems, surgical closures, biomaterials, and instruments for conventional and minimally invasive cardiac surgery. Cardiothoracic product revenue increased 4% to $71.7 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily due to a 15% increase in the combined sales of FocalSeal-L surgical sealant and instruments for minimally-invasive and off-pump cardiac surgery to $17.0 million and a 10% increase in the revenues from sales of fluid management systems to $32.4 million due to a change in the buying pattern of distributors. These increases were partially offset by a 7% decrease in revenue from sales of surgical closures to $17.6 million resulting from our withdrawal of certain commodity suture lines in Europe during the first half of 2001.

2001 As Compared to 2000

Genzyme General—Therapeutics

        The increase in Therapeutics product revenue for the year ended December 31, 2001 as compared to December 31, 2000 was primarily due to continued growth in sales of Cerezyme enzyme for the treatment of Type 1 Gaucher disease.

        The steady growth in sales of Cerezyme enzyme for the year ended December 31, 2001 as compared to December 31, 2000 was primarily attributable to our continued identification of new Gaucher disease patients worldwide, coupled with significant investment in our global infrastructure that has continued to increase international sales of this product. Additionally, we continue to market

GCS-24

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. The growth in European sales of Cerezyme enzyme for the year ended December 31, 2001 was negatively impacted by the strengthening of the U.S. Dollar against the Euro. During the year ended December 31, 2001 as compared to the year ended December 31, 2000 the U.S. Dollar strengthened against the Euro on average by approximately 3%, which negatively impacted sales of Cerezyme enzyme by $5.4 million.

        Sales of Cerezyme enzyme were 51% of our total product revenue for the year ended December 31, 2001 as compared to 66% for the year ended December 31, 2000.

        Revenue for Thyrogen hormone increased 36% to $18.7 million for the year ended December 31, 2001 as compared to the year ended December 31, 2000 due primarily to increased market penetration. Additionally, Thyrogen hormone was launched in Europe in the fourth quarter of 2001 as a result of a positive opinion rendered in September 2001 by the CPMP of the EMEA. Other therapeutics revenue also increased due to increased sales of Fabrazyme enzyme in Europe.

Genzyme General—Renal

        We began recording revenues from Renagel phosphate binder during the second quarter of 2000 under an amended distribution arrangement with GelTex, which we acquired in December 2000. Prior to this amendment, revenues from Renagel phosphate binder were recorded by RenaGel LLC, our joint venture with GelTex.

        Sales of Renagel phosphate binder were approximately 16% of our total product revenue for the year ended December 31, 2001 as compared to approximately 6% of total product revenue for the year ended December 31, 2000. Sales of Renagel phosphate binder for the year ended December 31, 2001 as compared to December 31, 2000 include sales of capsules and the 800 mg tablet formulation. We launched the tablet formulation in the U.S. 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 phosphate binder tablets or 403 mg Renagel phosphate binder capsules while we built an inventory of 800 mg tablets to support our re-launch of this dosage form in June 2001.

Genzyme General—Diagnostic Products

        Diagnostic Products revenue for the year ended December 31, 2001 as compared to the year ended 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 the year ended December 31, 2000 was the addition of sales of point of care rapid diagnostic tests for pregnancy and infectious diseases that we obtained through our June 2001 acquisition of Wyntek. Diagnostic Products revenue also included royalties on product sales by Techne Corporation's biotechnology group.

Genzyme Biosurgery—Orthopaedics

        Orthopaedics product revenue increased in 2001 as compared to 2000 primarily due to the sales of Synvisc viscosupplementation product, which we added to the Orthopaedics product category in December 2000 through our acquisition of Biomatrix.

Genzyme Biosurgery—Biosurgical Specialties

        The increase in Biosurgical Specialties product revenue in 2001 as compared to 2000 was due primarily to increases in sales of Seprafilm bioresorbable membrane and Sepramesh biosurgical

GCS-25

composite. An increase in sales of products sold to original equipment manufacturers and sales generated from Hylaform® biomaterial product and other skin care products, which were added to the Biosurgical Specialties product category in December 2000, also contributed to the overall increase in Biosurgical Specialties product revenue. The increase in sales was partially offset by a decrease in sales of instruments for plastic surgery, due to the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001.

Genzyme Biosurgery—Cardiothoracic

        The decrease in Cardiothoracic product revenue in 2001 as compared to 2000 was due to decreased sales of chest drainage systems resulting from competitive pricing pressures in that market as well as the withdrawal from certain commodity suture lines in Europe during the first half of 2001. The decrease was offset, in part, by the continued growth in sales of minimally invasive cardiac surgery products and the sales revenue from the FocalSeal-L surgical sealant. We added FocalSeal-L surgical sealant to the Cardiothoracic product category in the third quarter of 2000 pursuant to a distribution and marketing agreement with Focal which, prior to our acquisition of Focal in June 2001, provided us with exclusive distribution rights for this product in North America.

Service Revenue

        We derive service revenue from four principal sources:

•

genetic testing services performed by Genzyme General, which is included in its Other reporting segment;



•

Genzyme Biosurgery's Carticel chondrocytes for the treatment of cartilage damage, which is included in its Orthopaedics reporting segment;



•

Genzyme Biosurgery's Epicel skin grafts for the treatment of severe burns, which is included in its Biosurgical Specialties reporting segment; and



•

Genzyme Molecular Oncology's provision of services of the SAGE™ genomics technology.

			2002		2001		2000		02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
			(Amounts in thousands, except percentage data)
Genzyme General—Other			$	89,423	$	74,056	$	61,161	21	%	21	%
Genzyme Biosurgery:
	Orthopaedics			20,253		18,417		18,229	10	%	1	%
	Biosurgical Specialties			4,517		5,197		5,092	(13	)%	2	%
		Total service revenue—Genzyme Biosurgery		24,770		23,614		23,321	5	%	1	%
Genzyme Molecular Oncology				300		700		—	(57	)%	N/A
		Total service revenues	$	114,493	$	98,370	$	84,482	16	%	16	%

2002 As Compared to 2001

        The 21% increase in Genzyme General's other service revenue to $89.4 million for the year ended December 31, 2002, as compared to the same period a year ago, is due to increased sales of genetic testing services. This increase was primarily attributable to expanded presence in the prenatal screening market.

        Genzyme Biosurgery's Orthopaedics service revenue increased 10% to $20.3 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily due to a

GCS-26

change in the classification of reimbursed expenses from partners from a reduction in operating expenses to service revenue. Excluding the $1.5 million of additional service revenue resulting from the change in classification of reimbursed expenses, Orthopaedics service revenue did not change significantly during 2002 as compared to 2001. Increased sales of Carticel chondrocyte services in the U.S. for 2002 were offset by decreased European sales of the service because we have not been actively seeking new partners or marketing Carticel chondrocytes in Europe since the second quarter of 2001.

        The 13% decrease in Genzyme Biosurgery's Biosurgical Specialties service revenue to $4.5 million in 2002 as compared to $5.2 million in 2001 is attributable to decreased sales of Epicel skin grafts, which are used to treat victims of severe burns. Sales of Epicel skin grafts are variable based upon a number of unpredictable factors, including the number of severe burn patients and their survival rate prior to treatment with Epicel skin grafts.

        Genzyme Molecular Oncology's service revenue for the years ended December 31, 2002 and 2001 consists of revenues from the provision of services related to the SAGE genomics technology. Genzyme Molecular Oncology provides these services sporadically as customers request them. The focus of its SAGE business remains directed to granting licenses to the technology.

2001 As Compared to 2000

        The increase in Genzyme General's service revenue for the year ended December 31, 2001 as compared to the year ended December 31, 2000 was due to increased sales of genetic testing services attributable to our expanded presence in the prenatal market and a broader test menu in oncology.

International Product and Service Revenue

        A substantial portion of our revenue was generated outside of the U.S., as described in the following table. Most of this revenue is attributable to sales of Cerezyme enzyme, Renagel phosphate binder and Fabrazyme enzyme. The following table provides information regarding the change in international product and service revenue during the periods presented:

	2002			2001			2000			02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
International product and service revenue	$	523,981		$	445,211		$	352,564		18	%	26	%
% of total product and service revenue		40	%		37	%		39	%

2002 As Compared to 2001

        International sales of Cerezyme enzyme increased 11% to $328.7 million for the year ended December 31, 2002 as compared to $297.5 million in the same period a year ago. The increase in international sales of Cerezyme enzyme for the year ended December 31, 2002 as compared to the same period a year ago is primarily due to:

•

a 6% increase in international unit sales of Cerezyme enzyme; and



•

an approximate 5% increase in the average exchange rate of the Euro, which positively impacted sales of Cerezyme enzyme by $10.6 million.

        International sales of Renagel phosphate binder increased 116% to $43.5 million for the year ended December 31, 2002 as compared to $20.1 million for the same period a year ago. The increase in international sales of Renagel phosphate binder for the year ended December 31, 2002 as compared to the same periods a year ago is primarily due to:

•

the ongoing launch of Renagel phosphate binder tablets in Europe in 2002; and

GCS-27

•

the expansion of the Renagel phosphate binder sales force in Europe.

        International sales of Fabrazyme enzyme increased 351% to $26.1 million for the year ended December 31, 2002 as compared to $5.8 million for the same period a year ago. The increase in international sales of Fabrazyme enzyme for the year ended December 31, 2002 as compared to the same period a year ago is primarily due to:

•

the fact that 2002 was the first full year of sales of Fabrazyme enzyme;



•

the introduction of Fabrazyme enzyme into several new markets in Europe in 2002; and



•

our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme.

        International product and service revenue as a percent of total product and service revenue increased in the year ended December 31, 2002 as compared to December 31, 2001 due to the overall increase in international product and service sales, an approximate $13.9 million positive impact on sales resulting from an approximate 5% increase in the average exchange rate of the Euro and a 28% or $43.4 million decrease in net Renagel phosphate binder sales in the U.S.

2001 As Compared to 2000

        International sales of Cerezyme enzyme increased 10% to $297.5 million in the year ended December 31, 2001 as compared to $270.6 million in the year ended December 31, 2000. Despite an approximate 3% decline in the average exchange rate of the Euro for the year ended December 31, 2001 as compared to the year ended December 31, 2000, international sales of Cerezyme enzyme increased for both periods due primarily to the continued identification of new Gaucher disease patients worldwide, coupled with significant investment in our global infrastructure.

        We began recording revenues from Renagel phosphate binder during the second quarter of 2000 under an amended distribution arrangement with GelTex, which we acquired in December 2000. Prior to this amendment, revenues from Renagel phosphate binder were recorded by RenaGel LLC, our joint venture with GelTex. International sales of Renagel phosphate binder increased 66% to $20.1 million in the year ended December 31, 2001 as compared to $6.9 million in the year ended December 31, 2000. The increase is attributable to:

•

the ongoing launch of Renagel phosphate binder tablets in Europe;



•

the introduction of Renagel phosphate binder in Brazil; and



•

the expansion of the Renagel phosphate binder sales forces in Europe.

        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.

Research and Development Revenue

        We derive research and development revenue primarily from:

•

research and development services performed by Genzyme under collaboration agreements allocated to Genzyme General;



•

research and development services Genzyme General performed on behalf of GTC; and



•

license fees and funded research related to Genzyme Molecular Oncology's programs.

GCS-28

        The following table sets forth our research and development revenues on a segment basis:

			2002		2001		2000		02/01 Increase/ (Decrease) Change		01/00 Increase (Decrease) % Change
			(Amounts in thousands, except percentage data)
Genzyme General:
	Therapeutics		$	3,181	$	5,789	$	315	(45	)%	1,737	%
	Other			31		25		67	24	%	(63	)%
	Eliminations/Adjustments			2,961		3,325		913	(11	)%	264	%
		Total research and development revenue—Genzyme General		6,173		9,139		1,295	(32	)%	606	%
Genzyme Biosurgery—Other				285		5		23	5,600	%	(78	)%
Genzyme Molecular Oncology				8,904		5,862		5,623	52	%	4	%
		Total research and development revenue	$	15,362	$	15,006	$	6,941	2	%	116	%

        Research and development revenue allocated to Genzyme General is related primarily to research and development activities performed by its Therapeutics reporting segment under collaboration agreements. Eliminations/Adjustments includes research and development efforts we conducted on behalf of GTC and amounts related to Genzyme General's research and development activities that we do not specifically allocate to a particular segment of Genzyme General.

        Research and development revenue allocated to Genzyme Molecular Oncology is derived from the following sources:

•

technology access fees received from Purdue Pharma, L.P. and Kirin Brewery Company, Ltd., which are recognized over the course of associated research programs;



•

research performed by Genzyme Molecular Oncology on behalf of Purdue and Kirin; and



•

revenue associated with in vitro cancer diagnostic assets.

        The increase in research and development revenue allocated to Genzyme Molecular Oncology for the year ended December 31, 2002 is the result of the completion of a full year of work under the collaboration agreement with Kirin, which commenced in November 2001, and a planned increase in the amount of research performed on behalf of Purdue, offset in part by a reduction in revenues associated with the cancer diagnostic assets.

GCS-29

MARGINS

		2002			2001			2000			02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Product margin:
	Genzyme General	$	770,930		$	704,556		$	527,133		9	%	34	%
	% of total product revenue		64	%		63	%		65	%
	Genzyme Biosurgery	$	119,053		$	98,273		$	52,381		21	%	88	%
	% of total product revenue		10	%		9	%		6	%
	Total product margin	$	889,983		$	802,829		$	579,514		11	%	39	%
	% of total product revenue		74	%		72	%		71	%
Service margin:
	Genzyme General	$	37,264		$	30,889		$	23,282		21	%	33	%
	% of total service revenue		33	%		31	%		28	%
	Genzyme Biosurgery	$	10,473		$	10,881		$	11,023		(4)	%	(1)	%
	% of total service revenue		9	%		11	%		13	%
	Genzyme Molecular Oncology	$	181		$	427			—		(58)	%	N/A
	% of total service revenue		0	%		0	%		—
	Total service margin	$	47,918		$	42,197		$	34,305		14	%	23	%
	% of total service revenue		42	%		43	%		41	%
Total product and service gross margin		$	937,901		$	845,026		$	613,819		11	%	38	%
% of total product and service revenue			71	%		70	%		68	%

2002 As Compared to 2001

Product Margin

Genzyme General

        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.

        The 9% increase in Genzyme General's overall product margin for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was primarily attributable to a 10% increase in product revenue offset in part by a 10% increase in the cost of products sold. The improved product margin was primarily attributable to an increase in sales of higher margin Therapeutics products such as Cerezyme enzyme, Thyrogen hormone and Fabrazyme enzyme. Driven by the increase in sales in Therapeutics products, product margin for the Therapeutics reporting segment increased 15% for the year ended December 31, 2002 as compared to the year ended December 31, 2001.

        Product margin for the Renal reporting segment was flat for the year ended December 31, 2002 as compared to the year ended December 31, 2001. This was primarily due to the fact that the year over year decline in sales of Renagel phosphate binder was offset by a corresponding decline in production costs. The decline in sales of Renagel phosphate binder was impacted by several factors including a reduction in wholesaler inventory levels of approximately $30 million based on our management's estimate of end-user demand. The decline in production costs for Renagel phosphate binder was primarily due to lower raw material costs based on volume purchases. In addition, cost of products sold for Renagel phosphate binder for the year ended December 31, 2001 includes $8.2 million of charges

GCS-30

incurred in the first half of 2001 relating to the increased basis of the inventory obtained in connection with our acquisition of GelTex, for which there are no comparable amounts in the year ended December 31, 2002.

        Product margin for Diagnostic Products decreased 5% for the year ended December 31, 2002 as compared to the year ended December 31, 2001 resulting from the increase in the cost of Diagnostic Products sold for the year ended December 31, 2002 as compared to the year ended December 31, 2001. The increase in cost of Diagnostic Products sold was partially attributable to a charge of $2.8 million recorded in 2002 for the planned closure of a Diagnostic Products manufacturing facility in San Carlos, California.

        We expect that in the future Genzyme General's product margin as a percentage of product revenue will trend slightly lower, primarily due to lower margins normally attributable to Renagel phosphate binder and a product mix shift as sales of Diagnostic Products continue to increase.

Genzyme Biosurgery

        Genzyme Biosurgery sells or provides a broad range of healthcare products and services. As a result, Genzyme Biosurgery's gross margins may vary significantly depending on the market conditions of each product or service.

        The 21% increase in product margin and the increase in product margin as a percentage of product revenue for 2002 as compared to 2001 was primarily attributable to an increase in product revenue of $3.5 million and a decrease in cost of products sold of $17.3 million. Costs of products sold in 2001 includes $11.3 million of costs related to our December 18, 2000 acquisition of Biomatrix, for which there are no comparable amounts in 2002. As part of the Biomatrix acquisition, we adjusted the acquired inventory to fair value, resulting in an increase of $11.3 million. In June 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock not previously acquired. As part of the Focal acquisition, we adjusted the acquired inventory to fair value and amortized the adjustment to cost of products sold as the acquired inventory was sold, of which $2.4 million was amortized in 2002 and $1.4 million was amortized in 2001. Excluding the adjustments described above, product margin increased 9% in 2002 to $121.4 million as compared to 2001 as a result of an increase in sales of Synvisc viscosupplementation product, a higher margin product, and to a general reduction in unit costs for Seprafilm bioresorbable membrane in 2002.

Service Margin

Genzyme General

        Service margin for the year ended December 31, 2002 as compared to the year ended December 31, 2001 continued to increase, primarily as a result of increased sales of our molecular genetics (DNA) and cancer testing services. Service margin as a percentage of service revenue for the year ended December 31, 2002 as compared to for the year ended December 31, 2001, remained flat. This 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 serving the oncology market, offset by a 21% increase in the cost of services sold for the same period.

Genzyme Biosurgery

        Service margin for services allocated to Genzyme Biosurgery decreased 4% for the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily due to a 13% decrease in sales of Epicel skin grafts to $4.5 million and to a 12% increase in cost of services sold to $14.3 million.

GCS-31

2001 As Compared to 2000

Product Margin

        Product margin for the year ended December 31, 2001 as compared to the year ended December 31, 2000 increased primarily as a result of increased sales of Renagel phosphate binder, Cerezyme enzyme, Synvisc viscosupplementation product and point of care rapid diagnostic tests for pregnancy and infectious diseases that we obtained through our acquisition of Wyntek. The increase for the year ended December 31, 2001 was partially offset by charges to cost of products sold of $8.2 million relating to the increased basis of the inventory obtained in connection with our acquisition of GelTex.

        The increase in product margin as a percentage of product revenue for the year ended December 31, 2001 as compared to the year ended December 31, 2000 was attributable to a 37% increase in product revenue, driven primarily by increased sales of Cerezyme enzyme, Renagel phosphate binder and sales of point of care rapid diagnostic tests for pregnancy and infectious diseases that we obtained through our acquisition of Wyntek, partially offset by a 32% increase in the cost of products sold for the same period.

Service Margin

        Service margin for the year ended December 31, 2001 as compared to the year ended 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 molecular genetics (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 the year ended December 31, 2000 was attributable to a 16% increase in service revenue, driven primarily by increased sales of genetic testing services attributable to expanded presence in the prenatal market and a broader test menu serving the oncology market, partially offset by a 12% increase in the cost of services sold for the same period.

OPERATING EXPENSES

2002 As Compared to 2001

Selling, General and Administrative Expenses

        Selling, general and administrative expenses increased 3% to $438.0 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001 despite the inclusion of $43.1 million of additional charges for the year ending December 31, 2001 for which there are no comparable amounts in the year ended December 31, 2002. Selling, general and administrative expenses for the year ended December 31, 2001 includes:

•

charges of $27.0 million resulting from Pharming Group's August 2001 decision to file for and operate under a court supervised receivership;



•

$9.1 million of costs attributable to the sale of our former Snowden-Pencer line of surgical instruments and to efforts within Genzyme Biosurgery to streamline and consolidate selling activities in 2002; and



•

$5.5 million of costs associated with the consolidation of Genzyme Biosurgery's European operations.

        In addition to the $43.1 million of charges discussed above that were recorded in the year ended December 31, 2001, selling, general and administrative expenses also increased by $56.5 million or 15%

GCS-32

for the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily due to:

•

a $41.8 million increase in selling and marketing costs for Renagel phosphate binder;



•

a $19.2 million increase in selling, general and administrative costs for Therapeutics products, of which $11.7 million is attributable to an increase in expenditures related to our increased market penetration for Fabrazyme enzyme in Europe; $4.9 million is attributable to an increase in expenditures to support increased sales of Cerezyme enzyme; and $2.5 million is attributable to a charge recorded in September 2002 to write down accounts receivable for Cerezyme enzyme in Argentina;



•

a $4.9 million increase in selling and marketing costs for Diagnostic Products, of which $2.5 million is attributable to a full year of operations of Wyntek which we acquired in June 2001;



•

a $5.7 million charge attributable to an increase in legal costs related to ongoing regulatory matters and intellectual property disputes; and



•

a $2.6 million charge for severance costs related to Genzyme Biosurgery's cardiothoracic business for which there were no comparable amounts in the year ended December 31, 2001.

        The increases in selling, general and administrative expenses were offset in part by a net decrease of approximately $17.6 million attributable to administrative activities that we do not specifically allocate to a particular segment of Genzyme General. In addition, in December 2002, we determined that we have sufficient quantities on hand to fulfill our legal obligation to supply the remaining three patients in the clinical trial for human transgenic alpha-glucosidase with the transgenic product until they are transitioned to a CHO-cell product. As a result, we revised our estimated cost of this legal obligation and reversed $5.5 million of amounts in excess of requirements to selling, general and administrative expense for our Therapeutics reporting segment in December 2002.

        At December 31, 2002, $2.6 million remained in the reserve for our contractual obligation to provide transgenic product as follows (amounts in thousands):

Initial commitment to fund the operations of the transgenic program	$	16,807
Payments in 2001		(2,683	)
Balance at December 31, 2001		14,124
Payments in 2002		(6,031	)
Revision of estimate		(5,497	)
Balance at December 31, 2002	$	2,596

Research and Development Expenses

        Research and development expenses increased 17% to $308.5 million for the year ended December 31, 2002 as compared to the same period a year ago. The increase was primarily due to an increase of $45.5 million in spending for Therapeutics products, of which:

•

$34.1 million is primarily attributable to an increase in spending related to our Pompe development programs, as described below, and includes the addition of spending related to our acquisition of Novazyme;



•

$10.6 million related to an increase in spending on Therapeutics research initiatives;



•

$1.9 million related to Genzyme General's program to further develop Fabrazyme enzyme for the treatment of Fabry disease; and

GCS-33

•

$1.9 million related to increased spending related to the further development of Cerezyme enzyme.

The increases to Therapeutics products research and development expenses, which also include additional spending on the continued development of the tolevamer toxin binder, oral iron chelator, oral mucositis and anti-obesity programs, were offset by a net decrease of $3.0 million on the combined research and development spending of all other Therapeutics products.

        Also contributing to the 17% increase in research and development expenses for the year ended December 31, 2002 as compared to the same period a year ago were:

•

a $4.6 million increase in the cost of post-marketing clinical development efforts for Renagel phosphate binder;



•

a $1.4 million increase in spending for Diagnostic Products, of which $0.9 million is attributable to our acquisition of Wyntek;



•

a $2.8 million increase in spending on the Genzyme Biosurgery's orthopaedics development programs, particularly other indications for Synvisc viscosupplementation product; and



•

a $2.1 million increase in expenses for the Biosurgical Specialties development programs, particularly Genzyme Biosurgery's work with Hylaform biomaterial product. The terms of the existing contract with Inamed Corporation, Genzyme Biosurgery's distributor of Hylaform biomaterial product were revised in 2002 to allow for increased participation by Inamed in research and development activities and to provide Genzyme Biosurgery with cost reimbursement upon the achievement of product development milestones. The upfront fee and milestone payments under this agreement will be recognized in accordance with our revenue recognition policy for such payments.

        The increases to research and development expenses were offset by a net decrease of $9.4 million attributable to research and development activities that we do not specifically allocate to a particular segment of Genzyme General.

        Included in research and development expenses for the year ended December 31, 2002 are expenses associated with a comparison study of our enzyme programs for treatment of Pompe disease that we concluded during the first quarter of 2002. The enzyme programs included:

•

the transgenic enzyme developed by our joint venture with Pharming Group;



•

Myozyme™ enzyme;



•

the CHO enzyme licensed from Synpac (North Carolina), Inc. in 2000; and



•

an enzyme produced using technology we obtained in the Novazyme acquisition in 2001.

        The analysis of the data from that study indicated that our internally developed CHO-cell product offers the clearest and most efficient pathway to commercialization based on both clinical and manufacturing considerations. As a result of this analysis we:

•

have cancelled our manufacturing contract for the clinical development of the CHO therapy licensed from Synpac while recording a charge of $8.8 million to research and development in the first quarter of 2002 to reflect bulk product purchases and contract cancellation charges;



•

will continue to supply the CHO therapy licensed from Synpac to patients participating in the extensions of clinical trials until they can be transitioned to the internally developed Myozyme enzyme; and



•

will proceed with the pre-clinical development of an enzyme produced using technology we obtained through the acquisition of Novazyme as a potential next-generation therapy for Pompe

GCS-34

disease and utilize Novazyme's engineering technologies to develop improved second-generation versions of our marketed products and optimal products for the treatment of other LSDs.

        Research and development expenses for the year ended December 31, 2002 include a charge of $2.0 million we recorded in the first quarter of 2002 representing the restructuring of Genzyme General's facilities in New Jersey and Oklahoma that were acquired in connection with our acquisition of Novazyme.

2001 As Compared to 2000

Selling, General and Administrative Expenses

        The increase in selling, general and administrative expenses for the year ended December 31, 2001, as compared to the year ended December 31, 2000, is primarily related to:

•

increased staffing to support the growth in several of our product lines;



•

increased expenditures to support the increased sales of Cerezyme enzyme, drive the growth in sales of Renagel phosphate binder and Thyrogen hormone, and support the launch of Fabrazyme enzyme in Europe;



•

expenses associated with the consolidation of Genzyme Biosurgery's European operations;



•

increased patent litigation costs; and



•

the addition of expenses from GelTex, Biomatrix, Wyntek, Focal and Novazyme.

        Selling, general and administrative expenses for the year ended December 31, 2001 included $27.0 million of charges resulting from Pharming Group's 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 joint venture, which in turn was 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 2001 and have assumed full operational and financial responsibility for the development of the CHO-cell product. Pharming/Genzyme LLC, the vehicle for our joint venture with Pharming Group covering a transgenic product for Pompe disease, continues to exist, however, we do not intend to commercialize this product.

Research and Development Expenses

        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 tolevamer toxin binder, DENSPM, iron chelation, oral mucositis, anti-obesity, and GT102-279 programs arising as a result of our acquisition of GelTex;



•

increased spending on our program to develop Fabrazyme enzyme for the treatment of Fabry disease;



•

the addition of spending on the research and development of Synvisc viscosupplementation product as a result of our acquisition of Biomatrix;



•

the addition of spending on FocalSeal-L surgical sealant through our acquisition of Focal;

GCS-35

•

increased spending on our orthopaedic and biosurgical specialties development programs; and



•

increased spending on other internal programs.

        Research and development expenses for the year ended December 31, 2001, reflect a charge of $4.7 million, representing the net amount owed by Pharming Group to the CHO-cell product joint venture we previously formed with Pharming Group that we determined in 2001 was uncollectible.

        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, commonly referred to as the FASB, Interpretation No., or FIN 44 "Accounting for Certain Transactions involving Stock Compensation—an interpretation of Accounting Principles Board, or APB, Opinion No. 25", at the date of acquisition we allocated the intrinsic value for the unvested portion of these options of $10.2 million to deferred compensation, a component of stockholders' equity. This amount was amortized to operating expense over the vesting period of one year from the date of acquisition. We allocated the expense to the appropriate expense categories of our statements of operations based on the functional responsibility of each employee or option holder. For the year ended December 31, 2001, we recorded $9.7 million of compensation expense related to these options, of which $7.9 million was charged to research and development expense and $1.8 million was charged to selling, general and administrative expense. For the year ended December 31, 2000, we recorded $0.5 million of compensation expense related to these options, of which $0.4 million was charged to research and development expense and $0.1 million was charged to selling, general and administrative expense. The deferred compensation was fully amortized by December 31, 2001.

        In connection with our acquisition of Novazyme in September 2001, we converted options, warrants and rights to purchase shares of Novazyme common stock into options, warrants and rights to purchase shares of Genzyme General Stock. In accordance with FIN 44, at the date of acquisition we allocated the $2.6 million intrinsic value of the portion of the unvested options related to the future service period to deferred compensation. We are amortizing this amount to operating expense over the remaining vesting period of 22 months from the date of acquisition. We are allocating the expense to the appropriate expense categories of our consolidated statements of operations based on the functional responsibility of each option holder. For the year ended December 31, 2001, we recorded $0.4 million of compensation expense related to these options, of which $0.2 million was charged to selling, general and administrative expenses and $0.2 million was charged to research and development expense.

Amortization of Intangibles

        Amortization of intangibles expense decreased 42% to $70.3 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily due to our adoption of SFAS No. 142 in January 2002. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. In accordance with the provisions of SFAS No. 142, we ceased amortizing goodwill as of January 1, 2002. The following tables present the impact SFAS No. 142 would have had on our amortization of intangibles expense had the standard been in effect for the years ended December 31, 2001 and 2000 (amounts in thousands):

	Year Ended December 31, 2001							Year Ended December 31, 2000
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	121,124	$	(52,541	)	$	68,583	$	22,974	$	(12,259	)	$	10,715

GCS-36

        The increase in amortization of intangibles for the year ended December 31, 2001, is primarily attributable to intangible assets acquired in connection with our acquisitions of:

•

GelTex and Biomatrix in December 2000;



•

the GDP Class A limited partnership interests in January 2001;



•

Focal and Wyntek in June 2001;



•

the GDP Class B limited partnership interests in August 2001; and



•

Novazyme in September 2001.

Purchase of In-Process Research and Development

Myosix

        In July 2002, we entered into a collaboration with Myosix, a privately-held French biotechnology company, for the development and commercialization of a certain autologous cell culture technology, which we refer to as the Myosix Technology. We acquired 49% of the common stock of Myosix in exchange for 625,977 shares of Biosurgery Stock. The entire initial acquisition cost of $1.9 million, of which $1.6 million represents the fair market value of the shares of Biosurgery Stock exchanged and $0.3 million represents acquisition costs, was allocated to IPR&D and charged to expense in our consolidated statement of operations and the combined statements of operations of Genzyme Biosurgery for the year ended December 31, 2002. We allocated this charge and our ownership interest in Myosix to Genzyme Biosurgery.

        The sublicense that we obtained from Myosix grants us use of the Myosix Technology for the treatment of congestive heart failure. Phase 2 clinical trials commenced in the fourth quarter of 2002, and FDA approval is projected for 2009. As of December 31, 2002, the Myosix Technology has not achieved technological feasibility for any application and will require significant future development before an application can be completed.

        Pursuant to the terms of our various collaboration agreements with Myosix, we have sole responsibility for the cost, management, control and conduct of product development and commercialization, though we have entered into an agreement with Assistance Publique Hospitaux de Paris (Public Welfare Hospital of Paris), which we refer to as AP-HP, that obligates AP-HP to bear a portion of the costs associated with Phase 2 clinical trials. Myosix will act as a sub-contractor to us for these activities. We currently have the right to designate all of the members of Myosix's Board of Directors and, so long as we own at least 34% of Myosix, its Chief Executive Officer. We can acquire the remaining shares of Myosix common stock upon achievement of certain milestones during the development and commercialization of products based on the Myosix Technology. Effective July 29, 2002, because of our ownership interest in and level of control of Myosix, we consolidate the results of Myosix.

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 allocated to IPR&D and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. We recorded this amount as a charge to expense in our consolidated statement of operations

GCS-37

and the combined statements of operations of Genzyme General for the year ended December 31, 2001.

        Our management assumes responsibility for determining the IPR&D valuation. 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.

        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, 2002, we estimate that it will take approximately six to eight years and an investment of approximately $100 million to $125 million to complete the development of, obtain approval for and commercialize the first product based on this technology platform.

Wyntek

        In June 2001, in connection with our acquisition of Wyntek, we allocated approximately $8.8 million of the purchase price to IPR&D. We recorded this amount as a charge to expense in our consolidated statements of operations and the combined statements of operations of Genzyme General for the year ended December 31, 2001. We estimated the fair value assigned to purchased IPR&D by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility. We applied a discount rate of 25% to estimate the present value of these cash flows, which is consistent with the risks of the project. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased IPR&D was the amount attributable to the efforts of Wyntek up to the time of acquisition. In the allocation of purchase price to IPR&D, the concept of alternative future use was specifically considered for the program under development. There are no alternative uses for the in-process program in the event that the program fails in clinical trials or is otherwise not feasible.

        Wyntek currently is developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. These are the leading markers for the diagnosis of acute myocardial infarction. The product consists of a mobile, stand-alone, quantitative diagnostic device and a reaction strip that detects disease specific marker proteins. The intended use of the device is to read reaction strips at the patient's bedside or in an emergency room setting. In September 2002, we filed a 510(k) submission with the FDA for Wyntek's cardiovascular product. We expect to commercialize this product in early 2004.

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 our consolidated statements of operations and the combined statements of operations of Genzyme General for the year ended December 31, 2000. As of December 31, 2002, 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.

GCS-38

        Below is a brief description of the GelTex IPR&D projects, including an estimation of when our management believes Genzyme General may realize revenues from the sales of these products for their respective indications:

Program	Program Description or Indication	Development Status at December 31, 2002	Value at Acquisition Date		Estimated Cost to Complete at December 31, 2002		Year of Expected Product Launch
			(in millions)
Renagel phosphate binder	Next stage non-absorbed polymer phosphate binder for the treatment of hyperphospatemia	•  Clinical studies scheduled for completion in 2004 and 2005	$	19.7	$	10.9	2005
Tolevamer toxin binder	C difficile associated diarrhea	•  Phase 2 trials expected to be completed in 2003		37.4		50.0	2007
GT56-252     Oral Iron     Chelator	Iron overload disease	•  Phase 1 trial ongoing		15.7		35.0	2007
GT316-235     Fat absorption     inhibitor	Anti-obesity	•  Expected to file an IND in 2004		17.8		60.0	2010
Polymer	Oral mucositis	•  Expected to file an IND in 2004		17.8		38.0	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
		Total:	$	118.0	$	193.9

Biomatrix

        In connection with our acquisition of Biomatrix, we allocated approximately $82.1 million to IPR&D, which Genzyme Biosurgery recorded as a charge to expense in its combined statements of operations for the year ended December 31, 2000. As of December 31, 2002, the technological feasibility of the Biomatrix IPR&D projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

GCS-39

        Below is a brief description of the Biomatrix IPR&D projects, including an estimation of when our management believes we may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication	Development Status at December 31, 2002	Value at Acquisition Date		Estimated Cost to Complete at December 31, 2002		Year of Expected Product Launch
			(in millions)
Viscosupplementation	Use of elastoviscous solutions and viscoelastic gels in disease conditions to supplement tissues and body fluids, alleviating pain and restoring normal function.	•  Preclinical for hip indications in U.S. •  Preclinical for knee indications •  Preclinical for other joints •  Product launched for hip indications in Europe in September 2002	$	33.8	$	24.9	2002 to 2008
Visco-augmentation and Visco-separation (Adhesion prevention)	Use of viscoelastic gels to provide scaffolding for tissue regeneration and to separate tissues and decrease formation of adhesions and excessive scars after surgery.	•  Preclinical—gynecological and pelvic indications •  Clinical trials—pivotal safety and efficacy study ongoing in U.S. for Hylaform biomaterials •  Phase 2—spine indications; program cancelled during 2002; no further development planned		48.3 N/A		4.7	2003 to 2006 N/A
		Total:	$	82.1	$	29.6

        Except for our viscosupplementation product for the hip launched in Europe in 2002, substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once 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. We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

Charge for Impaired Assets

        During 2001, we began constructing a recombinant protein manufacturing facility adjacent to our existing facilities in Framingham, Massachusetts, which we allocated to Genzyme General. During the quarter ended December 31, 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. Throughout 2002, we considered various alternative plans for use of the Framingham manufacturing facility, including contract manufacturing arrangements, and whether the $16.8 million of capitalized engineering and design costs for this facility would be applicable to the future development at this site. In December 2002, due to a change in our plans for future manufacturing capacity requirements, we determined that we would not proceed with construction of the Framingham facility for the foreseeable future. As a result, we recorded a charge in the fourth quarter of 2002 to write off $14.0 million of capitalized engineering and design costs that were specific to the Framingham facility.

GCS-40

We allocated this charge to Genzyme General. The remaining $2.8 million of capitalized engineering and design costs were used in the construction of the Belgium manufacturing facility and, accordingly, have been reallocated as a capitalized cost of that facility.

        In 1997, we temporarily suspended bulk production of HA at our bulk HA manufacturing facility in Haverhill, England because we determined that we had sufficient quantities of HA on hand to meet the demand for our Sepra products for the near term. In the first quarter of 2002, we began a capital expansion program to build HA manufacturing capacity at one of our existing manufacturing facilities in Framingham, Massachusetts. During the third quarter of 2002, we determined that we had sufficient inventory levels to meet demand until the Framingham facility is completed and validated, which is estimated to be within one year. In connection with this assessment we concluded that we no longer require the manufacturing capacity at the HA plant in England and we recorded an impairment charge of approximately $9.0 million to write off the assets at the England facility. This charge resulted in an increase of $9.0 million in the long-term portion of the amount due from Genzyme Biosurgery to Genzyme General at December 31, 2002.

        In 2000, we recorded a $4.3 million charge for abandoned equipment at our Springfield Mills manufacturing facility located in England. The write-off of equipment was related to the Sepra product line and did not have other alternative uses. We allocated this charge to Genzyme Biosurgery.

OTHER INCOME AND EXPENSES

		2002			2001			2000			02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliates		$	(16,858	)	$	(35,681	)	$	(44,965	)	(53	)%	(21	)%
Gain on affiliate sale of stock			—			212			22,689		(100	)%	(99	)%
Gain (loss) on investments in equity securities			(14,497	)		(25,996	)		15,873		(44	)%	(264	)%
Minority interest in net loss of subsidiary			—			2,259			4,625		(100	)%	(51	)%
Loss on sale of product line			—			(24,999	)		—		(100	)%	N/A
Other			40			(2,205	)		5,188		(102	)%	(143	)%
Investment income			51,038			50,504			45,593		1	%	11	%
Interest expense			(27,152	)		(37,133	)		(15,710	)	(27	)%	136	%
	Total other income (expense), net	$	(7,429	)	$	(73,039	)	$	33,293		(90	)%	(319	)%

GCS-41

2002 As Compared to 2001

Equity in Net Loss of Unconsolidated Affiliates

        We record the results of the following joint ventures, all of which are allocated to Genzyme General, in equity in net loss of unconsolidated affiliates:

Joint Venture	Partner	Effective Date	Product/Indication
RenaGel LLC(1)	GelTex	June 1997	Renagel phosphate binder for the reduction of serum phosphorus in patients with end-stage renal disease
BioMarin/ Genzyme LLC	BioMarin Pharmaceutical Inc.	September 1998	Aldurazyme enzyme for the treatment of mucopolysaccharidosis-1
Pharming/ Genzyme LLC(2)	Pharming Group, N.V.	October 1998	Human alpha-glucosidase for the treatment of Pompe disease (transgenic product)
Genzyme/ Pharming Alliance LLC(2)	Pharming Group, N.V.	June 2000	Human alpha-glucosidase for the treatment of Pompe disease (produced using CHO cells)
Diacrin/ Genzyme LLC(3)	Diacrin, Inc.	October 1996	Products using porcine fetal cells for the treatment of Parkinson's and Huntington's diseases

(1)

We acquired GelTex and the remaining 50% interest in RenaGel LLC in December 2000. RenaGel LLC was merged into GelTex effective October 1, 2001.

(2)

In August 2001, Pharming Group and certain of its affiliates filed for court-supervised receivership. We thereafter committed to fund all of the operations of Pharming/Genzyme LLC, which in turn was legally obligated to supply transgenic human alpha-glucosidase to the patients who were enrolled in the clinical trial of the product until they could be transitioned to a CHO-cell derived product. We also acquired the manufacturing facility in Geel, Belgium that was operated by Pharming Group's subsidiary Pharming N.V. as part of our effort to ensure the continued supply of the transgenic product to these patients. Also in August 2001, we terminated our strategic alliance agreement with Pharming Group and certain of its affiliates for the development of a CHO-cell derived product for Pompe disease due to Pharming Group's failure to make funding payments, and thereby assumed full operational and financial responsibility for the development of the CHO-cell derived product and Genzyme/Pharming Alliance LLC, which became our wholly-owned subsidiary. In August 2002, we finalized settlement arrangements with Pharming Group and certain of its affiliates related to the Pompe programs. As part of the settlement arrangements, Pharming Group and certain of its affiliates assigned or exclusively licensed to us their intellectual property related to Pompe disease and transferred their interest in Pharming/Genzyme LLC to us. Pharming/Genzyme LLC is now our wholly-owned subsidiary. Pharming Group and certain of its affiliates came out of receivership later in 2002, but are no longer involved in the Pompe program.

(3)

The joint venture is no longer actively developing these products.

GCS-42

        The following table presents our equity in net loss of unconsolidated affiliates by entity and the total losses of our unconsolidated affiliates for the periods presented:

		Our Portion of the Net Losses from Our Unconsolidated Affiliates						Total Losses of Our Unconsolidated Affiliates
Joint Venture/ Unconsolidated Affiliate
		2002			2001			2002			2001
		(Amounts in millions)						(Amounts in millions)
BioMarin/Genzyme LLC		$	(14.5	)	$	(18.5	)	$	(29.6	)	$	(36.9	)
Diacrin/Genzyme LLC			(0.5	)		(2.3	)		(0.7	)		(3.1	)
GTC			(1.9	)		(4.3	)		(24.3	)		(16.6	)
Pharming/Genzyme LLC			—			(2.9	)		—			(5.8	)
Genzyme/Pharming Alliance LLC			—			(6.5	)		—			(13.0	)
Focal, Inc.			—			(1.3	)		—			(6.0	)
Other			—			0.1			—			0.3
	Totals	$	(16.9	)	$	(35.7	)	$	(54.6	)	$	(81.1	)

        We record in equity in net loss of unconsolidated affiliates our portion of the results of our joint ventures with BioMarin Pharmaceutical Inc., Pharming Group and Diacrin, Inc. and, through May 31, 2002, our portion of the losses of GTC.

        Our equity in net loss of unconsolidated affiliates decreased 53% to $16.9 million for the year ended December 31, 2002, as compared to the year ended December 31, 2001, primarily as the result of the August 2001 termination of our strategic alliance with Pharming for the development of a CHO-cell derived product for the treatment of Pompe disease. As a result of the termination of the strategic alliance, we recorded 100% of the losses of Genzyme/Pharming Alliance LLC from August 23, 2001 through December 31, 2001. In addition, in August 2001, we became responsible for funding all of the operations of Pharming/Genzyme LLC, which in turn was legally obligated to supply transgenically-derived alpha-glucosidase until the patients currently enrolled in the clinical trial of the product can be transitioned to a CHO-cell product. Our share of losses for both of our joint ventures with Pharming was $9.4 million for the year ended December 31, 2001, for which there are no comparable amounts in the year ended December 31, 2002.

        The decrease in equity in net loss of unconsolidated affiliates for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was also attributable to:

•

a $4.0 million decrease in net losses from our joint venture with BioMarin, our partner for the development of Aldurazyme enzyme, as a result of the completion of clinical trials during 2001 and early 2002 and the joint venture devoting substantial efforts to the manufacturing of inventory during 2002. This decrease was offset by $7.2 million of charges recorded by the joint venture during the quarter ended December 31, 2002 to write off certain production runs during the scale up of Aldurazyme enzyme manufacturing, of which our 50% portion of these costs $(3.6 million) are reflected in equity in net loss of unconsolidated affiliates;



•

a $1.8 million decrease in net losses from our joint venture with Diacrin; and



•

a $2.4 million decrease in net losses in our equity position in GTC.

        On April 4, 2002, GTC purchased approximately 2.8 million shares of GTC common stock that were held by us and allocated to Genzyme General for an aggregate consideration of approximately $9.6 million. We received approximately $4.8 million in cash and a promissory note for the remaining amount of approximately $4.8 million, which we have recorded as a note receivable-related party in our consolidated financial statements and the combined financial statements of Genzyme General for the year ended December 31, 2002. The shares of GTC common stock were valued at $3.385 per share in

GCS-43

this transaction, using the simple average of the high and low transaction prices quoted on the Nasdaq National Market on April 1, 2002. We have committed to a 24-month lock-up provision on the remaining 4.9 million shares of GTC common stock held by us and allocated to Genzyme General, which is approximately 18% of the shares of GTC common stock outstanding as of December 31, 2002. We accounted for our investment in GTC under the equity method of accounting until May 31, 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

        Because of the 24-month lock-up provision, the remaining 4.9 million shares of GTC common stock held by us do not qualify as marketable securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As a result, we carry the investment on our consolidated balance sheet and the combined balance sheet of Genzyme General at cost, subject to review for impairment. See "Gain (Loss) on Investments in Equity Securities" below.

        In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated our investment in Focal to Genzyme Biosurgery. Genzyme Biosurgery recorded in equity in net loss of unconsolidated affiliate its portion of the results of Focal. On June 30, 2001, we acquired the remaining 78% of the outstanding shares in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Genzyme Biosurgery's equity in net loss of unconsolidated affiliate decreased in 2002 when compared to 2001 because Genzyme Biosurgery began accounting for Focal as a wholly-owned subsidiary when the remaining outstanding shares were purchased.

Gain (Loss) on Investments in Equity Securities

        We review the carrying value of each of our investments in equity securities on a quarterly basis for impairment. Because we have assessed the decline in the market price of each of our investments in equity securities to be other than temporary, we recorded impairment charges for the years ended December 31, 2002 and 2001.

        In December 2002, we recorded and allocated to Genzyme General the following impairment charges because we considered the decline in value of these investments to be other than temporary:

•

$9.2 million in connection with our investment in the common stock of GTC;



•

$3.4 million in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group;



•

$2.0 million in connection with our investment in the common stock of Dyax; and



•

$0.8 million in connection with our investment in the common stock of Targeted Genetics.

Given the significance and duration of the declines as of the end of 2002, 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 historical cost was not sufficient to overcome the presumption that the current market price was the best indicator of the value of each of these investments. At December 31, 2002, our stockholders' equity includes unrealized losses of approximately $10.0 million, related to the other strategic investments in equity securities allocated to Genzyme General. We believe that these losses are temporary.

        Partially offsetting these impairment charges, we recorded and allocated to Genzyme General net realized gains of $0.9 million on the sale of investments in equity securities for the year ended December 31, 2002.

GCS-44

        In 2001, we recorded the following impairment charges related to investments in equity securities because we considered the decline in value of these investments to be other than temporary:

•

in the quarter ended September 2001, we recorded and allocated to Genzyme General 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.



•

in the quarter ended September 2001, we recorded and allocated to Genzyme General a charge of $8.5 million, representing an at-cost write-off of our investment in Pharming common stock. In August 2001, Pharming Group filed for receivership in order to seek protection from its creditors; and



•

in the quarter ended June 30, 2001, we recorded and allocated to Genzyme General a charge of $1.2 million 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.

Minority Interest in Net Loss of Subsidiary

        As a result of our combined direct (until July 2001) and indirect interest in ATIII LLC, our joint venture with GTC, we had consolidated the results of the joint venture and recorded GTC's portion of the losses of that joint venture as minority interest. ATIII LLC was a joint venture we formed with GTC for the development and commercialization of recombinant human antithrombin III or ATIII. In July 2001, we transferred our 50% ownership interest in ATIII LLC to GTC and stopped recording minority interest.

Investment Income

        Our investment income increased 1% to $51.0 million for the year ended December 31, 2002, as compared to the year ended December 31, 2001, primarily due to higher average cash balances, partially offset by a decrease in interest rates. The higher cash balances resulted primarily from our May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. Net proceeds from the offering were approximately $562.1 million. We allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General. We expect our current level of investment return and investment income to decline in 2003 due primarily to lower interest rates.

Interest Expense

        Interest expense decreased 27% to $27.2 million for the year ended December 31, 2002, as compared to the year ended December 31, 2001, primarily due to:

•

the decrease in the interest rates used to calculate the commitment fees on our unused portion of our revolving credit facility;



•

the June 2001 redemption of our $250.0 million in principal 5¹/4% convertible subordinated notes that were originally due in 2005 for which there is no comparable interest expense in 2002; and



•

the May 2001 repayment of the $150.0 million we had drawn under our revolving credit facility, for which there is no comparable interest expense in 2002.

This decrease was partially offset by the May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021 for which there is a full year of interest expense

GCS-45

in 2002. We expect that our 2003 interest expense associated with our outstanding 3% convertible subordinated debentures, revolving credit facility, and other debt and notes payable will be at amounts comparable to 2002.

2001 As Compared to 2000

Equity in Net Loss of Unconsolidated Affiliates

        The following table presents our equity in net loss of unconsolidated affiliate by entity and the total losses of our unconsolidated affiliates for the periods presented:

		Our Portion of the Net Losses from Our Unconsolidated Affiliates						Total Losses of Our Unconsolidated Affiliates
Joint Venture/ Unconsolidated Affiliate
		2001			2000			2001			2000
		(Amounts in millions)						(Amounts in millions)
BioMarin/Genzyme LLC		$	(18.5	)	$	(12.6	)	$	(36.9	)	$	(25.3	)
Diacrin/Genzyme LLC			(2.3	)		(6.2	)		(3.1	)		(8.2	)
GTC			(4.3	)		(2.1	)		(16.6	)		(13.1	)
RenaGel LLC			—			(15.9	)		—			(10.7	)
Pharming/Genzyme LLC			(2.9	)		(6.6	)		(5.8	)		(13.3	)
Genzyme/Pharming Alliance LLC			(6.5	)		(1.5	)		(13.0	)		(2.9	)
Focal, Inc.			(1.3	)		—			(6.0	)		—
Other			0.1			(0.1	)		0.3			(0.1	)
	Totals	$	(35.7	)	$	(45.0	)	$	(81.1	)	$	(73.6	)

        We record in equity in net loss of unconsolidated affiliates our portion of the results of its joint ventures with BioMarin, Pharming Group and Diacrin, Focal and GTC.

        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 GTC.

The increased losses were offset in part by decreased losses from our joint venture with Diacrin. Also included in the year ended December 31, 2001 are losses from Genzyme/Pharming Alliance LLC, which was our joint venture with Pharming Group for the development of a CHO-cell derived product for the treatment of Pompe disease. We terminated our strategic alliance agreement with Pharming covering

GCS-46

this joint venture in August 2001. As a result, we have recorded 100% of the losses of Genzyme/ Pharming Alliance LLC since August 23, 2001.

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 GTC, an unconsolidated affiliate, of additional shares of GTC 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 GTC was approximately 26% as of December 31, 2001 and 2000.

Gain (Loss) on Investments in Equity Securities

        We recorded and allocated to Genzyme General the following impairment charges on investments in equity securities for the year ended December 31, 2001 because we considered the decline in the value of these investments to be other than temporary:

•

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. Given the significance and duration of the declines as of the end of the year, 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.



•

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.



•

a charge of $1.2 million 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.

        We recorded and allocated to Genzyme General the following gains on investments in equity securities for the year ended December 31, 2000:

•

a gain of $5.5 million upon the sale of a portion of our investment in GTC common stock. The tax effect of this gain was fully offset by the reversal of a $1.9 million valuation allowance related to previously recognized capital losses. In the third and fourth quarters of 2000, we recorded and allocated to Genzyme General gains of $10.9 million and $1.3 million, respectively, upon additional sales of portions of our investment in Genzyme Transgenics common stock.



•

a gain of $7.6 million 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.

Minority Interest in Net Loss of Subsidiary

        In July 2001, we transferred our 50% ownership interest in ATIII LLC to GTC and stopped recording GTC's portion of the losses of that joint venture as minority interest. Minority interest

GCS-47

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 GTC's portion of the losses incurred by ATIII LLC to 50% until July 2001 and 100% thereafter as compared to 26% for the same period a year ago. In 2000, ATIII LLC had losses of $14.8 million, of which GTC portion was $4.6 million.

Loss on Sale of Product Line

        In November 2001, we sold our Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery for $15.9 million in net cash which was allocated to Genzyme Biosurgery. The purchaser acquired all of the assets directly associated with the Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery in connection with this sale in 2001.

        There were no product line sales transacted during the year ended December 31, 2000.

Other

        In December 2000, we recorded a $2.1 million charge in connection with our uncertainty in collecting a note receivable that we issued in May 1999 to a strategic collaborator. We concluded that this uncertainty existed as a result of the FDA's ruling to deny approval of the collaborator's NDA for a key product. The ruling has subsequently resulted in the collaborator announcing that it will be taking steps to reserve cash by reducing its workforce and other operating expenses.

        In April 2000, we received net proceeds of approximately $5.2 million in connection with the settlement of a lawsuit. The lawsuit, initiated in 1993, pertained to insurance coverage for an accidental spill of Ceredase enzyme at a fill facility operated by a contractor to Genzyme.

Investment Income

        The increase in investment income for the year ended December 31, 2001 as compared to the year ended December 31, 2000 was primarily attributable to higher average cash and investment balances. The increase in cash balances was partially attributable to our completion of the private placement of $575.0 million in principal of 3% convertible subordinated debentures in May 2001. Net proceeds from the offering were approximately $562.1 million. We allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General.

Interest Expense

        The increase in interest expense for the year ended December 31, 2001 as compared to the year ended December 31, 2000 is primarily the result of additional interest expense resulting from the $350.0 million of debt drawn on our revolving credit facility in December 2000 as part of the financing of the acquisitions of GelTex and Biomatrix, and the private placement of $575.0 million in principal of 3% convertible subordinated debentures issued in May 2001.

GCS-48

Tax Benefit (Provision)

	2002			2001			2000			02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
(Provision for) benefit from income taxes	$	(19,015	)	$	2,020		$	(55,478	)	(1,041	)%	(1,036	)%
Tax rate		18	%		(2	)%		743	%

        Our provisions for income taxes were at rates other than the U.S. federal statutory tax rate for the following reasons:

	For the Years Ended December 31,
	2002		2001		2000
Tax provision (benefit) at U.S. statutory rate	35.0	%	(35.0	)%	(35.0	)%
Losses in less than 80% owned subsidiaries with no current tax benefit	—		—		(45.5	)
State taxes, net	3.2		0.9		25.6
Foreign sales corporation and extra-territorial income	(8.9	)	(8.7	)	(105.8	)
Nondeductible amortization	—		13.2		53.9
Charge for purchased research and development	0.6		27.5		939.0
Benefit of tax credits	(15.7	)	(4.0	)	(51.9	)
Foreign rate differential	3.8		0.9		(13.5	)
Utilization of operating loss carryforwards	—		(1.8	)	—
Write-off of non-deductible goodwill	—		4.4		—
Other	0.3		0.9		(23.3	)
Effective tax rate	18.3	%	(1.7	)%	743.5	%

        Our effective tax rate for 2002 varied from the U.S. statutory rate primarily due to benefits related to tax credits and the use of a foreign sales corporation. Our effective tax rate for 2001 and 2000 varied from the U.S. statutory rate due to nondeductible goodwill amortization expense. We stopped recording nondeductible goodwill amortization expense upon the adoption of SFAS No. 142 in fiscal year 2002. In addition, our overall tax rate has changed significantly due to fluctuations in our income (loss) before taxes, which was $104.2 million in 2002, $(118.3) million in 2001 and $(7.5) million in 2000.

        We recognized a $4.3 million tax benefit during the fourth quarter of 2002 as a result of additional tax credits identified during the preparation of our 2001 tax return, which we allocated to Genzyme General.

Earnings Allocations

        We allocate our earnings to each of our series of common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with accounting principles generally accepted in the U.S. and as adjusted for tax benefits allocated to or from the division in

GCS-49

accordance with our management and accounting policies. The earnings allocated to each series of common stock are indicated in the table below:

	2002			2001			2000
	(Amounts in thousands)
Earnings allocated to:
Genzyme General Stock	$	178,526		$	44,543		$	121,455
Biosurgery Stock		(167,886	)		(126,981	)		(87,188	)
Molecular Oncology Stock		(23,714	)		(29,718	)		(23,096	)
Surgical Products Stock		—			—			(54,748	)
Tissue Repair Stock		—			—			(19,833	)

        We created Genzyme Biosurgery on December 18, 2000. Prior to this date, the operations allocated to Genzyme Biosurgery were included in the operations allocated to our then-existing divisions Genzyme Surgical Products and Genzyme Tissue Repair and as of that date, the operations of Genzyme Surgical Products and Genzyme Tissue Repair ceased. We created Genzyme Surgical Products on June 28, 1999. Prior to this date, the operations of Genzyme Surgical Products were included in the operations allocated to Genzyme General and, therefore, in the net income allocated to Genzyme General Stock. The tax benefits associated with the losses of Genzyme Surgical Products for the period from June 28, 1999 to December 31, 1999, which amounted to $6.9 million, continued to be allocated to Genzyme General Stock. Our management and accounting policies provide that, if as of the end of any fiscal quarter, a division can not use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we may allocate the tax benefit to other divisions in proportion to their taxable income without any compensating payments or allocation to the division generating the benefit. Tax benefits allocated to Genzyme General, which are included in earnings attributable to Genzyme General Stock, are as follows:

	2002		2001		2000
	(Amounts in thousands)
Tax benefits allocated from:
Genzyme Biosurgery	$	18,508	$	24,593	$	28,023
Genzyme Molecular Oncology		9,287		11,904		7,476
Total	$	27,795	$	36,497	$	35,499

        These tax benefits represent 16%, 82% and 29% of earnings allocated to Genzyme General Stock in 2002, 2001 and 2000, respectively. The amount of tax benefits allocated to Genzyme General will continue to fluctuate based on the results of Genzyme Biosurgery and Genzyme Molecular Oncology. If the losses of those divisions decline, as they are expected to, then the tax benefits allocated to Genzyme General will also decline.

Cumulative Effect of Change in Accounting for Goodwill and Derivative Financial Instruments

        On January 1, 2002, we adopted SFAS No. 142 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 unless these lives are determined to be indefinite. SFAS No. 142 requires a transitional impairment test to compare the fair value of a reporting unit with the carrying amount of the goodwill.

        In November 2001, we sold our Snowden-Pencer line of surgical instruments. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, did not indicate an impairment based on the undiscounted cash

GCS-50

flows of the business. However, the impairment analysis indicated that the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, upon adoption of SFAS No. 142, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our consolidated statements of operations and the combined statements of operations for Genzyme Biosurgery for the year ended December 31, 2002.

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. 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 Genzyme General's combined balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in income, unless the derivative is part of a qualified hedging relationship.

        In accordance with the transition provisions of SFAS No. 133, we recorded and allocated to Genzyme General 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 our warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts allocated to Genzyme General were not significant. For the year ended December 31, 2002, we recorded and allocated to Genzyme General a charge of $2.1 million in other income in its combined statement of operations to reflect the change in value of its warrants to purchase shares of GTC common stock from January 1, 2002 to December 31, 2002 as compared to a charge of $4.1 million in other expense for the year ended December 31, 2001. We also recorded and allocated to Genzyme General a charge of $1.0 million ($1.6 million pre-tax) in other comprehensive income (loss) in stockholders' equity in our consolidated balance sheets to reflect the change in value of its interest rate swaps held during the year ended December 31, 2002. At December 31, 2002, our interest rate swaps allocated to Genzyme General had a fair-market value of $(3.9) million as compared to $(2.7) million at December 31, 2001.

        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;



•

develop and scale-up manufacturing processes and validate facilities; 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.

GCS-51

        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, 2002	Year of Expected Product Launch
Genzyme General:
	Fabrazyme (agalsidase beta)	Fabry disease	Available in 26 countries worldwide; Biologics License Application (BLA) submitted to the FDA in June 2000; post-marketing phase 4 trial ongoing	2003
	Aldurazyme (laronidase)	MPS 1	BLA submitted to the FDA and an MAA submitted to the EMEA in 2002. We incur 50% of the research and development costs of our joint venture with BioMarin	2003
	Myozyme enzyme	Pompe disease	Opened enrollment for a new trial in Q1 2003; anticipate beginning a pivotal trial in Q3 2003	2004
	Tolevamer toxin binder(1)	C difficile associated diarrhea	Phase 2 trials ongoing	2007
	TGF-beta antagonists	Diffuse scleroderma	Phase 1-2 trial ongoing. We incur 55% of the research and development costs incurred under our collaboration with Cambridge Antibody Technology Group	2008
Genzyme Biosurgery:
	HIF-1a	Angiogenic gene therapy to treat coronary artery disease and peripheral artery disease	Phase 1 clinical trials ongoing	2008 through 2010
	Cardiac cell therapy product (for injection)	Tissue regeneration to treat congestive heart failure	Phase 1 clinical trial ongoing in Europe; IND expected to be filed in the U.S. in 2003	2009
	Synvisc (Hylan G-F20)(2)	Next stage viscosupplementation products to treat osteoarthritis of the knee, hip and other joints	• Preclinical for hip indications in U.S. • Preclinical for knee indications • Preclinical for other joints • Product launched in Europe for hip indications in September 2002	2003 through 2008

GCS-52

	Sepra technologies(2)	Next stage products to prevent surgical adhesions for various indications	Preclinical; safety and efficacy study ongoing in the U.S. for Hylaform biomaterials	2003 through 2007
Genzyme Molecular Oncology:
	Dendritic/tumor cell fusion vaccines	Multiple cancer indications	Phase 1-2 clinical trials ongoing	2007 through 2009
	Melan-A/MART-1 and gp-100 antigen-specific cancer vaccines	Melanoma	Phase 1-2 clinical trials completed	2008 through 2010

        The aggregate actual and estimated research and development expense for the Genzyme General, Genzyme Biosurgery and Genzyme Molecular Oncology programs described above is as follows (amounts in millions):

	Genzyme General	Genzyme Biosurgery	Genzyme Molecular Oncology	Total
Costs incurred for the year ended December 31, 2001	$78.3	$19.8	$12.6	$110.7
Costs incurred for the year ended December 31, 2002	$78.4	$27.8	$9.6	$115.8
Cumulative costs incurred as of December 31, 2002	$254.6	$98.1	$37.9	$390.6
Estimated costs to complete as of December 31, 2002	$200.0 to $250.0	$300.0 to $350.0	$125.0 to $175.0	$625.0 to $775.0

(1)

Program acquired in connection with the December 2000 acquisition of GelTex.

(2)

Includes programs acquired in connection with the December 2000 acquisition of Biomatrix.

        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, 2002, we had cash, cash-equivalents, and short- and long-term investments of approximately $1.2 billion, an increase of $73.7 million from December 31, 2001.

        Our operating activities generated $219.7 million of cash for the year ended December 31, 2002, as compared to $221.4 million for the year ended December 31, 2001. Net cash provided by operating

GCS-53

activities in 2002 was impacted by our net loss of $13.1 million and an $81.9 million increase in working capital primarily due to increases in inventory, offset by:

•

$134.0 million of depreciation and amortization, of which $62.5 million resulted from the depreciation of property, plant and equipment and $71.5 million resulted from the amortization of intangible assets, including intangible assets acquired in connection with our acquisitions of GelTex, Biomatrix, Wyntek and Focal;


•

$22.9 million of charges for impaired assets, of which $14.0 million is related to the write-off of engineering costs related to the suspended development of a manufacturing facility in Framingham, Massachusetts and $9.0 million is related to the manufacturing capacity no longer required at our HA plant in England;


•

$16.9 million from the equity in net losses of unconsolidated affiliates;


•

$14.5 million from the loss on investments in equity securities; and


•

$98.3 million for the cumulative effect of a change in accounting for goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of SFAS No. 142.

        Our investing activities utilized $159.2 million of cash in 2002 as compared to $739.6 million in 2001, primarily due to:

•

$225.4 million to fund purchases of property, plant and equipment, of which $123.0 million resulted from expansion of our manufacturing facilities in Ireland, the United Kingdom and Belgium, $25.9 million resulted from our manufacturing capacity expansion in the U.S. and $76.5 million representing an aggregate of other manufacturing, research and development and administrative capital manufacturing relocations, expansions and rehabilitations worldwide;


•

$25.3 million to fund our joint ventures in 2002 as compared to $39.7 million in 2001; and


•

$7.0 million of cash drawn on a senior secured promissory note by a collaborator.

        Net cash used by investing activities in 2002 was offset $92.6 million of cash provided by the net purchases, sales, and maturities of investments and investments in equity securities.

        In July 2002, together with BioMarin, we submitted the final portion of the "rolling" BLA for Aldurazyme enzyme to the FDA. As part of the BLA submission, we formally requested and were granted priority review, which is an FDA procedure generally reserved for products that address an unmet medical need. We expect an action by the FDA regarding our application to market Aldurazyme enzyme by April 30, 2003. Pursuant to the terms of our joint venture agreement with BioMarin for the development and commercialization of Aldurazyme enzyme, we are obligated to pay BioMarin a $12.1 million milestone payment upon receipt of FDA approval of the Aldurazyme enzyme BLA.

        In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88 and increased the line of credit we extended to Dyax from $3.0 million to $7.0 million. In connection with the increase, Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2%, which was 6.3% at December 31, 2002, and are due, together with any accrued but unpaid interest, in May 2005. As of December 31, 2002, Dyax had drawn $7.0 million under the note, which we recorded as a note receivable-related party in our consolidated balance sheet and the combined balance sheet of Genzyme General. Dyax is considered a related party because the chairman and chief executive officer of Dyax is a member of our board of directors. Pursuant to the terms of the note, we are not obligated to make advances in excess of $1.5 million during any calendar quarter.

GCS-54

        Our financing activities provided $76.7 million of net cash in 2002 as compared to $529.7 million in 2001, primarily due to:

•

$31.9 million of proceeds from the issuance of common stock under our stock plans and resulting from the exercise of stock purchase rights and warrants; and



•

$50.0 million drawn under our revolving credit facility.

        Financing activities used $2.4 million to repay bank overdrafts and $7.8 million to repay the current portions of long-term debt and long-term capital leases obligations, of which $5.1 million represents payment of the outstanding principal balance due under the notes payable we assumed in connection with our acquisition of GelTex in December 2000.

        During 2002, we drew down $50.0 million under our $350.0 million revolving credit facility all of which matures in December 2003, and allocated the proceeds to Genzyme Biosurgery. At December 31, 2002, $284.0 million had been drawn down and remained outstanding under our revolving credit facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin, which was, in the aggregate, 2.5% at December 31, 2002. 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. We intend to refinance our revolving credit facility during 2003.

        As of December 31, 2002, we had committed to make the following payments under contractual obligations:

	Payments Due by Period
Contractual Obligations
	Total		2003			2004		2005		2006			2007		After 2007
	(Amounts in millions)
Long-term debt	$	869.0	$	294.0	(1)	$	—	$	—	$	575.0	(2)	$	—	$	—
Capital lease obligations(3)		171.1		6.4			10.7		35.7		8.5			8.5		101.3
Operating leases(4)		214.7		32.7			27.7		20.6		13.6			10.5		109.6
Unconditional purchase obligations		160.6		39.7			17.6		17.9		22.5			28.2		34.7
Capital commitments(5)		41.7		41.7			—		—		—			—		—
Research and development agreements(6)		100.3		54.8			10.0		11.5		11.5			12.5		—
Total contractual obligations	$	1,557.4	$	469.3		$	66.0	$	85.7	$	631.1		$	59.7	$	245.6

(1)

Includes $284.0 million of debt drawn under our revolving credit facility, which matures in December 2003, and $10.0 million in principal under a 6.9% convertible subordinate note in favor of UBS Warburg LLC that matures in May 2003 and is convertible into shares of Biosurgery Stock;

(2)

Consists of $575.0 million in principal under our 3% convertible subordinated debentures due May 2021, which are convertible into shares of Genzyme General Stock. 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;

GCS-55

(3)

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 the second half of 2003 and the value of the building and related obligation will be recorded in our consolidated balance sheet and the combined balance sheet of Genzyme General when we begin to occupy the space. We have included estimated payments for this lease in the capital lease schedule above. The lease term is for 15 years and may be extended for two successive ten-year periods. The lease also provides us with an option, exercisable on or before July 1, 2003, to lease an additional building on mutually acceptable terms.

(4)

In July 2002, we entered into an agreement to lease 61,101 square feet of additional office space in Cambridge, Massachusetts. We allocate the future minimum payments due under this lease 50% to Genzyme General and 50% to Genzyme Biosurgery based upon our current assessment of the long-term occupancy ratio for this location. The term of the lease is seven years with rent payable monthly in advance commencing October 1, 2002. Remaining fixed rent payments during the term of the lease totaling approximately $14.5 million are included in the operating lease schedule above. Pursuant to the terms of the lease, we are obligated to pay, in addition to yearly fixed rent, our pro rata share of the landlord's operating costs and the real estate taxes for the property in excess of the landlord's operating costs and real estate taxes for 2002. In addition, the landlord will charge us for direct use of electricity at cost. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms with rent equal to the greater of the current base rent or 95% of fair market value. The lease also provides three options to lease a total of 45,577 square feet of additional space at the property and first offer options on additional space that becomes available in the building.

In May 2002, we entered into an agreement to lease an 85,808 square foot building and related parking area in Westborough, Massachusetts for our genetic testing business. We allocate 100% of the future minimum payments due under this lease to Genzyme General. The term of the lease is ten years with rent payable in advance commencing August 1, 2002. Remaining fixed rent payments during the term of the lease totaling approximately $10.4 million are included in the operating lease schedule above. Pursuant to the terms of the net lease agreement, we are obligated to pay, in addition to yearly fixed rent, the taxes, betterment assessments, insurance costs, utility charges, base operating costs and certain other expenses related to the property under lease. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms and a one-time option, exercisable during the first five years of the lease, to purchase the land and building under lease.

(5)

Consists of contractual commitments to vendors that we have entered into as of December 31, 2002 for construction of our outstanding capital projects. Our estimated cost of completion for

GCS-56

assets under construction as of December 31, 2002 is $271.5 million, as follows (amounts in thousands):

Location		Cost to Complete At December 31, 2002
Geel, Belgium		$	107.8
Waterford, Ireland			86.3
Cambridge, Massachusetts, U.S.			38.0
Allston, Massachusetts, U.S.			14.8
Others—U.S.			17.0
Others—U.K & Switzerland			7.6
	Total estimated cost to complete	$	271.5

(6)

From time to time, we enter into agreements with third parties to obtain access to scientific expertise or technology that we do not already have. These agreements frequently require that we pay our licensor or collaborator a technology access fee, milestone payments upon the occurrence of certain events, and/or royalties on sales of products that infringe the licensed technology or arise out of the collaborative research. In addition, these agreements may call for us to fund research activities not being performed by us. The amounts indicated on the research and development agreements line of the contractual obligations table above represent committed funding obligations to our key collaborators under our significant development programs. Should we terminate any of our license or collaboration agreements, the funding commitments contained within them would expire. In addition, the actual amounts that we pay our licensors and collaborators will depend on numerous factors outside of our control, including the success of our preclinical and clinical development efforts with respect to the products being developed under these agreements, the content and timing of decisions made by the Patent & Trademark Office, the FDA and other regulatory authorities, the existence and scope of third party intellectual property, the reimbursement and competitive landscape around these products, and other factors described under the heading "Factors Affecting Future Operating Results" below.

        We believe that our available cash, investments and cash flows from operations will be sufficient to fund our planned operations and capital requirements for the foreseeable future. Although we currently have substantial cash resources and positive operating cash flow, we intend to use substantial portions of our available cash for:

•

product development and marketing;



•

expanding existing and constructing new facilities;



•

expanding staff;



•

working capital including satisfaction of our obligations under capital and operating leases; and



•

strategic business initiatives.

        Our cash reserves will be further reduced to pay interest on the $575.0 million in principal under our 3% convertible subordinated debentures due May 2021, which may be converted into shares of Genzyme General Stock and to pay the $10.0 million outstanding principal balance and accrued interest for our 6.9% convertible subordinated note due May 2003, which may be converted into shares of Biosurgery Stock. If we use cash to pay or redeem any of this debt, including principal and interest due on it, our cash reserves will be diminished.

GCS-57

        To satisfy these and other commitments, we may have to obtain additional financing. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on terms that we consider favorable.

Related Party Relationships

Company	Affiliation with Genzyme		Officer & Director Relationships		Officer & Director Ownership in and Compensation from Related Entity
					Stock Shares	Stock Options	2002 Compensation
ABIOMED, Inc.	Cost method investment		Henri A. Termeer, Genzyme Chairman, President and Chief Executive Officer, is a director of ABIOMED		—	65,000	$	19,996
BioMarin Pharmaceutical, Inc.	•	Cost method investment	None		—	—		—
	•	Joint venture partner with Biomarin/Genzyme LLC
Cambridge Antibody Technology Group plc	• •	Cost method investment Collaboration partner	None		—	—		—
Dyax Corporation	• •	Cost method investment Collaboration partner	•	Henri A. Termeer, Genzyme Chairman, President and Chief Executive Officer, is a former strategic advisory committee member	—	2,649		—
			•	Henry Blair, Genzyme director and co-founder, is the Chairman, President and Chief Executive Officer of Dyax	671,121	322,300	$	559,782
			•	Constantine Anagnostopoulos, Genzyme director, is also a director of Dyax	13,565	41,060	$	19,875
			•	Charles Cooney, Genzyme director, is a former strategic advisory committee member	—	18,255		—
			•	Peter Wirth, Genzyme officer, is a former strategic advisory committee member	7,335	2,445		—

GCS-58

GTC	Cost method investment		•	Henri A. Termeer, Genzyme Chairman, President and Chief Executive Officer, is a former director of GTC	9,500	50,500		—
			•	Henry Blair, Genzyme director and co-founder, is a former director of GTC	1,000	35,500	$	10,500
			•	Charles Cooney, Genzyme director, is a member of the strategic advisory board for GTC	—	1,000	$	15,000
			•	James Geraghty, Genzyme officer, is a director of GTC	50,791	157,103	$	23,300
			•	Richard Douglas, Genzyme officer, owns 180 shares of GTC common stock	180	—		—
Healthcare Ventures, L.P.	Cost method investment		None		—	—		—
Oxford Bioscience Partners IV, L.P.	Cost method investment		Peter Wirth, Genzyme officer, is a limited partner in the MRNA Fund II, L.P.		—	—		—
MPM BioVentures III, Q.P., L.P.	Cost method investment		None		—	—		—
Myosix SA	• •	Consolidated investment Collaboration partner	James Geraghty, Genzyme officer, is a director of Myosix		—	—		—
Peptimmune	Wholly-owned, consolidated subsidiary of Genzyme(1)		•	Robert J. Carpenter, Genzyme director, is the Chairman, President and Chief Executive Officer of Peptimmune, Inc.	—	200,000	$	46,333
			•	G. Jan van Heek, Genzyme officer, is a consultant to Peptimmune, Inc.	—	30,000		—
Pharming Group N.V.	Cost method investment		None		—	—		—
ProQuest Investments II, L.P.	Cost method investment		None		—	—		—
Targeted Genetics Corporation	Cost method investment		None		—	—		—
ViaCell, Inc.	Cost method investment		G. Jan van Heek; Genzyme officer, is a director of ViaCell		—	5,000		Elected to receive shares of ViaCell stock in lieu of cash compensation (number of shares to be determined in September 2003)
Wyeth Laboratories, Inc.	Distributor		Zoltan Csimma, Genzyme officer, is a former employee of Wyeth		1,444	106,350		—

(1)

On March 4, 2003, our investment in Peptimmune decreased to approximately 10% resulting from the sale by Peptimmune of additional shares of its preferred stock.

GCS-59

New Accounting Pronouncements

        Accounting for Asset Retirement Obligations.    In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 will be effective for our fiscal year ending December 31, 2003. The adoption of SFAS No. 143 is not expected to have a material impact on our consolidated or combined financial statements.

        Costs Associated with Exit or Disposal Activities.    In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost as defined in EITF Issue No. 94-3 was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. We will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 as required by the standard.

        Guarantees.    In November 2002, the FASB issued FIN 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34." FIN 45 clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing certain guarantees. FIN 45 also requires additional disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for all guarantees outstanding, regardless of when they were issued or modified, beginning with periods ending after December 15, 2002. We have applied the disclosure provisions of FIN 45 as of December 31, 2002, as required (see Note O., "Commitments and Contingencies," to our consolidated financial statements). The adoption of FIN 45 did not have a material effect on our consolidated financial statements for the year ended December 31, 2002.

        Consolidation of Variable Interest Entities.    In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51". FIN 46 clarifies the application of Accounting Research Bulletin, or ARB, No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to existing variable interest entities in the interim period beginning after June 15, 2003.

        Stock-Based Compensation.    On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123." This standard amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for those companies that voluntarily change to the fair value based method of accounting for stock-based employee compensation. In addition, this standard amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. We have not adopted

GCS-60

the fair value method of accounting for stock-based compensation and will continue to apply the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations.

Market Risk

        We are exposed to potential loss from exposure to market risks represented principally by changes in interest rates, foreign exchange rates, and equity prices. At December 31, 2002, we held various derivative contracts in the form of foreign exchange forwards and interest rate swaps. The derivatives contain no leverage or option features. We also held a number of other financial instruments, including investments in marketable securities, and had balances outstanding under several debt securities.

Interest Rate Risk

        We are exposed to potential loss due to changes in interest rates. The principal interest rate exposure is to changes in domestic interest rates. Investments with interest rate risk include short-term deposits with financial institutions, and short-term and long-term investments in debt instruments. Debt with interest rate risk includes fixed rate convertible debt and borrowings under credit facilities. To estimate the potential loss due to changes in interest rates, we performed a sensitivity analysis for a one-day horizon. In order to estimate the potential loss, we used an adverse change in interest rates of 100 basis points across the yield curve at year-end. We used the following assumptions in preparing the sensitivity analysis:

•

convertibles that are "in-the-money" at year end are considered equity securities and are excluded;



•

convertibles that are "out-of-the-money" at year end are treated as fixed rate debt securities and we assumed we will repay the principal amount in full at maturity and we have measured the time value with the embedded equity options; and



•

financial instruments contain no other call or leverage features material to our analysis.

        On this basis, we estimate the potential loss in fair value from changes in interest rates to be $4.6 million, virtually all of which is attributable to Genzyme General. The variance in interest rate risk is attributable to a similar debt portfolio with a slight change in portfolio structure. The estimate of potential loss does not include a separate determination of potential losses due to changes in credit spreads. Our investments are investment grade securities and deposits are with investment grade financial institutions. We believe that the realization of losses due to changes in credit spreads is unlikely. The potential loss estimated above on all market risk sensitive instruments reflects a fair value loss on debt offset by a fair value loss on assets. We expect to hold our debt to maturity or conversion, whichever is sooner. Therefore, the realization of the potential loss on debt obligations is unlikely.

Foreign Exchange Risk

        As a result of our worldwide operations, we may face exposure to adverse movements in foreign currency exchange rates, primarily to the Euro and its component currencies, British pounds and Japanese yen. These exposures are reflected in market risk sensitive instruments, including foreign currency receivables and payables and foreign exchange forward contracts. During 2002, our risk management strategy for foreign exchange exposure periodically included the use of forward contracts. As of December 31, 2002, we estimate the potential loss in fair value of the forward contracts due to a 10% change in exchange rates to be $3.2 million, virtually all of which is attributable to Genzyme General.

GCS-61

Equity Price Risk

        We hold investments in a limited number of domestic and European equity securities, substantially all of which are allocated to Genzyme General. We estimate the potential loss in fair value due to a 10% decrease in equity prices of marketable securities held at year-end to be $2.0 million. This estimate assumes no change in foreign exchange rates from year-end spot rates and excludes any potential risk associated with securities that do not have readily determinable market value.

Factors Affecting Future Operating Results

        The future operating results of Genzyme Corporation and its subsidiaries could differ materially from the results described above due to the following risks and uncertainties, which relate to us generally and affect all of our operating divisions.

A reduction in revenue from sales of products that treat Gaucher disease would have an adverse effect on our business.

        We generate a significant portion of our product revenue from sales of enzyme-replacement products for patients with Gaucher disease. We entered this market in 1991 with Ceredase® enzyme. Because production of Ceredase enzyme was subject to supply constraints, we developed Cerezyme enzyme, a recombinant form of the enzyme. Recombinant technology uses specially engineered cells to produce enzymes, or other substances, by inserting into the cells of one organism the genetic material of a different species. In the case of Cerezyme enzyme, scientists engineer Chinese hamster ovary cells to produce human alpha glucosidase. We stopped producing Ceredase enzyme, except for small quantities, during 1998, after substantially all the patients who previously used Ceredase enzyme converted to Cerezyme enzyme. Sales of Ceredase enzyme and Cerezyme enzyme totaled $619.2 million for the year ended December 31, 2002, representing approximately 47% of our consolidated revenues for that year.

        Because our business is highly dependent on Cerezyme enzyme, a decline in the growth rate of Cerezyme enzyme sales could have an adverse effect on our operations and may cause the value of our securities to decline substantially. We will lose revenues from Cerezyme enzyme if competitors develop alternative treatments for Gaucher disease and these alternative products gain commercial acceptance.

        Some companies have initiated efforts to develop competitive products, and other companies may do so in the future. OGS, for example, is developing Zavesca, a small molecule drug candidate for the treatment of Gaucher disease. Zavesca has been granted orphan drug status in the United States for treatment of Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Gaucher disease. In July 2002, the FDA issued a "non-approvable" letter to OGS in response to its NDA for Zavesca; in November 2002, however, the agency agreed to examine additional data in support of that NDA. Also in November 2002, the European Commission approved OGS's MAA for Zavesca as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement therapy is unsuitable. OGS is required to submit follow-up safety data on the product as a condition of such approval. In January 2003, a licensee of OGS submitted an application for approval of Zavesca with the Israeli Ministry of Health.

        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 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.

GCS-62

        In addition, the patient population with Gaucher disease is limited. Because a significant percentage of that population already uses Cerezyme enzyme, opportunities for future sales growth are limited. Further, changes in the methods for treating patients with Gaucher disease, including treatment protocols that combine Cerezyme enzyme with other therapeutic products or reduce the amount of Cerezyme enzyme prescribed, could result in a decline in Cerezyme enzyme sales.

Our future earnings growth will depend on our ability to increase sales of Renagel phosphate binder.

        We currently market Renagel phosphate binder, a non-absorbed phosphate binder, which has been approved for use by patients with end-stage renal disease undergoing a form of treatment known as hemodialysis. We are currently conducting additional clinical trials in order to determine the efficacy and safety of Renagel phosphate binder when administered to pre-dialysis patients. Our ability to increase sales of Renagel phosphate binder will depend on a number of factors, including:

•

acceptance by the medical community of Renagel phosphate binder over calcium-based phosphorous binders as the preferred treatment for elevated serum phosphorous levels in dialysis patients;



•

our ability to effectively manage wholesaler inventories and maintain inventory management programs;



•

the level of compliance with inventory management arrangements with wholesalers;



•

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



•

our ability to expand manufacturing capacity;



•

our ability to manufacture Renagel phosphate binder in sufficient quantities to meet demand;



•

the results of additional clinical trials for additional indications and expanded labeling;



•

the availability of competing treatments serving the dialysis market;



•

our ability to manufacture Renagel phosphate binder at a reasonable price;



•

the effectiveness of our sales force;



•

the content and timing of our submissions to and decisions by regulatory authorities;



•

the availability of reimbursement from third-party payors, and the extent of coverage; and



•

the accuracy of available information about dialysis patient populations and the accuracy of our expectations about growth in this population.

Government regulation imposes significant costs and restrictions on the development and commercialization of our products and services.

        Our success will depend on our ability to satisfy regulatory requirements. We may not receive required regulatory approvals on a timely basis or at all. Government agencies heavily regulate the production and sale of healthcare products and the provision of healthcare services. In particular, the FDA and comparable agencies in foreign countries must approve human therapeutic and diagnostic products before they are marketed. This approval process can involve lengthy and detailed laboratory and clinical testing, sampling activities and other costly and time-consuming procedures. This regulation may delay the time at which a company like Genzyme can first sell a product or may limit how a consumer may use a product or service or may adversely impact third-party reimbursement. A

GCS-63

company's failure to comply with applicable regulatory approval requirements may lead regulatory authorities to take action against the company, including:

•

issuing warning letters;



•

issuing fines and other civil penalties;



•

suspending regulatory approvals;



•

refusing approval of pending applications or supplements to approved applications;



•

suspending product sales in the United States and/or exports from the United States;



•

recalling products; and



•

seizing products.

Furthermore, therapies that have received regulatory approval for commercial sale may continue to face regulatory difficulties. The FDA and comparable foreign regulatory agencies, for example, may require post-marketing clinical trials or patient outcome studies. In addition, regulatory agencies subject a marketed therapy, its manufacturer and the manufacturer's facilities to continual review and periodic inspections. The discovery of previously unknown problems with a therapy, the therapy's manufacturer or the facility used to produce the therapy could prompt a regulatory authority to impose restrictions on the therapy, manufacturer or facility, including withdrawal of the therapy from the market.

Legislative changes may adversely impact our business.

        The FDA has designated some of our products as orphan drugs under the Orphan Drug Act. The Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases, generally by entitling the first developer that receives FDA marketing approval for an orphan drug to a seven-year exclusive marketing period in the United States for that product. In recent years Congress has considered legislation to change the Orphan Drug Act to shorten the period of automatic market exclusivity and to grant marketing rights to simultaneous developers of the drug. If the Orphan Drug Act is amended in this manner, any drugs for which we have been granted exclusive marketing rights under the Orphan Drug Act will face increased competition, which may decrease the amount of revenue we receive from these products. In addition, the U.S. government has shown significant interest in pursuing healthcare reform. Any government-adopted reform measures could adversely affect:

•

the pricing of therapeutic products and medical devices in the United States or internationally; and



•

the amount of reimbursement available from governmental agencies or other third-party payors.

If the U.S. government significantly reduces the amount we may charge for our products, or the amount of reimbursement available for purchases of our products declines, our future revenues may decline and we may need to revise our research and development programs.

The development of our products involves a lengthy and complex process, and we may be unable to commercialize any of the products we are currently developing.

        Before we can commercialize our development-stage products, we will need to:

•

conduct substantial research and development;



•

undertake preclinical and clinical testing;



•

develop and scale-up manufacturing processes; and



•

pursue regulatory approvals.

GCS-64

This process involves a high degree of risk and takes several years. Our product development efforts may fail for many reasons, including:

•

failure of the product in preclinical studies;



•

clinical trial data that is insufficient to support the safety or effectiveness of the product;



•

our inability to manufacture sufficient quantities of product for development or commercialization activities in a timely and cost-efficient manner; or



•

our failure to obtain the required regulatory approvals.

For these reasons, and others, we may not successfully commercialize any of the products we are currently developing.

Any marketable products that we develop may not be commercially successful.

        Even if we obtain regulatory approval for any of our development-stage products, those products may not be accepted by the market or approved for reimbursement by third-party payors. A number of factors may affect the rate and level of market acceptance of these products, including:

•

regulation by the FDA and other government authorities;



•

market acceptance by doctors and hospital administrators;



•

the effectiveness of our sales force and our distributors;



•

the effectiveness of our production and marketing capabilities;



•

the success of competitive products; and



•

the availability and extent of reimbursement from third-party payors.

If our products fail to achieve market acceptance, our profitability and financial condition will suffer.

We will require significant additional financing, which may not be available or available on terms favorable to us.

        As of December 31, 2002, we had approximately $1.2 billion in cash, cash equivalents and short and long-term investments, excluding investments in equity securities. We intend to use substantial portions of our available cash for:

•

product development and marketing;



•

expanding existing and constructing new facilities;



•

expanding staff;



•

working capital, including satisfaction of our obligations under capital and operating leases; and



•

strategic business initiatives.

We may further reduce available cash reserves to pay principal and interest on the following debt:

•

$575.0 million in principal under our 3% convertible subordinated debentures due May 2021, the entire amount of which is allocated to Genzyme General. These debentures may be converted into shares of Genzyme General Stock. Holders of debentures may require us to repurchase all or part of their debentures for cash on May 15, 2006, 2011 or 2016, at a price equal to 100% of the principal amount of the debentures plus accrued interest through the date prior to the date of purchase;

GCS-65

•

$284.0 million in principal under our revolving credit facility with a syndicate of commercial banks, all of which is allocated to Genzyme Biosurgery and which is due in December 2003; and



•

$10.0 million in principal under our 6.9% convertible subordinated note in favor of UBS Warburg LLC, the entire amount of which is allocated to Genzyme Biosurgery. This note matures in May 2003 and is convertible into shares of Biosurgery Stock.

If we use cash to pay or redeem all or a portion of this debt, including the principal and interest due on it, our cash reserves will be diminished.

        To satisfy these and other commitments, we may have to obtain additional financing. We may be unable to obtain any additional financing, extend any existing financing arrangement, or obtain either on terms that we consider favorable.

We may fail to adequately protect our proprietary technology, which would allow competitors or others to take advantage of our research and development efforts.

        Our long-term success largely depends on our ability to market technologically competitive products. If we fail to obtain or maintain adequate intellectual property protections, we may not be able to prevent third parties from using our proprietary technologies. Our currently pending or future patent applications may not result in issued patents. In the United States, patent applications are confidential until patents issue, and because third parties may have filed patent applications for technology covered by our pending patent applications without us being aware of those applications, our patent applications may not have priority over any patent applications of others. In addition, our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive advantage. If a third party initiates litigation regarding our patents, our collaborators' patents, or those patents for which we have license rights, and is successful, a court could revoke our patents or limit the scope of coverage for those patents.

        The U.S. Patent and Trademark Office, commonly referred to as the USPTO, and the courts have not consistently treated the breadth of claims allowed in biotechnology patents. If the USPTO or the courts begin to allow broader claims, the incidence and cost of patent interference proceedings and the risk of infringement litigation will likely increase. On the other hand, if the USPTO or the courts begin to allow narrower claims, the value of our proprietary rights may be limited. Any changes in, or unexpected interpretations of, the patent laws may adversely affect our ability to enforce our patent position.

        We also rely upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive. We protect this information with reasonable security measures, including the use of confidentiality agreements with our employees, consultants and corporate collaborators. It is possible that these individuals will breach these agreements and that any remedies for a breach will be insufficient to allow us to recover our costs. Furthermore, our trade secrets, know-how and other technology may otherwise become known or be independently discovered by our competitors.

We may be required to license technology from competitors or others in order to develop and commercialize some of our products and services, and it is uncertain whether these licenses will be available.

        Third-party patents may cover some of the products or services that we or our strategic partners are developing or testing. For example, the USPTO has issued several patents generally relating to human recombinant alpha-L-iduronidase, the enzyme on which Aldurazyme enzyme is based. These patents are owned or controlled by one of our competitors. We believe that these patents do not validly cover the manufacture, use or sale of Aldurazyme enzyme. In addition, we are aware of a recently-

GCS-66

issued United States patent owned by Columbia University relating to the manufacture of recombinant proteins in CHO cells. While we are currently licensed under that patent, we are evaluating its validity to determine whether we will be required to maintain that license and pay the associated royalty in order to manufacture certain of our enzyme replacement therapies.

        A United States patent is entitled to a presumption of validity, and we cannot guarantee that, if we were to elect to challenge the validity of such a patent, we would be successful in doing so. In addition, even if we are successful in challenging the validity of a patent, the challenge itself may be expensive and require significant management attention.

        To the extent valid third party patent rights cover our products or services, we or our strategic collaborators would be required to obtain licenses from the holders of these patents in order to use, manufacture or sell these products and services, and payments under these licenses may reduce our revenue from these products. Furthermore, we may not be able to obtain these licenses on acceptable terms or at all. If we fail to obtain a required license or are unable to alter the design of our technology to fall outside of a patent, we may be unable to effectively market some of our products and services, which could limit our profitability.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

        A third party may sue us or one of our strategic collaborators for infringing the third-party's patent rights. Likewise, we or one of our strategic collaborators may need to resort to litigation to enforce patent rights or to determine the scope and validity of third-party proprietary rights. If we do not prevail in this type of litigation, we or our strategic collaborators may be required to:

•

pay monetary damages;



•

stop commercial activities relating to the affected products or services;



•

obtain a license in order to continue manufacturing or marketing the affected products or services; or



•

compete in the market with a substantially similar product.

Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue some of our operations. In addition, a court may require that we pay expenses or damages and litigation could disrupt our commercial activities.

We may be liable for product liability claims not covered by insurance.

        Individuals who use our products or services, including those we acquire in business combinations, may bring product liability claims against us or our subsidiaries. While we have taken, and continue to take, what we believe are appropriate precautions, we may be unable to avoid significant liability exposure. We have only limited amounts of product liability insurance, which may not provide sufficient coverage against any product liability claims. We may be unable to obtain additional insurance in the future, or we may be unable to do so on acceptable terms. Any additional insurance we do obtain may not provide adequate coverage against any asserted claims. In addition, regardless of merit or eventual outcome, product liability claims may result in:

•

diversion of management's time and attention;



•

expenditure of large amounts of cash on legal fees, expenses and payment of damages;



•

decreased demand for our products and services; and



•

injury to our reputation.

GCS-67

Our competitors in the biotechnology and pharmaceutical industries may have superior products, manufacturing capabilities or marketing position.

        The human healthcare products and services industry is extremely competitive. Our competitors include major pharmaceutical companies and other biotechnology companies. Some of these competitors may have more extensive research and development, marketing and production capabilities. Some competitors also may have greater financial resources than we have. Our future success will depend on our ability to effectively develop and market our products against those of our competitors. For instance, we are seeking orphan drug designation for some of our products that are still in development or are currently being reviewed by the FDA for marketing approval, including Fabrazyme enzyme for the treatment of Fabry disease. We are aware of other companies developing products for the treatment of Fabry disease. Transkaryotic Therapies, Inc. also has an application for marketing approval for its product pending before the FDA, which was originally filed shortly before we submitted our application for Fabrazyme enzyme. If Transkaryotic Therapies or any other company receives FDA approval for a Fabry disease therapy with orphan drug designation before we receive FDA approval for Fabrazyme enzyme, the Orphan Drug Act may preclude us from selling Fabrazyme enzyme in the United States for up to seven years. Both Genzyme and Transkaryotic Therapies received EMEA approval for their respective Fabry disease therapies, and were granted the European equivalent of orphan drug designation in the European Union for up to ten years. If our products receive marketing approval, but cannot compete effectively in the marketplace, our profitability and financial position will suffer.

If we are unable to keep up with rapid technological changes, our products or services may become obsolete.

        The field of biotechnology is characterized by significant and rapid technological change. Although we attempt to expand our technological capabilities in order to remain competitive, research and discoveries by others may make our products or services obsolete. For example, some of our competitors may develop a product to treat Gaucher disease that is more effective or less expensive than Cerezyme enzyme. If we cannot compete effectively in the marketplace, our profitability and financial position will suffer.

If we fail to obtain adequate levels of reimbursement for our products from third-party payors, the commercial potential of our products will be significantly limited.

        A substantial portion of our revenue comes from payments by third-party payors, including government health administration authorities and private health insurers. As a result of the trend toward managed healthcare in the United States, as well as legislative proposals to reduce payments under government insurance programs, third-party payors are increasingly attempting to contain healthcare costs by:

•

challenging the prices charged for healthcare products and services;



•

limiting both coverage and the amount of reimbursement for new therapeutic products;



•

shifting payments for products and services through co-pays, coinsurance and other risk sharing arrangements;



•

denying or limiting coverage for products that are approved by the FDA, but are considered experimental or investigational by third-party payors; and



•

refusing in some cases to provide coverage when an approved product is used for disease indications in a way that has not received FDA marketing approval.

GCS-68

        Government and other third-party payors may not provide adequate insurance coverage or reimbursement for our products and services, which could impair our financial results. In addition, third-party payors may not reimburse patients for newly approved healthcare products, which could decrease demand for our products. Furthermore, Congress occasionally has discussed implementing broad-based measures to contain healthcare costs. It is possible that Congress will enact legislation specifically designed to contain healthcare costs. If third-party reimbursement is inadequate to allow us to recover our costs or if Congress passes legislation to contain healthcare costs, our profitability and financial condition will suffer.

Changes in the economic, political, legal and business environments in the foreign countries in which we do business could cause our international sales and operations, which account for a significant percentage of our consolidated net sales, to be limited or disrupted.

        Our international operations accounted for approximately 40% of our consolidated revenues for the year ended December 31, 2002. We expect that international sales will continue to account for a significant percentage of our revenues for the foreseeable future. In addition, we have direct investments in a number of subsidiaries outside of the United States, primarily in the United Kingdom, the European Union, Latin America and Japan. Our international sales and operations could be limited or disrupted, and the value of our direct investments may be diminished, by any of the following:

•

economic problems that disrupt foreign healthcare payment systems;



•

fluctuations in currency exchange rates;



•

the imposition of governmental controls;



•

less favorable intellectual property or other applicable laws;



•

the inability to obtain any necessary foreign regulatory approvals of products in a timely manner;



•

import and export license requirements;



•

political instability;



•

terrorist activities;



•

trade restrictions;



•

changes in tariffs;



•

difficulties in staffing and managing international operations; and



•

longer payment cycles.

        A significant portion of our business is conducted in currencies other than our reporting currency, the U.S. dollar. We recognize foreign currency gains or losses arising from our operations in the period in which we incur those gains or losses. As a result, currency fluctuations among the U.S. dollar and the currencies in which we do business have caused foreign currency transaction gains and losses in the past and will likely do so in the future. Because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates, we may suffer significant foreign currency transaction losses in the future due to the effect of exchange rate fluctuations on our future operating results.

GCS-69

Several anti-takeover provisions may deprive our stockholders of the opportunity to receive a premium for their shares upon a change in control.

        Provisions of Massachusetts law and our charter, by-laws and shareholder rights plan could delay or prevent a change in control of Genzyme or a change in our management. Our tracking stock structure may also deprive our stockholders of the opportunity to receive a premium for their shares upon a change in control because, in order to obtain control of a particular division, an acquiror would have to obtain control of the entire corporation. In addition, our board of directors may, in its sole discretion:

•

exchange shares of Molecular Oncology Stock or Biosurgery Stock for Genzyme General Stock at a 30% premium over the market value of the exchanged shares; and



•

issue shares of undesignated preferred stock from time to time in one or more series.

Either of these board actions could increase the cost of an acquisition of Genzyme and thus discourage a takeover attempt.

Subsequent Events

Fabrazyme Enzyme

        Following the submission of additional information that was requested by the FDA, the Endocrinologic and Metabolic Drugs Advisory Committee of the FDA met in January 2003 to review our BLA for Fabrazyme enzyme. While this advisory panel was not asked by the FDA to vote on whether to approve the product, the panel affirmed, by a vote of 14-1, that the primary endpoint studied in our Phase 3 trial for Fabrazyme enzyme was an appropriate surrogate marker for purposes of accelerated approval. The FDA will review the advisory panel's input and make a determination about the next steps for marketing approval of Fabrazyme enzyme in the U.S. We expect formal FDA action by the end of April 2003.

Aldurazyme Enzyme

        The Endocrinologic and Metabolic Drugs Advisory Committee of the FDA met in January 2003 to review our BLA for Aldurazyme enzyme. While the FDA did not ask the advisory panel to vote on whether or not to recommend Aldurazyme enzyme's approval, the panel voted unanimously that the Phase 3 trial of Aldurazyme we conducted with BioMarin showed a meaningful treatment effect in each of two primary endpoints. Later in that month, the FDA issued a complete response letter to BioMarin and Genzyme which noted that the data submitted in the BLA supported the safety and efficacy of enzyme and that additional clinical data was not required to be submitted. The letter did request, however, additional information on post-marketing commitments, final product labeling, and completion of the manufacturing inspection process. This information has been submitted to the FDA. The FDA has set April 30, 2003 as the formal action date by which it will respond to the BLA for Aldurazyme enzyme. In addition, the CPMP of the European Union issued a positive opinion on the MAA for Aldurazyme enzyme in February 2003. This non-binding opinion has been forwarded to the EMEA for consideration, and a final determination is expected later in 2003 regarding the marketing and sale of Aldurazyme enzyme in the European Union for treating the non-neurological manifestations of MPS I in patients with a confirmed diagnosis of the disease.

GCS-70

GENZYME CORPORATION

Consolidated Statements of Operations

				For the Years Ended December 31,
				2002			2001			2000
				(Amounts in thousands)
Revenues:
	Net product sales			$	1,199,617		$	1,110,254		$	811,897
	Net service sales				114,493			98,370			84,482
	Revenues from research and development contracts:
		Related parties			2,747			3,279			509
		Other			12,615			11,727			6,432
			Total revenues		1,329,472			1,223,630			903,320
Operating costs and expenses:
	Cost of products sold				309,634			307,425			232,383
	Cost of services sold				66,575			56,173			50,177
	Selling, general and administrative				438,035			424,640			264,551
	Research and development (including research and development related to contracts)				308,487			264,004			169,478
	Amortization of intangibles				70,278			121,124			22,974
	Purchase of in-process research and development				1,879			95,568			200,191
	Charge for impaired assets				22,944			—			4,321
			Total operating costs and expenses		1,217,832			1,268,934			944,075
Operating income (loss)					111,640			(45,304	)		(40,755	)
Other income (expenses):
	Equity in net loss of unconsolidated affiliates				(16,858	)		(35,681	)		(44,965	)
	Gain on affiliate sale of stock				—			212			22,689
	Gain (loss) on investments in equity securities				(14,497	)		(25,996	)		15,873
	Minority interest in net loss of subsidiary				—			2,259			4,625
	Loss on sale of product line				—			(24,999	)		—
	Other				40			(2,205	)		5,188
	Investment income				51,038			50,504			45,593
	Interest expense				(27,152	)		(37,133	)		(15,710	)
			Total other income (expenses)		(7,429	)		(73,039	)		33,293
	Income (loss) before income taxes				104,211			(118,343	)		(7,462	)
	(Provision for) benefit from income taxes				(19,015	)		2,020			(55,478	)
	Net income (loss) before cumulative effect of change in accounting for goodwill and derivative financial instruments			$	85,196		$	(116,323	)	$	(62,940	)
	Cumulative effect of change in accounting for goodwill				(98,270	)		—			—
	Cumulative effect of change in accounting for derivative financial instruments, net of tax				—			4,167			—
	Net loss			$	(13,074	)	$	(112,156	)	$	(62,940	)
Comprehensive income (loss), net of tax:
	Net loss			$	(13,074	)	$	(112,156	)	$	(62,940	)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			80,191			(6,003	)		(14,569	)
		Additional minimum pension liability, net of tax			(2,529	)		—			—
		Unrealized losses on interest rate swap contracts, net of tax			(1,035	)		(943	)		—
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period, net		(29,703	)		(10,577	)		9,876
			Reclassification adjustment for (gains) losses included in net income (loss)		9,565			16,429			3,788
			Unrealized gains (losses) on securities, net		(20,138	)		5,852			13,664
	Other comprehensive income (loss)				56,489			(1,094	)		(905	)
Comprehensive income (loss)				$	43,415		$	(113,250	)	$	(63,845	)

The accompanying notes are an integral part of these consolidated financial statements.

GCS-71

			For the Years Ended December 31,
			2002			2001			2000
			(Amounts in thousands, except per share amounts)
Net income (loss) per share:
Allocated to Genzyme General Stock:
	Genzyme General net income before cumulative effect of change in accounting for derivative financial instruments		$	150,731		$	3,879		$	85,956
	Cumulative effect of change in accounting for derivative financial instruments, net of tax			—			4,167			—
	Genzyme General net income			150,731			8,046			85,956
	Tax benefit allocated from Genzyme Biosurgery			18,508			24,593			28,023
	Tax benefit allocated from Genzyme Molecular Oncology			9,287			11,904			7,476
	Net income allocated to Genzyme General Stock		$	178,526		$	44,543		$	121,455
Net income per share of Genzyme General Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.83		$	0.20		$	0.71
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			0.02			—
		Net income per share allocated to Genzyme General Stock	$	0.83		$	0.22		$	0.71
	Diluted:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.81		$	0.19		$	0.68
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			0.02			—
		Net income per share allocated to Genzyme General Stock	$	0.81		$	0.21		$	0.68
Weighted average shares outstanding:
	Basic			214,038			202,221			172,263
	Diluted			219,388			211,176			179,366
Allocated to Biosurgery Stock:
	Genzyme Biosurgery net loss before cumulative effect of change in accounting for goodwill		$	(79,322	)	$	(145,170	)	$	(87,636	)
	Cumulative effect of change in accounting for goodwill			(98,270	)		—			—
	Genzyme Biosurgery net loss			(177,592	)		(145,170	)		(87,636	)
	Allocated tax benefit			9,706			18,189			448
	Net loss allocated to Biosurgery Stock		$	(167,886	)	$	(126,981	)	$	(87,188	)
	Net loss per share of Biosurgery Stock—basic and diluted:
		Net loss per share before cumulative effect of change in accounting for goodwill	$	(1.74	)	$	(3.34	)	$	(2.40	)
		Per share cumulative effect of change in accounting for goodwill		(2.46	)		—			—
	Net loss per share of Biosurgery Stock—basic and diluted		$	(4.20	)	$	(3.34	)	$	(2.40	)
	Weighted average shares outstanding			39,965			37,982			36,359
Allocated to Molecular Oncology Stock:
	Net loss		$	(23,714	)	$	(29,718	)	$	(23,096	)
	Net loss per share of Molecular Oncology Stock—basic and diluted		$	(1.41	)	$	(1.82	)	$	(1.60	)
	Weighted average shares outstanding			16,827			16,350			14,446
Allocated to Surgical Products Stock:
	Net loss								$	(54,748	)
	Net loss per share of Surgical Products Stock—basic and diluted								$	(3.67	)
	Weighted average shares outstanding									14,900
Allocated to Tissue Repair Stock:
	Net loss								$	(19,833	)
	Net loss per share of Tissue Repair Stock—basic and diluted								$	(0.69	)
	Weighted average shares outstanding									28,716

The accompanying notes are an integral part of these consolidated financial statements.

GCS-72

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

				December 31,
				2002			2001
				(Amounts in thousands, except par value amounts)
ASSETS
Current assets:
		Cash and cash equivalents		$	406,811		$	247,011
		Short-term investments			105,992			66,481
		Accounts receivable, net			287,141			259,283
		Inventories			238,809			171,409
		Prepaid expenses and other current assets			45,187			35,408
		Deferred tax assets—current			105,094			70,196
			Total current assets		1,189,034			849,788
Property, plant and equipment, net					802,448			635,314
Long-term investments					682,201			807,766
Notes receivable—related parties					11,918			—
Goodwill, net					592,075			697,422
Other intangible assets, net					734,478			809,224
Investments in equity securities					42,945			88,686
Other noncurrent assets					27,950			47,545
			Total assets	$	4,083,049		$	3,935,745
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
		Accounts payable		$	44,458		$	47,860
		Accrued expenses			190,754			144,740
		Income taxes payable			61,964			75,944
		Deferred revenue			15,887			6,700
		Current portion of long-term debt, convertible notes and capital lease obligations			294,737			7,746
			Total current liabilities		607,800			282,990
Long-term debt and capital lease obligations					25,038			259,809
Convertible notes and debentures					575,000			585,000
Deferred tax liabilities					159,747			173,126
Other noncurrent liabilities					17,617			25,631
			Total liabilities		1,385,202			1,326,556
Commitments and contingencies (Notes C, J, K, M, O)
Stockholders' equity:
	Preferred stock, $0.01 par value				—			—
	Common stock:
		Genzyme General Stock, $0.01 par value			2,148			2,132
		Biosurgery Stock, $0.01 par value			405			395
		Molecular Oncology Stock, $0.01 par value			169			168
	Additional paid-in capital—Genzyme General Stock				1,810,963			1,748,196
	Additional paid-in capital—Biosurgery Stock				823,364			843,544
	Additional paid-in capital—Molecular Oncology Stock				148,799			148,481
	Deferred compensation				(605	)		(2,377	)
	Notes receivable from stockholders				(12,706	)		(13,245	)
	Accumulated deficit				(130,968	)		(117,894	)
	Accumulated other comprehensive income (loss)				56,278			(211	)
			Total stockholders' equity		2,697,847			2,609,189
			Total liabilities and stockholders' equity	$	4,083,049		$	3,935,745

The accompanying notes are an integral part of these consolidated financial statements.

GCS-73

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

					For the Years Ended December 31,
					2002			2001			2000
					(Amounts in thousands)
Cash Flows from Operating Activities:
	Net loss				$	(13,074	)	$	(112,156	)	$	(62,940	)
	Reconciliation of net loss to net cash provided by operating activities:
		Depreciation and amortization				134,000			179,009			57,930
		Non-cash compensation expense				1,335			10,196			2,185
		Provision for bad debts				8,029			1,116			4,277
		Note received from a collaborator				—			—			(10,350	)
		Write off of note received from a collaborator				—			10,159			—
		Charges for in-process research and development				1,879			95,568			200,191
		Charge for impaired assets				22,944			—			4,321
		Equity in net loss of unconsolidated affiliates				16,858			35,681			44,965
		Gain on affiliate sale of stock				—			(212	)		(22,689	)
		Loss (gain) on investments in equity securities				14,497			25,996			(15,873	)
		Minority interest in net loss of subsidiary				—			(2,259	)		(4,625	)
		Deferred income tax provision (benefit)				10,670			(58,799	)		(6,580	)
		Loss on sale of product line				—			24,999			—
		Cumulative effect of change in accounting for goodwill				98,270			—			—
		Cumulative effect of change in accounting for derivative financial instruments				—			(4,167	)		—
		Other				6,176			(1,753	)		5,716
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			(18,427	)		(58,385	)		(34,064	)
			Inventories			(41,651	)		(6,668	)		(9,549	)
			Prepaid expenses and other current assets			(11,168	)		441			(8,768	)
			Accounts payable, accrued expenses and deferred revenue			(5,366	)		30,805			(26,339	)
			Income taxes payable and tax benefits from stock options			(5,305	)		51,874			63,607
				Cash flows from operating activities		219,667			221,445			181,415
Cash Flows from Investing Activities:
	Purchases of investments					(476,683	)		(978,595	)		(553,506	)
	Sales and maturities of investments					568,541			522,400			754,437
	Purchases of equity securities					(4,050	)		(11,138	)		(29,102	)
	Proceeds from sale of equity securities					4,773			2,467			33,124
	Purchase of property, plant and equipment					(225,437	)		(184,304	)		(79,762	)
	Sale of property, plant and equipment					1,994			1,047			26
	Proceeds from sale of product line					—			15,862			—
	Acquisitions, net of acquired cash					—			(74,460	)		(643,779	)
	Investments in unconsolidated affiliates					(25,260	)		(39,677	)		(23,497	)
	Note received from collaborator					(7,000	)		—			—
	Other					3,928			6,763			(8,235	)
				Cash flows from investing activities		(159,194	)		(739,635	)		(550,294	)

The accompanying notes are an integral part of these consolidated financial statements.

GCS-74

			For the Years Ended December 31,
			2002			2001			2000
			(Amounts in thousands)
Cash Flows from Financing Activities:
	Proceeds from issuance of common stock			31,898			91,517			116,181
	Proceeds from draw on credit facility			50,000			—			—
	Proceeds from issuance of debt			—			579,062			350,000
	Payments of debt and capital lease obligations			(7,787	)		(156,743	)		(5,000	)
	Bank overdraft			(2,442	)		8,058			12,306
	Payments of notes receivable from stockholders			974			2,841			—
	Other			4,007			4,942			2,076
		Cash flows from financing activities		76,650			529,677			475,563
Effect of exchange rate changes on cash				22,677			(689	)		(627	)
Increase in cash and cash equivalents				159,800			10,798			106,057
Cash and cash equivalents at beginning of period				247,011			236,213			130,156
Cash and cash equivalents at end of period			$	406,811		$	247,011		$	236,213
Supplemental disclosures of cash flows:
Cash paid during the year for:
	Interest, net of capitalized interest		$	24,494		$	31,065		$	13,785
	Income taxes		$	37,747		$	17,504		$	34,014
Supplemental disclosures of non-cash transactions:
	Acquisitions—Note C.
	Dispositions of assets—Note D.
	Property, Plant and Equipment—Note H.
	Investment in Joint Ventures—Note K.
	Conversion of 51/4% convertible subordinated notes—Note M.
	Conversion of 5% convertible subordinated debentures—Note M.

In conjunction with the acquisitions of Novazyme, Focal, Wyntek, GDP, Biomatrix and GelTex, we assumed the following assets and liabilities:

		For the Years Ended December 31,
		2001			2000
		(Amounts in thousands)
Fair value of assets acquired		$	85,675		$	994,481
Goodwill			47,272			561,896
Acquired in-process research and development			95,568			200,191
Deferred compensation			2,630			10,272
Issuance of common stock and options			(129,392	)		(774,458	)
Net cash paid for acquisition and acquisition costs			(80,356	)		(660,187	)
Existing equity investment			(5,488	)		—
Liabilities for exit activities and integration			(1,740	)		(6,716	)
Net deferred tax liability assumed			(4,817	)		(246,591	)
	Net liabilities assumed	$	9,352		$	78,888

The accompanying notes are an integral part of these consolidated financial statements.

GCS-75

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

		Shares				Dollars
		2002	2001	2000		2002		2001		2000
		(Amounts in thousands)				(Amounts in thousands)
COMMON STOCK:
GENZYME GENERAL STOCK:
	Balance at beginning of year	213,179	191,182	168,704		$	2,132	$	1,912	$	1,688
	Issuance of Genzyme General Stock under stock plans	1,621	5,406	6,706			16		54		66
	Exercise of warrants and stock purchase rights	14	127	—			—		1		—
	Shares issued for acquisition of GelTex	—	—	15,772			—		—		158
	Shares issued for acquisition of Novazyme	—	2,562	—			—		26		—
	Shares issued in connection with conversion of 51/4% convertible notes	—	12,597	—			—		126		—
	Shares issued in connection with conversion of 5% convertible debentures	—	1,305	—			—		13		—
	Balance at end of year	214,814	213,179	191,182		$	2,148	$	2,132	$	1,912
BIOSURGERY STOCK:
	Balance at beginning of year	39,554	36,398	—		$	395	$	364	$	—
	Issuance of Biosurgery Stock under stock plans	302	384	46			3		4		—
	Conversion of Surgical Products Stock to Biosurgery Stock upon creation of Genzyme Biosurgery	—	—	9,092			—		—		91
	Conversion of Tissue Repair Stock to Biosurgery Stock upon creation of Genzyme Biosurgery	—	—	9,679			—		—		97
	Shares issued in connection with conversion of 51/4% convertible notes	—	685	—			—		6		—
	Shares issued in connection with investment in Myosix	626	—	—			7		—		—
	Shares issued for acquisition of Focal	—	2,087	—			—		21		—
	Shares issued for acquisition of Biomatrix	—	—	17,581			—		—		176
	Balance at end of year	40,482	39,554	36,398		$	405	$	395	$	364
MOLECULAR ONCOLOGY STOCK:
	Balance at beginning of year	16,762	15,905	13,421		$	168	$	159	$	134
	Issuance of Molecular Oncology Stock under stock plans	137	175	345			1		2		4
	Sales of Molecular Oncology Stock	—	—	2,139			—		—		21
	Shares issued in connection with conversion of 51/4% convertible notes	—	682	—			—		7		—
	Balance at end of year	16,899	16,762	15,905		$	169	$	168	$	159
SURGICAL PRODUCTS STOCK:
	Balance at beginning of year			14,835						$	148
	Issuance of Surgical Products Stock under stock plans			169							2
	Conversion of Surgical Products Stock to Biosurgery Stock upon creation of Genzyme Biosurgery			(15,004	)						(150	)
	Balance at end of year			—						$	—
TISSUE REPAIR STOCK:
	Balance at beginning of year			28,504						$	285
	Issuance of Tissue Repair Stock under stock plans			374							4
	Conversion of Tissue Repair Stock to Biosurgery Stock upon creation of Genzyme Biosurgery			(28,878	)						(289	)
	Balance at end of year			—						$	—

The accompanying notes are an integral part of these consolidated financial statements.

GCS-76

		2002			2001			2000
		(Amounts in thousands)
ADDITIONAL PAID-IN CAPITAL:
GENZYME GENERAL STOCK:
	Balance at beginning of year	$	1,748,196		$	1,267,427		$	634,383
	Issuance of Genzyme General Stock under stock plans		30,395			86,651			85,315
	Exercise of warrants and stock purchase rights		233			2,290			—
	Allocation of cash to Genzyme Biosurgery for Biosurgery designated shares		—			(12,000	)		—
	Allocation to Genzyme Tissue Repair for Tissue Repair designated shares		—			—			(9,910	)
	Allocation of cash to Genzyme Molecular Oncology for Molecular Oncology designated shares		—			(4,040	)		(15,000	)
	Allocation of cash to Genzyme Molecular Oncology in exchange for the reallocation of diagnostic assets from Genzyme Molecular Oncology to Genzyme General		—			(32,000	)		—
	Payment from Genzyme Biosurgery in connection with transfer of NeuroCell joint venture interest		27,063			—			—
	Tax benefit from disqualified dispositions		8,410			50,176			17,041
	Conversion of 51/4% convertible notes		—			245,946			—
	Conversion of 5% convertible debentures		—			21,187			—
	Acquisition of Novazyme		—			119,572			—
	Acquisition of GelTex		—			—			554,063
	Stock based compensation expense		—			—			1,536
	Other		(3,334	)		2,987			(1	)
	Balance at end of year	$	1,810,963		$	1,748,196		$	1,267,427
BIOSURGERY STOCK:
	Balance at beginning of year	$	843,544		$	823,353		$	—
	Issuance of Biosurgery Stock under stock plans		936			1,551			298
	Allocation of cash from Genzyme General for Biosurgery designated shares		—			12,000			—
	Conversion of Surgical Products Stock to Biosurgery Stock upon creation of Genzyme Biosurgery		—			—			377,090
	Conversion of Tissue Repair Stock to Biosurgery Stock upon creation of Genzyme Biosurgery		—			—			228,288
	Payment to Genzyme General in connection with transfer of NeuroCell joint venture interest		(27,063	)		—			—
	Issuance of Biosurgery Stock in connection with investment in Myosix		1,581			—			—
	Acquisition of Focal		—			9,780			—
	Acquisition of Biomatrix		—			—			217,719
	Other		4,366			(3,140	)		(42	)
	Balance at end of year	$	823,364		$	843,544		$	823,353
MOLECULAR ONCOLOGY STOCK:
	Balance at beginning of year	$	148,481		$	111,484		$	67,672
	Issuance of Molecular Oncology Stock under stock plans		314			957			1,829
	Allocation of cash from Genzyme General for Molecular Oncology designated shares		—			4,040			15,000
	Issuance of Molecular Oncology Stock in connection with public offering		—			—			26,980
	Allocation of cash from Genzyme General in exchange for the reallocation of diagnostic assets from Genzyme Molecular Oncology to Genzyme General		—			32,000			—
	Issuance of Molecular Oncology Stock in connection with conversion of 51/4% convertible notes		—			(7	)		—
	Other		4			7			3
	Balance at end of year	$	148,799		$	148,481		$	111,484
SURGICAL PRODUCTS STOCK:
	Balance at beginning of year							$	376,123
	Issuance of Surgical Products Stock under stock plans								908
	Conversion of Surgical Products Stock to Biosurgery Stock upon creation of Genzyme Biosurgery								(377,031	)
	Balance at end of year							$	—

The accompanying notes are an integral part of these consolidated financial statements.

GCS-77

		2002			2001			2000
		(Amounts in thousands)
TISSUE REPAIR STOCK:
	Balance at beginning of year							$	217,103
	Issuance of Tissue Repair Stock under stock plans								794
	Issuance of Tissue Repair Stock in connection with research program								289
	Allocation of cash from Genzyme General for Tissue Repair designated shares								9,910
	Conversion of Tissue Repair Stock to Biosurgery Stock upon creation of Genzyme Biosurgery								(228,096	)
	Balance at end of year							$	—
DEFERRED COMPENSATION
	Balance at beginning of year	$	(2,377	)	$	(9,943	)	$	(134	)
	Deferred compensation associated with GelTex acquisition		—			—			(10,206	)
	Deferred compensation associated with Biomatrix acquisition		—			—			(66	)
	Deferred compensation associated with Novazyme acquisition		—			(2,630	)		—
	Amortization of deferred compensation		1,335			10,196			463
	Adjustment for terminated employees		437			—			—
	Balance at end of year	$	(605	)	$	(2,377	)	$	(9,943	)
NOTES RECEIVABLE FROM STOCKHOLDERS:
	Balance at beginning of year	$	(13,245	)	$	(14,760	)	$	—
	Notes acquired in connection with Biomatrix acquisition		—			—			(14,760	)
	Notes acquired in connection with Focal acquisition		—			(367	)		—
	Notes acquired in connection with Novazyme acquisition		—			(1,316	)		—
	Accrued interest receivable on Biomatrix notes		(613	)		—			—
	Accrued interest receivable on Focal notes		(9	)		(168	)		—
	Accrued interest receivable on Novazyme notes		—			(16	)		—
	Payments of Biomatrix notes receivable		—			2,769			—
	Payments and write-off of Focal notes receivable		369			72			—
	Payments of notes receivable from Novazyme stockholders		792			541			—
	Balance at end of year	$	(12,706	)	$	(13,245	)	$	(14,760	)
ACCUMULATED DEFICIT:
	Balance at beginning of year	$	(117,894	)	$	(5,738	)	$	57,202
	Net loss		(13,074	)		(112,156	)		(62,940	)
	Balance at end of year	$	(130,968	)	$	(117,894	)	$	(5,738	)
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX:
	Balance at beginning of year	$	(211	)	$	883		$	1,788
	Foreign currency translation adjustments		80,191			(6,003	)		(14,569	)
	Additional minimum pension liability, net of tax		(2,529	)		—			—
	Change in unrealized gains (losses) on investments and derivatives		(21,173	)		4,909			13,664
	Accumulated other comprehensive income (loss)	$	56,278		$	(211	)	$	883

The accompanying notes are an integral part of these consolidated financial statements.

GCS-78

GENZYME CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

        We are a biotechnology and human healthcare company that develops innovative products and provides services for significant unmet medical needs. We have three operating divisions:

•

Genzyme General, which develops and markets:



•

therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and other specialty therapeutics;



•

renal products, with a focus on products that treat patients suffering from renal diseases, including chronic renal failure;



•

diagnostic products, with a focus on in vitro diagnostics; and



•

other products and services, such as genetic testing services and pharmaceutical drug materials;




•

Genzyme Biosurgery, which develops and markets biotherapeutic and biomaterial products, with an emphasis on orthopaedics, heart disease and broader surgical applications; and



•

Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        We currently have three series of common stock designed to reflect the value and track the performance of one of our divisions. We refer to our series of common stock as follows:

•

Genzyme General Division Common Stock = "Genzyme General Stock;"



•

Genzyme Biosurgery Division Common Stock = "Biosurgery Stock;" and



•

Genzyme Molecular Oncology Division Common Stock = "Molecular Oncology Stock."

        On December 18, 2000, we acquired Biomatrix and accounted for the acquisition as a purchase. Immediately prior to the acquisition, we combined two of our operating divisions, Genzyme Surgical Products and Genzyme Tissue Repair, to form a new division called Genzyme Biosurgery. We allocated the acquired assets and liabilities of Biomatrix to Genzyme Biosurgery. The combination of Genzyme Surgical Products and Genzyme Tissue Repair to form Genzyme Biosurgery did not result in any adjustments to the book values of the net assets of the divisions because they remained divisions of the same corporation. We present the financial statements of Genzyme Biosurgery as though the divisions had been combined for all periods presented, and include the operations of Biomatrix from the date of acquisition.

        In connection with the formation of Genzyme Biosurgery, we created Genzyme Biosurgery Stock. Each outstanding share of Genzyme Surgical Products Division common stock, or "Surgical Products Stock," was converted into 0.6060 of a share of Biosurgery Stock, and each outstanding share of Genzyme Tissue Repair Division common stock, or "Tissue Repair Stock," was converted into 0.3352 of a share of Biosurgery Stock. All outstanding options to purchase Surgical Products Stock and Tissue Repair Stock were converted into options to purchase Biosurgery Stock at the applicable conversion rates.

GCS-79

Uncertainties

        We are subject to risks and uncertainties common to companies in the biotechnology industry. These risks and uncertainties may affect our future results, and include:

•

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



•

our ability to manufacture sufficient amounts of our products for development and commercialization activities and to do so in a timely and cost-efficient manner;



•

our ability to obtain timely regulatory approval of our products and services;



•

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



•

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



•

the content and timing of submissions to and decisions made by the FDA and other regulatory agencies regarding our products, services and facilities;



•

our ability to manage inventories of our products;



•

our ability to maintain adequate insurance coverage for any claims that may be asserted against us;



•

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



•

market acceptance of our products and services;



•

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



•

our ability to establish and maintain licenses, strategic collaborations and distribution arrangements;



•

the continued funding and operation of our joint ventures; and



•

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

Basis of Presentation

        Our consolidated financial statements for each period include the balance sheets, results of operations and cash flows of each of our divisions, and for our corporate operations taken as a whole. We eliminate all significant intracompany items and transactions in consolidation. We have reclassified certain 2001 and 2000 data to conform with our 2002 presentation.

Tracking Stocks

        We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specific subset of our business

GCS-80

operations and its allocated assets, rather than operations and assets of our entire company. The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to those corresponding divisions are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        Shares of Biosurgery Stock and Molecular Oncology Stock are subject to certain exchange and redemption provisions as set forth in our charter. One of the exchange provisions allows our board of directors to exchange, at any time, shares of Biosurgery Stock and/or Molecular Oncology Stock for cash, shares of Genzyme General Stock, or a combination of both, valued at a 30% premium to the fair market value (as defined in our charter) of the series of stock being exchanged.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with accounting principles generally accepted in the U.S. and as adjusted for tax benefits allocated to or from that division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock, combine existing tracking stocks, or change our earnings allocation methodology. Because the earnings allocated to each series of stock are based on the income or losses attributable to each corresponding division, we provide financial statements and management's discussion and analysis for the corporation and each of our divisions to aid investors in evaluating our performance and the performance of each of our divisions.

        While each tracking stock is designed to reflect a division's performance, each is common stock of Genzyme Corporation and not of a division. Our divisions are not separate companies or legal entities,

GCS-81

and therefore do not and cannot issue stock. Holders of tracking stock have no specific rights to assets allocated to the corresponding division. We continue to hold title to all of the assets allocated to the corresponding division and are responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to any division. Holders of each tracking stock, as common stockholders are, therefore, subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of each tracking stock would only have the rights of common stockholders in the combined assets of Genzyme in the proportions set forth in our charter.

Allocation Policy

        Our charter sets forth what operations and assets were initially allocated to each division and states that going forward the division will also include all business, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between our divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval. Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to that division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to that division;



•

actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the service is performed on a cost basis. Such charges are generally based upon direct labor hours;



•

proportionate usage—costs incurred which benefit more than one division are allocated based upon management's estimate of the proportionate benefit each division receives. Such costs include facilities, legal, finance, human resources, executive and investor relations; or



•

board directed—programs and products, both internally developed and acquired, are allocated to divisions by the board of directors. The board also allocates long-term debt and strategic investments.

GCS-82

Principles of Consolidation

        Our consolidated financial statements include the accounts of our wholly owned and majority owned subsidiaries. For consolidated majority owned subsidiaries in which we own greater than 50% or exercise control, we record a minority interest in the consolidated financial statements to account for the ownership interest of the minority owner. We use the equity method to account for investments in entities in which we have a substantial ownership interest (20% to 50%), or over which we exercise significant influence. Our consolidated net income includes our share of the earnings of these entities. All significant intercompany accounts and transactions have been eliminated in consolidation.

        We accounted for our investment in GTC under the equity method until May 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

        For additional information on our investments, please read Note J., "Investments in Marketable Securities and Strategic Equity Investments," below.

Dividend Policy

        We have never paid a cash dividend on shares of our stock. We currently intend to retain our earnings to finance future growth and do not anticipate paying any cash dividends on our stock in the foreseeable future.

Use of Estimates

        Under accounting principles generally accepted in the U.S., we are required to make certain estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in our financial statements. Our actual results could differ from these estimates.

Financial Instruments

        A number of financial instruments subject us to significant credit risk, including cash and cash equivalents, current and non-current investments, and accounts receivable. We generally invest our cash in investment-grade securities to mitigate risk.

Cash and Cash Equivalents

        We value our cash and cash equivalents at cost plus accrued interest, which we believe approximates their market value. Our cash equivalents consist principally of money market funds and municipal notes with original maturities of three months or less.

Investments

        We invest our excess cash balances in short-term and long-term marketable securities. As part of our strategic relationships, we may also invest in equity securities of other biotechnology companies. We use the equity method to account for investments in entities in which we have a substantial ownership interest (20% to 50%), or over which we exercise significant influence. Other investments are accounted for as described below.

GCS-83

        We classify all of our marketable equity investments as available-for-sale. We classify our investments in marketable debt securities as either held-to-maturity or available-for-sale based on facts and circumstances present at the time we purchase the securities. As of each balance sheet date presented, we classified all of our investments in debt securities as available-for-sale. We report available-for-sale investments at fair value as of each balance sheet date and include any unrealized holding gains and losses (the adjustment to fair value) in stockholders' equity. Realized gains and losses are determined on the specific identification method and are included in investment income. If any adjustment to fair value reflects a decline in the value of the investment, we consider all available evidence to evaluate the extent to which the decline is "other than temporary" and mark the investment to market through a charge to our statement of operations. Investments in equity securities for which fair value is not readily determinable are carried at cost, subject to review for impairment. We classify our investments with remaining maturities of 12 months or less as short-term investments. We classify our investments with remaining maturities of greater than twelve months as long-term investments, unless we do not expect to hold the investment to maturity.

Inventories

        We value inventories at cost or, if lower, fair value. We determine cost using the first-in, first-out method.

        We analyze our inventory levels quarterly and write down to its net realizable value:

•

inventory that has become obsolete;



•

inventory that has a cost basis in excess of its expected net realizable value;



•

inventory in excess of expected requirements; and



•

expired inventory.

        We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If a product is not approved for sale, it would likely result in the write-off of the inventory and a charge to earnings. At December 31, 2002, our total inventories included $7.5 million of inventory for products that have not yet been approved for sale. In addition, at December 31, 2002, a joint venture in which we have a 50% ownership interest has $17.3 million of inventory for a product that has not yet been approved for sale, of which $8.6 million represents our portion of the unapproved inventory of the joint venture.

Property, Plant and Equipment

        We record property, plant and equipment at cost. When we dispose of these assets, we remove the related cost and accumulated depreciation and amortization from the related accounts on our balance sheet and include any resulting gain or loss in our statement of operations.

        We generally compute depreciation using the straight-line method over the estimated useful lives of the assets. We compute useful lives as follows:

•

plant and equipment—three to fifteen years;



•

furniture and fixtures—five to seven years; and

GCS-84

•

buildings—20 to 40 years.

        We depreciate certain specialized manufacturing equipment and facilities, all of which are allocated to Genzyme General, over their remaining useful lives using the units-of-production method. We evaluate the remaining life and recoverability of this equipment periodically based on the appropriate facts and circumstances.

        We amortize leasehold improvements over their useful life or, if shorter, the term of the applicable lease.

        For products we expect to be commercialized, we capitalize, to construction-in-progress, the costs we incur in validating the manufacturing process. We begin this capitalization when we consider the product to have demonstrated technological feasibility and end this capitalization when the asset is substantially complete and ready for its intended use. These capitalized costs include incremental labor and direct material, and incremental fixed overhead and interest. We depreciate these costs using the straight-line method or the units-of-production method.

Goodwill and Other Intangible Assets

        Our intangible assets consist of:

•

goodwill;



•

covenants not to compete;



•

purchased technology rights;



•

customer lists; and



•

patents, trademarks and trade names.

        Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangibles be replaced with periodic tests of goodwill's impairment and that other intangibles be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 requires that goodwill be tested annually for impairment under a two-step impairment process or whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable.

        We amortize other intangible assets using the straight-line method over useful lives of 1.5 years to 40 years.

Accounting for the Impairment of Long-Lived Assets

        We periodically evaluate our long-lived assets for potential impairment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." We perform these evaluations whenever events or changes in circumstances suggest that the carrying amount 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 the industry in which it is sold; and

GCS-85

•

a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If we believe an indicator of potential impairment exists, we test to determine whether impairment recognition criteria in SFAS No. 144 have been met. We charge impairments of the long-lived assets to operations if our evaluations indicate that the carrying values of these assets are not recoverable.

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;



•

the average exchange rate prevailing during each period for revenues and expenses; and



•

the historical exchange rate for our investments in our foreign subsidiaries.

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 net of tax 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 net cumulative foreign currency credits of $40.0 million at December 31, 2002 and net cumulative foreign currency charges of $(40.2) million at December 31, 2001.

        Gains and losses on all other foreign currency transactions are included in our results of operations.

Derivative Instruments

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our consolidated balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

        In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our consolidated statements of operations for the year ended December 31, 2001, to recognize the fair value of warrants to purchase shares of GTC common stock that we held on January 1, 2001. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts were not significant.

Revenue Recognition

        We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, title and risk of loss have passed to the customer and collection from the customer is reasonably assured. We recognize revenue from service sales, such as Carticel chondrocyte

GCS-86

services and genetic testing services, when we have finished providing the service. We recognize revenue from contracts to perform research and development services and selling and marketing services over the term of the applicable contract and as we complete our obligations under that contract. We recognize non-refundable, up-front license fees over the related performance period or at the time we have no remaining performance obligations.

        Revenue from milestone payments for which we have no continuing performance obligations is recognized upon achievement of the related milestone. When we have continuing performance obligations, we recognize milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;



•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and



•

the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

        We receive royalties related to the manufacture, sale or use of our products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following quarter. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize revenue upon receipt of royalty statements from the licensee.

        We record allowances for product returns, rebates payable to Medicaid, managed care organizations or customers and sales discounts. These allowances are recorded as reductions of revenue at the time product sales are recorded. These amounts are based on our estimates of the amount of product in the distribution channel and the percent of end-users covered by Medicaid or managed care organizations. We record consideration paid to a customer or reseller of our products as a reduction of revenue unless we receive an identifiable and separable benefit for the consideration, and we can reasonably estimate the fair value of the benefit received. If both conditions are met, we record the consideration paid to the customer as an expense.

        We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers was to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

Research and Development

        We expense internal and external research and development costs, including costs of funded research and development arrangements, in the period incurred. We also expense the cost of purchased technology in the period of purchase if we believe that the technology has not demonstrated technological feasibility and that it does not have an alternative future use.

GCS-87

Issuance of Stock By a Subsidiary or an Affiliate

        We include gains on the issuance of stock by our subsidiaries and affiliates in net income unless that subsidiary or affiliate is a research and development, start-up or development stage company or an entity whose viability as a going concern is under consideration. In those situations, we account for the change in our equity ownership of that subsidiary or affiliate as an equity transaction.

Income Taxes

        We use the asset and liability method of accounting for deferred income taxes. Our provision for income taxes includes income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities.

        We file a consolidated return and allocate income taxes to each division based upon the financial statement income, taxable income, credits and other amounts properly allocable to each division under accounting principles generally accepted in the U.S. as if it were a separate taxpayer. In preparing financial statements for our operating divisions we assess the realizability of our deferred tax assets at the division level. As a result, our consolidated tax provision may not equal the sum of the divisions' tax provisions.

        We have not provided for possible U.S. taxes on the undistributed earnings of foreign subsidiaries. We do not believe it is practical to determine the tax liability associated with the repatriation of our foreign earnings because it is our policy to indefinitely reinvest these earnings in non-U.S. operations. At December 31, 2002, these undistributed foreign earnings totaled approximately $81.7 million.

Comprehensive Income

        Comprehensive income consists of net income and all changes in equity from non-shareholder sources, including changes in unrealized gains and losses on investments, and on derivative instruments designated as hedges, foreign currency translation adjustments and minimum liabilities for accumulated benefit obligations, net of taxes.

Net Income (Loss) Per Share

        We calculate earnings per share for each series of stock using the two-class method. To calculate basic earnings per share for each series of stock, we divide the earnings allocated to each series of stock by the weighted average number of outstanding shares of that series of stock during the applicable period. When we calculate diluted earnings per share, we also include in the denominator all potentially dilutive securities outstanding during the applicable period. We allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Genzyme General Stock, as defined in our charter, is equal to the net income or loss of Genzyme General determined in accordance with accounting principles generally accepted in the U.S. and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies. Earnings attributable to Biosurgery Stock, Molecular Oncology Stock, Surgical Products Stock and Tissue Repair Stock are defined similarly and, as such, are based on the net income or loss of the corresponding division as adjusted for the allocation of tax benefits.

        We calculate the income tax provision of each division as if such division were a separate taxpayer, which includes assessing realizability of deferred tax assets at the division level. Our management and

GCS-88

accounting policies provide that, if as of the end of any fiscal quarter, a division can not use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we may allocate the tax benefit to other divisions in proportion to their taxable income without compensating payment or allocation to the division generating the benefit. The tax benefits allocated to Genzyme General, which are included in earnings attributable to Genzyme General Stock, were:

		Year Ended December 31,
		2002		2001		2000
		(Amounts in thousands)
Tax benefits allocated from:
Genzyme Biosurgery		$	18,508	$	24,593	$	28,023
Genzyme Molecular Oncology			9,287		11,904		7,476
	Total	$	27,795	$	36,497	$	35,499

        Deferred tax assets and liabilities can arise from purchase accounting and relate to a division that does not satisfy the criteria for recognition. Such deferred tax assets and liabilities are allocated to the division to which the acquisition was allocated. As a result, the periodic changes in these deferred tax assets and liabilities do not result in a tax expense or benefit to that division. However, the change in these deferred tax assets and liabilities impacts our consolidated tax provision. Such change is added to division net income for purposes of determining net income allocated to a tracking stock.

        In future periods, Genzyme Biosurgery or Genzyme Molecular Oncology may recognize deferred tax assets in the calculation of their respective tax provisions determined on a separate division basis in accordance with accounting principles generally accepted in the U.S. However, to the extent the benefit of those deferred tax assets has been previously allocated to Genzyme General in accordance with the management and accounting policies, the benefit will be reflected as a reduction of net income in determining net income attributable to Biosurgery Stock or Molecular Oncology Stock. As of December 31, 2002, the total tax benefits previously allocated to Genzyme General were (in thousands):

Genzyme Biosurgery	$	211,820
Genzyme Molecular Oncology		45,715

Accounting for Stock Based Compensation

        On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123." This standard amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for those companies that voluntarily change to the fair value based method of accounting for stock-based employee compensation. In addition, this standard amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. We have not adopted the fair value method of accounting for stock-based compensation and will continue to apply the provisions of APB

GCS-89

Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. We do not recognize compensation expense for options granted under the provisions of these plans with fixed terms and an exercise price greater than or equal to the fair market value of the underlying series of our common stock on the date of grant. All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123, as amended, and EITF Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

        In accordance with the disclosure requirements of SFAS No. 148, the following table sets forth our net income (loss) data as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS No. 123 as amended, based on the fair value at the grant dates of

GCS-90

the awards. The resulting compensation expense would be allocated to each division in accordance with our allocation policies:

			For the Years Ended December 31,
			2002			2001			2000
			(Amounts in thousands, except per share amounts)
Net loss:
	As reported		$	(13,074	)	$	(112,156	)	$	(62,940	)
	Add: stock-based compensation included in as-reported, net of tax			844			6,444			1,394
	Deduct: pro forma stock-based compensation expense, net of tax			(69,728	)		(60,926	)		(32,726	)
	Pro forma net loss		$	(81,958	)	$	(166,638	)	$	(94,272	)
Net income per share of Genzyme General Stock:
	Basic:
		Net income (loss) per share allocated to Genzyme General Stock—as reported	$	0.83		$	0.22		$	0.71
		Add: stock-based compensation, net of tax included in net income per share allocated to Genzyme General Stock as reported		0.00			0.03			0.01
		Deduct: pro forma stock-based compensation expense per share, net of tax		(0.27	)		(0.23	)		(0.15	)
		Net income per share allocated to Genzyme General Stock—pro forma	$	0.56		$	0.02		$	0.57
	Diluted:
		Net income per share allocated to Genzyme General Stock—as reported	$	0.81			0.21		$	0.68
		Add: stock-based compensation, net of tax included in net income per share allocated to Genzyme General Stock as reported		0.00			0.03			0.00
		Deduct: pro forma stock-based compensation expense per share, net of tax		(0.26	)		(0.22	)		(0.14	)
		Net income per share allocated to Genzyme General Stock—pro forma	$	0.55		$	0.02		$	0.54
Net loss per share of Biosurgery Stock—basic and diluted:
	As reported		$	(4.20	)	$	(3.34	)	$	(2.40	)
	Deduct: pro forma stock-based compensation expense per share, net of tax			(0.17	)		(0.24	)		—
	Pro forma net loss		$	(4.37	)	$	(3.58	)	$	(2.40	)
Net loss per share of Molecular Oncology Stock—basic and diluted:
	As reported		$	(1.41	)	$	(1.82	)	$	(1.60	)
	Deduct: pro forma stock-based compensation expense per share, net of tax			(0.22	)		(0.29	)		(0.20	)
	Pro forma net loss		$	(1.63	)	$	(2.11	)	$	(1.80	)
Net loss per share of Surgical Products Stock—basic and diluted:
	As reported								$	(3.67	)
	Deduct: pro forma stock-based compensation expense per share, net of tax									(0.15	)
	Pro forma net loss								$	(3.82	)
Net loss per share of Tissue Repair Stock—basic and diluted:
	As reported								$	(0.69	)
	Deduct: pro forma stock-based compensation expense per share, net of tax									(0.07	)
	Pro forma net loss								$	(0.76	)

GCS-91

        We estimate the fair value of each option grant using the Black-Scholes option-pricing model. In computing the pro forma amounts, we used the following assumptions:

	Risk-Free Interest Rate		Volatility		Dividend Yield		Expected Option Life (In Years)	Average Fair Value
Genzyme General Stock:
2002	4.64	%	54	%	0	%	5	$	16.77
2001	5.08	%	49	%	0	%	5	$	25.66
2000	6.78	%	48	%	0	%	5	$	26.62
Biosurgery Stock:
2002	4.64	%	91	%	0	%	5	$	3.13
2001	5.08	%	70	%	0	%	5	$	4.06
2000	6.78	%	58	%	0	%	5	$	6.68
Molecular Oncology Stock:
2002	4.64	%	105	%	0	%	5	$	1.92
2001	5.08	%	99	%	0	%	5	$	11.33
2000	6.78	%	94	%	0	%	5	$	9.76
Surgical Products Stock:
2000	6.78	%	58	%	0	%	5	$	9.95
Tissue Repair Stock:
2000	6.78	%	58	%	0	%	5	$	8.21

New Accounting Pronouncements

        Asset Retirement Obligations.    In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 will be effective for our fiscal year ending December 31, 2003. The adoption of SFAS No. 143 is not expected to have a material impact on our consolidated or combined financial statements.

        Costs Associated with Exit or Disposal Activities.    In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost as defined in EITF Issue No. 94-3 was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. We will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 as required by the standard.

        Guarantees.    In November 2002, the FASB issued FIN 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34." FIN 45 clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for

GCS-92

the fair value of the obligation undertaken in issuing certain guarantees. FIN 45 also requires additional disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The accounting requirements for the initial recognition of guarantees are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for all guarantees outstanding, regardless of when they were issued or modified, beginning with periods ending after December 15, 2002. We have applied the disclosure provisions of FIN 45 as of December 31, 2002, as required (see Note O., "Commitments and Contingencies," to our consolidated financial statements). The adoption of FIN 45 did not have a material effect on our consolidated financial statements for the year ended December 31, 2002.

        Variable Interest Entities.    In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51." FIN 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risk will not be consolidated unless a single party holds an interest or combination of interests that effectively recombines risks that were previously dispersed. FIN 46 also requires enhanced disclosure requirements related to variable interest entities. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003.

GCS-93

Genzyme General Stock:

        As described in Note N., "Stockholders' Equity," we completed a two-for-one split of Genzyme General Stock by means of a 100% stock dividend paid to holders of Genzyme General Stock of record on May 24, 2001. All share and per share amounts for Genzyme General Stock have been retroactively revised for all periods presented to reflect the two-for-one split. The following table sets forth our computation of basic and diluted net income per share of Genzyme General Stock:

			For the Years Ended December 31,
			2002		2001		2000
			(Amounts in thousands, except per share amounts)
Genzyme General net income before cumulative effect of change in accounting for derivative financial instruments			$	150,731	$	3,879	$	85,956
Cumulative effect of change in accounting for derivative financial instruments, net of tax				—		4,167		—
Genzyme General division net income				150,731		8,046		85,956
Tax benefit allocated from Genzyme Biosurgery				18,508		24,593		28,023
Tax benefit allocated from Genzyme Molecular Oncology				9,287		11,904		7,476
Net income allocated to Genzyme General Stock			$	178,526	$	44,543	$	121,455
Shares used in computing net income per common share—basic				214,038		202,221		172,263
	Effect of dilutive securities:
		Stock options(1)		5,340		8,914		7,103
		Warrants		10		41		—
		Dilutive potential common shares		5,350		8,955		7,103
Shares used in computing net income per share—diluted(1,2)				219,388		211,176		179,366
Net income per share of Genzyme General Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.83	$	0.20	$	0.71
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax(3)		—		0.02		—
		Net income per share allocated to Genzyme General Stock	$	0.83	$	0.22	$	0.71
	Diluted(1,2):
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.81	$	0.19	$	0.68
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax(3)		—		0.02		—
		Net income per share allocated to Genzyme General Stock	$	0.81	$	0.21	$	0.68

(1)

We did not include the securities described in the following table in the computation of Genzyme General's diluted earnings per share for each period because these securities had an exercise price greater than the average market price of Genzyme General Stock:

	December 31,
	2002	2001	2000
	(Amounts in thousands)
Shares of Genzyme General Stock issuable for options	13,576	2,170	3,492
Shares of Genzyme General Stock issuable for warrants	—	—	92
Total shares with exercise prices greater than the average market price of Genzyme General Stock during the period	13,576	2,170	3,584

(2)

We did not include the potentially dilutive effect of the assumed conversion of the $575.0 million in principal of 3% convertible subordinated debentures allocated to Genzyme General in the computation of Genzyme General's dilutive earnings per share for the years ended December 31, 2002 and 2001, because the conditions for conversion had not been

GCS-94

met. The debentures are contingently convertible into approximately 8.2 million shares of Genzyme General Stock at an initial conversion price of $70.30 per share.

(3)

On January 1, 2001, we adopted SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138. In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our consolidated statements of operations and in the combined statements of operations of Genzyme General to recognize the fair value of our warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General.

Biosurgery Stock:

        We created Biosurgery Stock on December 18, 2000. We formed Genzyme Biosurgery by combining two of our divisions, Genzyme Surgical Products and Genzyme Tissue Repair and simultaneously acquiring Biomatrix. Accordingly, we amended our charter to create Biosurgery Stock and eliminate Surgical Products Stock and Tissue Repair Stock. Each outstanding share of, or option to purchase, Surgical Products Stock was converted into the right to receive 0.6060 of a share of, or option to purchase, Biosurgery Stock, and each outstanding share of, or option to purchase, Tissue Repair Stock was converted into the right to receive 0.3352 of a share of, or option to purchase, Biosurgery Stock. Net loss allocated to Biosurgery Stock for the year ended December 31, 2000 consists of the net loss of Genzyme Biosurgery from December 18, 2000, the date Biosurgery Stock was initially issued, through December 31, 2000. Prior to December 18, 2000, the losses of Genzyme Surgical Products and Genzyme Tissue Repair, were allocated to Surgical Products Stock and Tissue Repair Stock. For all periods presented, basic and diluted net loss per share of Biosurgery Stock are the same. We did not include the securities described in the following table in the computation of Biosurgery Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Biosurgery Stock.

	December 31,
	2002	2001	2000(1)
	(Amounts in thousands)
Shares of Biosurgery Stock issuable for options	7,573	5,582	4,739
Warrants to purchase Biosurgery Stock	7	8	3
Biosurgery designated shares issuable upon conversion of 51/4% convertible subordinated notes allocated to Genzyme General(2,3)	—	—	685
Biosurgery designated shares reserved for options(3)	77	93	111
Biosurgery designated shares(3)	3,118	3,105	1,195
Shares of Biosurgery Stock issuable upon conversion of 6.9% convertible subordinated note allocated to Genzyme Biosurgery(4)	358	358	358
Total shares excluded from the calculation of diluted net loss per share of Biosurgery Stock	11,133	9,146	7,091

(1)

For the period from December 18, 2000 through December 31, 2000.

(2)

These shares were issued upon conversion of our 5¹/4% convertible subordinated notes in June 2001.

(3)

Biosurgery designated shares are shares of Biosurgery Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Biosurgery. As of December 31, 2002, there were approximately 3.2 million Biosurgery designated shares.

(4)

These shares are issuable upon the conversion of the 6.9% convertible subordinated note we assumed in connection with our acquisition of Biomatrix. This note is due May 14, 2003.

GCS-95

Molecular Oncology Stock:

        For all periods presented, basic and diluted net loss per share of Molecular Oncology Stock are the same. We did not include the securities described in the following table in the computation of Molecular Oncology Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Molecular Oncology Stock.

	December 31,
	2002	2001	2000
	(Amounts in thousands)
Shares of Molecular Oncology Stock issuable for options	2,870	1,370	862
Warrants to purchase Molecular Oncology Stock	—	—	10
Molecular Oncology designated shares issuable upon conversion of 51/4% convertible subordinated notes allocated to Genzyme General(1,2)	—	—	682
Molecular Oncology designated shares(2)	1,651	1,651	1,318
Total shares excluded from the calculation of diluted net loss per share of Molecular Oncology Stock	4,521	3,021	2,872

(1)

These shares were issued upon conversion of our 5¹/4% convertible subordinated notes in June 2001.

(2)

Molecular Oncology designated shares are shares of Molecular Oncology Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Molecular Oncology. As of December 31, 2002, there were approximately 1.7 million Molecular Oncology designated shares.

Surgical Products Stock:

        For the period presented basic and diluted net loss per share of Surgical Products Stock is the same. We did not include the securities described in the following table in the computation of Surgical Products Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Surgical Products Stock.

	December 31, 2000(1)
	(Amounts in thousands)
Shares of Surgical Products Stock issuable for options	450
Surgical Products designated shares issuable upon conversion of 51/4% convertible subordinated notes allocated to Genzyme General(2)	1,130
Total shares excluded from the calculation of diluted net loss per share of Surgical Products Stock(3)	1,580

(1)

For the period from January 1, 2000 through December 18, 2000.

GCS-96

(2)

Surgical Products designated shares were shares of Surgical Products Stock that were not issued and outstanding, but which our board of directors could have issued, sold or distributed without allocating the proceeds to Genzyme Surgical Products.

(3)

On December 18, 2000, in connection with the merger of Biomatrix, we converted all of the existing shares of Surgical Products Stock into shares of Biosurgery Stock. Each share of Surgical Products Stock was converted into 0.6060 of a share of Biosurgery Stock. In the aggregate, we converted approximately 15.0 million shares of Surgical Products Stock into shares of Biosurgery Stock.

Tissue Repair Stock:

        For the period presented, basic and diluted net loss per share of Tissue Repair Stock is the same. We did not include the securities described in the following table in the computation of Tissue Repair Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Tissue Repair Stock.

	December 31, 2000(1)
	(Amounts in thousands)
Shares of Tissue Repair Stock issuable for options	2,934
Tissue Repair designated shares(2)	1,285
Total shares excluded from the calculation of diluted net loss per share of Tissue Repair Stock(3)	4,219

(1)

For the period from January 1, 2000 through December 18, 2000.

(2)

Tissue Repair designated shares were shares of Tissue Repair Stock that were not issued and outstanding, but which our board of directors could have issued, sold or distributed without allocating the proceeds to Genzyme Tissue Repair.

(3)

On December 18, 2000, in connection with the merger of Biomatrix, we converted all of the existing shares of Tissue Repair Stock into shares of Biosurgery Stock. Each share of Tissue Repair Stock was converted into 0.3352 of a share of Biosurgery Stock. In the aggregate, we converted approximately 28.9 million shares of Tissue Repair Stock into shares of Biosurgery Stock.

NOTE C. ACQUISITIONS

Novazyme

        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. 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 by specified dates. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme

GCS-97

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 (amounts 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 are not ratably amortizing the goodwill resulting from the acquisition of Novazyme. Instead, we 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 FIN 44, at the date of acquisition we allocated the $2.6 million intrinsic value of the portion of the unvested options related to the future service period to deferred compensation in stockholders' equity. We are amortizing the unvested portion to operating expense over the remaining vesting period of approximately 22 months.

GCS-98

        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 allocated to IPR&D, and charged to expense, $86.8 million, representing the portion of the purchase price attributable to the technology platform. In accordance with accounting principles generally accepted in the U.S., the amount allocated to IPR&D was charged as an expense in our consolidated financial statements and the combined financial statements of Genzyme General for the year ended December 31, 2001.

        Our management assumes responsibility for determining the IPR&D valuation. 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.

        The staff of the FTC, is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there are ongoing costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

Focal

        In January 2001, Focal, a developer of synthetic biopolymers used in surgery, exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated this investment to Genzyme Biosurgery. On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as merger consideration. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We allocated the acquired assets and liabilities to Genzyme Biosurgery and accounted for the acquisition as a purchase. Accordingly, we included the results of operations of Focal in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from the date of acquisition.

GCS-99

        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 (amounts in thousands):

Issuance of 2,086,151 shares of Biosurgery Stock		$	9,450
Issuance of options to purchase 231,566 shares of Biosurgery Stock			351
Acquisition costs			638
Existing equity investment in Focal			5,488
Cash paid to selling security holder			11
	Total purchase price	$	15,938
Cash and cash equivalents		$	2,331
Other current assets			6,003
Property, plant and equipment			1,568
Intangible assets (to be amortized over 3 to 12 years)			7,909
Goodwill			1,365
Assumed liabilities			(3,773	)
Note receivable from stockholders			535
	Allocated purchase price	$	15,938

Wyntek

        In June 2001, we acquired all of the outstanding capital stock of Wyntek for an aggregate purchase price of $65.4 million. 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.

        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 (amounts 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

GCS-100

        In connection with the acquisition of Wyntek we allocated approximately $8.8 million of the purchase price to IPR&D. Our management assumes responsibility for determining the IPR&D valuation. 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 accounting principles generally accepted in the U.S. Consequently, in accordance with accounting principles generally accepted in the U.S., 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.

        As of December 31, 2002, the technological feasibility of the acquired program had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred. We expect to commercialize this product in early 2004.

Genzyme Development Partners, L.P.

        In January 2001, we acquired the outstanding Class A limited partnership interests in GDP for an aggregate of $25.7 million in cash plus royalties payable over ten years on sales of certain Sepra products. In August 2001, we purchased the remaining outstanding GDP limited partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus additional royalties payable over ten years on sales of certain Sepra products. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, we include the results of operations of GDP in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of Class A interests.

        We allocated the purchase prices to the fair value of the intangible assets acquired as follows (amounts in thousands):

		Total
Patents (to be amortized over 8 years)		$	5,909
Trademarks (to be amortized over 10 years)			2,755
Technology (to be amortized over 10 years)			8,827
Goodwill			8,414
	Total	$	25,905

GCS-101

Biomatrix

        In December 2000, we completed the acquisition of Biomatrix. Concurrent with the acquisition, we created Genzyme Biosurgery as a new division. We reallocated the businesses of two of our operating divisions—Genzyme Surgical Products and Genzyme Tissue Repair—to Genzyme Biosurgery and allocated the acquired businesses of Biomatrix to Genzyme Biosurgery. As a result of this transaction, we amended our charter to create Biosurgery Stock and eliminated Surgical Products Stock and Tissue Repair Stock. Each outstanding share of, and option to purchase, Surgical Product Stock was converted into the right to receive 0.6060 of a share of, or option to purchase, Biosurgery Stock and each outstanding share of, or option to purchase, Tissue Repair Stock was converted into the right to receive 0.3352 of a share of, or option to purchase, Biosurgery Stock.

        We accounted for the acquisition as a purchase and accordingly, the results of operations of Biomatrix are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from December 18, 2000, the date of acquisition.

        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 (amounts in thousands):

Cash paid			$	252,421
Issuance of 17.5 million shares of Biosurgery Stock.				206,522
Issuance of options and warrants to purchase 1.7 million shares of
	Biosurgery Stock			11,373
Acquisition costs				12,087
		Total purchase price.	$	482,403
Cash and cash equivalents			$	56,137
Current assets				37,639
Property, plant & equipment				39,504
Intangible assets (to be amortized straight-line over 1.5 to 11 years)				284,854
Goodwill				114,759
In-process research and development				82,143
Deferred tax asset				922
Deferred compensation				66
Assumed liabilities				(31,347	)
Liabilities for exit activities and integration				(8,216	)
Notes receivable from stockholders				14,760
Deferred tax liability				(108,818	)
		Allocated purchase price	$	482,403

        The approximately 17.5 million shares of Biosurgery Stock issued in exchange for all of the outstanding shares of Biomatrix common stock were valued using the combined five day average closing prices of Surgical Products Stock and Tissue Repair Stock, divided by the applicable exchange ratios. Options and warrants to purchase approximately 1.7 million shares of Biosurgery Stock, issued in exchange for options and warrants to purchase Biomatrix common stock were valued at $11.4 million

GCS-102

using the Black-Scholes model. The intrinsic value of the portion of the unvested options related to the future service period was de minimis.

        Prior to the acquisition, Biomatrix sold 744,000 shares of its common stock to certain of its employees, directors and consultants in exchange for ten-year, full recourse promissory notes. The notes accrue interest at rates ranging from 5.30% to 7.18% and mature at various dates from May 2007 through September 2009, upon which all outstanding principal and accrued interest becomes payable. As a result of the acquisition, these shares were converted into 532,853 shares of Biosurgery Stock and we recorded $14.8 million of outstanding principal and accrued interest to stockholders' equity because the notes were received in exchange for the issuance of stock.

        At the date of acquisition, we began to formulate plans for certain exit and integration activities, including workforce reductions and the closure of Biomatrix's Canadian facility. Accordingly, we recorded liabilities of $6.7 million for severance and related integration costs and assigned to Biomatrix's Canadian facility a value equal to the amount we estimated that we would obtain upon disposal or sale. In 2002 and 2001, we recorded adjustments to and charges against the restructuring reserve as follows (amounts in thousands):

Liabilities for exit activities and integration recorded at acquisition	$	6,716
Payments in 2000		(746	)
Balance at December 31, 2000		5,970
Additional reserve recorded in 2001		1,500
Payments in 2001		(5,891	)
Balance at December 31, 2001		1,579
Payments in 2002		(1,674	)
Revision of estimate		95
Balance at December 31, 2002	$	—

        In October 2001, we completed the sale of the Canadian facility for net proceeds of approximately $1.0 million, which we allocated to Genzyme Biosurgery. We adjusted the allocated fair value of the Canadian facility to equate to the proceeds of the disposal.

        As of December 31, 2002, the restructuring was complete and a total of $8.3 million of costs had been charged for exit activity and integration costs.

        In connection with the purchase of Biomatrix, we allocated approximately $82.1 million of the purchase price to IPR&D. In accordance with accounting principles generally accepted in the U.S., the amount allocated to IPR&D was charged to expense in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery for the year ended December 31, 2000.

        Our management is responsible for determining the fair value of the acquired IPR&D. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected to result from each project once it has reached technological feasibility. A 38% discount rate was used which is consistent with the risks of each project. In estimating future cash flows, management considered other tangible and intangible assets, including core technology, required for successful exploitation of the technology resulting from each purchased IPR&D project and adjusted future cash

GCS-103

flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased research and development was the amount attributable to the efforts of Biomatrix up to the time of acquisition. This amount was estimated through application of the "stage of completion" calculation, which involves multiplying total estimated revenue for IPR&D by the percentage of completion of each purchased research and development project at the time of acquisition.

        The significant assumptions underlying the valuations included potential revenues, costs of completion, the timing of product approvals and the selection of appropriate probability of success and discount rate. None of Biomatrix's IPR&D projects had reached technological feasibility at the date of acquisition nor did they have any alternative future use. Consequently, in accordance with accounting principles generally accepted in the U.S., the amount allocated to IPR&D was charged as an expense in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery for the year ended December 31, 2000. Genzyme Biosurgery is amortizing the remaining acquired intangible assets arising from the acquisition on a straight-line basis over their estimated lives, which range from 1.5 years to 11 years. As of December 31, 2002, except for our viscosupplementation product for the hip launched in Europe in 2002, the technological feasibility of the acquired programs and technology platforms had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

GelTex

        In December 2000, we acquired GelTex. 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.

GCS-104

        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 (amounts 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 FIN 44, the intrinsic value of the portion of the unvested options related to the future service period of $10.2 million has been allocated to deferred compensation in stockholders' equity. The unvested portion was amortized to operating expense over the remaining vesting period of approximately one year, which concluded in December 2001.

        As part of the acquisition of GelTex, we acquired all of GelTex's interest in RenaGel LLC, our joint venture with GelTex. Prior to the acquisition of GelTex, we accounted for the investment in RenaGel LLC under the equity method. Because we already owned a 50% interest in RenaGel LLC, the assets of RenaGel LLC were adjusted to fair value only to the extent of the 50% interest we acquired.

        In connection with the purchase of GelTex, Genzyme General allocated approximately $118.0 million of the purchase price to IPR&D. Our management is responsible for determining the fair value of the acquired IPR&D. 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

GCS-105

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 accounting principles generally accepted in the U.S., the amount allocated to IPR&D was charged as an expense in our consolidated financial statements and the combined financial statements of Genzyme General for the year ended December 31, 2000. We are amortizing the remaining acquired intangible assets arising from the acquisition on a straight-line basis over their estimated lives, which range from 5 years to 15 years. As of December 31, 2002, 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.

        Except for our viscosupplementation product for the hip launched in Europe in 2002, 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, Focal, GelTex and Biomatrix were completed as of January 1, 2001 and 2000. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated at these dates, or of the future operations of the combined entities. Material nonrecurring charges related to these acquisitions, such as acquired IPR&D charges of $86.8 million resulting from the acquisition of Novazyme, $8.8 million resulting from the acquisition of Wyntek, $118.0 million resulting from the acquisition of GelTex and $82.1 million

GCS-106

resulting from the acquisition of Biomatrix are not reflected in the following unaudited pro forma financial summary:

			For the Years Ended December 31,
			2001			2000
			(Amounts in thousands, except per share amounts)
Total revenues			$	1,232,190		$	1,039,771
Income (loss) before cumulative effect of change in accounting for derivative financial instruments				(44,168	)		2,154
Cumulative effect of change in accounting for derivative financial instruments, net of tax				4,167			—
Net income (loss)				(40,001	)		2,154
Net income allocated to Genzyme General Stock:
Net income allocated to Genzyme General Stock before cumulative effect of change in accounting for derivative financial instruments			$	120,009		$	153,825
Cumulative effect of change in accounting for derivative financial instruments				4,167			—
Net income allocated to Genzyme General Stock			$	124,176		$	153,825
Net income per share allocated to Genzyme General Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.59		$	0.81
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		0.02			—
		Net income per share allocated to Genzyme General Stock	$	0.61		$	0.81
	Diluted
		Net income per share before cumulative effect of change in accounting for derivative financial instruments principle	$	0.56		$	0.76
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		0.02			—
		Net income per share allocated to Genzyme General Stock	$	0.58		$	0.76
	Weighted average shares outstanding:
		Basic		204,107			190,597
		Diluted		213,234			215,049
Net loss allocated to Biosurgery Stock—basic and diluted			$	(134,459	)	$	(129,045	)
Net loss per share allocated to Biosurgery Stock—basic and diluted			$	(3.52	)	$	(3.36	)
Weighted average shares outstanding—basic and diluted				39,019			38,438

GCS-107

NOTE D. DISPOSITION OF ASSETS

Snowden-Pencer Products

        In November 2001, we sold our Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery, for $15.9 million in net cash, which was allocated to Genzyme Biosurgery. The purchaser acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a net carrying value of approximately $41 million at the time of the sale. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery in connection with this sale. We also recorded a related tax benefit of $4.7 million in our consolidated financial statements.

ATIII LLC

        In July 2001, we transferred our 50% ownership interest in ATIII LLC, to GTC. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of any of GTC's products based on ATIII beginning three years after the first commercial sale of each such product; up to a cumulative maximum amount of $30.0 million. We will allocate any royalty amounts that we receive to Genzyme General. Prior to the transfer, we consolidated the results of ATIII LLC, and allocated it to Genzyme General, because we had control of ATIII LLC through our combined, direct and indirect ownership interest in the joint venture.

NOTE E. DERIVATIVE FINANCIAL INSTRUMENTS

        We use an interest rate swap to mitigate the risk associated with a floating rate lease obligation, and have designated the swap as a cash flow hedge. The notional amount of this swap at December 31, 2002 was $25.0 million. Because the critical terms of the swap agreement correspond to the related lease obligation, there were no amounts of hedge ineffectiveness during 2002. No gains or losses were excluded from the assessment of hedge effectiveness. We record the differential to be paid or received on the swap as incremental interest expense. The fair value of the swap at December 31, 2002, representing the cash requirements to settle the agreement, was a loss of approximately $(3.9) million.

        We periodically enter foreign currency forward contracts, all of which have durations of three months. These contracts have not been designated as hedges and, accordingly, unrealized gains or losses on these contracts are reported in current earnings. The notional settlement amount of foreign currency forward contracts outstanding at December 31, 2002 was $46.2 million. At December 31, 2002, these contracts had a fair value of $2.3 million, representing an unrealized loss. This amount has been recorded in our consolidated statement of operations and the combined statement of operations for Genzyme General for the year ended December 31, 2002 and in accrued expenses in our consolidated balance sheet and the combined balance sheet of Genzyme General as of December 31, 2002.

        For the year ended December 31, 2002, we recorded a pre-tax charge of $2.1 million in other expense to reflect the change in value of our warrants to purchase shares of GTC common stock from January 1, 2002 to December 31, 2002. We also recorded a pre-tax charge of $1.6 million in other comprehensive income for the year ended December 31, 2002 to reflect the change in value of our interest rate swap contract during the period, net of tax.

GCS-108

        In the normal course of business, we manage risks associated with foreign exchange rates, interest rates and equity prices through a variety of strategies, including the use of hedging transactions, executed in accordance with our management and accounting policies. As a matter of policy, we do not use derivative instruments unless there is an underlying exposure. We do not use derivative instruments for trading or speculative purposes.

NOTE F. ACCOUNTS RECEIVABLE

        Our trade receivables primarily represent amounts due from distributors, healthcare service providers, and companies and institutions engaged in research, development or production of pharmaceutical and biopharmaceutical products. We perform credit evaluations of our customers on an ongoing basis and generally do not require collateral. We state accounts receivable at fair value after reflecting an allowance for doubtful accounts. This allowance was $18.9 million at December 31, 2002 and $14.2 million at December 31, 2001.

NOTE G. INVENTORIES

	December 31,
	2002		2001
	(Amounts in thousands)
Raw materials	$	45,751	$	52,586
Work-in-process		77,274		64,925
Finished products		115,784		53,898
Total	$	238,809	$	171,409

        We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If a product is not approved for sale, it would likely result in the write-off of the inventory and a charge to earnings. At December 31, 2002, our total inventories include $7.5 million of inventory for products that have not yet been approved for sale. In addition, at December 31, 2002, a joint venture in which we have a 50% ownership interest has $17.3 million of inventory for a product that has not yet been approved for sale, of which $8.6 million represents our portion of the unapproved inventory of the joint venture.

GCS-109

NOTE H. PROPERTY, PLANT AND EQUIPMENT

	December 31,
	2002			2001
	(Amounts in thousands)
Plant and equipment	$	409,371		$	317,707
Land and buildings		385,294			303,691
Leasehold improvements		122,707			122,800
Furniture and fixtures		29,661			23,139
Construction-in-progress		200,122			150,918
		1,147,155			918,255
Less accumulated depreciation		(344,707	)		(282,941	)
Property, plant and equipment, net	$	802,448		$	635,314

        Our depreciation expense was $62.5 million in 2002, $56.7 million in 2001 and $33.6 million in 2000.

        We capitalize costs we have incurred in validating the manufacturing process for products which have reached technological feasibility. As of December 31, 2002, capitalized validation costs, net of accumulated depreciation, were $15.3 million. We have capitalized the following amounts of interest costs incurred in financing the construction of our manufacturing facilities:

For the Years Ended December 31,
2002		2001		2000
$	4.5 million	$	4.2 million	$	2.2 million

        The estimated cost to complete the assets under construction as of December 31, 2002 is $271.5 million.

        During 2001, we began constructing a recombinant protein manufacturing facility adjacent to our existing facilities in Framingham, Massachusetts, which we allocated to Genzyme General. During the quarter ended December 31, 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. Throughout 2002, we considered various alternative plans for use of the Framingham manufacturing facility, including contract manufacturing arrangements, and whether the $16.8 million of capitalized engineering and design costs for this facility would be applicable to the future development at this site. In December 2002, due to a change in our plans for future manufacturing capacity requirements, we determined that we would not proceed with construction of the Framingham facility for the foreseeable future. As a result, we recorded a charge in the fourth quarter of 2002 to write off $14.0 million of capitalized engineering and design costs that were specific to the Framingham facility. We allocated this charge to Genzyme General. The remaining $2.8 million of capitalized engineering and design costs were used in the construction of the Belgium manufacturing facility and, accordingly, have been reallocated as a capitalized cost of that facility.

        In 1997, we temporarily suspended bulk production of HA at our bulk HA manufacturing facility in Haverhill, England, because we determined that we had sufficient quantities of HA on hand to meet the demand for our Sepra products for the near term. In the first quarter of 2002, we began a capital

GCS-110

expansion program to build HA manufacturing capacity at one of our existing manufacturing facilities in Framingham, Massachusetts. During the third quarter of 2002, we determined that we had sufficient inventory levels to meet demand until the Framingham facility is completed and validated, which is estimated to be within one year. In connection with this assessment, at September 30, 2002, we concluded that we no longer require the manufacturing capacity at the HA plant in England and recorded an impairment charge of approximately $9.0 million in our consolidated statements of operations and the combined statements of operations of Genzyme Biosurgery to write off the assets at the England facility.

        In 2000, we recorded a $4.3 million charge for the write-off of abandoned equipment at our Springfield Mills manufacturing facility located in England. The write-off of equipment was related to the Sepra product line and did not have other alternative uses. We allocated this charge to Genzyme Biosurgery.

NOTE I. GOODWILL AND OTHER INTANGIBLE ASSETS

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by us effective at the beginning of fiscal year 2002.

Goodwill

        Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, we ceased amortizing goodwill. At January 1, 2002, our gross goodwill totaled $799.5 million, including $4.3 million of acquired workforce intangible assets previously classified as other intangible assets at December 31, 2001, net of related deferred tax liabilities, of which $1.6 million was allocated to our Therapeutics reporting segment, $0.8 million was allocated to our Diagnostic Products reporting segment and $1.8 million was allocated to Genzyme Biosurgery.

        In November 2001, we sold our Snowden-Pencer line of surgical instruments and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, upon adoption of SFAS No. 142, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our consolidated statements of operations and the combined statements of operations of Genzyme Biosurgery for the year ended December 31, 2002.

GCS-111

        We completed the transitional and annual impairment tests for the $592.1 million of net goodwill related to our other reporting units during 2002, as provided by SFAS No. 142, and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstance suggest that the carrying value of an asset may not be recoverable.

        The following table contains the changes in our net goodwill during the year ended December 31, 2002 (amounts in thousands):

				As of December 31, 2001			Adjustments			Impairments			As of December 31, 2002
Goodwill:
	Genzyme General:
		Therapeutics(1)		$	387,213		$	(6,359	)	$	—		$	380,854
		Renal(2)			82,508			(31	)		—			82,477
		Diagnostic Products(3)			32,427			789			—			33,216
		Other			56,462			171			—			56,633
			Total		558,610			(5,430	)		—			553,180
	Genzyme Biosurgery(4,5)				236,621			(491	)		(113,859	)		122,271
	Genzyme Molecular Oncology				—			—			—			—
			Total		795,231			(5,921	)		(113,859	)		675,451
Accumulated amortization					(97,809	)		(1,156	)		15,589			(83,376	)
Goodwill, net				$	697,422		$	(7,077	)	$	(98,270	)	$	592,075

(1)

Adjustments for our Therapeutics reporting segment include:

•

$(8.8) million resulting from an adjustment to the value assigned to the deferred tax assets and liabilities recorded in connection with our acquisition of GelTex;

•

$1.6 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of GelTex reclassified as required by SFAS No. 142;

•

$1.3 million resulting from an adjustment to value assigned to the deferred tax assets recorded in connection with our acquisition of Novazyme; and

•

a $(0.5) million net decrease in goodwill resulting primarily from the reversal of $(1.3) million of excess integration and exit activity costs accruals related to our acquisition of Novazyme.

(2)

During 2002, we created our Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, goodwill amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of our Therapeutics reporting segment. We have reclassified our 2001 goodwill disclosures by segment to conform to our 2002 presentation. Adjustments for our Renal reporting segment resulted from reclassifications related to our acquisition of GelTex.

(3)

Adjustments for our Diagnostic Products reporting segment represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of Wyntek, reclassified as required by SFAS No. 142.

GCS-112

(4)

Adjustments for Genzyme Biosurgery include:

•

workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, of $1.4 million resulting from our acquisition of Biomatrix and $0.4 million resulting from our acquisition of Focal reclassified as required by SFAS No. 142; and

•

$(2.3) million resulting from a reclassification adjustment related to our acquisition of Biomatrix.

(5)

Impairment for Genzyme Biosurgery represents the impairment charge we recorded in 2002, in accordance with the transitional provisions of SFAS No. 142, related to the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit.

Other Intangible Assets

        The following table contains information on our other intangible assets for the periods presented (amounts in thousands):

		As of December 31, 2002							As of December 31, 2001
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	551,836	$	(88,222	)	$	463,614	$	551,743	$	(44,253	)	$	507,490
Patents			196,997		(37,014	)		159,983		196,968		(21,804	)		175,164
Trademarks			91,754		(15,945	)		75,809		91,754		(9,960	)		81,794
License fees			26,862		(7,261	)		19,601		25,460		(5,371	)		20,089
Distribution agreements			13,950		(3,550	)		10,400		13,950		(1,807	)		12,143
Customer lists			8,324		(4,031	)		4,293		8,324		(3,199	)		5,125
Other			12,242		(11,464	)		778		18,123		(10,704	)		7,419
	Total	$	901,965	$	(167,487	)	$	734,478	$	906,322	$	(97,098	)	$	809,224

        All of our other intangible assets are amortized over their estimated useful lives which range between 1.5 years to 40 years. Total amortization expense for our other intangible assets was:

•

$71.5 million for the year ended December 31, 2002;



•

$69.8 million for the year ended December 31, 2001; and



•

$11.9 million for the year ended December 31, 2000.

Amortization expense for each year presented includes $1.2 million related to the amortization of a non-compete agreement which is charged to cost of products sold. Amortization expense for the year ended December 31, 2001 excludes the expense related to the amortization of goodwill.

        The estimated future amortization expense for other intangible assets for the five succeeding fiscal years is as follows (amounts in thousands):

Year Ended December 31,	Estimated Amortization Expense
2003	$	70,142
2004		69,725
2005		69,205
2006		66,703
2007		66,633

GCS-113

Adjusted Net Income (Loss)

        The following tables present the impact SFAS No. 142 would have had on our amortization of intangibles expense and net income (loss) had the standard been in effect for the years ended December 31, 2001 and 2000 (amounts in thousands, except per share amounts):

			Year Ended December 31, 2001									Year Ended December 31, 2000
			As Reported			Goodwill Amortization Adjustment			As Adjusted			As Reported			Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles			$	121,124		$	(52,541	)	$	68,583		$	22,974		$	(12,259	)	$	10,715
Net income (loss) before cumulative effect of change in accounting for derivative financial instruments			$	(116,323	)	$	52,541		$	(63,782	)	$	(62,940	)	$	12,259		$	(50,681	)
Cumulative effect of change in accounting for derivative financial instruments, net of tax				4,167			—			4,167			—			—			—
Net income (loss)			$	(112,156	)	$	52,541		$	(59,615	)	$	(62,940	)	$	12,259		$	(50,681	)
Net income allocated to Genzyme General Stock:
	Net income allocated to Genzyme General Stock before cumulative effect of change in accounting for derivative financial instruments		$	40,376		$	37,020		$	77,396		$	121,455		$	6,608		$	128,063
	Cumulative effect of change in accounting for derivative financial instruments, net of tax			4,167			—			4,167			—			—			—
	Net income allocated to Genzyme General Stock		$	44,543		$	37,020		$	81,563		$	121,455		$	6,608		$	128,063
	Net income per share of Genzyme General Stock
		Basic:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.20		$	0.18		$	0.38		$	0.71		$	0.03		$	0.74
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		0.02			—			0.02			—			—			—
		Net income per share allocated to Genzyme General Stock	$	0.22		$	0.18		$	0.40		$	0.71		$	0.03		$	0.74
		Diluted:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.19		$	0.18		$	0.37		$	0.68		$	0.03		$	0.71
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		0.02			—			0.02			—			—			—
		Net income per share allocated to Genzyme General Stock	$	0.21		$	0.18		$	0.39		$	0.68		$	0.03		$	0.71

GCS-114

Net income (loss) allocated to Biosurgery Stock	$	(126,981	)	$	15,521	$	(111,460	)	$	(87,188	)	$	555	$	(86,633	)
Net income (loss) per share of
Biosurgery Stock—basic and diluted	$	(3.34	)	$	0.41	$	(2.93	)	$	(2.40	)	$	0.02	$	(2.38	)
Net income (loss) allocated to Molecular Oncology Stock	$	(29,718	)	$	—	$	(29,718	)	$	(23,096	)	$	2,227	$	(20,869	)
Net income (loss) per share of Molecular Oncology Stock—basic and diluted	$	(1.82	)	$	—	$	(1.82	)	$	(1.60	)	$	0.16	$	(1.44	)
Net income (loss) allocated to Surgical Products Stock									$	(54,748	)	$	3,339	$	(51,409	)
Net income (loss) per share of Surgical Products Stock—basic and diluted									$	(3.67	)	$	0.22	$	(3.45	)
Net loss allocated to Tissue Repair Stock									$	(19,833	)	$	—	$	(19,833	)
Net loss per share of Tissue Repair Stock—basic and diluted									$	(0.69	)	$	—	$	(0.69	)

GCS-115

NOTE J. INVESTMENTS IN MARKETABLE SECURITIES AND STRATEGIC EQUITY INVESTMENTS

Marketable Securities

		December 31,
		2002				2001
		Cost		Market Value		Cost		Market Value
		(Amounts in thousands)
Cash equivalents(1):
	Corporate notes	$	—	$	—	$	1,550	$	1,552
	U.S. Governmental agencies		2,002		2,002		22,646		22,720
	Money market fund		125,266		125,266		149,233		149,233
		$	127,268	$	127,268	$	173,429	$	173,505
Short-term:
	Corporate notes(2)	$	73,186	$	74,434	$	47,221	$	47,921
	U.S. Governmental agencies		26,455		26,751		16,084		16,464
	Non U.S. Governmental agencies		4,718		4,807		1,042		1,066
	U.S. Treasury notes		—		—		1,005		1,030
		$	104,359	$	105,992	$	65,352	$	66,481
Long-term:
	Corporate notes(2)	$	480,144	$	498,869	$	509,560	$	521,519
	U.S. Governmental agencies		129,901		134,833		156,282		157,526
	Non U.S. Governmental agencies		25,586		26,571		36,397		36,929
	U.S. Treasury notes		20,862		21,928		89,611		91,792
		$	656,493	$	682,201	$	791,850	$	807,766
Total cash equivalents, short- and long-term investments		$	888,120	$	915,461	$	1,030,631	$	1,047,752
Investments in equity securities		$	52,954	$	42,945	$	50,347	$	88,686

(1)

Cash equivalents are included as part of cash and cash equivalents on our balance sheets.

(2)

Short-term corporate notes includes $4.5 million of long-term corporate notes, allocated to Genzyme Molecular Oncology that mature in more than one year because Genzyme Molecular Oncology will need to utilize these investments within the next twelve months to fund its operating activities.

GCS-116

        The following table contains information regarding the range of contractual maturities of our investments in debt securities:

	December 31,
	2002				2001
	Cost		Market Value		Cost		Market Value
	(Amounts in thousands)
Within 1 year	$	227,133	$	228,721	$	238,781	$	239,986
1-2 years(1)		163,997		169,465		202,071		206,705
2-10 years(1)		496,990		517,275		589,779		601,061
	$	888,120	$	915,461	$	1,030,631	$	1,047,752

(1)

$4.5 million of long-term corporate notes, allocated to Genzyme Molecular Oncology, are classified as short-term investments as of December 31, 2002 because Genzyme Molecular Oncology will need to utilize these investments within the next twelve months to fund operating activities.

Realized and Unrealized Gains and Losses on Marketable Securities and Investments in Equity Securities

        In December 2002, we recorded the following impairment charges because we considered the decline in value of these strategic equity investments to be other than temporary:

•

$9.2 in connection with our investment in the common stock of GTC;



•

$3.4 million in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group;



•

$2.0 million in connection with our investment in the common stock of Dyax; and



•

$0.8 million in connection with our investment in the common stock of Targeted Genetics.

        Given the significance and duration of the declines as of the end of 2002, 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. At December 31, 2002, our stockholders' equity includes unrealized losses of approximately $10.0 million, related to the other strategic equity investments in equity securities allocated to Genzyme General.

        Offsetting these impairment charges we recorded and allocated to Genzyme General, are net realized gains of $0.9 million from the sale of investments in equity securities for the year ended December 31, 2002.

        We 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. We allocate these investments to Genzyme General.

GCS-117

        In August 2001, Pharming Group filed for receivership in order to seek protection from its creditors. In 2001, we recorded a charge of $8.5 million, representing an at-cost write-down of our investment in Pharming Group common stock. We allocate this investment to Genzyme General.

        In April 2001, Antigenics announced that it had entered into a definitive merger agreement with Aronex. The merger was completed in July 2001. Under the terms of the merger agreement, we received 0.0594 of a share of Antigenics common stock for each share of Aronex common stock that we held. As a result of this merger, we recorded a $1.2 million charge to reflect the fair market value of our investment in Aronex at June 30, 2001. We allocate this investment to Genzyme General.

        During 2000, we recorded gains of $16.4 million resulting from sales of portions of our investment in GTC common stock. We also recognized a $7.6 million gain resulting from the acquisition of Celtrix Pharmaceuticals, Inc. by Insmed Pharmaceuticals, Inc. in which our shares of Celtrix common stock were exchanged on a 1-for-1 basis for shares of Insmed common stock. The tax effect of these gains was offset by the reversal of a $1.9 million valuation allowance related to previously recognized capital losses. We allocate these investments to Genzyme General.

        In 2000, we determined that our investment in the common stock of Focal, Inc., which we allocated to Genzyme Biosurgery, was impaired. As a result, we recorded a charge to operations of $7.3 million in 2000, which we allocated to Genzyme Biosurgery.

        We record gross unrealized holding gains and losses related to our investments in marketable securities and strategic equity investments, to the extent they are determined to be temporary, in stockholders' equity. The following table sets forth the amounts recorded:

	December 31,
	2002		2001
Unrealized holding gains	$	27.4 million	$	56.2 million
Unrealized holding losses	$	10.1 million	$	0.6 million

GCS-118

        We allocate strategic investments in equity securities of unconsolidated entities to our operating divisions. All of the investments included in the following table are allocated to Genzyme General:

		December 31, 2002
		Adjusted Cost		Market Value		Unrealized Gain/(Loss)
		(Amounts in thousands)
Abiomed, Inc.		$	15,804	$	8,400	$	(7,404	)
BioMarin Pharmaceutical Inc.			18,000		14,823		(3,177	)
Cambridge Antibody Technology Group plc(1,2)			2,910		2,910		—
Dyax Corporation(2)			991		991		—
GTC(2)			5,811		5,811		—
Healthcare Ventures V., L.P.			2,121		2,121		—
Oxford Bioscience Partners IV, L.P			1,250		1,250		—
MPM BioVentures III—QP, L.P.			500		500		—
Pharming Group, N.V.(1)			—		572		572
ProQuest Investments II, L.P.			1,861		1,861		—
Targeted Genetics Corporation(2)			206		206		—
ViaCell, Inc.			3,500		3,500		—
	Total at December 31, 2002	$	52,954	$	42,945	$	(10,009	)

	December 31, 2001
	Adjusted Cost		Market Value		Unrealized Gain/(Loss)
	(Amounts in thousands)
Total at December 31, 2001	$	50,347	$	88,686	$	38,339

(1)

Our investment in Cambridge Antibody Technology Group is denominated in British pounds sterling and our investment in Pharming Group is denominated in Euros. We translated these investments into U.S. dollars at the current exchange rates for each of these currencies on December 31, 2002.

(2)

In December 2002, we recorded impairment charges because we considered the decline in value of these investments to be other than temporary.

GTC

        On April 4, 2002, GTC purchased approximately 2.8 million shares of GTC common stock held by us and allocated to Genzyme General for an aggregate consideration of approximately $9.6 million. We received approximately $4.8 million in cash and a promissory note for the remaining amount of approximately $4.8 million, which we have recorded as a note receivable—related party in our consolidated balance sheet and the combined balance sheet of Genzyme General for the year ended December 31, 2002. The shares of GTC common stock were valued at $3.385 per share in this transaction, using the simple average of the high and low transaction prices quoted on the Nasdaq National Market on April 1, 2002. We have committed to a 24-month lock-up provision on the

GCS-119

remaining 4.9 million shares of GTC common stock held by us and allocated to Genzyme General, which is approximately 18% of the shares of GTC common stock outstanding as of December 31, 2002. We accounted for our investment in GTC under the equity method of accounting until May 2002, at which point our ownership interest and board representation was reduced below 20% and we did not have any other factors of significant influence. Accordingly, we ceased to have significant influence over GTC and we began accounting for our investment in GTC under the cost method of accounting in June 2002.

        We hold warrants to purchase up to 288,000 shares of GTC common stock at an exercise price of $4.875 per share and warrants to purchase 145,000 shares of GTC common stock at an exercise price of $2.84375 per share. Both GTC warrants are currently exercisable for the underlying shares of GTC common stock.

        We recorded in net loss of unconsolidated affiliates our portion of GTC's results through May 2002. Our recognized portion of GTC's net losses was $1.9 million in 2002, $4.3 million in 2001 and $2.1 million in 2000. The fair market value of our investment in GTC common stock was $5.8 million at December 31, 2002 and $45.1 million at December 31, 2001.

        In February 2000, we converted $6.6 million in shares of Series B convertible preferred stock of GTC into approximately $1.0 shares of GTC common stock.

        In 2000, we recorded gains of $22.7 million relating to public offerings of common stock by GTC. We recorded this gain as gain on affiliate sale of stock and allocated it to Genzyme General.

Agreements with GTC

        We have a number of agreements with GTC, including the following:

•

services agreement under which GTC pays us for services provided by us, including treasury, data processing and laboratory support services;



•

sublease agreement under which we sublease a portion of one of our facilities in Framingham, Massachusetts to GTC; and



•

research and development agreement under which each of the parties performs research services for the other.

        During 2002, we received approximately $3.3 million from GTC under these agreements. At December 31, 2002, GTC owed Genzyme $2.4 million under these agreements.

        Our revenues from research and development agreements with GTC were $2.7 million in 2002, $3.2 million in 2001 and $0.5 million in 2000.

GCS-120

        The following tables contain condensed statement of operations and balance sheet data for GTC:

	Years Ended December 31,
	2002			2001			2000
	(Amounts in thousands)
Revenues	$	10,379		$	13,740		$	88,149
Operating loss		(25,909	)		(13,384	)		(10,239	)
Net loss		(24,320	)		(16,556	)		(13,143	)

	At December 31,
	2002		2001
	(Amounts in thousands)
Current assets	$	61,459	$	47,323
Noncurrent assets		33,913		72,809
Current liabilities		13,771		18,102
Noncurrent liabilities		12,831		80

ATIII LLC

        In 1998, we formed ATIII LLC with GTC. The collaboration agreement provided that we fund 70% of the first $33.0 million in development costs, excluding facility costs, under this program, 50% of all development costs thereafter, and 50% of all new facility costs to be incurred by ATIII LLC. However, under an interim funding agreement, we shared the costs of this program incurred between January 1, 2001 and February 2, 2001 equally with GTC. As our combined direct and indirect interest in ATIII LLC was in excess of 50%, we consolidated the results of ATIII LLC and recorded GTC's portion of the ATIII LLC's losses as minority interest. We allocated our ownership interest in ATIII LLC to Genzyme General.

        In July 2001, we transferred our 50% ownership interest in ATIII to GTC. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of any of GTC's products based on ATIII beginning three years after the first commercial sale of each such product up to a cumulative maximum amount of $30.0 million. We will allocate any royalty payments we receive to Genzyme General.

Dyax Corp.

        In October 1998, we entered into a collaboration agreement with Dyax to develop and commercialize one of Dyax's proprietary compounds for the treatment of chronic inflammatory diseases. In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88. As a result, our option to acquire a 50% interest in DX-88 for hereditary angioedema, or HAE, and other potential indications will be exercisable after the first phase 2 clinical trial of DX-88 for use in HAE has concluded and we have had an opportunity to review the data. The restructured agreement also provides Dyax with an option to acquire our interest in the potential application of DX-88 for the reduction of blood loss and other effects of systemic inflammatory responses in surgery. This option expires in March 2003.

GCS-121

        Under the revised collaboration agreement, the line of credit we extended to Dyax was increased from $3.0 million to $7.0 million. In connection with the increase, Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2%, which was 6.3% at December 31, 2002, and are due, together with any accrued but unpaid interest, in May 2005. As of December 31, 2002, Dyax had drawn $7.0 million under the note, which we have recorded as a note receivable-related party in our consolidated balance sheet and the combined balance sheet of Genzyme General. Dyax is considered a related party because the chairman and chief executive officer of Dyax is a member of our board of directors and two of our directors are directors of Dyax. Pursuant to the terms of the note, we are not obligated to make advances in excess of $1.5 million during any calendar quarter.

        We have two license agreements with Dyax Corp. for Dyax's phage display technology. We pay annual license maintenance fees of $50,000 for this license. We will also make milestone payments and pay royalties on net sales of diagnostic and therapeutic products discovered, made or developed using the licensed technology. From September 1996 through April 2002, we subleased office and laboratory space in Cambridge, Massachusetts to Dyax. Rental payments under this sublease were $53,943 per month. Dyax paid approximately $215,773 in sublease fees to us during 2002.

NOTE K. INVESTMENTS IN JOINT VENTURES

        Our investment in joint ventures is included in other assets, non-current, on our balance sheet. Except as described below, we own a 50% interest in the following joint ventures, all of which are allocated to Genzyme General:

Joint Venture	Partner(s)	Effective Date	Product/Indication
BioMarin/ Genzyme LLC	BioMarin Pharmaceutical Inc.	September 1998	Aldurazyme enzyme for the treatment of mucopolysaccharidosis-I
Pharming/ Genzyme LLC	Pharming Group N.V.(1)	October 1998	Human alpha-glucosidase for the treatment of Pompe disease (transgenic product)
Genzyme/ Pharming Alliance LLC	Pharming Group N.V.(1)	June 2000	Human alpha-glucosidase for the treatment of Pompe disease (produced using CHO cells)
Diacrin/ Genzyme LLC(2)	Diacrin, Inc.	October 1996	Products using porcine fetal cells; for the treatment of Parkinson's and Huntington's diseases

(1)

In August 2001, Pharming Group and certain of its affiliates filed for court-supervised receivership. We thereafter committed to fund all of the operations of Pharming/Genzyme LLC, which in turn was legally

GCS-122

obligated to supply transgenic human alpha-glucosidase to the patients who were enrolled in the clinical trial of the product until they could be transitioned to a CHO-cell derived product. We also acquired the manufacturing facility in Geel, Belgium that was operated by Pharming Group's subsidiary Pharming N.V. as part of our effort to ensure the continued supply of the transgenic product to these patients. Also in August 2001, we terminated our strategic alliance agreement with Pharming Group and certain of its affiliates for the development of a CHO-cell derived product for Pompe disease due to Pharming Group's failure to make funding payments, and thereby assumed full operational and financial responsibility for the development of the CHO-cell derived product and Genzyme/Pharming Alliance LLC, which became our wholly-owned subsidiary. In August 2002, we finalized settlement arrangements with Pharming Group and certain of its affiliates related to the Pompe programs. As part of the settlement arrangements, Pharming Group and certain of its affiliates assigned or exclusively licensed to us their intellectual property related to Pompe disease and transferred their interest in Pharming/Genzyme LLC to us. Pharming/Genzyme LLC is now our wholly-owned subsidiary. Pharming Group and certain of its affiliates came out of receivership later in 2002, but are no longer involved in the Pompe program.

(2)

The joint venture is no longer actively developing these products.

        The following tables describe:

•

the amount of funding we have provided to each joint venture and unconsolidated affiliate to date;


•

amounts due to us by each joint venture and unconsolidated affiliate as of December 31, 2002 for services we provided on behalf of the joint venture, which we have recorded on our balance sheet as prepaids and other current assets;


•

our portion of the losses of each joint venture and unconsolidated affiliate for the periods presented, which we have recorded as charges to equity in net loss of unconsolidated affiliates in our statement of operations; and


•

total net losses of each joint venture and unconsolidated affiliate for the periods presented.

Joint venture/Unconsolidated Affiliate		Total Funding through December 31, 2002		Receivables as of December 31, 2002
		(Amounts in millions)
BioMarin/Genzyme LLC		$	65.2	$	2.8
Pharming/Genzyme LLC			21.9		—
Genzyme/Pharming Alliance LLC			8.5		—
Diacrin/Genzyme LLC			33.1		—
GTC			—		2.4
	Totals	$	128.7	$	5.2

GCS-123

		Our Portion of the Net Losses from Our Unconsolidated Affiliates									Total Losses of Our Unconsolidated Affiliates
Joint Venture/Unconsolidated Affiliate
		2002			2001			2000			2002			2001			2000
		(Amounts in millions)									(Amounts in millions)
BioMarin/Genzyme LLC		$	(14.5	)	$	(18.5	)	$	(12.6	)	$	(29.6	)	$	(36.9	)	$	(25.3	)
Diacrin/Genzyme LLC			(0.5	)		(2.3	)		(6.2	)		(0.7	)		(3.1	)		(8.2	)
GTC			(1.9	)		(4.3	)		(2.1	)		(24.3	)		(16.6	)		(13.1	)
RenaGel LLC			—			—			(15.9	)		—			—			(10.7	)
Pharming/Genzyme LLC			—			(2.9	)		(6.6	)		—			(5.8	)		(13.3	)
Genzyme/Pharming Alliance LLC			—			(6.5	)		(1.5	)		—			(13.0	)		(2.9	)
Focal, Inc.			—			(1.3	)		—			—			(6.0	)		—
Other			—			0.1			(0.1	)		—			0.3			(0.1	)
	Totals	$	(16.9	)	$	(35.7	)	$	(45.0	)	$	(54.6	)	$	(81.1	)	$	(73.6	)

        Condensed financial information for our joint ventures and unconsolidated affiliates, excluding GTC, is summarized below:

	For the Years Ended December 31,
	2002			2001			2000
	(Amounts in thousands)
Revenue	$	296		$	1,519		$	47,083
Gross profit		(7,692	)		(969	)		23,748
Operating expenses		(22,776	)		(69,450	)		(107,621	)
Net loss		(30,321	)		(67,545	)		(60,280	)

	December 31,
	2002		2001
	(Amounts in thousands)
Current assets	$	28,080	$	11,538
Noncurrent assets		—		106
Current liabilities		5,019		28,817
Noncurrent liabilities		—		—

Agreements and Transactions with Pharming Group N.V.

        In 2002, we cancelled our manufacturing contract for the clinical development of the CHO therapy licensed from Synpac and we recorded and allocated to Genzyme General a charge of $8.8 million to research and development to reflect bulk product purchases and contract cancellation charges. The cancellation of our contract with Synpac was a result of our comparison study of our enzyme programs for the treatment of Pompe disease that we concluded during the first quarter of 2002. The enzyme programs included:

•

the transgenic enzyme developed by Pharming/Genzyme LLC, our joint venture with Pharming Group;



•

the internally developed enzyme derived from a CHO-cell line;

GCS-124

•

the CHO enzyme licensed from Synpac (North Carolina), Inc. in 2000; and



•

an enzyme produced using technology we obtained in the Novazyme acquisition in 2001.

The analysis of the data from the study indicated that our internally developed CHO-cell product offers the clearest and most efficient pathway to commercialization based on both clinical and manufacturing considerations. In addition to the cancellation of our contract with Synpac and the $8.8 million charge, we:

•

will continue to supply the CHO therapy licensed from Synpac to patients participating in the extensions of clinical trials, until they can be transitioned to the internally developed CHO-cell product; and



•

will proceed with the pre-clinical development of an enzyme produced using technology we obtained through the acquisition of Novazyme as a potential next-generation therapy for Pompe disease and utilize Novazyme's engineering technologies to develop improved second-generation versions of our marketed products and optimal products for the treatment of other LSDs.

        In 2001, we 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 patients currently enrolled in the clinical trial of this product can be transitioned to a CHO-cell product. As a result of Pharming Group's failure to make payments to fund our joint venture for the development of a CHO-cell product for Pompe disease under a strategic alliance agreement, we terminated this agreement in August 2001 and have assumed full operational and financial responsibility for the development of the CHO-cell product. Pharming/Genzyme LLC, the vehicle for our joint venture with Pharming Group covering a transgenic product for Pompe disease continues to exist; however, we do not intend to commercialize this product.

        As of December 31, 2002, only three patients of the nine patients enrolled in the clinical trial of the transgenic product have not been transitioned to a CHO-cell derived product. We determined we had sufficient quantities of transgenic product to cover the patients until they are finally transferred. As a result, we revised our estimated cost of this legal obligation and reversed $5.5 million of amounts in excess of requirements to selling, general and administrative expense in December 2002.

        At December 31, 2002, $2.6 million remained in the reserve for our contractual obligation to provide transgenic product as follows (amounts in thousands):

Initial commitment to fund the operations of the transgenic program	$	16,807
Payments in 2001		(2,683	)
Balance at December 31, 2001		14,124
Payments in 2002		(6,031	)
Revision of estimate		(5,497	)
Balance at December 31, 2002	$	2,596

GCS-125

        In 2001, we recorded a charge of $4.7 million to research and development expenses, representing the net amount owed by Pharming Group to the CHO-cell product joint venture we previously formed with Pharming Group that we determined was uncollectible. We allocated this charge to Genzyme General.

NOTE L. ACCRUED EXPENSES

		December 31,
		2002		2001
		(Amounts in thousands)
Compensation		$	65,880	$	51,827
Purchase accrual			27,548		12,508
Bank overdraft			18,194		19,468
Other			79,132		60,937
	Total accrued expenses	$	190,754	$	144,740

NOTE M. LONG-TERM DEBT AND LEASES

Long-Term Debt and Capital Lease Obligations

        While we are responsible for repaying all long-term debt and capital lease obligations, we allocate these obligations to our operating divisions for financial reporting purposes based on the intended use of the funds.

        Our long-term debt and capital lease obligations consist of the following:

	December 31,
	2002			2001
	(Amounts in thousands)
3% convertible subordinated debentures due May 2021	$	575,000		$	575,000
Revolving credit facility maturing in December 2003		284,000			234,000
6.9% convertible subordinated note due May 2003		10,000			10,000
Notes payable		7			6,723
Capital lease obligations		25,768			26,832
	$	894,775		$	852,555
Less current portion		(294,737	)		(7,746	)
Total	$	600,038		$	844,809

        Over the next five years, we will be required to repay the following principal amounts on our long-term debt (excluding capital leases) (amounts in millions):

2003		2004	2005	2006		2007	After 2007
$	294.0	—	—	$	575.0	—	—

GCS-126

3% Convertible Subordinated Debentures

        In May 2001, we completed the private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. After deducting the underwriter's discount and offering costs of $12.9 million, net proceeds from the offering were approximately $562.1 million. We have allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General. We pay interest on these debentures on May 15 and November 15 each year.

        Holders may surrender their 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 $20.0 million in 2002, which includes $2.8 million for amortization of offering costs and $12.9 million in 2001, which includes $1.8 million for amortization of offering costs. The fair value of these debentures was $532.6 million at December 31, 2002 and $631.8 million at December 31, 2001.

5¹/4% Convertible Subordinated Notes

        In June 2001, we completed the redemption of our $250.0 million in principal of 5¹/4% convertible subordinated notes that were originally due 2005. Prior to the redemption date, holders of the notes elected to convert substantially all of the principal of the notes into approximately 12,597,000 shares of Genzyme General Stock, 685,000 shares of Biosurgery Stock and 682,000 shares of Molecular Oncology Stock. On June 15, 2001, the redemption date, we redeemed the remaining notes using cash allocated to Genzyme General.

Revolving Credit Facility

        At December 31, 2000, we had access to a $500.0 million revolving credit facility, $150.0 million of which matured in December 2001 and $350.0 million of which matures in December 2003. At December 31, 2000, $368.0 million was outstanding under this facility, $150.0 million of which was allocated to Genzyme General and $218.0 million of which was allocated to Genzyme Biosurgery. In May 2001, we repaid the $150.0 million we had drawn under this facility to finance a portion of the

GCS-127

cash component of the GelTex merger consideration. In November 2001, we drew an additional $17.0 million under the $350.0 million facility that matures in December 2003, all of which was allocated to Genzyme Biosurgery. In December 2001, we repaid $1.0 million of the funds drawn under this facility using cash allocated to Genzyme Biosurgery. We allowed the $150.0 million facility to expire without renewal at its maturity date in December 2001. As of December 31, 2002, we have access to a $350.0 million revolving credit facility that matures in December 2003, of which $284.0 million remained outstanding and allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin, which was, in the aggregate, 2.5% at December 31, 2002. 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. We intend to refinance our revolving credit facility in 2003.

5% Convertible Subordinated Debentures

        In August 2001, we completed the redemption of our $21.2 million in principal of 5% convertible subordinated debentures that were originally due 2003. Prior to the redemption date, the holders of the debentures elected to convert all of the principal of the debentures into approximately 1,305,000 shares of Genzyme General Stock. We paid approximately $3.2 million in cash for the accrued interest on the debentures through the date of conversion using cash allocated to Genzyme General.

6.9% Convertible Subordinated Note

        In connection with our acquisition of Biomatrix, we assumed a 6.9% convertible subordinated note due May 14, 2003 in favor of UBS Warburg LLC. At December 31, 2002, $10.0 million principal amount of this note remained outstanding. We use cash allocated to Genzyme Biosurgery to satisfy debt service on this note.

Notes Payable

        In connection with our acquisition of Novazyme in September 2001, we assumed a note payable that matured in December 2002, in the amount of $1.6 million. In connection with our acquisition of GelTex in December 2000, we assumed notes payable, which matured in June and September 2002, aggregating $5.4 million. We used cash allocated to Genzyme General to satisfy these debts.

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 rate 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 $2.1 million each year through 2005. The $25.0 million capital lease

GCS-128

obligation and corresponding building is recorded in our consolidated balance sheet and the combined balance sheet of Genzyme General. The building is being depreciated over its estimated useful life.

        During the term of the lease, we have the option to purchase the building and improvements for a purchase price equal to the total amount funded by the lessor of $25.0 million, plus any accrued and unpaid lease payments and certain other costs, which aggregate amount is referred to as the Purchase Option Price. At the end of the lease term of October 31, 2005, we have the option to:

•

purchase the building and improvements for the Purchase Option Price;



•

arrange for the facility to be purchased by a third party; or



•

return the building and improvements to the lessor.

In the case of the latter two options, however, we are contingently liable to the extent the lessor is not able to realize 85% of the Purchase Option Price upon the sale or disposition of the property.

        In December 2000, in connection with the acquisition of Biomatrix, we assumed the remaining principal balance of $1.5 million due under a $2.3 million capital lease that Biomatrix had entered into with GE Capital in December 1998. The lease has a five-year term, a coupon rate of 7.4%, and is payable in equal monthly installments. Certain of the machinery and equipment we acquired through the merger is pledged as collateral for this financing.

        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 the second half of 2003 and the value of the building and related obligation will be recorded in our consolidated balance sheet and the combined balance sheet of Genzyme General when we begin to occupy the space. We have included estimated payments for this lease in the summary capital lease schedule below. The lease term is for fifteen years and may be extended for two successive ten-year periods. The lease also provides us with an option, exercisable on or before July 1, 2003, to lease an additional building on mutually acceptable terms.

        Over the next five years and thereafter, we will be required to repay the following amounts under non-cancellable capital leases (amounts in millions):

2003	2004	2005	2006	2007	After 2007
$6.4	$10.7	$35.7	$8.5	$8.5	$	101.3

Operating Leases

        In July 2002, we entered into an agreement to lease 61,101 square feet of additional office space in Cambridge, Massachusetts. We allocate the future minimum payments due under the lease 50% to Genzyme General and 50% to Genzyme Biosurgery based upon our current assessment of the long-term occupancy ratio for this location. The term of the lease is seven years with rent payable monthly

GCS-129

in advance commencing on October 1, 2002. Remaining fixed rent payments during the term of the lease are as follows (amounts in thousands):

	Allocated to
	Genzyme General		Genzyme Biosurgery		Total
2003	$	1,016	$	1,016	$	2,032
2004		1,045		1,045		2,090
2005		1,076		1,076		2,152
2006		1,099		1,099		2,198
2007		1,099		1,099		2,198
Thereafter		1,923		1,923		3,846
Total	$	7,258	$	7,258	$	14,516

Pursuant to the terms of the lease agreement, we are obligated to pay, in addition to yearly fixed rent, our pro rata share of the landlord's operating costs and the real estate taxes for the property in excess of the landlord's operating costs and real estate taxes for 2002. In addition, the landlord will charge us for direct use of electricity at cost. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms with rent equal to the greater of the current base rent or 95% of fair market value. The lease also provides three options to lease a total of 45,577 square feet of additional space at the property and first offer options on additional space that becomes available in the building.

        In May 2002, we entered into an agreement to lease an 85,808 square foot building and related parking area in Westborough, Massachusetts for our genetic testing business. The term of the lease is ten years with rent payable in advance commencing August 1, 2002. Remaining fixed rent payments during the term of the lease are as follows (amounts in thousands):

2003	$	627
2004		714
2005		930
2006		1,060
Thereafter		7,097
Total	$	10,428

Pursuant to the terms of the net lease agreement, we are obligated to pay, in addition to yearly fixed rent, the taxes, betterment assessments, insurance costs, utility charges, base operating costs and certain other expenses related to the property under lease. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms and a one-time option, exercisable during the first five years of the lease, to purchase the land and building under lease.

GCS-130

        We lease facilities and personal property under non-cancellable operating leases with terms in excess of one year. Our total expense under operating leases was (amounts in millions):

For the Years Ended December 31,
2002		2001		2000
$	35.5	$	33.7	$	27.7

        Over the next five years and thereafter, we will be required to pay the following amounts under non-cancellable operating leases (amounts in millions):

2003		2004		2005		2006		2007		After 2007
$	32.7	$	27.7	$	20.6	$	13.6	$	10.5	$	109.6

        In June 1992, we entered into a 65-year land lease with an unaffiliated lessor. Our expenses under this lease, which are allocated to Genzyme General, were $1.5 million in each of 2002, 2001 and 2000. Our rent under this lease increases every five years based on the Consumer Price Index or, at a minimum, 3% per year.

        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 the county of Waterford, Ireland. The land will be used for the development of a multi-product manufacturing center. The lease term is for 999 years with a de minimis amount of rent payable in advance on January 1st of each year.

NOTE N. STOCKHOLDER'S EQUITY

Preferred Stock

	At December 31, 2002			At December 31, 2001
Series
	Authorized	Issued	Outstanding	Authorized	Issued	Outstanding
Series A Junior Participating, $0.01 par value	2,000,000	—	—	2,000,000	—	—
Series B Junior Participating, $0.01 par value	1,000,000	—	—	1,000,000	—	—
Series C Junior Participating, $0.01 par value	400,000	—	—	400,000	—	—
Undesignated	6,600,000	—	—	6,600,000	—	—
Total	10,000,000	—	—	10,000,000	—	—

        Our charter permits us to issue shares of preferred stock at any time in one or more series. Our board of directors will establish the preferences, voting powers, qualifications, and special or relative rights or privileges of any series of preferred stock before it is issued.

Stock Rights

        Under our shareholder rights plan, each outstanding share of Genzyme General Stock, Biosurgery Stock and Molecular Oncology Stock also represents one preferred stock purchase right for that series

GCS-131

of stock. When the stock purchase rights become exercisable, the holders of our common stock will be entitled to purchase the following:

•

Genzyme General Stock right: one share of Series A Junior Participating Preferred Stock, par value $0.01 per share, for $150.00;



•

Biosurgery Stock right: one share of Series B Junior Participating Preferred Stock, par value $0.01 per share, for $80.00; and



•

Molecular Oncology Stock right: one share of Series C Junior Participating Preferred Stock, par value $0.01 per share, for $26.00.

        A stock purchase right becomes exercisable either:

•

ten days after our board of directors announces that a third party has become the owner of 15% or more of the total voting power of our outstanding common stock combined; or



•

ten business days after a third party announces or initiates a tender or exchange offer that would result in that party owning 15% or more of the total voting power of our outstanding common stock combined.

In either case, the board of directors can extend the ten-day delay. These stock purchase rights expire in March 2009.

Common Stock

        We have three series of common stock—Genzyme General Stock, Biosurgery Stock and Molecular Oncology Stock—which we also refer to as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specific subset of our business operations and its allocated assets, rather than operations and assets of our entire company.

        The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to those corresponding divisions are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or

GCS-132

•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        Within these parameters, and other general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. To date, we have never paid or declared a cash dividend on shares of any of our series of common stock, nor do we anticipate doing so in the foreseeable future. Unless declared, no dividends accrue on our tracking stocks.

        Our charter also requires that distributions be made to holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to that stock's corresponding division are sold to a third party. This mandatory distribution can be in the form of a dividend, a redemption of the division's related tracking stock or an exchange of that tracking stock for Genzyme General Stock, as chosen by our board of directors in its discretion. The distribution, if by dividend or redemption, must equal in value the net after-tax proceeds received from the sale. If our board of directors chooses to make the distribution by issuing Genzyme General Stock in exchange for the selling division's related tracking stock, then the exchange must be effected at a 10% premium to the corresponding tracking stock's average market price calculated over a ten day period beginning on the first business day following the announcement of the sale.

        While tracking stock is designed to reflect a division's performance, it is common stock of the entire company. Therefore, a holder of tracking stock is a common stockholder subject to risks of investing in the business, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to any division are nonetheless subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, a holder of tracking stock would have no direct claim against the assets allocated to the corresponding tracked division; a holder of tracking stock would only have the rights of a common stockholder in the combined assets of Genzyme, subject also to the Genzyme charter's allocation of liquidation units as discussed below under the subheading "Liquidation Units."

Common Stock

		At December 31, 2002		At December 31, 2001
Series
	Authorized	Issued	Outstanding	Issued	Outstanding
Genzyme General Stock, $0.01 par value	500,000,000	214,813,668	214,707,310	213,179,196	213,072,838
Genzyme Biosurgery Stock, $0.01 par value	100,000,000	40,482,299	40,482,299	39,554,105	39,554,105
Genzyme Molecular Oncology Stock, $0.01 par value	40,000,000	16,898,820	16,898,820	16,762,331	16,762,331
Undesignated	50,000,000	—	—	—	—
Total	690,000,000	272,194,787	272,088,429	269,495,632	269,389,274

GCS-133

Rights of Common Stock

Voting Rights

        Genzyme General Stock is entitled to one vote per share, which is never adjusted. However, the votes per share of our other series of common stock are adjusted every two years. Specifically, on January 1, 2003 and every second anniversary thereafter, the vote per share to which each series is entitled will be recalculated based on that stock's fair market value divided by the fair market value of a share of Genzyme General Stock, with "fair market value" meaning the average closing price over the 20 consecutive trading days beginning the 30th trading day preceding the January 1st adjustment date. At December 31, 2002 each series of common stock was entitled the following vote per share:

Series	Vote Per Share
Genzyme General Stock	1.00
Biosurgery Stock	0.28
Molecular Oncology Stock	0.28

        As stated above, on January 1, 2003, the voting rights for Biosurgery Stock and Molecular Oncology Stock were adjusted based on the fair market value of the stock. The adjusted voting rights are as follows:

Series	Vote Per Share
Genzyme General Stock	1.00
Biosurgery Stock	0.08
Molecular Oncology Stock	0.07

Liquidation Units

        If we were to dissolve, liquidate or wind up our affairs, other than as part of a merger, business combination or sale of substantially all of our assets, our stockholders would receive any remaining assets according to the percentage of total liquidation units that they hold. Each series of our common stock is entitled to the following liquidation units:

Series	Units
Genzyme General Stock	100
Biosurgery Stock	100
Molecular Oncology Stock	50

        Although we adjust liquidation units to prevent dilution in the event of some subdivisions, combinations or distributions of common stock, we do not adjust them to reflect changes in the relative market value or performance of the tracked divisions.

Two-for-One Stock Split

        At our annual meeting on May 31, 2001, our shareholders approved an amendment to our charter which increased the total number of authorized shares of Genzyme common stock from 390,000,000 to 690,000,000 and increased the number of such shares designated as Genzyme General Stock from 200,000,000 to 500,000,000. On June 1, 2001, we completed a two-for-one split of Genzyme General

GCS-134

Stock by means of a 100% stock dividend paid to holders of Genzyme General Stock of record on May 24, 2001. We distributed a total of 97,183,724 shares of Genzyme General Stock to holders of Genzyme General Stock in connection with the stock split. All share and per share amounts for Genzyme General Stock have been retroactively revised for all periods presented to reflect the two-for-one split.

Stock Offering

        In July 2000, we sold 1,607,400 shares of Molecular Oncology Stock to a limited number of purchasers at a price of $12.91 per share. We received approximately $20.7 million of net proceeds from the offering, which we allocated to Genzyme Molecular Oncology.

Directors' Deferred Compensation Plan

        Each member of our board of directors who is not also one of our employees may defer receipt of all or a portion of the cash compensation payable to him or her as a director and receive either cash or stock in the future. Under this plan, the director may defer his or her compensation until his or her services as a director cease or until another date specified by the director.

        Under a deferral agreement, a participant indicates the percentage of deferral to allocate to cash and stock, upon which a cash deferral account and a stock deferral account is established. The cash account bears interest at the rate paid on 90-day Treasury bills with interest payable quarterly.

        The stock account is for amounts invested in hypothetical shares of Genzyme General Stock, Biosurgery Stock or Molecular Oncology Stock. Under the deferral agreement, a participant directs us how to allocate amounts among each series of stock. These amounts will be converted into shares quarterly at the average closing price of the stock for all trading days during the quarter, for each series of stock.

        Distributions are paid in a lump sum or in annual installments for up to five years. Payments begin the year following a director's termination of service or, subject to certain restrictions, in any year elected by the participant. As of December 31, 2002, three of the seven eligible directors had accounts under this plan, and one director is currently participating under this plan.

        We have reserved the following numbers of shares to cover distributions credited to stock accounts under the plan:

•

100,000 shares of Genzyme General Stock;


•

63,820 shares of Biosurgery Stock; and


•

50,000 shares of Molecular Oncology Stock.

        We had not made any stock distributions under this plan as of December 31, 2002. In January 2002, we made a cash distribution of $15,783 to one director under the terms of his deferral agreement.

Equity Plans

        The 2001 Equity Incentive Plan is an amendment and restatement of the 1990 Equity Incentive Plan which was merged into the 2001 Equity Incentive Plan and approved by stockholders in May 2001. The purpose of the plan is to attract and retain key employees and consultants, provide an incentive

GCS-135

for them to achieve long-range performance goals, and enable them to participate in our long-term growth. All of our employees are eligible to receive grants under the 2001 Equity Incentive Plan. The plan provides for the grant of incentive stock options, nonstatutory stock options, and restricted or unrestricted stock awards which may be based on specified performance measures. The exercise price of option grants may not be less than the fair market value at the date of grant. Options granted under the plan may not be re-priced without stockholder approval. Each grant has a maximum term of ten years and generally vests over four years. The compensation committee of our board determines the terms and conditions of each award, including who is eligible to receive awards, the form of payment of the exercise price, the number of shares granted and the exercisability date.

        The purpose of the 1997 Equity Incentive Plan is to attract and retain key employees and consultants, provide an incentive for them to achieve long-range performance goals, and enable them to participate in our long-term growth. All of our employees, except for our officers and directors, are eligible to receive grants under this plan. The 1997 Equity Incentive Plan provides for the grant of nonstatutory stock options, stock equivalents, stock appreciation rights and restricted or unrestricted stock awards. No incentive stock options may be granted under the 1997 Equity Incentive Plan. The exercise price of option grants may not be less than the fair market value at the date of grant. Option grants have a maximum term of ten years and generally vest over four years. The compensation committee of our board determines the terms and conditions of each award, including who is eligible to receive awards, the form of payment of the exercise price, the number of shares granted and the exercisability date. The 1997 Equity Plan was approved by our board of directors in October 1997.

        Nonstatutory options under our 1998 Director Stock Option Plan are automatically granted with an exercise price at fair market value to non-employee members of our board of directors when they are elected or re-elected as directors. These options expire ten years after the initial grant date and vest as to one-third of each grant on the date of each annual stockholders meeting following the date of grant. The 1998 Director Stock Option Plan was approved by stockholders in May 1998, and amended by stockholders in May 2001.

GCS-136

        The following tables depict activity under our stock option plans:

			Shares Under Option		Weighted Average Exercise Price		Number Exercisable
GENZYME GENERAL STOCK:
	Outstanding at December 31, 1999		23,219,014		$	15.56	11,266,106
		Granted	7,729,856			23.44
		Granted—premium price	202,760			28.23
		Exercised	(6,183,902	)		13.20
		Forfeited and cancelled	(807,018	)		21.21
	Outstanding at December 31, 2000		24,160,710			18.60	10,723,368
		Granted	6,688,060			52.51
		Exercised	(4,953,670	)		14.66
		Forfeited and cancelled	(534,320	)		28.38
	Outstanding at December 31, 2001		25,360,780			27.80	11,815,491
		Granted	6,950,890			32.52
		Exercised	(1,204,888	)		14.76
		Forfeited and cancelled	(1,244,058	)		36.79
	Outstanding at December 31, 2002		29,862,724		$	29.23	16,002,081

			Shares Under Option		Weighted Average Exercise Price		Number Exercisable
BIOSURGERY STOCK:
	Outstanding at December 18, 2000		—		$	—	—
		Conversion from Surgical Products Stock options	1,794,684			11.02
		Conversion from Tissue Repair Stock options	1,258,952			24.28
		Assumed from Biomatrix	1,706,639			16.79
		Exercised	(717	)		5.59
		Forfeited and cancelled	(19,640	)		23.61
	Outstanding at December 31, 2000		4,739,918			16.65	2,444,601
		Granted	3,644,850			7.58
		Exercised	(119,037	)		3.76
		Forfeited and cancelled	(1,261,861	)		14.23
	Outstanding at December 31, 2001		7,003,870			12.54	3,783,030
		Granted	2,107,453			4.32
		Exercised	(18,373	)		6.02
		Forfeited and cancelled	(950,920	)		10.34
	Outstanding at December 31, 2002		8,142,030		$	10.65	4,734,922

GCS-137

			Shares Under Option		Weighted Average Exercise Price		Number Exercisable
MOLECULAR ONCOLOGY STOCK:
	Outstanding at December 31, 1999		1,809,110		$	6.14	656,648
		Granted	603,061			12.65
		Granted—premium price	32,167			23.19
		Exercised	(211,113	)		6.66
		Forfeited and cancelled	(82,214	)		6.84
	Outstanding at December 31, 2000		2,151,011			8.13	834,955
		Granted	671,952			14.83
		Exercised	(15,934	)		5.99
		Forfeited and cancelled	(33,010	)		15.40
	Outstanding at December 31, 2001		2,774,019			9.68	1,407,425
		Granted	845,811			2.44
		Exercised	(497	)		4.68
		Forfeited and cancelled	(68,294	)		9.23
	Outstanding at December 31, 2002		3,551,039		$	7.97	1,990,842

			Shares Under Option		Weighted Average Exercise Price		Number Exercisable
SURGICAL PRODUCTS STOCK:
	Outstanding at December 31, 1999		2,990,570		$	6.65	563,048
		Granted	47,900			10.64
		Exercised	(63,194	)		6.69
		Forfeited and cancelled	(13,751	)		7.02
		Conversion to Biosurgery Stock options	(2,961,525	)		6.69
	Outstanding at December 31, 2000, 2001 and 2002		—

			Shares Under Option		Weighted Average Exercise Price		Number Exercisable
TISSUE REPAIR STOCK:
	Outstanding at December 31, 1999		4,175,766		$	8.02	1,905,031
		Granted	47,217			6.41
		Exercised	(71,615	)		4.47
		Forfeited and cancelled	(395,545	)		6.76
		Conversion to Biosurgery Stock options	(3,755,823	)		8.14
	Outstanding at December 31, 2000, 2001 and 2002		—

        The total exercise proceeds for all options outstanding at December 31, 2002 is:

•

$872.8 million for Genzyme General Stock;


•

$86.7 million for Biosurgery Stock; and


•

$28.3 million for Molecular Oncology Stock.

GCS-138

        The following tables contain information regarding the range of option prices as of December 31, 2002:

GENZYME GENERAL STOCK:

					Exercisable
		Remaining Contractual Life (In Years)
Range Of Exercise Prices	Number Outstanding		Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.21-$14.00	6,137,307	2.98	$	10.38	4,394,066	$	11.51
14.09-26.50	7,516,928	6.07		21.03	5,865,878		20.17
26.79-29.44	2,504,286	6.29		29.31	1,585,104		29.37
29.49-32.52	6,448,547	9.29		32.44	1,363,216		32.33
32.69-59.88	7,255,656	8.40		50.77	2,793,817		51.12
$0.21-$59.88	29,862,724	6.71	$	29.23	16,002,081	$	25.14

BIOSURGERY STOCK:

					Exercisable
		Remaining Contractual Life (In Years)
Range Of Exercise Prices	Number Outstanding		Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$1.88-$4.24	1,832,735	9.39	$	4.18	358,759	$	4.18
4.25-6.26	1,336,212	8.09		6.02	546,019		5.98
6.34-8.69	1,901,749	7.94		6.83	1,181,422		6.84
8.86-11.04	1,344,310	6.45		11.00	1,129,036		11.00
11.33-116.51	1,727,024	4.96		25.06	1,519,686		23.41
$1.88-$116.51	8,142,030	7.41	$	10.65	4,734,922	$	12.85

MOLECULAR ONCOLOGY STOCK:

					Exercisable
		Remaining Contractual Life (In Years)
Range Of Exercise Prices	Number Outstanding		Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$1.72-$2.31	12,000	8.86	$	2.05	3,700	$	2.23
2.33-2.33	802,290	9.41		2.33	150,268		2.33
2.63-5.75	582,571	6.22		4.70	414,458		4.62
7.00-7.00	906,276	4.98		7.00	906,276		7.00
7.68-26.85	1,247,902	7.93		13.88	516,140		13.84
$1.72-$26.85	3,551,039	7.23	$	7.97	1,990,842	$	7.92

Employee Stock Purchase Plan

        Our 1999 Employee Stock Purchase Plan allows full-time employees to purchase our stock at a discount. The number of shares authorized for purchase under the plan as of December 31, 2002 are:

•

1,289,299 shares of Genzyme General Stock;


•

970,600 shares of Biosurgery Stock; and

GCS-139

•

650,000 shares of Molecular Oncology Stock.

        We place limitations on the number of shares of each series of stock that can be purchased under the plan in a given year.

        The following table shows the shares purchased by employees for the past three years:

Shares Purchased	Genzyme General Stock	Biosurgery Stock	Molecular Oncology Stock	Surgical Products Stock	Tissue Repair Stock
2000	554,980	44,482	133,763	106,222	174,166
2001	547,787	252,681	158,629	0	0
2002	415,622	283,043	135,900	0	0
Available for purchase as of December 31, 2002	284,021	216,069	95,624	0	0

Stock Compensation Plans

        The disclosure regarding how we account for our four stock-based compensation plans: the 1997 Equity Incentive Plan, the 2001 Equity Incentive Plan, the 1998 Director Stock Option Plan (each of which are stock option plans) and the 1999 Employee Stock Purchase Plan is included in Note A., "Significant Accounting Policies—Accounting for Stock-Based Compensation," to our consolidated financial statements.

Warrants

        Warrant activity is summarized below:

	Genzyme General Stock			Genzyme Biosurgery Stock
	Warrants		Exercise Price	Warrants		Exercise Price
Outstanding at December 31, 1999	—		—	—		—
Sentron Medical, Inc	—		—	3,352		$22.80
Assumed from GelTex	102,706		$9.09-$35.50	—		—
Outstanding at December 31, 2000	102,706		$9.09-$35.50	3,352		$22.80
Assumed from Focal	—		—	4,203		$40.18-$77.83
Assumed from Novazyme	3,909		$13.13	—		—
Warrants exercised	(97,023	)	—	—		—
Warrants expired	(2,162	)	—	—
Outstanding at December 31, 2001	7,430		$16.57-$18.94	7,555		$22.80-$77.83
Additional GelTex warrants	6,638		$16.57	—		—
Warrants exercised	(13,164	)	$16.57	—		—
Warrants expired	(904	)	$18.94	(431	)	$45.89
Outstanding at December 31, 2002	—		—	7,124		$22.80-$77.83

Purchase Rights

        Upon our acquisition of Novazyme, we assumed certain third parties' rights to purchase Novazyme Series B preferred stock that we converted into rights to purchase 66,830 shares of Genzyme General Stock for an aggregate purchase price of $1,216,306. These purchase rights expire 15 days following the filing of our first Investigational New Drug application with the FDA for a treatment for Pompe disease utilizing certain technology acquired from Novazyme.

GCS-140

        Purchase rights activity is summarized below:

	Genzyme General Stock
	Purchase Rights		Exercise Price
Outstanding at December 31, 2000	—			—
Assumed from Novazyme	66,830		$	18.20
Rights exercised	(46,001	)	$	18.20
Outstanding at December 31, 2001	20,829		$	18.20
Rights exercised	(798	)	$	18.20
Outstanding at December 31, 2002	20,031		$	18.20

Designated Shares

        Designated shares are authorized shares of Biosurgery Stock and Molecular Oncology Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds or benefits to the division that the series of stock tracks. Designated shares are not eligible to receive dividends and cannot be voted by us. We create designated shares when we transfer cash or other assets from Genzyme General to Genzyme Biosurgery or Genzyme Molecular Oncology or from other interdivision transactions. Our board of directors may issue designated shares:

•

as a stock dividend to the holders of Genzyme General Stock;

•

by selling the shares in a public or private sale and allocating all of the proceeds to Genzyme General; and

•

when convertible securities are converted, the proceeds of which will be allocated to Genzyme General.

Distribution of Designated Shares

        We will distribute designated shares of Biosurgery Stock and Molecular Oncology Stock each year to holders of Genzyme General Stock if the number of designated shares of a particular series exceeds 10% of the number of shares of that series issued and outstanding as of the following dates:

•

September 30th for Biosurgery Stock; and

•

November 30th for Molecular Oncology Stock.

        We will not distribute an amount of designated shares equal to the sum of:

•

the designated shares reserved for issuance upon the exercise or conversion of Genzyme General convertible securities; and

•

the number of designated shares our board of directors reserved as of September 30th for Biosurgery Stock and November 30th for Molecular Oncology Stock for sale not later than six months after these dates.

        Any proceeds from the sale of designated shares will be allocated to Genzyme General.

GCS-141

        Designated share activity is summarized in the following table:

	Biosurgery Designated Shares		Molecular Oncology Designated Shares		Surgical Products Designated Shares		Tissue Repair Designated Shares
Balance at December 31, 1999	—		1,688,237		1,164,839		2,238,053
Increase from interdivision cash allocation	—		676,254		—		1,692,657
Repayment of portion of interdivision cash allocation	—		(364,293	)	—		—
Stock options exercised	(517	)	—		—		(97,209	)
Conversion to Biosurgery designated shares	—		—		(1,164,839	)	(3,833,501	)
Conversion from Surgical Products designated shares	705,892		—		—		—
Conversion from Tissue Repair designated shares	1,284,989		—		—		—
Balance at December 31, 2000	1,990,364		2,000,198		—		—
Increase from interdivision cash allocation	1,902,949		333,333
Issuance from conversion of 51/4% convertible subordinate notes	(684,955	)	(682,449	)
Stock options exercised	(10,681	)	—
Balance at December 31, 2001	3,197,677		1,651,082
Stock options exercised	(2,837	)	—
Balance at December 31, 2002	3,194,840		1,651,082

        In connection with our creation of Genzyme Biosurgery in December 2000, each Surgical Products designated share was converted into 0.6060 of a Biosurgery designated share and each Tissue Repair designated share was converted into 0.3352 of a Biosurgery designated share.

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:

•

2000—two draws aggregating $10.0 million in exchange for a reserve of approximately 1.7 million Tissue Repair designated shares, which shares were converted into approximately 0.6 million Biosurgery designated shares;

•

2001—$12.0 million in exchange for an additional reserve of approximately 1.9 million Biosurgery designated shares;

•

2002—none.

        At December 31, 2002, $3.0 million remained available to Genzyme Biosurgery under this arrangement.

GCS-142

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:

•

2000—$15.0 million in exchange for a reserve of approximately 0.7 million Molecular Oncology designated shares;

•

2001—$4.0 million in exchange for an additional reserve of approximately 0.3 million Molecular Oncology designated shares;

•

2002—none.

        At December 31, 2002, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

NOTE O. OTHER 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, 2002 which, if adversely decided, would have a material adverse effect on our results of operations, financial condition or liquidity.

        In 2000, we recorded a gain of approximately $5.1 million in connection with proceeds received from the settlement of a lawsuit. The lawsuit, initiated in 1993, pertained to insurance coverage for an accidental spill of Ceredase enzyme at a fill facility operated by a contractor to us. We allocated these proceeds to Genzyme General and recorded them as other income.

        Pursuant to the terms of our joint venture agreement with BioMarin, for the development and commercialization of Aldurazyme enzyme, we are obligated to pay BioMarin a $12.1 million milestone payment upon receipt of FDA approval of the BLA for Aldurazyme enzyme.

Guarantees

        In November 2002, the FASB issued FIN No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FIN 34." We have applied the disclosure provisions of this FIN 45 as of December 31, 2002. The following is a summary of our agreements that we have determined are within the scope of FIN 45.

        As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a Director and Officer insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. We have no liabilities recorded for these agreements as of December 31, 2002.

GCS-143

        We enter into standard indemnification agreements in our ordinary course of business. Pursuant to these agreements, we indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners or customers, in connection with any U.S. patent, or any copyright or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. We have no liabilities recorded for these agreements as of December 31, 2002.

        When as part of an acquisition we acquire all of the stock or all of the assets and liabilities of a company, we assume the liability for certain events or occurrences that took place prior to the date of acquisition. The maximum potential amount of future payments we could be required to make for such obligations is undeterminable at this time. We have no liabilities recorded for these liabilities as of December 31, 2002.

NOTE P. INCOME TAXES

        Our income (loss) before income taxes and the related income tax expense (benefit) are as follows:

		For the Years Ended December 31,
		2002			2001			2000
		(Amounts in thousands)
Domestic		$	92,016		$	(138,630	)	$	(20,791	)
Foreign			12,195			20,287			13,329
Total		$	104,211		$	(118,343	)	$	(7,462	)
Currently payable:
	Federal	$	(3,598	)	$	44,810		$	55,469
	State		4,249			3,846			2,982
	Foreign		7,694			8,123			3,607
Total			8,345			56,779			62,058
Deferred:
	Federal		11,137			(41,416	)		(3,322	)
	State		(882	)		(2,770	)		(182	)
	Foreign		415			(14,613	)		(3,076	)
Total			10,670			(58,799	)		(6,580	)
(Benefit from) provision for income taxes		$	19,015		$	(2,020	)	$	55,478

GCS-144

        Our provisions for income taxes were at rates other than the U.S. federal statutory tax rate for the following reasons:

	For the Years Ended December 31,
	2002		2001		2000
Tax provision (benefit) at U.S. statutory rate	35.0	%	(35.0	)%	(35.0	)%
Losses in less than 80% owned subsidiaries with no current tax benefit	—		—		(45.5	)
State taxes, net	3.2		0.9		25.6
Foreign sales corporation and extra-territorial income	(8.9	)	(8.7	)	(105.8	)
Nondeductible amortization	—		13.2		53.9
Charge for purchased research and development	0.6		27.5		939.0
Benefit of tax credits	(15.7	)	(4.0	)	(51.9	)
Foreign rate differential	3.8		0.9		(13.5	)
Utilization of operating loss carryforwards	—		(1.8	)	—
Write-off of non-deductible goodwill	—		4.4		—
Other	0.3		0.9		(23.3	)
Effective tax rate	18.3	%	(1.7	)%	743.5	%

        The components of net deferred tax assets (liabilities) are described in the following table:

		December 31,
		2002			2001
		(Amounts in thousands)
Deferred tax assets:
	Net operating loss carryforwards	$	8,189		$	34,211
	Tax credits		26,335			19,448
	Realized and unrealized capital losses		21,796			—
	Inventory		12,886			49,817
	Intercompany profit in inventory eliminations		63,005			—
	Reserves, accruals and other		19,471			37,088
	Gross deferred tax assets		151,682			140,564
	Valuation allowance		(1,022	)		—
	Net deferred tax assets		150,660			140,564
Deferred tax liabilities:
	Depreciable assets		(14,220	)		(19,371	)
	Realized and unrealized capital gains		—			(8,640	)
	Deferred gain		(898	)		(898	)
	Intangible amortization		(190,195	)		(214,585	)
	Net deferred tax liabilities	$	(54,653	)	$	(102,930	)

        Our ability to realize the benefit of net deferred tax assets is dependent on our generating sufficient taxable income and capital gain income before loss and capital 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

GCS-145

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, 2002, we had for U.S. income tax purposes, net operating loss carryforwards of $18.1 million and tax credit carryforwards of $26.3 million. Our net operating loss carryforwards expire between 2007 and 2021 and the tax credits expire between 2009 and 2022. For foreign purposes, we had net operating loss carryforwards of $14.9 million in 2002, which carryforward indefinitely.

        Our federal and various state income tax returns are currently under examination. While the ultimate results of such examinations cannot be predicted with certainty, we believe that the examinations will not have a material adverse effect on future operating results. As a result of the resolution of several tax audit matters in 2001, we recognized $2.2 million of net tax benefits.

        We recognized a $4.3 million tax benefit during the fourth quarter of 2002 as a result of additional tax credits identified during the preparation of our 2001 tax return, which we allocated to Genzyme General.

NOTE Q. BENEFIT PLANS

        We have a 401(k) plan that covers nearly all of our employees. We also maintain a separate 401(k) plan for the former employees of Deknatel Snowden Pencer, Inc., which we acquired in 1996. These plans permit qualifying employees to make contributions up to a specified percentage of their compensation, and we match a portion of those contributions. We contributed the following amounts to our 401(k) plans (amounts in millions):

	2002		2001		2000
Allocated to Genzyme General	$	7.5	$	5.9	$	1.5
Allocated to Genzyme Biosurgery		1.7		2.1		2.6
	$	9.2	$	8.0	$	4.1

Retirement Plans

        We have defined benefit pension plans for certain employees in foreign countries. These plans are funded in accordance with requirements of the appropriate regulatory bodies governing each plan.

GCS-146

        The following table sets forth the funded status and amounts recognized for our foreign defined benefit pension plans (amounts in thousands):

	December 31,
	2002			2001
Change in benefit obligation:
Projected benefit obligation, beginning of year	$	22,520		$	19,213
Service cost		1,293			869
Interest cost		1,399			1,151
Plan participants' contributions		694			497
Actuarial loss		1,669			1,475
Foreign currency exchange rate changes		2,836			(419	)
Benefits paid		(266	)		(266	)
Projected benefit obligation, end of year	$	30,145		$	22,520
Change in plan assets:
Fair value of plan assets, beginning of year	$	15,748		$	17,117
Return on plan assets		(3,742	)		(2,167	)
Employer contribution		1,527			935
Plan participants' contributions		694			497
Foreign currency exchange rate changes		1,561			(499	)
Benefits paid		(149	)		(135	)
Fair value of plan assets, end of year	$	15,639		$	15,748
Benefit obligation in excess of plan assets	$	(14,506	)	$	(6,772	)
Unrecognized net actuarial loss		11,988			4,517
Additional minimum pension liability, pre-tax		(3,614	)		—
Net amount recognized	$	(6,132	)	$	(2,255	)
Net amount recognized:
Prepaid benefit cost	$	476		$	305
Accrued benefit liability		(2,994	)		(2,560	)
Additional minimum pension liability, pre-tax		(3,614	)		—
Net amount recognized	$	(6,132	)	$	(2,255	)

GCS-147

        The weighted average assumptions used in determining related obligations of pension benefit plans are shown below:

		December 31,
		2002		2001
Weighted average assumptions:
	Discount rate	5.75	%	6.00	%
	Expected return on assets	7.00	%	6.75	%
	Rate of compensation increase	3.50	%	3.50	%

        The components of net pension expense are as follows (amounts in thousands):

	For the Years Ended December 31,
	2002			2001
Service cost	$	1,293		$	869
Interest cost		1,399			1,151
Expected return on plan assets		(1,205	)		(1,151	)
Amortization and deferral of actuarial loss		158			19
Net pension expense	$	1,645		$	888

        The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets are as follows (amounts in thousands):

	2002		2001
Projected benefit obligation	$	30,145	$	22,520
Accumulated benefit obligation		21,723		16,199
Fair value of plan assets		15,639		15,748

        The $3.6 million additional minimum liability, $2.5 million net of tax, was recorded to accumulated other comprehensive income during 2002 as a result of the fair value of the plan assets for our pension plan in the United Kingdom being below the accumulated benefit obligation of the same plan.

        In addition, we have a U.S. defined benefit plan for the former employees of Deknatel Snowden Pencer, Inc. which was frozen as of December 31, 1995 and which is fully funded as of December 31, 2002. The tables above exclude information relating to this plan.

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, we have five reportable segments:

•

Therapeutics, which develops, manufactures and distributes human 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

GCS-148

other specialty therapeutics. The segment derives substantially all of its revenue from sales of Cerezyme enzyme, Fabrazyme enzyme and Thyrogen hormone;

•

Renal, which develops products that treat patients suffering from renal diseases, including chronic renal failure. The segment manufactures and sells, and derives all of its revenue from sales of, Renagel phosphate binder;



•

Diagnostic Products, which provides diagnostic products to niche markets focusing on in vitro diagnostics;



•

Genzyme Biosurgery, which develops and markets biotherapeutic and biomaterial products, with an emphasis on orthopaedics, heart disease and broader surgical applications; and



•

Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        We have provided information concerning the operations of these reportable segments in the following table:

			For the Years Ended December 31,
			2002		2001		2000
			(Amounts in thousands)
Revenues:
Genzyme General:
	Therapeutics(1)		$	704,613	$	606,815	$	550,931
	Renal(1,2)			156,864		176,921		49,748
	Diagnostic Products(1)			83,065		76,858		61,469
	Other(3)			132,684		118,008		89,371
	Eliminations/Adjustments(4)			2,959		3,324		964
		Total Genzyme General		1,080,185		981,926		752,483
Genzyme Biosurgery(1)				240,083		235,142		145,214
Genzyme Molecular Oncology				9,204		6,562		5,623
		Total	$	1,329,472	$	1,223,630	$	903,320
Depreciation and amortization expense(5):
Genzyme General:
	Therapeutics(1)		$	27,228	$	50,990	$	7,816
	Renal(1,2)			24,647		24,894		1,097
	Diagnostic Products(1)			7,000		7,819		4,940
	Other(3)			5,348		7,066		7,226
	Eliminations/Adjustments(4)			31,798		27,184		20,127
		Total Genzyme General		96,021		117,953		41,206
Genzyme Biosurgery(1)				37,886		60,931		11,622
Genzyme Molecular Oncology				93		125		5,572
Eliminations/Adjustments				—		—		(470	)
		Total	$	134,000	$	179,009	$	57,930

GCS-149

Equity in net loss of unconsolidated affiliates:
Genzyme General:
	Therapeutics(1)		$	(14,928	)	$	(30,214	)	$	(26,867	)
	Renal(1,2,6)			—			—			(15,934	)
	Diagnostic Products			—			—			—
	Other(3)			—			126			(64	)
	Eliminations/Adjustments(7)			(1,930	)		(4,277	)		(2,100	)
		Total Genzyme General		(16,858	)		(34,365	)		(44,965	)
Genzyme Biosurgery				—			(1,316	)		—
Genzyme Molecular Oncology				—			—			—
		Total	$	(16,858	)	$	(35,681	)	$	(44,965	)
Income tax (expense) benefit:
Genzyme General:
	Therapeutics(1)		$	(76,999	)	$	(8,891	)	$	(95,834	)
	Renal(1,2)			6,680			(8,631	)		42,788
	Diagnostic Products(1)			1,585			1,269			(2,056	)
	Other(3)			(2,504	)		(4,818	)		1,006
	Eliminations/Adjustments(4)			14,722			(31,595	)		(38,543	)
Genzyme General tax provision				(56,516	)		(52,666	)		(92,639	)
Genzyme Biosurgery(1)				—			—			—
Genzyme Molecular Oncology				—			—			1,214
Eliminations/Adjustments				37,501			54,686			35,947
		Total	$	(19,015	)	$	2,020		$	(55,478	)
Net income (loss):
Genzyme General:
	Therapeutics(1)		$	165,849		$	66,945		$	170,132
	Renal(1,2)			(11,473	)		14,992			(76,067	)
	Diagnostic Products(1)			1,084			(1,075	)		3,004
	Other(3)			4,300			8,383			(1,790	)
	Eliminations/Adjustments(8)			(9,029	)		(85,366	)		(9,323	)
	Net income for Genzyme General before cumulative effect of change in accounting for derivative financial instruments			150,731			3,879			85,956
	Cumulative effect of change in accounting for derivative financial instruments, net of tax(9)			—			4,167			—
	Net income for Genzyme General			150,731			8,046			85,956
Genzyme Biosurgery(1,10):
	Net loss for Genzyme Biosurgery before cumulative effect of change in accounting for goodwill			(79,322	)		(126,981	)		(162,217	)
	Cumulative effect of change in accounting for goodwill(11)			(98,270	)		—			—
	Net loss for Genzyme Biosurgery			(177,592	)		(126,981	)		(162,217	)
Genzyme Molecular Oncology				(23,714	)		(29,718	)		(23,096	)
Eliminations/Adjustments(12)				37,501			36,497			36,867
		Total	$	(13,074	)	$	(112,156	)	$	(62,490	)

GCS-150

(1)

Results of operations of companies acquired and amortization of intangible assets related to these acquisitions are included in segment results beginning on the date of acquisition. Charges for IPR&D related to these acquisitions is included in the segment results in the year of acquisition. Acquisitions completed since January 1, 2000 include:

Company Acquired	Date Acquired	Business Segment(s)	IPR&D Charge
Novazyme	September 26, 2001	Genzyme General/Therapeutics	$86.8 million
Focal	June 30, 2001	Genzyme Biosurgery	None
Wyntek	June 1, 2001	Genzyme General/Diagnostic Products	$8.8 million
Biomatrix	December 18, 2000	Genzyme Biosurgery	$82.1 million
GelTex	December 14, 2000	Genzyme General/Therapeutics and Renal	$118.0 million

(2)

In 2002, we created our Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of our Therapeutics reporting segment and amounts attributable to our renal research and development programs had been included in Eliminations/Adjustments for Genzyme General. We have reclassified our 2001 and 2000 segment disclosures to conform to our 2002 presentation.

(3)

Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.

(4)

Eliminations/Adjustments consist primarily of amounts related to Genzyme General's research and development and administrative activities, including investment income and interest expense, that we do not specifically allocate to a particular segment of Genzyme General.

(5)

On January 1, 2002, in connection with the adoption of SFAS No. 142, we ceased amortizing goodwill and workforce intangible assets.

(6)

In 2000, includes our 50% portion of the losses of RenaGel LLC through December 13, 2000. In connection with the acquisition of GelTex, we acquired GelTex's 50% interest in RenaGel LLC and, as a result, consolidated the activities of the joint venture for the period from December 14, 2000 through December 31, 2000. See Note C., "Acquisitions" above.

(7)

Represents our portion of the net loss of GTC, an unconsolidated affiliate through May 2002, which we do not specifically allocate to a particular segment of Genzyme General.

(8)

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 and $22.7 million in 2000, recognized in accordance with our policy pertaining to affiliate sales of stock, all of which resulted from the sale of common stock by GTC, an unconsolidated affiliate;



•

losses on equity investments of:



•

$15.4 million in 2002, including charges of: $9.2 million to write down our investment in GTC, $3.4 million to write down our investment in Cambridge Antibody Technology Group, $2.0 million to write down our investment in Dyax and $0.8 million to write down our investment in Targeted Genetics; and

GCS-151

•

$26.0 million in 2001, including charges of: $8.5 million to write-off our investment in Pharming Group, $11.8 million to write down our investment in Cambridge Antibody Technology Group and $4.5 million to write down our investment in Targeted Genetics;

•

net gains on sales of investments in equity securities of $23.2 million in 2000; and

•

net proceeds of $5.1 million received in connection with the settlement of a lawsuit in 2000.

(9)

On January 1, 2001, in connection with the adoption of SFAS No. 133, we recorded a cumulative effect adjustment of $4.2 million, net of tax, to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General.

(10)

In 2001 includes a loss of $25.0 million in connection with the sale of the assets of our Snowden Pencer line of surgical instruments. See Note D., "Dispositions," above. In 2000 includes charges for IPR&D of $82.1 million related to our acquisition of Biomatrix. See Note C., "Acquisitions" above.

(11)

In connection with the adoption of SFAS No. 142 on January 1, 2002, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our consolidated statements of operations and the combined statements of operations of Genzyme Biosurgery for the year ended December 31, 2002.

(12)

Includes income tax benefits that have not been recognized in the tax provisions of any of the divisions. Also includes the elimination of interdivisional revenues and expenses and a difference in amortization due to $2.9 million of additional goodwill associated with the PharmaGenics acquisition allocated to Genzyme Molecular Oncology as compared to amounts recorded at the corporate level. The difference in the amortization results from the application of our policy to account for income taxes at the divisional level as if each division was a separate taxpayer.

        We provide information concerning the assets of our reportable segments in the following table:

			December 31,
			2002			2001			2000
			(Amounts in thousands)
Segment Assets:
	Genzyme General(1):
		Therapeutics(2)	$	1,127,493		$	889,598		$	948,715
		Renal(2,3)		467,164			457,896			392,941
		Diagnostic Products(4)		103,636			105,354			89,236
		Other(5)		89,705			84,239			77,153
		Eliminations/Adjustments(6,7)		1,767,803			1,688,167			991,008
Total Genzyme General				3,555,801			3,225,254			2,499,053
Genzyme Biosurgery(8,9)				560,792			704,671			811,600
Genzyme Molecular Oncology				13,981			42,419			30,752
Eliminations/Adjustments(10)				(47,525	)		(36,599	)		(23,305	)
Total			$	4,083,049		$	3,935,745		$	3,318,100

(1)

Segment assets for Genzyme General include primarily cash and investments, accounts receivable, inventory and certain fixed and intangible assets.

(2)

Segment assets for our Therapeutics reporting segment for:

•

2001 includes $25.9 million of assets resulting from our acquisition of Novazyme, including $17.2 million of goodwill; and

•

2000 includes $370.5 million of goodwill and $198.5 million of other intangible assets resulting from our acquisition of GelTex.

GCS-152

Segment assets for our Renal reporting segment in 2000 include $82.0 million of goodwill and $266.6 million of other intangible assets also resulting from our acquisition of GelTex. See Note C., "Acquisitions" above.

(3)

In 2002, we created our Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of our Therapeutics reporting segment and amounts attributable to our renal research and development programs had been included in Eliminations/Adjustments for Genzyme General. We have reclassified our 2001 and 2000 segment disclosures to conform to our 2002 presentation.

(4)

Segment assets for our Diagnostic Products reporting segment for 2001 include $71.5 million of assets resulting from our acquisition of Wyntek, including $20.3 million of goodwill and $39.4 million of other intangible assets, net of related amortization. See Note C., "Acquisitions" above.

(5)

Other includes amounts attributable to our genetic testing and pharmaceuticals businesses, both of which operate within Genzyme General.

(6)

Eliminations/Adjustments for Genzyme General consists of the differences between the total assets for Genzyme General's segments and the other category and the total combined assets for Genzyme General. Eliminations/Adjustments for 2001 includes the allocation of net proceeds of $562.1 million from the private placement of $575.0 million in principal of 3% convertible subordinated debentures which was completed in May 2001.

(7)

Eliminations/Adjustments for Genzyme General consists primarily of cash, cash equivalents, short and long-term investments, equity investments, net property, plant and equipment and deferred tax assets that we do not allocate to a particular segment of Genzyme General.

(8)

Segment assets for Genzyme Biosurgery include:

•

$25.9 million of additional assets resulting from the acquisition of the Class A and Class B limited partnership interests of GDP, including $8.4 million of goodwill and $17.5 million of other intangible assets; and

•

$19.2 million of additional assets resulting from the acquisition of Focal, including $1.4 million of goodwill and $7.9 million of other intangible assets.

Segment assets for Genzyme Biosurgery for 2000 include $488.9 million of additional assets resulting from the acquisition of Biomatrix, including $284.9 million of intangible assets, $112.3 million of goodwill and $38.5 million of property, plant and equipment. See Note C., "Acquisitions," above.

(9)

In connection with the adoption of SFAS No. 142 on January 1, 2002, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our consolidated statements of operations and the combined statements of operations of Genzyme Biosurgery for the year ended December 31, 2002.

(10)

Eliminations/Adjustments represents the elimination of interdivisional balances.

GCS-153

        The amount in Eliminations/Adjustments for net income consists primarily of interest income, interest expense and other income and expense items that we do not specifically allocate to a particular segment. The amounts in Eliminations/Adjustments for segment assets consist of the following:

	December 31,
	2002		2001		2000
	(Amounts in thousands)
Cash, cash equivalents, and short- and long-term investments	$	1,077,904	$	961,879	$	339,259
Deferred tax assets		105,094		70,196		46,836
Property, plant and equipment, net		414,077		420,684		332,423
Notes receivable—related parties		11,918		—		—
Goodwill, net		5,287		5,143		30,197
Other intangibles, net		25		—		—
Investment in equity securities		42,945		88,686		119,648
Other		63,028		104,980		99,340
Total Eliminations / Adjustments	$	1,720,278	$	1,651,568	$	967,703

        We operate in the healthcare industry and we manufacture and market our products primarily in the U.S. and Europe. Our principal manufacturing facilities are located in the U.S., United Kingdom, Switzerland, Ireland and Germany. We purchase products from our subsidiaries in the United Kingdom and Switzerland for sale to customers in the U.S. We set transfer prices from our foreign subsidiaries to allow us to produce profit margins commensurate with our sales and marketing effort. Our subsidiary in Ireland is our primary distributor of therapeutic products in Europe. The following table contains certain financial information by geographic area:

		For the Years Ended December 31,
		2002		2001		2000
		(Amounts in thousands)
Revenues:
	U.S	$	805,492	$	778,418	$	550,756
	Europe		386,928		316,696		248,522
	Other		137,052		128,516		104,042
Total		$	1,329,472	$	1,223,630	$	903,320
Long-lived assets:
	U.S	$	1,312,616	$	1,467,291	$	926,790
	Europe		253,103		110,501		46,534
	Other		1,744		1,519		4,244
Total		$	1,567,463	$	1,579,311	$	977,568

        Our results of operations are highly dependent on sales of Cerezyme enzyme. Sales of this product represented 52% of our product revenue in 2002, 51% of our product revenue in 2001 and 66% of our product revenue in 2000. We manufacture Cerezyme enzyme at a single manufacturing facility in Allston, Massachusetts. We sell this product directly to physicians, hospitals and treatment centers as well as through unaffiliated distributors. Distributor sales of Cerezyme enzyme represented approximately 43% of Cerezyme enzyme revenue in 2002, approximately 33% in 2001 and approximately 28% in 2000. Sales of Cerezyme to one of our U.S. distributors represented

GCS-154

approximately 9% of our total revenue in 2002, approximately 9% in 2001 and approximately 11% in 2000. We believe that our credit risk associated with trade receivables is mitigated as a result of the fact that this product is sold to a large number of customers over a broad geographic area.

        Sales of Renagel phosphate binder represented approximately 13% of our product revenue in 2002, 16% of our product revenue in 2001 and approximately 6% of our product revenue in 2000. Distributor sales of Renagel phosphate binder represented approximately 72% of Renagel phosphate binder revenue in 2002, approximately 89% in 2001 and approximately 86% in 2000.

NOTE S. QUARTERLY RESULTS (UNAUDITED)

			1st Quarter 2002			2nd Quarter 2002			3rd Quarter 2002			4th Quarter 2002(1)
			(Amounts in thousands, except per share amounts)
Total revenue			$	297,940		$	332,192		$	340,166		$	359,174
Gross profit				206,137			235,043			243,420			253,301
Net income (loss)				(91,497	)		28,323			25,055			25,045
Income (loss) per share:
	Allocated to Genzyme General Stock:
		Basic	$	0.14		$	0.23		$	0.25		$	0.21
		Diluted	$	0.14		$	0.23		$	0.25		$	0.19
	Allocated to Biosurgery Stock:
		Basic and diluted	$	(2.94	)	$	(0.38	)	$	(0.55	)	$	(0.33	)
	Allocated to Molecular Oncology Stock:
		Basic and diluted	$	(0.36	)	$	(0.37	)	$	(0.37	)	$	(0.31	)

			1st Quarter 2001			2nd Quarter 2001			3rd Quarter 2001			4th Quarter 2001
			(Amounts in thousands, except per share amounts)
Total revenue			$	278,261		$	300,641		$	319,495		$	325,233
Gross profit				184,637			204,680			226,444			229,265
Net income (loss)				3,257			(6,354	)		(102,676	)		(6,383	)
Income (loss) per share:
	Allocated to Genzyme General Stock:
		Basic	$	0.21		$	0.18		$	(0.37	)	$	0.21
		Diluted	$	0.20		$	0.17		$	(0.37	)	$	0.20
	Allocated to Biosurgery Stock:
		Basic and diluted	$	(0.84	)	$	(0.91	)	$	(0.48	)	$	(1.11	)
	Allocated to Molecular Oncology Stock:
		Basic and diluted	$	(0.39	)	$	(0.52	)	$	(0.45	)	$	(0.46	)

(1)

Includes fourth quarter 2002 charges of:

•

$15.4 million to write down our investment in certain strategic equity investments because we considered the decline in value of these investments to be other than temporary;

•

$14.0 million to write off engineering and design costs related to a manufacturing facility that was being constructed in Framingham, Massachusetts;

GCS-155

•

$5.5 million to reverse excess accruals related to the cost of fulfilling our legal obligation to provide human transgenic alpha-glucosidase during the transition of Pompe clinical trial patients to a CHO-cell product;

•

$4.2 million for severance costs;

•

$3.6 million to write-off our 50% share of costs associated with the write-off of certain production runs during the scale up of Aldurazyme enzyme manufacturing;

•

$2.8 million for costs associated with a planned major maintenance shutdown of a recombinant protein manufacturing facility in November 2002; and

•

$2.2 million attributable to product damaged when mishandled by a carrier during shipment to a customer for which we are seeking insurance reimbursement.

        In addition, we recognized a $4.3 million tax benefit in the fourth quarter of 2002 as a result of additional tax credits identified during the preparation of our 2001 tax return, which we allocated to Genzyme General.

NOTE T. SUBSEQUENT EVENT

        In 2001, our wholly-owned subsidiary in the United Kingdom established a home nursing and infusion service to support patients receiving Cerezyme enzyme and our other enzyme replacement therapies following the expiration of a contract with a third party service provider. This third party lodged a complaint with the Office of Fair Trading, or OFT, in the United Kingdom. The OFT is a non-governmental organization empowered to enforce certain consumer and competition legislation in the United Kingdom. The OFT commenced an investigation of this service, alleging that it contravened competition laws in the United Kingdom. While we believe that the provision of home healthcare services by our subsidiary and our pricing for Cerezyme enzyme in the United Kingdom fully complies with applicable laws, we cooperated in this investigation. On March 27, 2003, the OFT ruled that this service did, in fact, violate U.K. competition law, and as a result fined our subsidiary approximately 6.8 million Pounds Sterling and required modifications to our pricing structure for Cerezyme enzyme in the United Kingdom. We do not believe the OFT followed a fair procedure in conducting its investigation, nor do we believe its ruling is supported by either law or fact. We have notified the Competition Commission Appeal Tribunal that we will appeal the OFT's ruling. Based on the advice of counsel, management does not believe it is probable that we will be required to pay a material fine or modify our Cerezyme pricing structure. We have not accrued any amounts in connection with this contingency.

GCS-156

REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Stockholders of Genzyme Corporation:

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of stockholders' equity present fairly, in all material respects, the financial position of Genzyme Corporation and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        As discussed in Note I to these consolidated financial statements, the Company changed its method for accounting for goodwill in 2002.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 7, 2003, except for Note T, as to which the date is March 28, 2003

GCS-157

GENZYME CORPORATION
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

Column A		Column B		Column C				Column D		Column E
				Additions
Description		Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions		Balance at End of Period
Year ended December 31, 2002:
	Allowance for doubtful accounts	$	14,210,000	$	7,324,000	$	2,997,000	$	5,662,000	$	18,869,000
Year ended December 31, 2001:
	Allowance for doubtful accounts	$	20,711,000	$	1,766,000	$	1,295,000	$	9,562,000	$	14,210,000
Year ended December 31, 2000:
	Allowance for doubtful accounts	$	20,285,000	$	4,608,000	$	3,388,000	$	7,570,000	$	20,711,000

GCS-158

EX-13.2

Use these links to rapidly review the document
TABLE OF CONTENTS 5

EXHIBIT 13.2

FINANCIAL STATEMENTS
GENZYME GENERAL
A Division of Genzyme Corporation

	Page No.
Combined Selected Financial Data	GG-2
Management's Discussion and Analysis of Genzyme General's Financial Condition and Results of Operations	GG-6
Combined Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000	GG-46
Combined Balance Sheets as of December 31, 2002 and 2001	GG-48
Combined Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000	GG-49
Notes to Combined Financial Statements	GG-52
Report of Independent Accountants	GG-96

GG-1

GENZYME GENERAL
A Division of Genzyme Corporation

Combined Selected Financial Data

        These selected financial data have been derived from the audited, combined financial statements of Genzyme General. You should read the following information in conjunction with the audited financial statements and related notes of Genzyme General and Genzyme contained elsewhere in this annual report. These selected financial data may not be indicative of Genzyme General's future financial condition due to the risks and uncertainties described under the caption "Management's Discussion and Analysis of Genzyme General's Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report.

        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;



•

renal products, with a focus on products that treat patients suffering from renal diseases, including chronic renal failure;



•

diagnostic products, with a focus on in vitro diagnostics; and



•

other products and services, such as genetic testing services 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. These provisions factor the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock.

        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 accounting principles generally accepted in the U.S., 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, combine existing tracking stocks or change our earnings allocation methodology. Because the earnings allocated to Genzyme General Stock are based on the income or losses attributable to Genzyme General, we provide financial statements and management's discussion and analysis of Genzyme General to aid investors in evaluating its performance.

GG-2

COMBINED STATEMENTS OF OPERATIONS DATA

				For the Years Ended December 31,
				2002			2001			2000			1999			1998
				(Amounts in thousands)
Revenues:
	Net product sales			$	984,589		$	898,731		$	690,027		$	571,531		$	509,727
	Net service sales				89,423			74,056			61,161			57,223			55,445
	Revenues from research and development contracts:
		Related parties			2,747			3,279			509			1,516			3,568
		Other			3,426			5,860			786			5,096			579
			Total revenues		1,080,185			981,926			752,483			635,366			569,319
Operating costs and expenses:
	Cost of products sold				213,659			194,175			162,894			115,125			138,802
	Cost of services sold				52,159			43,167			37,879			35,637			34,240
	Selling, general and administrative(1)				323,683			295,068			166,462			149,427			126,172
	Research and development (including research and development related to contracts)(1)				230,043			187,502			112,792			97,746			73,139
	Amortization of intangibles(2)				38,998			74,296			10,928			8,106			7,610
	Purchase of in-process research and development(3)				—			95,568			118,048			5,436			—
	Charge for impaired assets(4)				13,986			—			—			—			—
		Total operating costs and expenses			872,528			889,776			609,003			411,477			379,963
Operating income					207,657			92,150			143,480			223,889			189,356
Other income (expenses):
	Equity in net loss of unconsolidated
		affiliates			(16,858	)		(34,365	)		(44,965	)		(37,423	)		(19,739	)
	Gain on affiliate sale of stock(5)				—			212			22,689			6,683			2,369
	Gain (loss) on investments in equity securities(6)				(14,497	)		(25,996	)		23,173			(3,749	)		(6	)
	Minority interest in net loss of subsidiary				—			2,259			4,625			3,674			4,285
	Gain on sale of product line(7)				—			—			—			8,018			31,202
	Other(8)				(152	)		(2,329	)		5,203			14,389			—
	Investment income				48,944			47,806			38,549			30,881			22,953
	Interest expense				(17,847	)		(23,192	)		(14,159	)		(19,885	)		(16,994	)
		Total other income (expenses)			(410	)		(35,605	)		35,115			2,588			24,070
Income before income taxes					207,247			56,545			178,595			226,477			213,426
Provision for income taxes					(56,516	)		(52,666	)		(92,639	)		(84,400	)		(80,374	)
Division net income before cumulative effect of change in accounting for derivative financial instruments					150,731			3,879			85,956			142,077			133,052
Cumulative effect of change in accounting for derivative financial instruments, net of tax(9)					—			4,167			—			—			—
Division net income				$	150,731		$	8,046		$	85,956		$	142,077		$	133,052

GG-3

COMBINED BALANCE SHEET DATA

	For the Years Ended December 31,
	2002		2001		2000		1999		1998
	(Amounts in thousands)
Cash and investments	$	1,149,145	$	1,041,500	$	531,326	$	513,905	$	556,097
Working capital		825,573		473,870		434,412		487,561		381,685
Total assets		3,555,801		3,225,254		2,499,053		1,399,583		1,410,391
Long-term debt, capital lease obligations and convertible debt, including current portion(10)		600,051		606,926		455,684		272,702		357,214
Division equity		2,585,884		2,280,352		1,750,280		1,007,614		939,967

(1)

Selling, general and administrative expenses for 2002 includes a $3.3 million charge for severance costs and the reversal of $5.5 million of accruals in excess of currently estimated requirements to fulfill our legal obligation to provide human transgenic alpha-glucosidose during the transition of Pompe clinical trial patients to a CHO-cell product. Research and development expenses for 2002 include a $0.9 million charge for severance costs. Selling, general and administrative expenses for 2001 includes $27.0 million of charges resulting from Pharming Group's decision to file for and operate under a court supervised receivership.

(2)

Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," Genzyme General ceased amortizing goodwill. Genzyme General recorded $37.0 million in 2001 and $6.6 million in 2000 of amortization expense related to its goodwill.

(3)

Charges for IPR&D 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.

(4)

Represents the write-off of engineering and design costs related to a manufacturing facility that was being constructed in Framingham, Massachusetts.

(5)

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, GTC. In 2001, 1999 and 1998, our gain on affiliate sale of stock represents the gain on our investment in GTC as a result of GTC's various issuances of additional shares of its common stock.

(6)

Gains (losses) on investments in equity securities includes the following gains and losses resulting from the sale of equity investments and impairment charges because we assessed declines in market value to be other than temporary.

•

2002—charges of $9.2 million to write down our investment in GTC, $3.4 million to write down our investment in Cambridge Antibody Technology Group, $2.0 million to write down our investment in Dyax and $0.8 million to write down our investment in Targeted Genetics;

•

2001—charges of $8.5 million to write off our investment in Pharming Group, $11.8 million to write down our investment in Cambridge Antibody Technology Group and $4.5 million to write down our investment in Targeted Genetics;

•

2000—gains of $16.4 million upon the sale of a portion of our investment in GTC and $7.6 million relating to our investment in Celtrix when it was acquired in a stock-for-stock transaction;

•

1999—gains of $2.0 million resulting from the sales of shares of Techne common stock that we received when we sold our research products business to Techne offset by a charge of $5.7 million to write down our investment in Pharming Group; and

•

1998—gains of $3.4 million resulting from the sales of shares of Techne common stock, offset by a charge of $3.4 million to write down our investment in Celtrix.

GG-4

(7)

Gain (loss) on sale of product line includes:

•

1999—a gain of $7.5 million, representing the payment of a note receivable that we received as partial consideration for the sale of Genetic Design to Laboratory Corporation of America in 1996, and a gain of $0.5 million resulting from the sale of our immunochemistry business assets to an operating unit of Sybron Laboratory Products; and

•

1998—a gain of $31.2 million related to the sale of our research products business assets to Techne.

(8)

Other includes:

•

2000—$5.1 million payment received in connection with the settlement of a lawsuit; and

•

1999—the receipt of a $14.4 million payment associated with the termination of our agreement to acquire Cell Genesys, net of acquisition related expenses.

(9)

On January 1, 2001, we adopted 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 recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General.

(10)

Long-term debt, capital lease obligations and convertible debt, including current portion, consists primarily of:

•

December 31, 2002 and 2001—$575.0 million in principal of our 3% convertible subordinated debentures due May 2021 and a $25.0 million capital lease obligation;

•

December 31, 2000—$250.0 million in principal of our 5¹/4% convertible subordinated notes (which have since been redeemed), $150.0 million in principal drawn under our revolving credit facility (which has since been repaid), and a $25.0 million capital lease obligation; and

•

December 31, 1999 and 1998—$250.0 million in principal of 5¹/4% convertible subordinated notes.

GG-5

MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME
GENERAL'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described under "Factors Affecting Future Operating Results" below as well as in Exhibit 99.2 to this annual report. These risks and uncertainties could cause actual results to differ materially from those forecast in forward-looking statements or implied by past results and trends. Forward-looking statements are statements that attempt to project or anticipate future developments in our business; we encourage you to review the examples of forward looking statements under "Note Regarding Forward Looking Statements." 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 in light of future developments.

INTRODUCTION

        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;



•

renal products, with a focus on products that treat patients suffering from renal diseases, including chronic renal failure;



•

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 accounting principles generally accepted in the U.S. 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 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. The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

GG-6

        The provisions in our charter governing dividends and distributions factor the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock.

        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 accounting principles generally accepted in the U.S., 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 new series of tracking stock, combine existing tracking stocks or change our earnings allocation methodology. Because the earnings allocated to Genzyme General Stock are based on the income or losses attributable to Genzyme General, we provide 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 re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our divisional management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        We present earnings per share data for Genzyme General Stock in our consolidated financial statements. 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, therefore, read this discussion and analysis of Genzyme General's financial position and results of operations in conjunction with the combined financial statements and related notes of Genzyme General, the discussion and analysis of Genzyme's financial position and results of operations, and the consolidated financial statements and related notes of Genzyme, all of which are included in this annual report.

ACQUISITIONS

        The following acquisitions have been allocated to Genzyme General and have been accounted for as purchases. The results of operations of Novazyme, Wyntek and GelTex are included in our

GG-7

consolidated financial statements and the combined financial statements of Genzyme General from the date of acquisition.

        In September 2001, we acquired all of the outstanding capital stock of Novazyme for 2.6 million shares of Genzyme General Stock valued at $110.6 million, options, stock purchase rights, warrants and other costs valued at $9.9 million and contingent 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 by specified dates.

        The staff of the FTC is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there are ongoing costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

        In June 2001, we acquired all of the outstanding capital stock of Wyntek for an aggregate purchase price of $65.4 million.

        In December 2000, we acquired GelTex for $515.2 million of cash, 15.8 million in shares of Genzyme General Stock valued at $491.2 million and options, warrants and other costs valued at $69.7 million. As part of the acquisition of GelTex, we acquired all of GelTex's ownership interest in RenaGel LLC, our joint venture with GelTex. Prior to the acquisition of GelTex, we accounted for our investment in RenaGel LLC under the equity method of accounting.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

        The preparation of the combined financial statements of Genzyme General in accordance with accounting principles generally accepted in the U.S., requires us to make certain estimates and judgments that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in these financial statements. Our actual results could differ from these estimates under different assumptions and conditions.

        We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the combined financial statements of Genzyme General:

•

Policies Relating to Tracking Stocks;



•

Revenue Recognition;



•

Inventories;



•

Long-Lived Assets;



•

Asset Impairments;



•

Strategic Equity Investments; and



•

Other Reserve Estimates.

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

GG-8

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. Our 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 and the income allocated to one or more series of our stock.

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. Income tax benefits allocated from Genzyme Biosurgery to Genzyme General are recorded as a reduction of Genzyme Biosurgery's division equity and do not impact Genzyme Biosurgery's division net loss. Income tax benefits allocated to Genzyme General are recorded as a credit to Genzyme General's division equity and do not impact Genzyme General's division net income.

GG-9

Determination of Available Dividend Amounts

        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. The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        Within these parameters, and other general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. To date, we have never paid or declared a cash dividend on shares of any of our series of common stock, nor do we anticipate doing so in the foreseeable future. Unless declared, no dividends accrue on our tracking stock.

        Determining the dividend limit for each series of our stock can involve significant judgment, including assessing the amount that would be legally available for dividends under Massachusetts law. If we concluded that a division would be unable to pay dividends under Massachusetts law as a separate corporation, we would be unable to allocate losses to the corresponding series of our stock. This could materially impact the allocation of income and losses among our three series of tracking stock.

Revenue Recognition

        Genzyme General recognizes revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, title and risk of loss have passed to the customer and collection from the customer is reasonably assured. Genzyme General recognizes revenue from service sales, such as genetic testing services, when we have finished providing the service. Genzyme General recognizes revenue from contracts to perform research and development services and selling and marketing services over the term of the applicable contract and as it completes its obligations under that contract. Genzyme General recognizes non-refundable, up-front license fees over the related performance period or at the time we have 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.

        Revenue from milestone payments for which Genzyme General has no continuing performance obligations is recognized upon achievement of the related milestone. When Genzyme General has continuing performance obligations, it recognizes milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;



•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and

GG-10

•

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.

        The timing of product shipments and receipts can have a significant impact on the amount of revenue that Genzyme General recognizes in a particular period. Also, most of Genzyme General's products, including Cerezyme enzyme and Renagel phosphate binder, are sold at least in part through distributors. Inventory in the distribution channel consists of inventory held by distributors, who are Genzyme General's customers, and inventory held by retailers, such as pharmacies and hospitals. Genzyme General's revenue in a particular period can be impacted by increases or decreases in distributor inventories. If distributor inventories increased to excessive levels, Genzyme General could experience reduced purchases in subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand or product expiration.

        Genzyme General uses a variety of data sources to determine the amount inventory in its United States distribution channel. For Cerezyme enzyme, Genzyme General receives data on sales and inventory levels directly from its primary distributors. For Renagel phosphate binder, Genzyme General's data sources include prescription and wholesaler data purchased from external data providers and, in some cases, sales and inventory data received directly from distributors. As part of Genzyme General's efforts to limit inventory held by distributors and to gain improved visibility into the distribution channel, it executed revised agreements with its primary Renagel phosphate binder distributors during 2002. These agreements provide incentives for the distributors to limit the amount of inventory that they carry, and to provide Genzyme General with specific inventory and sales data.

        Genzyme General records reserves for rebates payable under Medicaid and payor contracts, such as managed care organizations, as a reduction of revenue at the time product sales are recorded. Genzyme General's Medicaid and payor rebate reserves have two components:

•

an estimate of outstanding claims for end-user sales that have occurred, but for which related claim submissions have not been received; and



•

an estimate of future claims that will be made when inventory in the distribution channel is sold to end-users.

Because the second component is calculated based on the amount of inventory in the distribution channel, Genzyme General's assessment of distribution channel inventory levels impacts its estimated reserve requirements. Genzyme General's calculation also requires other estimates, including estimates of sales mix, to determine which sales will subject to rebates and the amount of such rebates. Genzyme General updates its estimates and assumptions each period, and records any necessary adjustment to its reserves. As of December 31, 2002, Genzyme General's reserve for Medicaid and payor rebates was approximately $13.1 million.

        Genzyme General records allowances for product returns as a reduction of revenue at the time product sales are recorded. The product returns reserve is estimated based on Genzyme General's experience of returns for each of its products, or for similar products. If the history of product returns changes, the reserve is adjusted appropriately. Genzyme General's estimate of channel inventory is also used to assess the reasonableness of its product returns reserve.

        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 its customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

GG-11

        In 2002, Genzyme General adjusted its revenue accounting to comply with the provisions of EITF Issue No. 01-09, "Accounting for Consideration given by a Vendor to a Customer (including a Reseller of a Vendor's Products)". EITF Issue No. 01-09 specifies that cash consideration (including a sales incentive) given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor's products or services and, therefore, should be characterized as a reduction of revenue. That presumption is overcome and the consideration should be characterized as a cost incurred if, and to the extent that, both of the following conditions are met:

•

the vendor receives, or will receive, an identifiable benefit (goods or services) in exchange for the consideration; and



•

the vendor can reasonably estimate the fair value of the benefit received.

        In 2002, Genzyme General separated fees paid to our distributors into amounts that were specifically identifiable for payment of services. The fair market value of these services of approximately $8 million was determined by third party quotes and was recorded as operating expense.

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 likely result in the write-off of the inventory and a charge to earnings. At December 31, 2002, Genzyme General's total inventories include $7.5 million of inventory for products that have not yet been approved for sale. In addition, at December 31, 2002, a joint venture in which we have a 50% ownership interest has $17.3 million of inventory for a product that has not yet been approved for sale, of which $8.6 million represents our portion of the unapproved inventory of the joint venture. Our ownership interest in this joint venture is allocated to Genzyme General.

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

GG-12

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 costs that had been capitalized during the unsuccessful validation process. To date, all of Genzyme General's manufacturing process validation efforts have been successful. At December 31, 2002, Genzyme General had capitalized validation costs, net of accumulated amortization of $15.3 million.

        Genzyme General generally depreciates plant and equipment using the straight-line method over its estimated economic life, which ranges from 3 to 15 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 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; and



•

appropriate discount rates to use in the analysis.

Use of different estimates and judgments could yield materially different results in this analysis, and could result in materially different asset values and IPR&D charges.

        As of December 31, 2002, there was approximately $481.7 million of goodwill on Genzyme General's combined balance sheet. Effective January 1, 2002, in accordance with SFAS No. 142, Genzyme General ceased amortizing goodwill. As of December 31, 2002, there were approximately $451.7 million of other net intangible assets on Genzyme General's balance sheet. Genzyme General amortizes acquired other 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 other 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. 144 "Accounting for the Impairment of Long-Lived Assets." Genzyme General performs these evaluations whenever events or changes in circumstances 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

GG-13

•

a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If Genzyme General believes an indicator of potential impairment exists, it tests to determine whether the impairment recognition criteria of SFAS No. 144 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.

        During 2001, we began constructing a recombinant protein manufacturing facility adjacent to our existing facilities in Framingham, Massachusetts, which we allocated to Genzyme General. During the quarter ended December 31, 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. Throughout 2002, we considered various alternative plans for use of the Framingham manufacturing facility, including contract manufacturing arrangements, and whether the $16.8 million of capitalized engineering and design costs for this facility would be applicable to the future development at this site. In December 2002, due to a change in our plans for future manufacturing capacity requirements, we determined that we would not proceed with construction of the Framingham facility for the foreseeable future. As a result, we recorded a charge in the fourth quarter of 2002 to write off $14.0 million of capitalized engineering and design costs that were specific to the Framingham facility. We allocated this charge to Genzyme General. The remaining $2.8 million of capitalized engineering and design costs were used in the construction of the Belgium manufacturing facility and, accordingly, have been re-allocated as a capitalized cost of that facility.

        Effective January 1, 2002, Genzyme General adopted SFAS No. 142, 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 unless these lives are determined to be indefinite. 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. Effective January 1, 2002, Genzyme General reclassified $2.4 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax liabilities, to goodwill as required by SFAS No. 142.

        We completed the transitional and annual impairment tests for the $481.7 million of net goodwill related to Genzyme General reporting units in the year ended December 31, 2002, as provided by SFAS No. 142 and determined that no impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of its acquisitions, various analysis, assumptions, significant judgments and estimates were made at the time of acquisition

GG-14

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.

Strategic Equity Investments

        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.

        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.

        In December 2002, we recorded and allocated to Genzyme General the following impairment charges because we considered the decline in value of these investments to be other than temporary:

•

$9.2 million in connection with our investment in the common stock of GTC;



•

$3.4 million in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group;



•

$2.0 million in connection with our investment in the common stock of Dyax and



•

$0.8 million in connection with our investment in the common stock of Targeted Genetics.

        Given the significance and duration of the declines as of the end of 2002, 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.

        As of December 31, 2002, Genzyme General's division equity includes $10.0 million of net unrealized pre-tax losses on our investments in strategic equity securities.

Other Reserve Estimates

        Determining accruals and reserves requires significant judgments and estimates on the part of management. In addition to the judgments and estimates described above, we made other reserve estimates that had an impact on Genzyme General's financial results:

•

in December 2002, in accordance with a separation agreement for one of our employees, we provided $4.2 million primarily associated with the estimated cost of continuation of medical coverage for the employee's family; and

GG-15

•

in August 2001, we made the determination to terminate the transgenic portion of our Pompe program and also became responsible for funding all of the operations of Pharming/Genzyme LLC, which in turn was legally obligated to supply transgenically-derived alpha-glucosidase until the patients currently enrolled in the clinical trial of the product can be transitioned to a CHO-cell product. We accrued $16.8 million as estimated costs to fund our contractual obligation to provide nine patients with the transgenic product until the patients could be transitioned to a CHO-cell product. In December 2002, we determined that we have sufficient quantities on hand to fulfill our legal obligation to supply the remaining three patients in the clinical trial for human transgenic alpha-glucosidase with the transgenic product until they can be transitioned to a CHO-cell product. As a result, we revised our estimated cost of this legal obligation and reversed $5.5 million of amounts in excess of requirements to selling, general and administrative expense in December 2002.

RESULTS OF OPERATIONS

        The following discussion summarizes the key factors our management believes are necessary for an understanding of Genzyme General's combined financial statements.

REVENUES

		2002		2001		2000		02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Product revenue		$	984,589	$	898,731	$	690,027	10	%	30	%
Service revenue			89,423		74,056		61,161	21	%	21	%
	Total product and service revenue		1,074,012		972,787		751,188	10	%	29	%
Research and development revenue			6,173		9,139		1,295	(32	)%	606	%
	Total revenues	$	1,080,185	$	981,926	$	752,483	10	%	30	%

Product and Service Revenue

        The following table describes Genzyme General's product and service revenue on a segment basis:

				2002		2001		2000		02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
				(Amounts in thousands, except percentage data)
Product revenue:
	Therapeutics:
		Cerezyme enzyme		$	619,184	$	569,887	$	536,868	9	%	6	%
		Other therapeutic products			82,248		31,138		15,586	164	%	100	%
			Total Therapeutics		701,432		601,025		552,454	17	%	9	%
	Renal				156,864		176,921		47,891	(11	)%	269	%
	Diagnostic Products				83,065		76,858		61,469	8	%	25	%
	Other				43,228		43,927		28,213	(2	)%	56	%
			Total product revenue		984,589		898,731		690,027	10	%	30	%
Service revenue:
	Other				89,423		74,056		61,161	21	%	21	%
Total product and service revenue				$	1,074,012	$	972,787	$	751,188	10	%	29	%

GG-16

2002 As Compared to 2001

Therapeutics

        The increase in Therapeutics product revenue for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was primarily due to continued growth in sales of Cerezyme enzyme for the treatment of Type 1 Gaucher disease and increased sales of other therapeutic products. Other therapeutic products revenue consists primarily of:

•

sales of Thyrogen hormone, which is an adjunctive diagnostic agent in the follow-up of patients with well-differentiated thyroid cancer;



•

sales of Fabrazyme enzyme, which is a recombinant form of the human enzyme alpha-galactosidase used for the treatment of Fabry disease; and



•

bulk sales of and royalties earned on sales of WelChol bile acid binder, which is an adjunctive therapy for the reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia.

        Sales of Cerezyme enzyme were approximately 63% of Genzyme General's total product revenue for both the years ended December 31, 2002 and 2001. The growth in sales of Cerezyme enzyme for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was attributable to Genzyme General's continued identification of new Gaucher disease patients worldwide, particularly in Europe, resulting from a significant investment in our global sales and marketing infrastructure. The growth in European sales of Cerezyme enzyme for the period was positively impacted by the weakened U.S. Dollar against the Euro. During the year ended December 31, 2002 as compared to the same period a year ago the U.S. Dollar weakened against the Euro on average by approximately 5%, which positively impacted sales of Cerezyme enzyme by $10.6 million.

        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. Although orphan drug status for Cerezyme enzyme, which provided us with exclusive marketing rights for Cerezyme enzyme in the U.S., 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 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.

        Genzyme General is aware of companies that have initiated efforts to develop competitive products, and other companies may do so in the future. OGS, for example, is developing Zavesca, a small molecule drug candidate for the treatment of Type 1 Gaucher disease. Zavesca has been granted orphan drug status in the U.S. for treatment of Type 1 Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Type 1 Gaucher disease. In July 2002, the FDA issued a "non approvable" letter to OGS in response to its NDA for Zavesca; in November 2002, however, the agency agreed to examine additional data in support of that NDA. Also in November 2002, the European Commission approved OGS's MAA for Zavesca as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement therapy is unsuitable. OGS will be required to submit follow-up safety data on the product as a condition of such approval. In January 2003, a licensee of OGS submitted an application for approval of Zavesca with the Israeli Ministry of Health. To date, virtually all Gaucher disease patients who have received enzyme therapy have experienced strong clinical benefit with few side effects so we do not expect the competition from Zavesca to have a significant impact on our sales of Cerezyme enzyme in Europe.

GG-17

        Other therapeutic products revenue consists primarily of sales of Thyrogen hormone, Fabrazyme enzyme and bulk sales of and royalties earned on sales of WelChol bile acid binder. The increase in other therapeutic products revenue for the year ended December 31, 2002 as compared to the year ended December 31, 2001 is attributable to:

•

a 51% increase in sales of Thyrogen hormone to $28.3 million primarily due to increased market penetration, particularly in Europe, where sales increased 147% to $8.8 million. 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 CPMP of the EMEA, which was necessary for commercial introduction of the product;



•

a greater than 100% increase in sales of Fabrazyme enzyme in Europe to $26.1 million partially due to the introduction to several new markets in Europe and our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme. The increase also reflects the fact that 2002 was the first full year of sales of Fabrazyme enzyme, which was launched in Europe in August 2001; and



•

an increase in kilograms shipped of Genzyme General's WelChol bile acid binder and an increase in royalties earned on sales of WelChol bile acid binder during 2002. These increases were the result of sales to our U.S. marketing partner, Sankyo Pharma, Inc., which has experienced continued market growth of the product in the U.S. during 2002. In October 2002, Merck/Schering-Plough Pharmaceuticals received marketing approval in Germany and FDA approval in the U.S. for its competitive product, ezetimibe, for use alone and with marketed statins for the treatment of elevated cholesterol levels as a second-line therapy. The introduction of this product in the U.S. may adversely affect the future growth of bulk sales of and royalties earned on sales of our Welchol bile acid binder.

Renal

        During 2002, we created the Renal reporting segment consisting primarily of amounts attributable to the manufacture and sale of Renagel phosphate binder. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of Genzyme General's Therapeutics reporting segment. We have reclassified Genzyme General's 2001 and 2000 disclosures to conform to Genzyme General's 2002 presentation. Genzyme General expects sales of Renagel phosphate binder to increase, driven primarily by the continued adoption of the product by nephrologists worldwide. The increase in sales of Renagel phosphate binder will be dependent on several factors, including:

•

acceptance by the medical community of Renagel phosphate binder as the preferred treatment for elevated serum phosphorus levels in end-stage renal disease patients on hemodialysis;



•

our ability to effectively manage wholesaler inventories and the levels of compliance with the inventory management programs we implemented with our wholesalers in 2002;



•

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



•

the availability of reimbursement from third party payors and the extent of coverage;



•

our ability to manufacture sufficient quantities of product to meet demand and to do so at a reasonable price;



•

the results of additional clinical trials for additional indications and expanded labeling;



•

the availability of competing treatments;



•

the efficiencies of our sales force; and

GG-18

•

the content and timing of our submissions to and decisions by regulatory authorities.

        Sales of Renagel phosphate binder were approximately 16% of our total product revenue for the year ended December 31, 2002 as compared to approximately 20% of our total product revenue for the year ended December 31, 2001. Sales of Renagel phosphate binder for the year ended December 31, 2002 declined 11% as compared to the year ended December 31, 2001 primarily due to a reduction in domestic wholesaler inventory levels of approximately $30.0 million, based on management's estimates of end-user demand.

Diagnostic Products

        Diagnostic Products product revenue increased 8% to $83.1 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001. The increase was primarily attributable to:

•

a 2% increase in the combined sales of infectious disease testing products, HDL and LDL cholesterol testing products and royalties on product sales by Techne Corporation's biotechnology group to $60.7 million; and



•

a 31% increase in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $22.3 million, primarily due to a full year of sales of additional tests we obtained through our acquisition of Wyntek in June 2001.

Other Product and Service Revenue

        Other product revenue decreased 2% to $43.2 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001. The slight decrease was primarily attributable to a 7% decrease in sales of hyaluronan-based products to $12.8 million while the combined sales of liquid crystals and amino acid derivatives, both of which are pharmaceutical materials, remained flat at $30.1 million. The 21% increase in other service revenue to $89.4 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001 is due to increased sales of genetic testing services. This increase was primarily attributable to expanded presence in the prenatal screening market.

2001 As Compared to 2000

Therapeutics

        The increase in Therapeutics product revenue for the year ended December 31, 2001 as compared to December 31, 2000 was primarily due to continued growth in sales of Cerezyme enzyme for the treatment of Type 1 Gaucher disease and sales of other therapeutic products. Other therapeutic product revenue consists primarily of sales of Thyrogen hormone and sales of Fabrazyme enzyme.

        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.

        Sales of Cerezyme enzyme were 63% of Genzyme General's total product revenue for the year ended December 31, 2001 as compared to 78% of Genzyme General's total product revenue for the year ended December 31, 2000.

GG-19

        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 CPMP of the EMEA. Other therapeutics revenue also increased due to increased sales of Fabrazyme enzyme in Europe.

Renal

        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 first quarter of 2000.

        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.

        Sales of Renagel phosphate binder were approximately 20% of Genzyme General's total product revenue for the year ended December 31, 2001, as compared to approximately 7% of Genzyme General's total product revenue for the year ended December 31, 2000. Sales of Renagel phosphate binder for the year ended December 31, 2001, as compared to December 31, 2000, include sales of 403 mg 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 phosphate binder tablets or 403 mg Renagel phosphate binder capsules while Genzyme General built an inventory of 800 mg tablets to support our re-launch of this dosage form in June 2001.

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.

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.

GG-20

International Product and Service Revenue

        A substantial portion of Genzyme General's revenue was generated outside of the U.S. 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:

	2002			2001			2000			02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
International product and service revenue	$	457,697		$	377,185		$	316,482		21	%	19	%
% of total product and service revenue		43	%		39	%		42	%

International sales of Cerezyme enzyme increased 11% to $328.7 million for the year ended December 31, 2002 as compared to $297.5 million in the same period a year ago. The increase in international sales of Cerezyme enzyme for the year-ended December 31, 2002, as compared to the same period a year ago, is primarily due to:

•

a 6% increase in international unit sales of Cerezyme enzyme; and



•

an approximate 5% increase in the average exchange rate of the Euro, which positively impacted sales of Cerezyme enzyme by $10.6 million.

        International sales of Renagel phosphate binder increased 116% to $43.5 million for the year ended December 31, 2002, as compared to $20.1 million for the same period a year ago. The increase in international sales of Renagel phosphate binder for the year ended December 31, 2002, as compared to the same periods a year ago is primarily due to:

•

the ongoing launch of Renagel phosphate binder tablets in Europe in 2002; and



•

the expansion of the Renagel phosphate binder sales force in Europe.

        International sales of Fabrazyme enzyme increased 351% to $26.1 million for the year ended December 31, 2002, as compared to $5.8 million for the same period a year ago. The increase in international sales of Fabrazyme enzyme for the year ended December 31, 2002, as compared to the same period a year ago is primarily due to:

•

the fact that 2002 was the first full year of sales of Fabrazyme enzyme;



•

the introduction of Fabrazyme enzyme into several new markets in Europe in 2002; and



•

our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme.

        International product and service revenue as a percent of total product and service revenue increased in the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily due to the overall increase in international product and service sales, an approximate $13.9 million positive impact on sales resulting from an approximate 5% increase in the average exchange rate of the Euro, and a 28% or $43.4 million decrease in net Renagel phosphate binder sales in the U.S.

2001 As Compared to 2000

        International sales of Cerezyme enzyme increased 10% to $297.5 million for the year ended December 31, 2001 as compared to $270.6 million for 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

GG-21

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 for the year ended December 31, 2001 as compared to $6.9 million for the year ended December 31, 2000. The increase is attributable to:

•

the ongoing launch of Renagel phosphate binder tablets in Europe;



•

the introduction of Renagel phosphate binder in Brazil; and



•

the expansion of the Renagel phosphate binder sales forces in Europe.

        International product and service revenue as a percent of total product and service revenue decreased for the years ended December 31, 2001 and December 31, 2000, primarily due to increased sales of Renagel phosphate binder in the U.S.

Research and Development Revenue

        The following table sets forth our research and development revenue on a segment basis:

			2002		2001		2000		02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
			(Amounts in thousands, except percentage data)
Research and development revenue:
	Therapeutics		$	3,181	$	5,789	$	315	(45	)%	1,738	%
	Other			31		25		67	24	%	(63	)%
	Eliminations/Adjustments			2,961		3,325		913	(11	)%	264	%
		Total research and development revenue	$	6,173	$	9,139	$	1,295	(32	)%	606	%

        Research and development revenue allocated to Genzyme General is related primarily to research and development activities performed by its Therapeutics reporting segment under collaboration agreements. Eliminations/Adjustments includes research and development efforts Genzyme General conducted on behalf of GTC and amounts related to Genzyme General's research and development activities that we do not specifically allocate to a particular segment of Genzyme General.

MARGINS

		2002			2001			2000			02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Product margin		$	770,930		$	704,556		$	527,133		9	%	34	%
	% of total product revenue		78	%		78	%		76	%
Service margin		$	37,264		$	30,889		$	23,282		21	%	33	%
	% of total service revenue		42	%		42	%		38	%
Total gross margin		$	808,194		$	735,445		$	550,415		10	%	34	%
	% of total product and service revenue		75	%		76	%		73	%

GG-22

        Genzyme General provides a broad range of healthcare products and services. As a result, Genzyme General's gross margin may vary significantly based on the category of product or service. Sales of therapeutic products, including Cerezyme enzyme, result in higher margins than sales of diagnostic products.

2002 As Compared to 2001

Product Margin

        The 9% increase in Genzyme General's overall product margin for the year ended December 31, 2002, as compared to the year ended December 31, 2001, was primarily attributable to a 10% increase in product revenue offset in part by a 10% increase in the cost of products sold. The improved product margin was primarily attributable to an increase in sales of higher margin Therapeutics products such as Cerezyme enzyme, Thyrogen hormone and Fabrazyme enzyme. Driven by the increase in sales in Therapeutics products, product margin for the Therapeutics products increased 15% for the year ended December 31, 2002 as compared to the year ended December 31, 2001.

        Product margin for the Renal reporting segment was flat for the year ended December 31, 2002 as compared to the year ended December 31, 2001. This was primarily due to the fact that the year over year decline in sales of Renagel phosphate binder was offset by a corresponding decline in production costs. The decline in sales of Renagel phosphate binder was impacted by several factors including a reduction in wholesaler inventory levels of approximately $30 million based on our management's estimate of end-user demand. In addition, cost of products sold for Renagel phosphate binder for the year ended December 31, 2001 includes $8.2 million of charges incurred in the first half of 2001 relating to the increased basis of the inventory obtained in connection with our acquisition of GelTex, for which there are no comparable amounts in the year ended December 31, 2002.

        Product margin for Diagnostic Products decreased 5% for the year ended December 31, 2002, as compared to the year ended December 31, 2001, resulting from the increase in the cost of Diagnostic Products sold for the year ended December 31, 2002, as compared to the year ended December 31, 2001. The increase in cost of Diagnostic Products sold was partially attributable to a charge of $2.8 million recorded in 2002 for the planned closure of a Diagnostic Products manufacturing facility in San Carlos, California.

        We expect that in the future Genzyme General's product margin as a percentage of product revenue will trend slightly lower, primarily due to lower margins normally attributable to Renagel phosphate binder and a product mix shift as sales of Diagnostic Products continue to increase.

Service Margin

        Service margin for the year ended December 31, 2002, as compared to the year ended December 31, 2001, continued to increase, primarily as a result of increased sales of our molecular genetics (DNA) and cancer testing services. Service margin as a percentage of service revenue for the year ended December 31, 2002, as compared to the year ended December 31, 2001, remained flat. This was attributable to a 21% increase in service revenue in the year ended December 31, 2002, driven primarily by increased sales of genetic testing services attributable to expanded presence in the prenatal market and a broader test menu serving the oncology market, offset by a 21% increase in the cost of services sold for the same period.

2001 As Compared to 2000

Product Margin

        Product margin for the year ended December 31, 2001, as compared to the year ended December 31, 2000, increased primarily as a result of increased sales of Renagel phosphate binder and

GG-23

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 the year ended 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.

Service Margin

        Service margin for the year ended December 31, 2001, as compared to the year ended 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 the year ended 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 serving the oncology market, partially offset by a 14% increase in the cost of services sold for the same period.

OPERATING EXPENSES

2002 As Compared to 2001

Selling, General and Administrative Expenses

        Selling, general and administrative expenses increased 10% to $323.7 million for the year ended December 31, 2002, as compared to the same period a year ago, despite the inclusion of $27.0 million of additional charges that were included in selling, general and administrative expense for the year ending December 31, 2001, resulting from Pharming Group's August 2001 decision to file for and operate under a court supervised receivership. In addition to the $27.0 million of charges discussed above that were recorded in the year ended December 31, 2001, selling, general and administrative expenses also increased $55.6 million or 21% for the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily due to:

•

a $41.8 million increase in selling and marketing costs for Renagel phosphate binder;



•

a $19.2 million increase in selling, general and administrative costs for Therapeutics products, of which $11.7 million is attributable to an increase in expenditures related to our increased market penetration for Fabrazyme enzyme in Europe; $4.9 million is attributable to an increase in expenditures to support increased sales of Cerezyme enzyme; and $2.5 million is attributable to a charge recorded in September 2002 to write down accounts receivable for Cerezyme enzyme in Argentina;



•

a $4.9 million increase in selling and marketing costs for Diagnostic Products, of which $2.5 million is attributable to a full year of operations of Wyntek which we acquired in June 2001; and



•

a $5.7 million charge is attributable to an increase in legal costs related to ongoing regulatory matters and intellectual property disputes.

        The increases in selling, general and administrative expenses for the year ended December 31, 2002 were offset in part by a net decrease of approximately $17.6 million attributable to administrative activities that we do not specifically allocate to a particular segment of Genzyme General. In addition,

GG-24

in December 2002, we determined that we have sufficient quantities on hand to fulfill our legal obligation to supply the remaining three patients in the clinical trial for human transgenic alpha-glucosidase with the transgenic product until they are transitioned to a CHO-cell product. As a result, we revised our legal obligation and reversed $5.5 million of amounts in excess of requirements to selling, general and administrative expense for Genzyme General's Therapeutic reporting segment in 2002.

        At December 31, 2002, $2.6 million remained in the reserve for our contractual obligation to provide transgenic product as follows (amounts in thousands):

Initial commitment to fund the operations of the transgenic program	$	16,807
Payments in 2001		(2,683	)
Balance at December 31, 2001		14,124
Payments in 2002		(6,031	)
Revision of estimate		(5,497	)
Balance at December 31, 2002	$	2,596

Research and Development Expenses

        Research and development expenses increased 23% to $230.0 million for the year ended December 31, 2002 as compared to the same period a year ago. The increase was primarily due to a $45.5 million increase in spending for Therapeutics research and development programs, of which:

•

$34.1 million is primarily attributable to an increase in spending related to our Pompe development programs, as described below, and the addition of spending related to our acquisition of Novazyme;



•

$10.6 million is related to spending on Therapeutics research initiatives;



•

$1.9 million is related to Genzyme General's program to further develop Fabrazyme enzyme for the treatment of Fabry disease; and



•

$1.9 million is related to increased spending related to the further development of Cerezyme enzyme.

The increases to Therapeutics products research and development expenses, which also include additional spending on the continued development of the tolevamer toxin binder, oral iron chelator, oral mucositis and anti-obesity programs, were offset by a net decrease of $3.0 million on the combined research and development spending of other Therapeutics products.

        Also contributing to the 23% increase in research and development expenses for the year ended December 31, 2002 as compared to the same period a year ago were:

•

a $4.6 million increase in the cost of post-marketing clinical development efforts for Renagel phosphate binder; and



•

a $1.4 million increase in spending for Diagnostic Products, of which $0.9 million is attributable to programs acquired through our acquisition of Wyntek.

        The increases to research and development expenses were offset by a net decrease of $9.4 million attributable to research and development activities that we do not specifically allocate to a particular segment of Genzyme General.

GG-25

        Included in research and development expenses for the year ended December 31, 2002 are expenses associated with a comparison study of our enzyme programs for treatment of Pompe disease that we concluded during the first quarter of 2002. The enzyme programs included:

•

the transgenic enzyme developed by our joint venture with Pharming Group;



•

Myozyme enzyme;



•

the CHO enzyme licensed from Synpac (North Carolina) Inc. in 2000; and



•

an enzyme produced using technology we obtained in the Novazyme acquisition in 2001.

The analysis of the data from that study indicated that our internally developed CHO-cell product offers the clearest and most efficient pathway to commercialization based on both clinical and manufacturing considerations. As a result of this analysis we:

•

have cancelled our manufacturing contract for the clinical development of the CHO therapy licensed from Synpac while recording a charge of $8.8 million to research and development in the first quarter of 2002 to reflect bulk product purchases and contract cancellation charges;



•

will continue to supply the CHO therapy licensed from Synpac to patients participating in the extensions of clinical trials until they can be transitioned to the internally developed Myozyme enzyme; and



•

will proceed with the pre-clinical development of an enzyme produced using technology we obtained through the acquisition of Novazyme as a potential next-generation therapy for Pompe disease and utilize Novazyme's engineering technologies to develop improved second-generation versions of our marketed products and optimal products for the treatment of other LSDs.

        Research and development expenses for the year ended December 31, 2002 include a charge of $2.0 million we recorded in the first quarter of 2002 representing the restructuring of Genzyme General's facilities in New Jersey and Oklahoma that were acquired in connection with our acquisition of Novazyme.

2001 As Compared to 2000

Selling, General and Administrative Expenses

        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 support 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 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 joint venture, which in turn was 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 2001 and have assumed full operational

GG-26

and financial responsibility for the development of the CHO-cell product. Pharming Genzyme LLC, the vehicle for our joint venture with Pharming Group covering a transgenic product for Pompe disease, continues to exist, however, we do not intend to commercialize this product.

Research and Development Expenses

        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 tolevamer toxin binder, DENSPM, iron chelation, oral mucositis, anti-obesity, and GT102-279 programs arising as a result of our acquisition of GelTex;



•

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 determined in 2001 was uncollectible.

        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 FIN 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 amortized this amount to operating expense over the remaining vesting period of one year from the date of acquisition. We allocated 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 FIN 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.

GG-27

Amortization of Intangibles

2002 As Compared to 2001

        Amortization of intangibles expense decreased 48% to $39.0 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily due to Genzyme General's adoption of SFAS No. 142 in January 2002. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. In accordance with the provisions of SFAS No. 142, Genzyme General ceased amortizing goodwill as of January 1, 2002. The following tables present the impact SFAS No. 142 would have had on Genzyme General's amortization of intangibles expense had the standard been in effect for the years ended December 31, 2001 and 2000 (amounts in thousands):

	Year Ended December 31, 2001							Year Ended December 31, 2000
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	74,296	$	(37,020	)	$	37,276	$	10,928	$	(6,608	)	$	4,320

2001 As Compared to 2000

        Amortization of intangibles expense increased 580% to $74.3 million for the year ended December 31, 2001 as compared to the year ended December 31, 2000 primarily due to intangible assets acquired in connection with our acquisition of GelTex in December 2000, Wyntek in June 2001 and Novazyme in September 2001.

Purchase Of In-Process Research and Development

Novazyme

        In September 2001, in connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly, we 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 statements of operations for the year ended December 31, 2001.

        Genzyme General's management assumes responsibility for determining the IPR&D valuation. 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.

        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, 2002, we estimate that it will take approximately six to eight years and an investment of approximately $100 million to $125 million to complete the development of, obtain approval for and commercialize the first product based on this technology platform.

GG-28

Wyntek

        In June 2001, in connection with our acquisition of Wyntek, we allocated approximately $8.8 million of the purchase price to IPR&D. Genzyme General recorded this amount as a charge to expense in its combined statement of operations for the year ended December 31, 2001. We estimated the fair value assigned to purchased IPR&D by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility. We applied a discount rate of 25% to estimate the present value of these cash flows, which is consistent with the risks of the project. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased IPR&D was the amount attributable to the efforts of Wyntek up to the time of acquisition. In the allocation of purchase price to IPR&D, the concept of alternative future use was specifically considered for the program under development. There are no alternative uses for the in-process program in the event that the program fails in clinical trials or is otherwise not feasible.

        Wyntek currently is developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. These are the leading markers for the diagnosis of acute myocardial infarction. The product consists of a mobile, stand-alone, quantitative diagnostic device and a reaction strip that detects disease specific marker proteins. The intended use of the device is to read reaction strips at the patient's bedside or in an emergency room setting. In September 2002, we filed a 510(k) submission with the FDA for Wyntek's cardiovascular product. We expect to commercialize this product in early 2004.

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, 2002, the technological feasibility of the projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

GG-29

        Below is a brief description of the GelTex IPR&D projects, including an estimation of when management believes Genzyme General may realize revenues from the sales of these products for their respective indications:

Program	Program Description or Indication	Development Status at December 31, 2002	Value at Acquisition Date		Estimated Cost to Complete at December 31, 2002		Year of Expected Product Launch
			(in millions)
Renagel phosphate binder	Next stage non-absorbed polymer phosphate binder for the treatment of hyperphospatemia	• Clinical studies scheduled for completion in 2004 and 2005	$	19.7	$	10.9	2005
Tolevamer toxin binder	C difficile associated diarrhea	• Phase 2 trials expected to be completed in 2003		37.4		50.0	2007
GT56-252 Oral Iron Chelator	Iron overload disease	• Phase 1 trial ongoing		15.7		35.0	2007
GT316-235 Fat absorption inhibitor	Anti-obesity	• Expected to file an IND in 2004		17.8		60.0	2010
Polymer	Oral mucositis	• Expected to file an IND in 2004		17.8		38.0	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
		Total:	$	118.0	$	193.9

        Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once 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. We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

Charge for Impaired Assets

        During 2001, we began constructing a recombinant protein manufacturing facility adjacent to our existing facilities in Framingham, Massachusetts, which is allocated to Genzyme General. During the quarter ended December 31, 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. Throughout 2002, Genzyme was considering various alternative plans for use of the Framingham manufacturing facility including contract manufacturing arrangements, and whether the approximately $16.8 million of capitalized engineering and design costs for this facility would be applicable to the future development at this site. In December 2002, due to a change in our plans for

GG-30

future manufacturing capacity requirements, we determined that we would not proceed with construction of the Framingham facility for the foreseeable future. As a result, we recorded a charge in the fourth quarter of 2002 to write off $14.0 million of capitalized engineering and design costs that were specific to the Framingham facility. We allocated this charge to Genzyme General. The remaining $2.8 million of capitalized engineering and design costs were used in the construction of the Belgium manufacturing facility and, accordingly, have been reallocated as a capitalized cost of that facility.

OTHER INCOME AND EXPENSES

		2002			2001			2000			02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliates		$	(16,858	)	$	(34,365	)	$	(44,965	)	(51	)%	(24	)%
Gain on affiliate sale of stock			—			212			22,689		(100	)%	(99	)%
Gain (loss) on investments in equity securities			(14,497	)		(25,996	)		23,173		(44	)%	(212	)%
Minority interest in net loss of subsidiary			—			2,259			4,625		(100	)%	(51	)%
Other			(152	)		(2,329	)		5,203		(93	)%	(145	)%
Investment income			48,944			47,806			38,549		2	%	24	%
Interest expense			(17,847	)		(23,192	)		(14,159	)	(23	)%	64	%
	Total other income (expense), net	$	(410	)	$	(35,605	)	$	35,115		(99	)%	(201	)%

2002 As Compared to 2001

Equity in Net Loss of Unconsolidated Affiliates

        The following table presents our equity in net loss of unconsolidated affiliate by entity and the total losses of our unconsolidated affiliates for the periods presented:

		Our Portion of the Net Losses from Our Unconsolidated Affiliates						Total Losses of Our Unconsolidated Affiliates
Joint Venture/Unconsolidated Affiliate
		2002			2001			2002			2001
		(Amounts in millions)						(Amounts in millions)
BioMarin/Genzyme LLC		$	(14.5	)	$	(18.5	)	$	(29.6	)	$	(36.9	)
Diacrin/Genzyme LLC			(0.5	)		(2.3	)		(0.7	)		(3.1	)
GTC			(1.9	)		(4.3	)		(24.3	)		(16.6	)
Pharming/Genzyme LLC			—			(2.9	)		—			(5.8	)
Genzyme/Pharming Alliance LLC			—			(6.5	)		—			(13.0	)
Other			—			0.1			—			0.3
	Totals	$	(16.9	)	$	(34.4	)	$	(54.6	)	$	(75.1	)

GG-31

        Genzyme General records in equity in net loss of unconsolidated affiliates its portion of the results of our joint ventures with BioMarin, Pharming Group and Diacrin and, through May 2002, our portion of the losses of GTC.

        Genzyme General's equity in net loss of unconsolidated affiliates decreased 51% to $16.9 million for the year ended December 31, 2002, as compared to the year ended December 31, 2001, primarily as the result of the August 2001 termination of our strategic alliance with Pharming for the development of a CHO-cell derived product for the treatment of Pompe disease. As a result of the termination of the strategic alliance, we recorded 100% of the losses of Genzyme/Pharming Alliance LLC from August 23, 2001 through December 31, 2001. In addition, in August 2001, we became responsible for funding all of the operations of Pharming/Genzyme LLC, which in turn was legally obligated to supply transgenically-derived alpha-glucosidase until the patients currently enrolled in the clinical trial of the product can be transitioned to a CHO-cell product. Our share of losses for both of our joint ventures with Pharming was $9.4 million for the year ended December 31, 2001, for which there are no comparable amounts in the year ended December 31, 2002 because we began incurring these expenses directly, in January 2002, rather than through joint ventures.

        The decrease in equity in net loss of unconsolidated affiliates for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was also attributable to:

•

a $4.0 million decrease in net losses from our joint venture with BioMarin, our partner for the development of Aldurazyme enzyme, as a result of the completion of clinical trials during 2001 and early 2002 and the joint venture devoting substantial efforts in the manufacturing of inventory in 2002. The decrease was offset by a $7.2 million of charges recorded by the joint venture during the quarter ended December 31, 2002 to write off certain production runs during the scale up of Aldurazyme enzyme manufacturing, of which our 50% portion of these costs ($3.6 million) are reflected in equity in net loss of unconsolidated affiliates. Net losses from our joint venture with BioMarin decreased primarily due to the completion of clinical trials of Aldurazyme enzyme and the planned shift of efforts towards its manufacture and commercialization;

•

a $1.8 million decrease in net losses from our joint venture with Diacrin; and

•

a $2.4 million decrease in net losses in our equity position in GTC.

        On April 4, 2002, GTC purchased approximately 2.8 million shares of GTC common stock that were held by us and allocated to Genzyme General for an aggregate consideration of approximately $9.6 million. We received approximately $4.8 million in cash and a promissory note for the remaining amount of approximately $4.8 million, which we have recorded in our consolidated balance sheet and the combined balance sheet of Genzyme General for the year ended December 31, 2002. The shares of GTC common stock were valued at $3.385 per share in this transaction, using the simple average of the high and low transaction prices quoted on the Nasdaq National Market on April 1, 2002. We have committed to a 24-month lock-up provision on the remaining 4.9 million shares of GTC common stock held by us and allocated to Genzyme General, which is approximately 18% of the shares of GTC common stock outstanding as of December 31, 2002. We accounted for our investment in GTC under the equity method of accounting until May 31, 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

        Because of the 24-month lock-up provision, the remaining 4.9 million shares of GTC common stock held by us do not qualify as marketable securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As a result, we carry the investment on Genzyme General's combined balance sheet at cost, subject to review for impairment. See "Gain (Loss) on Investment in Equity Securities" below.

GG-32

Gain (Loss) on Investment in Equity Securities

        We review the carrying value of each of our investments in equity securities on a quarterly basis for impairment. Because we have assessed the decline in the market price of certain investments in equity securities allocated to Genzyme General to be other than temporary, we recorded impairment charges for the years ended December 31, 2002 and 2001.

        In December 2002, we recorded and allocated to Genzyme General the following impairment charges because we considered the decline in value of these investments to be other than temporary:

•

$9.2 million in connection with our investment in the common stock of GTC;

•

$3.4 million in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group;

•

$2.0 million in connection with our investment in the common stock of Dyax; and

•

$0.8 million in connection with our investment in the common stock of Targeted Genetics.

Given the significance and duration of the declines as of the end of 2002, 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 historical cost was not sufficient to overcome the presumption that the current market price was the best indicator of the value of each of these investments. At December 31, 2002, Genzyme General's division equity includes unrealized losses of approximately $10.0 million, related to the other strategic investments in equity securities allocated to Genzyme General. We believe that these losses are temporary.

        Partially offsetting these impairment charges, we recorded and allocated to Genzyme General, net realized gains of $0.9 million on the sale of investments in equity securities for the year ended December 31, 2002.

        In 2001, we recorded the following impairment charges related to investments in equity securities because we considered the decline in value of these investments to be other than temporary:

•

in the quarter ended September 2001, we recorded and allocated to Genzyme General 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.

•

in the quarter ended September 2001, we recorded and allocated to Genzyme General a charge of $8.5 million, representing an at-cost write-off of our investment in Pharming common stock. In August 2001, Pharming Group filed for receivership in order to seek protection from its creditors; and

•

in the quarter ended June 30, 2001, we recorded and allocated to Genzyme General a charge of $1.2 million 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.

Minority Interest in Net Loss of Subsidiary

        As a result of our combined direct (until July 2001) and indirect interest in ATIII LLC, our joint venture with GTC, Genzyme General had consolidated the results of the joint venture and recorded GTC's portion of the losses of that joint venture as minority interest. ATIII LLC was a joint venture we formed with GTC for the development and commercialization of transgenically-derived

GG-33

antithrombin III. In July 2001, we transferred our 50% ownership interest in ATIII LLC to GTC and stopped recording minority interest.

Investment Income

        Genzyme General's investment income increased 2% to $48.9 million for the year ended December 31, 2002, as compared to the year ended December 31, 2001, primarily due to higher average cash balances partially offset by a decrease in interest rates. The higher cash balances resulted primarily from our May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. 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 expects its current level of investment return and investment income to decline in 2003 due primarily to lower interest rates.

Interest Expense

        Genzyme General's interest expense decreased 23% to $17.8 million for the year ended December 31, 2002, as compared to the year ended December 31, 2001, primarily due to:

•

the decrease in the interest rates used to calculate the commitment fees allocated to Genzyme General on the unused portion of our revolving credit facility;

•

the June 2001 redemption of the $250.0 million in principal 5¹/4% convertible subordinated notes allocated to Genzyme General that were originally due in 2005 for which there is no comparable interest expense in 2002; and

•

the May 2001 repayment of the $150.0 million drawn under the revolving credit facility that was allocated to Genzyme General, for which there is no comparable interest expense in 2002.

This decrease was partially offset by the May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021 for which there is a full year of interest expense in 2002. Genzyme General expects that the 2003 interest expense associated with the outstanding 3% convertible subordinated debentures, revolving credit facility, and other debt and notes payable will be at amounts comparable to 2002.

2001 As Compared to 2000

Equity in Net Loss of Unconsolidated Affiliates:

        The following table presents our equity in net loss of unconsolidated affiliate by entity and the total losses of our unconsolidated affiliates for the periods presented:

		Our Portion of the Net Losses from Our Unconsolidated Affiliates						Total Losses of Our Unconsolidated Affiliates
Joint Venture/Unconsolidated Affiliate
		2001			2000			2001			2000
		(Amounts in millions)						(Amounts in millions)
BioMarin/Genzyme LLC		$	(18.5	)	$	(12.6	)	$	(36.9	)	$	(25.3	)
Diacrin/Genzyme LLC			(2.3	)		(6.2	)		(3.1	)		(8.2	)
GTC			(4.3	)		(2.1	)		(16.6	)		(13.1	)
RenaGel LLC			—			(15.9	)		—			(10.7	)
Pharming/Genzyme LLC			(2.9	)		(6.6	)		(5.8	)		(13.3	)
Genzyme/Pharming Alliance LLC			(6.5	)		(1.5	)		(13.0	)		(2.9	)
Other			0.1			(0.1	)		0.3			(0.1	)
	Totals	$	(34.4	)	$	(45.0	)	$	(75.1	)	$	(73.6	)

GG-34

        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. 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 GTC.

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 recorded 100% of the losses of Genzyme/Pharming Alliance LLC since August 23, 2001.

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 GTC, an unconsolidated affiliate, of additional shares of GTC 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 GTC was approximately 26% as of December 31, 2001 and 2000.

Gain (Loss) on Investments in Equity Securities

        We recorded and allocated to Genzyme General the following impairment charges on investments in equity securities for the year ended December 31, 2001 because we considered the decline in the value of these investments to be other than temporary:

•

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.

•

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 filed for receivership in order to seek protection from its creditors; and

•

a charge of $1.2 million 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

GG-35

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:

•

a gain of $5.5 million upon the sale of a portion of our investment in GTC common stock. The tax effect of this gain was fully offset by the reversal of a $1.9 million valuation allowance related to previously recognized capital losses. In the third and fourth quarters of 2000, we recorded and allocated to Genzyme General gains of $10.9 million and $1.3 million, respectively, upon additional sales of portions of our investment in GTC common stock; and

•

a gain of $7.6 million 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.

Minority Interest in Net Loss of Subsidiary

        In July 2001, we transferred our 50% ownership interest in ATIII LLC to GTC and stopped recording GTC's 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 GTC'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 GTC's portion was $4.6 million.

Other

        In December 2000, we recorded and allocated to Genzyme General 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, we received and allocated to Genzyme General 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

GG-36

of the GelTex acquisition, and the private placement of $575.0 million in principal of 3% convertible subordinated debentures issued in May 2001.

Tax Provision

	2002			2001			2000			02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Provision for income taxes	$	(56,516	)	$	(52,666	)	$	(92,639	)	7	%	(43	)%
Effective tax rate		27	%		93	%		52	%

        Genzyme General's provisions for income taxes were at rates other than the U.S. federal statutory tax rate for the following reasons:

		For the Years Ended December 31,
		2002		2001		2000
Tax at U.S. statutory rate		35.0	%	35.0	%	35.0	%
	Losses in less than 80% owned subsidiaries with no current tax benefit	—		—		(1.9	)
	State taxes, net	2.5		6.7		2.0
	Foreign sales corporation and extra-territorial income	(4.5	)	(18.3	)	(4.4	)
	Nondeductible amortization	—		19.3		1.2
	Benefit of tax credits	(7.6	)	(6.5	)	(1.7	)
	Utilization of operating loss carryforwards	—		(3.8	)	—
	Charge for purchased research and development	—		57.6		23.3
	Foreign rate differential	1.9		1.8		(0.9	)
	Other, net	—		1.3		(0.7	)
Effective tax rate		27.3	%	93.1	%	51.9	%

        Genzyme General's effective tax rate for 2002 varied from the U.S. statutory rate primarily due to benefits related to tax credits and the use of a foreign sales corporation. Genzyme General's effective tax rate for 2001 and 2000 varied from the U.S. statutory rate due to nondeductible goodwill amortization expense. Genzyme General stopped recording nondeductible goodwill amortization expense upon the adoption of SFAS No. 142 in fiscal year 2002. In addition, Genzyme General's overall tax rate has changed significantly due to fluctuations in its net income before tax, which was $207.2 million in 2002, $56.5 million in 2001 and $178.6 million in 2000.

        We recognized a $4.3 million tax benefit in the fourth quarter of 2002 as a result of additional tax credits identified during the preparation of our 2001 tax return, which we allocated to Genzyme General.

        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.

Cumulative Effect of Change in Accounting for Derivative Financial Instruments

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments

GG-37

embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in Genzyme General's combined balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in income, unless the derivative is part of a qualified hedging 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 our warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts allocated to Genzyme General were not significant. For the year ended December 31, 2002, Genzyme General recorded a charge of $2.1 million in other income in its combined statements of operations to reflect the change in value of its warrants to purchase shares of GTC common stock from January 1, 2002 to December 31, 2002 as compared to a charge of $4.1 million in other expense for the year ended December 31, 2001. Genzyme General also recorded and a charge of $1.0 million ($1.6 million pre-tax) in other comprehensive income (loss) in division equity in its combined balance sheets to reflect the change in value of interest rate swaps held during the year ended December 31, 2002. At December 31, 2002, Genzyme General's interest rate swaps had a fair-market value of $(3.9) million as compared to $(2.7) million at December 31, 2001.

        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;

•

develop and scale-up manufacturing processes and validate facilities; 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.

GG-38

        Below is a brief description of our significant or later-stage research and development programs that have been allocated to Genzyme General:

Program	Program Description or Indication	Development Status at December 31, 2002	Year of Expected Product Launch
Fabrazyme (agalsidase beta)	Fabry disease	Available in 26 countries worldwide; BLA submitted to the FDA in June 2000; post-marketing phase 4 trial ongoing	2003
Aldurazyme (laronidase)	MPS 1	BLA submitted to the FDA and an MAA submitted to the EMEA in 2002. We incur 50% of the research and development costs of our joint venture with BioMarin	2003
Myozyme enzyme	Pompe disease	Opened enrollment for a new trial in Q1 2003; anticipate beginning a pivotal trial in Q3 2003	2004
Tolevamer toxin binder(1)	C difficile associated diarrhea	Phase 2 trials ongoing	2007
TGF-beta antagonists	Diffuse scleroderma	Phase 1-2 trial ongoing. We incur 55% of the research and development costs incurred under our collaboration with Cambridge Antibody Technology Group	2008

        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, 2001	$	78.3
Costs incurred for the year ended December 31, 2002	$	78.4
Cumulative costs incurred as of December 31, 2002	$	254.6
Estimated costs to complete as of December 31, 2002	$	200.0 to $250.0

(1)

Program acquired in connection with the December 2000 acquisition of GelTex.

        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, 2002, Genzyme General had cash, cash-equivalents, and short- and long-term investments of approximately $1.1 billion, an increase of $107.6 million from December 31, 2001.

        Genzyme General's operating activities generated $271.4 million of cash for the year ended December 31, 2002 as compared to $291.6 million for the year ended December 31, 2001. Net cash

GG-39

provided by operating activities was favorably impacted by Genzyme General's division net income of $150.7 million and:

•

$96.0 million of depreciation and amortization, of which $55.8 million resulted from the depreciation of property, plant and equipment and $40.2 million resulted from the amortization of intangible assets, including intangible assets acquired in connection with our acquisitions of GelTex and Wyntek;

•

$16.9 million from the equity in net losses of unconsolidated affiliates;

•

$14.5 million from the loss on investments in equity securities; and

•

$14.0 million resulting from a charge for impaired assets related to the write-off of engineering and design costs related to the suspended development of a manufacturing facility in Framingham, Massachusetts.

These favorable impacts were offset by a $55.8 million increase in net working capital.

        Genzyme General's investing activities utilized $142.0 million of cash in 2002 as compared to $720.3 million in 2001. Net cash utilized in investing activities consisted primarily of:

•

$220.0 million to fund purchases of property, plant and equipment, of which $123.0 million resulted from expansion of our manufacturing facilities in Ireland, the United Kingdom and Belgium, $25.9 million resulted from our manufacturing capacity expansion in the U.S. and $71.1 million representing an aggregate of other manufacturing, research and development and administrative capital expenditures;

•

$25.3 million to fund Genzyme General's investments in unconsolidated affiliates; and

•

$7.0 million of cash drawn on a senior secured promissory note by a collaborator.

Net cash used by investing activities in 2002 was offset by the favorable impact of the $104.1 million of cash provided by the net purchases, sales and maturities of investments and investments in equity securities allocated to Genzyme General.

        In July 2002, together with BioMarin, we submitted the final portion of the "rolling" BLA for Aldurazyme enzyme to the FDA. As part of the BLA submission, we formally requested and were granted Priority Review, which is an FDA procedure generally reserved for products that address an unmet medical need. We expect an action by the FDA regarding our application to market Aldurazyme enzyme by April 30, 2003. Pursuant to the terms of our joint venture agreement with BioMarin for the development and commercialization of Aldurazyme enzyme, we are obligated to pay BioMarin a $12.1 million milestone payment upon receipt of FDA approval of the Aldurazyme enzyme BLA.

        In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88 and increased the line of credit we extended to Dyax from $3.0 million to $7.0 million. In connection with the increase, Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2%, which was 6.3% at December 31, 2002, and are due, together with any accrued but unpaid interest, in May 2005. As of December 31, 2002, Dyax had drawn $7.0 million under the note, which we recorded as a note receivable-related party in our consolidated balance sheet and the combined balance sheet of Genzyme General. Dyax is considered a related party because the chairman and chief executive officer of Dyax is a member of our board of directors. Pursuant to the terms of the note, we are not obligated to make advances in excess of $1.5 million during any calendar quarter.

GG-40

        Genzyme General's financing activities provided $51.9 million of cash in 2002 as compared to $460.5 million in 2001. Cash provided by financing activities was primarily the result of:

•

$30.6 million of allocated proceeds from the issuance of Genzyme General Stock attributable to the exercise of options to purchase shares of Genzyme General Stock under our stock plans and the exercise of rights and warrants to purchase shares of Genzyme General Stock; and

•

$27.1 million of cash refunded from Genzyme Biosurgery representing $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 Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum.

Genzyme General's financing activities used $1.2 million to repay bank overdrafts and also used $6.9 million to repay the current portions of long-term debt and long-term capital lease obligations allocated to Genzyme General, of which $5.1 million represents payment of the outstanding principal balance due under the notes payable we assumed in connection with our acquisition of GelTex in December 2000.

        Genzyme General has access to our $350.0 million revolving credit facility, all of which matures in December 2003. At December 31, 2002, $284.0 million had been drawn down and 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, which was, in the aggregate, 2.5% at December 31, 2002. We intend to refinance our revolving credit facility during 2003.

        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 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. At December 31, 2002, $3.0 million remained available to Genzyme Biosurgery under this arrangement. Our board of directors has also made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed in exchange for 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. At December 31, 2002, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

        As of December 31, 2002 we had committed to make the following payments under contractual obligations using cash allocated to Genzyme General:

	Payments Due by Period
	Total		2003		2004		2005		2006			2007		After 2007
	(Amounts in Millions)
Long term debt	$	575.0	$	—	$	—	$	—	$	575.0	(1)	$	—	$	—
Capital lease obligations(2)		170.4		5.7		10.7		35.7		8.5			8.5		101.3
Operating leases(3)		191.0		28.0		23.3		16.4		9.4			8.5		105.4
Unconditional purchase obligations		160.6		39.7		17.6		17.9		22.5			28.2		34.7
Capital commitments(4)		41.7		41.7		—		—		—			—		—
Research and development agreements(5)		95.9		50.4		10.0		11.5		11.5			12.5		—
Total contractual obligations	$	1,234.6	$	165.5	$	61.6	$	81.5	$	626.9		$	57.7	$	241.4

(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. 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

GG-41

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.

(2)

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 the second half of 2003 and the value of the building and related obligation will be recorded in our consolidated balance sheet and combined balance sheet of Genzyme General when we begin to occupy the space. We have included estimated payments for this lease in the capital lease schedule above. The lease term is for 15 years and may be extended for two successive ten-year periods. The lease also provides us with an option, exercisable on or before July 1, 2003, to lease an additional building on mutually acceptable terms.

(3)

In May 2002, we entered into an agreement to lease an 85,808 square foot building and related parking area in Westborough, Massachusetts for our genetic testing business. We allocate 100% of the future minimum payments due under this lease to Genzyme General. The term of the lease is ten years with rent payable in advance commencing August 1, 2002. Remaining fixed rent payments during the term of the lease totaling approximately $10.4 million are included in the operating lease schedule above. Pursuant to the terms of the net lease agreement, we are obligated to pay, in addition to yearly fixed rent, the taxes, betterment assessments, insurance costs, utility charges, base operating costs and certain other expenses related to the property under lease. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms and a one-time option, exercisable during the first five years of the lease, to purchase the land and building under lease.

(4)

Consists of contractual commitments to vendors that we have entered into as of December 31, 2002 for the construction of the portion of our outstanding capital projects that are allocated to Genzyme General, as follows (amounts in thousands):

Location		Cost to Complete at December 31, 2002
Geel, Belgium		$	107.8
Waterford, Ireland			86.3
Cambridge, Massachusetts, U.S.			38.0
Allston, Massachusetts, U.S.			14.8
Others—U.S.			17.0
Others—U.K & Switzerland			7.6
	Total estimated cost to complete	$	271.5

(5)

From time to time, we enter into agreements with third parties to obtain access to scientific expertise or technology that we do not already have. These agreements frequently require that we pay our licensor or collaborator a technology access fee, milestone payments upon the occurrence of certain events, and/or royalties on sales of products that infringe the licensed technology or arise out of the collaborative research. In addition, these agreements may call for us to fund research activities not being performed by us. The amounts indicated on the research and development

GG-42

agreements line of the contractual obligations 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 flow 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 existing and constructing new facilities;


•

expanding staff;


•

working capital; and


•

strategic business initiatives.

        Genzyme General's cash reserves will be further reduced to pay interest on the $575.0 million in principal under our 3% convertible subordinated debentures due May 2021, which may be converted into shares of Genzyme General Stock. If Genzyme General uses cash to pay or redeem any of this debt, including principal and interest due on it, its cash reserves will be diminished. In addition, Genzyme General's cash resources will be reduced to the extent that we are required to use cash allocated to Genzyme General to settle the liabilities of Genzyme Biosurgery or Genzyme Molecular Oncology.

        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

GG-43

our business" included in this annual report may also adversely affect the business of Genzyme General.

Future increases in Genzyme General's earnings will depend on our ability to increase sales of Renagel phosphate binder

        We encourage you to read the material under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results—Our future earnings growth will depend on our ability to increase sales of Renagel phosphate binder" included in this annual report. That material describes the factors on which the commercial success of Renagel phosphate binder depends. The risks described in that section may adversely affect the business of Genzyme General.

We may not successfully commercialize Genzyme General's product candidates.

        Genzyme General is developing or collaborating on the development of treatments for, among other things, Fabry disease, MPS I and Pompe disease. 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, Israel and Brazil in 2000 and Canada in 2001, and plans to continue launching the product 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;


•

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 Pharmaceutical Inc. for the development and commercialization of Aldurazyme enzyme 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

GG-44

Genzyme General's strategic partners to the alliances or the resources, efforts and skills of Genzyme General's partners. Genzyme General's strategic partners may:

•

terminate their agreements and Genzyme General's access to the underlying intellectual property;


•

fail to devote significant financial or other resources to the alliances and thereby significantly hinder or delay development, manufacturing or commercialization activities;


•

fail to successfully develop or commercialize any products; or


•

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.

Subsequent Events

Fabrazyme Enzyme

        Following the submission of additional information that was requested by the FDA, the Endocrinologic and Metabolic Drugs Advisory Committee of the FDA met in January 2003 to review our BLA for Fabrazyme enzyme. While this advisory panel was not asked by the FDA to vote on whether to approve the product, the panel affirmed, by a vote of 14-1, that the primary endpoint studied in our Phase 3 trial for Fabrazyme enzyme was an appropriate surrogate marker for purposes of accelerated approval. The FDA will review the advisory panel's input and make a determination about the next steps for marketing approval of Fabrazyme enzyme in the United States. We expect formal FDA action by the end of April 2003.

Aldurazyme Enzyme

        The Endocrinologic and Metabolic Drugs Advisory Committee of the FDA met in January 2003 to review our BLA for Aldurazyme enzyme. While the FDA did not ask the advisory panel to vote on whether or not to recommend Aldurazyme enzyme's approval, the panel voted unanimously that the Phase 3 trial of Aldurazyme we conducted with BioMarin showed a meaningful treatment effect in each of two primary endpoints. Later in that month, the FDA issued a complete response letter to BioMarin and Genzyme which noted that the data submitted in the BLA supported the safety and efficacy of Aldurazyme enzyme and that additional clinical data was not required to be submitted. The letter did request, however, additional information on post-marketing commitments, final product labeling, and completion of the manufacturing inspection process. This information has been submitted to the FDA. The FDA has set April 30, 2003 as the formal action date by which it will respond to the BLA for Aldurazyme enzyme. In addition, the CPMP of the European Union issued a positive opinion on the MAA for Aldurazyme enzyme in February 2003. This non-binding opinion has been forwarded to the EMEA for consideration, and a final determination is expected later in 2003 regarding the marketing and sale of Aldurazyme enzyme in the European Union for treating the non-neurological manifestations of MPS I in patients with a confirmed diagnosis of the disease.

GG-45

GENZYME GENERAL
A Division of Genzyme Corporation

Combined Statements of Operations

				For the Years Ended December 31,
				2002			2001			2000
				(Amounts in thousands)
Revenues:
	Net product sales			$	984,589		$	898,731		$	690,027
	Net service sales				89,423			74,056			61,161
	Revenue from research and development contracts:
		Related parties			2,747			3,279			509
		Other			3,426			5,860			786
			Total revenues		1,080,185			981,926			752,483
Operating costs and expenses:
	Cost of products sold				213,659			194,175			162,894
	Cost of services sold				52,159			43,167			37,879
	Selling, general and administrative				323,683			295,068			166,462
	Research and development (including research and development related to contracts)				230,043			187,502			112,792
	Amortization of intangibles				38,998			74,296			10,928
	Purchase of in-process research and development				—			95,568			118,048
	Charge for impaired assets				13,986			—			—
			Total operating costs and expenses		872,528			889,776			609,003
Operating income					207,657			92,150			143,480
Other income (expenses):
	Equity in net loss of unconsolidated affiliates				(16,858	)		(34,365	)		(44,965	)
	Gain on affiliate sale of stock				—			212			22,689
	Gain (loss) on investments in equity securities				(14,497	)		(25,996	)		23,173
	Minority interest in net loss of subsidiary				—			2,259			4,625
	Other				(152	)		(2,329	)		5,203
	Investment income				48,944			47,806			38,549
	Interest expense				(17,847	)		(23,192	)		(14,159	)
			Total other income (expenses)		(410	)		(35,605	)		35,115
Income before income taxes					207,247			56,545			178,595
Provision for income taxes					(56,516	)		(52,666	)		(92,639	)
Division net income before cumulative effect of change in accounting for derivative financial instruments					150,731			3,879			85,956
Cumulative effect of change in accounting for derivative financial instruments, net of tax					—			4,167			—
Division net income				$	150,731		$	8,046		$	85,956
The accompanying notes are an integral part of these combined financial statements.

GG-46

Comprehensive income, net of tax:
	Division net income			$	150,731		$	8,046		$	85,956
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			85,494			(6,981	)		(14,236	)
		Additional minimum pension liability, net of tax			(2,529	)		—			—
		Unrealized losses on interest rate swap contracts, net of tax			(1,035	)		(943	)		—
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period		(29,836	)		(10,674	)		15,434
			Reclassification adjustment for (gains) losses included in division net income		9,565			16,429			(3,512	)
		Unrealized gains (losses) on securities, net			(20,271	)		5,755			11,922
	Other comprehensive income (loss)				61,659			(2,169	)		(2,314	)
Comprehensive income				$	212,390		$	5,877		$	83,642

The accompanying notes are an integral part of these combined financial statements.

GG-47

GENZYME GENERAL
A Division of Genzyme Corporation

Combined Balance Sheets

			December 31,
			2002		2001
			(Amounts in thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	372,605	$	167,253
	Short-term investments			94,339		66,481
	Accounts receivable, net			251,318		220,527
	Inventories			196,396		127,864
	Prepaid expenses and other current assets			42,558		31,972
	Due from Genzyme Biosurgery			32,641		25,192
	Due from Genzyme Molecular Oncology			5,494		7,086
	Deferred tax assets—current			105,094		70,196
		Total current assets		1,100,445		716,571
Property, plant and equipment, net				749,840		581,401
Long-term investments				682,201		807,766
Notes receivable—related parties				11,918		—
Goodwill, net				481,699		487,826
Other intangible assets, net				451,661		493,642
Investments in equity securities				42,945		88,686
Due from Genzyme Biosurgery—noncurrent				9,390		4,321
Other noncurrent assets				25,702		45,041
		Total assets	$	3,555,801	$	3,225,254
LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accounts payable		$	35,978	$	40,025
	Accrued expenses			170,186		119,511
	Income taxes payable			58,107		74,631
	Deferred revenue			10,588		1,693
	Current portion of long-term debt and capital lease obligations			13		6,841
		Total current liabilities		274,872		242,701
Long-term debt and capital lease obligations				25,038		25,085
Convertible notes and debentures				575,000		575,000
Deferred tax liabilities				81,933		80,696
Other noncurrent liabilities				13,074		21,420
		Total liabilities		969,917		944,902
Commitments and Contingencies (Notes D, K, L, N, O, P)
Division equity				2,585,884		2,280,352
		Total liabilities and division equity	$	3,555,801	$	3,225,254

The accompanying notes are an integral part of these combined financial statements.

GG-48

GENZYME GENERAL
A Division of Genzyme Corporation

Combined Statements of Cash Flows

					For the Years Ended December 31,
					2002			2001			2000
					(Amounts in thousands)
Cash Flows from Operating Activities:
Division net income					$	150,731		$	8,046		$	85,956
	Reconciliation of division net income to net cash from operating activities:
		Depreciation and amortization				96,021			117,953			41,206
		Non-cash compensation expense				1,335			10,130			2,185
		Provision for bad debts				6,948			302			2,918
		Note received from a collaborator				—			—			(10,350	)
		Write-off of note received from a collaborator				—			10,159			—
		Charge for purchase of in-process research and development				—			95,568			118,048
		Equity in net loss of unconsolidated affiliates				16,858			34,365			44,965
		Gain on affiliate sale of stock				—			(212	)		(22,689	)
		(Gain) loss on investments in equity securities				14,497			25,996			(23,173	)
		Minority interest in net loss of subsidiary				—			(2,259	)		(4,625	)
		Charge for impaired assets				13,986			—			—
		Deferred income tax provision (benefit)				20,376			(58,799	)		(6,188	)
		Cumulative effect of change in accounting for derivative financial instruments				—			(4,167	)		—
		Other				6,492			(1,784	)		3,121
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			(21,458	)		(57,679	)		(26,929	)
			Inventories			(44,075	)		(19,765	)		(1,988	)
			Prepaid expenses and other current assets			(12,024	)		(5,485	)		(7,682	)
			Due from Genzyme Biosurgery			(3,390	)		(10,868	)		(6,585	)
			Due from Genzyme Molecular Oncology			1,592			(2,426	)		(938	)
			Accounts payable, accrued expenses and deferred revenue			38,525			95,665			(2,210	)
			Income taxes payable and tax benefits from stock options			(15,011	)		56,864			63,607
				Cash flows from operating activities		271,403			291,604			248,649
Cash Flows from Investing Activities:
	Purchases of investments					(445,070	)		(978,595	)		(426,875	)
	Sales and maturities of investments					548,472			514,458			533,461
	Purchases of equity securities					(4,050	)		(6,138	)		(24,102	)
	Proceeds from sales of equity securities					4,773			2,467			33,124
	Purchases of property, plant and equipment					(219,960	)		(171,430	)		(76,912	)
	Sales of property, plant and equipment					2,499			—			—
	Acquisitions, net of cash acquired					—			(50,655	)		(447,495	)
	Investments in unconsolidated affiliates					(25,260	)		(39,677	)		(23,497	)
	Note received from a collaborator					(7,000	)		—			—
	Other					3,627			9,317			3,319
				Cash flows from investing activities		(141,969	)		(720,253	)		(428,977	)
The accompanying notes are an integral part of these combined financial statements.

GG-49

Cash Flows from Financing Activities:
	Allocated proceeds from the issuance of Genzyme General Stock		$	30,644		$	88,996		$	85,345
	Allocated proceeds from the issuance of debt			—			562,062			150,000
	Payments of debt and capital lease obligations			(6,883	)		(154,978	)		—
	Receipt of NeuroCell joint venture refund from Genzyme Biosurgery			27,063			—			—
	Net cash allocated to Genzyme Biosurgery			—			(11,993	)		(9,910	)
	Net cash allocated to Genzyme Molecular Oncology			—			(36,040	)		(15,000	)
	Payment of notes receivable from stockholders			792			—			—
	Bank overdraft			(1,248	)		7,615			9,523
	Other			1,506			4,861			2,130
		Cash flows from financing activities		51,874			460,523			222,088
Effect of exchange rate changes on cash				24,044			(462	)		(442	)
Increase in cash and cash equivalents				205,352			31,412			41,318
Cash and cash equivalents at beginning of period				167,253			135,841			94,523
Cash and cash equivalents at end of period			$	372,605		$	167,253		$	135,841
Supplemental disclosures of cash flows:
Cash paid during the year for:
	Interest, net of capitalized interest		$	15,207		$	19,093		$	11,978
	Income taxes		$	37,744		$	17,504		$	34,014

Supplemental disclosures of non-cash transactions:
    Acquisitions—Note D.
    Disposition of assets—Note E.
    Property, plant and equipment—Note I.
    Investment in joint ventures—Note L.
    Conversion of 5¹/4% convertible subordinated notes—Note N.
    Conversion of 5% convertible subordinated debentures—Note N.

GG-50

        In conjunction with the acquisitions of Novazyme, Wyntek and GelTex liabilities, we assumed the following assets and liabilities, which were allocated to Genzyme General:

		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-51

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 debilitatiting diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and other specialty therapeutics;



•

renal products, with a focus on products that treat patients suffering from renal diseases, including chronic renal failure;



•

diagnostic products, with a focus on in vitro diagnostics; and



•

other products and services, such as genetic testing services 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 2001 and 2000 data to conform with the 2002 presentation.

        We prepare the financial statements of Genzyme General in accordance with accounting principles generally accepted in the U.S. 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;



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock if all or substantially all of the assets allocated to Genzyme Biosurgery are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market

GG-52

price of Biosurgery Stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        Within these parameters, and other general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. Unless declared, no dividends accrue on our tracking stocks.

        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 accounting principles generally accepted in the U.S. 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 shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock, combine existing tracking stocks or change our earnings allocation methodology. 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 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.

GG-53

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 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



•

board directed—programs and products, both internally developed and acquired, are allocated to divisions by our board of directors. Our board 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

        Genzyme General uses the equity method to account for investments in entities in which we have a substantial ownership interest (20% to 50%), or over which we exercise significant influence. Genzyme General's combined division net income includes our share of the earnings of these entities.

        Genzyme General accounted for our investment in GTC under the equity method until May 2002, at which point we ceased to have significant influence over GTC. Genzyme General began accounting for our investment in GTC under the cost method of accounting in June 2002.

GG-54

        For additional information on our investments, please read Note K, "Investments in Marketable Securities and Strategic Equity Investments," below.

Translation of Foreign Currencies

        Genzyme General translates the financial statements of its foreign subsidiaries from local currency into U.S. dollars using:

•

the current exchange rate at each balance sheet date for assets and liabilities;



•

the average exchange rate prevailing during each period for revenues and expenses; and



•

the historical exchange rate for investments in its foreign subsidiaries.

        Genzyme General considers the local currency for all of its foreign subsidiaries to be the functional currency for that subsidiary. As a result, Genzyme General included translation adjustments net of tax, for these subsidiaries in division equity. Genzyme General also records as a charge or credit, to division equity, exchange gains and losses on intercompany balances that are of a long-term investment nature. Genzyme General's division equity includes net cumulative foreign currency credits of $44.6 million at December 31, 2002, and net cumulative foreign currency charges of $(40.9) million at December 31, 2001.

        Gains and losses on all other foreign currency transactions are included in Genzyme General's results of operations.

Derivative Financial Instruments

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our consolidated balance sheet and measure those instruments at fair value. Subsequent changes in fair 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 Genzyme General's statements of operations for the year ended December 31, 2001 to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General. 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, title and risk of loss have passed to the customer and collection from the customer is reasonably assured. We recognize revenue from service sales when we have finished

GG-55

providing the service. Revenue from research and development services and selling and marketing services is recognized over the term of the applicable contract and as we complete our obligations under the contract. Advance payments received in excess of amounts earned are classified as deferred revenue until earned. We recognize non-refundable up-front license fees over the related performance period or at the time we have no remaining performance obligations.

        Revenue from milestone payments for which we have no continuing performance obligations is recognized upon achievement of the related milestone. When we have continuing performance obligations, we recognize milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;



•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and



•

the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

        We receive royalties related to the manufacture, sale or use of our products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following quarter. Historically, these 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 record allowances for product returns, rebates payable to Medicaid, managed care organizations, or customers and sales discounts. These allowances are recorded as reductions of revenue at the time produce sales are recorded. These amounts are based on our estimates of the amount of product in the distribution channel and the percent of end-users covered by Medicaid or managed care organizations. We record consideration paid to a customer or reseller of our products as a reduction of revenue unless we receive an identifiable and separable benefit for the consideration and we can reasonably estimate the fair value of the benefit received. If both conditions are met, we record the consideration paid to the customer as an expense.

        We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

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 included elsewhere in this annual report. We present earnings per share data only in our consolidated financial statements because Genzyme

GG-56

Corporation is the issuer of the securities. Our divisions do not and cannot issue securities because they are not companies or legal entities.

Accounting for Stock Based Compensation

        On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123." This standard amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for those companies that voluntarily change to the fair value based method of accounting for stock-based employee compensation. In addition, this standard amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. We have not adopted the fair value method of accounting for stock-based compensation and will continue to apply the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. We do not recognize compensation expense for options granted under the provisions of these plans with fixed terms and an exercise price greater than or equal to the fair market value of the underlying series of our common stock on the date of grant. All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123, as amended, and EITF Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

        In accordance with the disclosure requirements of SFAS No. 148, the following table sets forth Genzyme General's net income (loss) data as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS No. 123 as amended, based on the fair value at the grant dates of the awards.

		For the Years Ended December 31,
		2002			2001			2000
		(Amounts in thousands)
Division net income (loss):
	As reported	$	150,731		$	8,046		$	85,956
	Add: stock-based compensation included in as-reported, net of tax		844			6,402			1,394
	Deduct: pro forma stock-based compensation, net of tax		(63,091	)		(51,888	)		(27,959	)
	Pro forma	$	88,484		$	(37,440	)	$	59,391

        Note A., "Summary of Significant Accounting Policies—Accounting for Stock-Based Compensation," to our consolidated financial statements contains information regarding the assumptions we made in calculating pro forma compensation expense in accordance with SFAS No. 123. The effects of applying SFAS No. 123 are not likely to be representative of the effects on reported division net income (loss) in future years.

GG-57

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. Accounting principles generally accepted in the U.S. require that any change in policy be preferable (in accordance with these principles) to the previous policy.

Interdivisional Asset Transfers

        Our board of directors may at any time reallocate any program, product or other asset from one division to any other division. We account for interdivisional asset transfers at book value. The consideration paid for an asset transfer generally must be fair value as determined by our board of directors. The difference between the consideration paid and the book value of the assets transferred is recorded in division equity. Our board of directors determines fair value using either a risk-adjusted discounted cash flow model or a comparable transaction model.

        The risk-adjusted discounted cash flow model estimates fair value by taking the discounted value of all the cash inflows and outflows related to a program or product over a specified period of time, generally the economic life of the project, adjusted for the probabilities of certain outcomes occurring or not occurring. In performing this analysis, we consider various factors that could affect the success or failure of the program including:

•

the duration, cost and probability of success of each phase of development;



•

the current and potential size of the market and barriers to entry into the market;



•

the maximum number of patients likely to be treated with the product and the speed with which that maximum number will be reached;



•

reimbursement policies and pricing limitations;



•

current and potential competitors;



•

the net proceeds received by us upon the sale of the program or product; and



•

the costs of manufacturing and marketing the product or program.

        The comparable transaction model estimates fair value through comparison to valuations established for other transactions within the biotechnology and biosurgical areas involving similar programs and products having similar terms and structure. In identifying comparable transactions, we consider, among other factors, the following:

•

the similarity of market opportunity;



•

the comparability of the medical needs addressed;



•

the similarity of the regulatory, reimbursement and competitive environment;



•

the stage of product or program development; and

GG-58

•

the risk profile of successfully commercializing the product or program.

        We customarily use the comparable transaction model to corroborate valuations derived under the risk-adjusted discounted cash flow model.

        When determining the fair value of a program under development using either model, our board of directors also takes into account the following criteria:

•

the commercial potential of the program;



•

the phase of clinical development of the program;



•

the expenses associated with realizing any income from the program and the likelihood and time of the realization; and



•

other matters that our board of directors and its financial advisors, if any, deem relevant.

        One division may compensate another division for a reallocation with cash or other consideration having a value equal to the fair market value of the reallocated assets. In the case of a reallocation of assets from Genzyme General to 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 non-issued 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 General Stock voting as a separate class unless the policy change does not affect Genzyme General.

Other Interdivision Transactions

        Our divisions may engage in transactions directly with one or more other divisions or jointly with one or more other divisions and one or more third parties. These transactions may include agreements by one division to provide products and services for use by another division, license agreements and joint ventures or other collaborative arrangements involving more than one division to develop new products and services jointly and with third parties. The division providing these products and services does not recognize revenue on any of these transactions unless it provides them to unrelated third parties in the ordinary course of business. These transactions are subject to the conditions described below:

•

We charge research and development (including clinical and regulatory support), distribution, sales, marketing, and general and administrative services (including allocated space) performed by one division for another division to the division for which the services are performed on a cost basis. We charge direct costs to the division for which we incur them. We allocate direct labor and indirect costs in reasonable and consistent manners based on the use by a division of relevant services.

GG-59

•

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.



•

Each division bills the other division on a monthly basis for the services and costs incurred on the other division's behalf. Payment by the other division is due within 45 days. To the extent asset impairment charges are recorded by a division and allocated to another division in accordance with the allocation policies described in Note A., "Summary of Significant Accounting Policies," payment of such charge is to be made monthly by the other division in an amount equal to the monthly depreciation or amortization that would have been allocated to the other division using the assets original useful life.



•

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 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 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 accounting principles generally accepted in the U.S. 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

GG-60

Genzyme General are recorded as a credit to division equity and do not impact Genzyme General's division income.

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. NET INCOME (LOSS) PER SHARE

        Note B., "Net Income (Loss) Per Share," to our consolidated financial statements contains information regarding the calculation of earnings per share for each series of our stock using the two-class method. 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 D. ACQUISITIONS

Novazyme

        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. 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 by specified dates. 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.

GG-61

        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 (amounts 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 are not ratably amortizing the goodwill resulting from the acquisition of Novazyme. Instead, we 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 FIN 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 allocated to IPR&D, and charged to expense, $86.8 million, representing the portion of the purchase price attributable to the technology platform. In accordance with accounting principles generally accepted in the U.S., the amount allocated to IPR&D was charged

GG-62

as an expense in our consolidated statements of operations and 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. 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.

        The staff of the FTC is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there are ongoing costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

Wyntek

        In June 2001, we acquired all of the outstanding capital stock of Wyntek for an aggregate purchase price of $65.4 million. 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.

GG-63

        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 (amounts 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. Our management assumes responsibility for determining the IPR&D valuation. 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 accounting principles generally accepted in the U.S. Consequently, in accordance with accounting principles generally accepted in the U.S., 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.

        As of December 31, 2002, the technological feasibility of the acquired program had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred. We expect to commercialize this product in early 2004.

GG-64

GelTex

        In December 2000, we acquired GelTex. 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 (amounts 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 FIN 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.

GG-65

        In connection with the purchase of GelTex, Genzyme General allocated approximately $118.0 million of the purchase price to IPR&D. Our management is responsible for determining the fair value of the acquired IPR&D. 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 accounting principles generally accepted in the U.S., 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, 2002, 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.

        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

GG-66

of $86.8 million resulting from the acquisition of Novazyme, $8.8 million resulting from the acquisition of Wyntek and $118.0 million resulting from the acquisition of GelTex are not reflected in the following unaudited pro forma financial summary:

	For the Years Ended December 31,
	2001		2000
	(Amounts in thousands)
Total revenues	$	990,339	$	813,045
Income before cumulative effect of change in accounting for derivative financial instruments, net of tax		80,781		114,125
Division net income		84,948		114,125

NOTE E. DISPOSITION OF ASSETS

        In July 2001, we transferred our 50% ownership interest in ATIII LLC to GTC. In exchange for our interest in the joint venture, we will receive a royalty on worldwide net sales (excluding Asia) of any of GTC 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.

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

        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 accounts receivable at fair value after reflecting an allowance for doubtful accounts. This allowance was $16.4 million at December 31, 2002 and $11.9 million at December 31, 2001.

GG-67

NOTE H. INVENTORIES

	December 31,
	2002		2001
	(Amounts in thousands)
Raw materials	$	33,934	$	39,285
Work-in-process		68,441		53,408
Finished products		94,021		35,171
Total	$	196,396	$	127,864

        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 likely result in the write-off of the inventory and a charge to earnings. At December 31, 2002, Genzyme General's total inventories include $7.5 million of inventory for products that have not yet been approved for sale. In addition, at December 31, 2002, a joint venture in which we have a 50% ownership interest has $17.3 million of inventory for a product that has not yet been approved for sale, of which $8.6 million represents our portion of the unapproved inventory of the joint venture. Our ownership interest in this joint venture is allocated to Genzyme General.

NOTE I. PROPERTY, PLANT AND EQUIPMENT

	December 31,
	2002			2001
	(Amounts in thousands)
Plant and equipment	$	374,060		$	284,662
Land and buildings		345,769			264,800
Leasehold improvements		119,881			120,080
Furniture and fixtures		22,300			16,125
Construction-in-progress		198,190			149,806
		1,060,200			835,473
Less accumulated depreciation		(310,360	)		(254,072	)
Property, plant and equipment, net	$	749,840		$	581,401

        Genzyme General's depreciation expense was $55.8 million in 2002, $56.7 million in 2001 and $33.6 million in 2000.

        Genzyme General capitalizes costs it incurs in validating the manufacturing process for products which have reached technological feasibility. As of December 31, 2002, capitalized validation costs, net of accumulated depreciation, were $15.3 million. Genzyme General has capitalized the following amounts of interest costs incurred in financing the construction of manufacturing facilities:

For the Years Ended December 31,
2002		2001		2000
$	4.5 million	$	4.2 million	$	2.2 million

GG-68

        The estimated cost to complete the assets under construction as of December 31, 2002 is $271.5 million.

        During 2001, we began constructing a recombinant protein facility adjacent to our existing facilities in Framingham, Massachusetts, which we allocated to Genzyme General. During the quarter ended December 31, 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. Throughout 2002, Genzyme was considering various alternative plans for use of the Framingham manufacturing facility, including contract manufacturing arrangements, and whether the approximately $16.8 million of capitalized engineering and design costs for this facility would be applicable to the future development at this site. In December 2002, due to a change in our plans for future manufacturing capacity requirements, we determined that we would not proceed with construction of the Framingham facility for the foreseeable future. As a result, we recorded a charge in the fourth quarter of 2002 to write off $14.0 million of capitalized engineering and design costs that were specific to the Framingham facility. We allocated this charge to Genzyme General. The remaining $2.8 million of capitalized engineering and design costs were used in the construction of the Belgium manufacturing facility and, accordingly, have been reallocated as a capitalized cost of that facility.

NOTE J. GOODWILL AND OTHER INTANGIBLE ASSETS

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by Genzyme General effective at the beginning of fiscal year 2002.

Goodwill

        Effective January 1, 2002 in accordance with the provisions of SFAS No. 142, Genzyme General ceased amortizing goodwill. At January 1, 2002, gross goodwill allocated to Genzyme General totaled $561.0 million, including $2.4 million of acquired workforce intangible assets previously classified as other intangible assets, net of related deferred tax liabilities, of which $1.6 million was allocated to Genzyme General's Therapeutics reporting segment and $0.8 million was allocated to its Diagnostic Products reporting segment.

        We completed the transitional and annual impairment test for the $481.7 million of net goodwill related to Genzyme General's reporting units in the year ended December 31, 2002 as provided by SFAS No. 142, and determined that no impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable.

GG-69

        The following table contains the changes in net goodwill attributable to Genzyme General's segments during the year ended December 31, 2002 (amounts in thousands):

		As of December 31, 2001			Adjustments			As of December 31, 2002
Goodwill:
	Therapeutics(1)	$	387,213		$	(6,359	)	$	380,854
	Renal(2)		82,508			(31	)		82,477
	Diagnostic Products(3)		32,427			789			33,216
	Other		56,462			171			56,633
	Total		558,610			(5,430	)		553,180
Accumulated amortization			(70,784	)		(697	)		(71,481	)
Goodwill, net		$	487,826		$	(6,127	)	$	481,699

(1)

Adjustments for the Therapeutics segment include:

•

$(8.8) million resulting from an adjustment to the value assigned to the deferred tax assets and liabilities recorded in connection with our acquisition of GelTex;

•

$1.6 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of GelTex reclassified as required by SFAS No. 142;

•

$1.3 million resulting from an adjustment to value assigned to the deferred tax assets recorded in connection with our acquisition of Novazyme; and

•

$(0.5) million resulting primarily from the reversal of $(1.3) million of excess integration and exit activity costs accruals related to our acquisition of Novazyme.

(2)

During 2002, we created the Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, goodwill amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of Genzyme General's Therapeutics reporting segment. We have reclassified our 2001 goodwill disclosures by segment to conform to our 2002 presentation.

(3)

Adjustments for the Diagnostic Products segment represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of Wyntek as required by SFAS No. 142.

GG-70

Other Intangible Assets

        The following table contains information on Genzyme General's other intangible assets for the periods presented (amounts in thousands):

		As of December 31, 2002							As of December 31, 2001
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	378,457	$	(56,294	)	$	322,163	$	378,364	$	(28,130	)	$	350,234
Patents			117,574		(16,863	)		100,711		117,545		(9,035	)		108,510
Trademarks			6,526		(890	)		5,636		6,526		(456	)		6,070
License fees			25,972		(7,114	)		18,858		25,075		(5,326	)		19,749
Customer lists			8,324		(4,031	)		4,293		8,324		(3,199	)		5,125
Other			10,045		(10,045	)		—		13,497		(9,543	)		3,954
	Total	$	546,898	$	(95,237	)	$	451,661	$	549,331	$	(55,689	)	$	493,642

        All of Genzyme General's other intangible assets are amortized over their estimated useful lives which range between 4 years and 15 years. Total amortization expense for Genzyme General's purchased intangible assets was:

•

$40.2 million for the year ended December 31, 2002;



•

$38.5 million for the year ended December 31, 2001; and



•

$5.5 million for the year ended December 31, 2000.

Amortization expense for each year presented includes $1.2 million related to the amortization of a non-compete agreement which is charged to cost of products sold. Amortization expense for the year ended December 31, 2001 excludes the expense related to the amortization of goodwill.

        The estimated future amortization expense for other intangible assets allocated to Genzyme General as of December 31, 2002 for the five succeeding fiscal years is as follows (amounts in thousands):

Year Ended December 31,	Estimated Amortization Expense
2003	$	39,006
2004		38,937
2005		38,844
2006		36,478
2007		36,475

GG-71

Adjusted Net Income

        The following tables present the impact SFAS No. 142 would have had on Genzyme General's amortization of intangibles expense and division net income had the standard been in effect for the years ended December 31, 2001 and 2000 (amounts in thousands):

	Year Ended December 31, 2001							Year Ended December 31, 2000
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	74,296	$	(37,020	)	$	37,276	$	10,928	$	(6,608	)	$	4,320
Genzyme General's net income before cumulative effect of change in accounting for derivative financial instruments, net of tax		3,879		37,020			40,899		—		—			—
Division net income		8,046		37,020			45,066		85,956		6,608			92,564

GG-72

NOTE K. INVESTMENTS IN MARKETABLE SECURITIES AND STRATEGIC EQUITY INVESTMENTS

Marketable Securities

		December 31,
		2002				2001
		Cost		Market Value		Cost		Market Value
		(Amounts in thousands)
Cash equivalents(1):
	Corporate notes	$	—	$	—	$	1,550	$	1,552
	U.S. Governmental agencies		2,002		2,002		22,646		22,720
	Money market fund		99,616		99,616		75,003		75,003
		$	101,618	$	101,618	$	99,199	$	99,275
Short-term:
	Corporate notes	$	62,439	$	63,563	$	47,221	$	47,921
	U.S. Governmental agencies		25,682		25,969		16,084		16,464
	Non U.S. Governmental agencies		4,718		4,807		1,042		1,066
	U.S. Treasury notes		—		—		1,005		1,030
		$	92,839	$	94,339	$	65,352	$	66,481
Long-term:
	Corporate notes	$	480,144	$	498,869	$	509,560	$	521,519
	U.S. Governmental agencies		129,901		134,833		156,282		157,526
	Non U.S. Governmental agencies		25,586		26,571		36,397		36,929
	U.S. Treasury notes		20,862		21,928		89,611		91,792
		$	656,493	$	682,201	$	791,850	$	807,766
Total cash equivalents, short- and long-term investments		$	850,950	$	878,158	$	956,401	$	973,522
Investments in equity securities		$	52,954	$	42,945	$	50,347	$	88,686

(1)

Cash equivalents are included as part of cash and cash equivalents on our balance sheets.

GG-73

        The following table contains information regarding the range of contractual maturities of Genzyme General's investments in debt securities:

	December 31,
	2002				2001
	Cost		Market Value		Cost		Market Value
	(Amounts in thousands)
Within 1 year	$	194,457	$	195,957	$	164,551	$	165,756
1-2 years		162,934		168,395		202,071		206,705
2-10 years		493,559		513,806		589,779		601,061
	$	850,950	$	878,158	$	956,401	$	973,522

Realized and Unrealized Gains and Losses on Marketable Securities and Investments in Equity Securities

        In December 2002, we recorded and allocated to Genzyme General the following impairment charges because we considered the decline in value of these strategic equity investments to be other than temporary:

•

$9.2 in connection with our investment in the common stock of GTC;



•

$3.4 million in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group;



•

$2.0 million in connection with our investment in the common stock of Dyax; and



•

$0.8 million in connection with our investment in the common stock of Targeted Genetics.

Given the significance and duration of the declines as of the end of 2002, 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. At December 31, 2002, Genzyme General's division equity includes unrealized losses of approximately $10.0 million, related to the other strategic equity investments in equity securities allocated to Genzyme General.

        Offsetting these impairment charges, we recorded and allocated to Genzyme General, net realized gains of $0.9 million on the sale of investments in equity securities for the year ended December 31, 2002.

        Genzyme General recorded charges in 2001 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.

        In August 2001, Pharming Group filed for receivership in order to seek protection from its creditors. In 2001, Genzyme General recorded a charge of $8.5 million, representing an at cost write-off of our investment in Pharming common stock.

GG-74

        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 GTC common stock. We 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.

        In 2000, we recorded gains of $22.7 million relating to public offerings of common stock by our unconsolidated affiliate, GTC. We recorded this gain as gain on affiliate sale of stock and allocated it to Genzyme General.

        Genzyme General records gross unrealized holding gains and losses related to its investments in marketable securities and strategic equity investments, to the extent they are determined to be temporary, in division equity. The following table sets forth the amounts recorded:

	December 31,
	2002		2001
Unrealized holding gains	$	27.4 million	$	56.2 million
Unrealized holding losses	$	10.1 million	$	0.6 million

        Note J., "Investments in Marketable Securities and Strategic Equity Investments," to our consolidated financial statements contains information regarding Genzyme General's:

•

Equity investments in:



•

Abiomed, Inc.;



•

BioMarin;



•

Cambridge Antibody Technology Group;



•

Healthcare Ventures, L.P.;



•

Oxford Bioscience Partners IV LP;



•

MPM BioVentures III-QP, L.P.



•

Pharming Group;



•

ProQuest Investments II, L.P.;



•

Targeted Genetics Corp.;



•

ViaCell Inc.;




•

Investments in and relationships with GTC and Dyax Corporation.

        We incorporate that information into this note by reference.

GG-75

NOTE L.    INVESTMENTS IN JOINT VENTURES

        Note K., "Investments in Joint Ventures," to our consolidated financial statements contains information regarding Genzyme General's investments in the following joint ventures:

•

BioMarin/Genzyme LLC;



•

Diacrin/Genzyme LLC;



•

Genzyme/Pharming Alliance LLC; and



•

Pharming/Genzyme LLC.

We incorporate that information into this note by reference.

NOTE M.    ACCRUED EXPENSES

		December 31,
		2002		2001
		(Amounts in thousands)
Compensation		$	56,169	$	40,080
Purchase accrual			27,548		12,508
Bank overdrafts			16,162		17,138
Other			70,307		49,785
	Total accrued expenses	$	170,186	$	119,511

NOTE N.    LONG-TERM DEBT AND LEASES

Long-Term Debt and Capital Lease Obligations

        Our long-term debt and capital lease obligations allocated to Genzyme General consist of the following:

	December 31,
	2002			2001
	(Amounts in thousands)
3% convertible subordinated debentures due May 2021	$	575,000		$	575,000
Notes payable		7			6,723
Capital lease obligations		25,044			25,203
		600,051			606,926
Less current portion		(13	)		(6,841	)
Total	$	600,038		$	600,085

GG-76

        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):

2003	2004	2005	2006	2007	After 2007
—	—	—	$575.0	—	—

3% Convertible Subordinated Debentures

        In May 2001, we completed the private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. After deducting the underwriter's discount and offering costs of $12.9 million, net proceeds from the offering were approximately $562.1 million. We have allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General. We 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 $20.0 million in 2002, which includes $2.8 million for amortization of offering costs, and $12.9 million in 2001, which includes $1.8 million for amortization of offering costs. The fair value of these debentures was $532.6 million at December 31, 2002 and $631.8 million at December 31, 2001.

        In June 2001, we completed the redemption of our $250.0 million in principal of 5¹/4% convertible subordinated notes due June 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.

GG-77

5% Convertible Subordinated Debentures

        In August 2001, we completed the redemption of our $21.2 million in principal of 5% convertible subordinated debentures due August 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.

Revolving Credit Facility; Notes Payable

        Note M., "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 GelTex, which were repaid as of December 31, 2002 using cash allocated to Genzyme General.

        We incorporate that information into this note by reference.

Capital Leases

        In connection with our acquisition of GelTex, 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 rate 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 $2.1 million each year through 2005. The $25.0 million capital lease obligation and corresponding building is recorded in our consolidated balance sheet and the combined balance sheet of Genzyme General. The building is being depreciated over its estimated useful life.

        During the term of the lease, we have the option to purchase the building and improvements for a purchase price equal to the total amount funded by the lessor of $25.0 million, plus any accrued and unpaid lease payments and certain other costs, which aggregate amount is referred to as the Purchase Option Price. At the end of the lease term of October 31, 2005, we have the option to:

•

purchase the building and improvements for the Purchase Option Price;



•

arrange for the facility to be purchased by a third party; or



•

return the building and improvements to the lessor.

In the case of the latter two options, however, we are contingently liable to the extent the lessor is not able to realize 85% of the Purchase Option Price upon the sale or disposition of the property.

        In 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

GG-78

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 second half of 2003 and the value of the building and related obligation will be recorded in our consolidated balance sheet and the combined balance sheet of Genzyme General when Genzyme General begins to occupy the space. We have included estimated payments for this lease in the summary capital lease schedule below. The lease term is for fifteen years and may be extended for two successive ten-year periods. The lease also provides us with an option, exercisable on or before July 1, 2003, to lease an additional building on mutually acceptable terms.

        Over the next five years and thereafter, Genzyme General will be required to repay the following amounts under non-cancellable capital leases (amounts in millions):

2003		2004		2005		2006		2007		After 2007
$	5.7	$	10.7	$	35.7	$	8.5	$	8.5	$	101.3

Operating Leases

        In July 2002, we entered into an agreement to lease 61,101 square feet of additional office space in Cambridge, Massachusetts. We allocate the future minimum payments due under this lease 50% to Genzyme General and 50% to Genzyme Biosurgery based upon our current assessment of the long-term occupancy ratio for this location. The term of the lease is seven years with rent payable in advance commencing on October 1, 2002. Remaining fixed rent payments during the term of the lease are as follows (amounts in thousands):

2003	$	1,016
2004		1,045
2005		1,076
2006		1,099
2007		1,099
Thereafter		1,923
Total	$	7,258

        Pursuant to the terms of the lease agreement, we are obligated to pay, in addition to yearly fixed rent, our pro rata share of the landlord's operating costs and the real estate taxes for the property in excess of the landlord's operating costs and real estate taxes for 2002. In addition, the landlord will charge us for direct use of electricity at cost. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms with rent equal to the greater of the current base rent or 95% of fair market value. The lease also provides three options to lease a total of 45,577 square feet of additional space at the property. In addition, the lease provides us with first offer options on additional space that becomes available in the building.

        In May 2002, we entered into an agreement to lease an 85,808 square foot building and related parking area in Westborough, Massachusetts for Genzyme General's genetic testing business. The term

GG-79

of the lease is ten years with rent payable in advance commencing August 1, 2002. Fixed rent payments during the term of the lease are as follows (amounts in thousands):

2003	$	627
2004		714
2005		930
2006		1,060
Thereafter		7,097
Total	$	10,428

        Pursuant to the terms of the net lease agreement, we are obligated to pay, in addition to yearly fixed rent, the taxes, betterment assessments, insurance costs, utility charges, base operating costs and certain other expenses related to the property under lease. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms and a one-time option, exercisable during the first five years of the lease, to purchase the land and building under lease.

        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):

For the Years Ended December 31,
2002		2001		2000
$	32.0	$	29.8	$	25.0

        Over the next five years and thereafter, Genzyme General will be required to repay the following amounts under non-cancellable operating leases (amounts in millions):

2003		2004		2005		2006		2007		After 2007
$	28.0	$	23.3	$	16.4	$	9.4	$	8.5	$	105.4

        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 2002, 2001 and 2000. Our rent under this lease increases every five years based on the Consumer Price Index or, at a minimum, 3% per year.

        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 the county of Waterford, Ireland. The land will be used for the development of a multi-product manufacturing center. The lease term is for 999 years with a de minimis amount of rent payable in advance on January 1, of each year.

GG-80

NOTE O.    DIVISION EQUITY

        The following table contains the components of division equity for Genzyme General for the periods presented:

			December 31,
			2002			2001			2000
			(Amounts in thousands)
Balance at beginning of period			$	2,280,352		$	1,750,280		$	1,007,614
	Division net income			150,731			8,046			85,956
	Allocation of tax benefits generated by:
		Genzyme Biosurgery		18,508			24,593			28,023
		Genzyme Molecular Oncology		9,287			11,904			7,476
	Allocated proceeds from issuance of Genzyme General Stock under stock plans			30,411			86,705			85,345
	Allocated proceeds from issuance of Genzyme General Stock from the exercise of warrants and stock purchase rights			233			2,291			—
	Allocation of cash:
		to Genzyme Molecular Oncology for 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 Tissue Repair for designated shares(1)		—			—			(9,910	)
		to Genzyme Biosurgery for designated shares(1)		—			(12,000	)		—
		from Genzyme Biosurgery for NeuroCell joint venture refund		27,063			—			—
	Allocated tax benefit from disqualified dispositions			8,410			50,176			17,041
	Allocation for the acquisition of GelTex			—			—			541,615
	Allocation for the acquisition of Novazyme			—			115,652			—
	Payment of notes receivable from Novazyme stockholders			792			541			—
	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			1,335			10,130			1,682
	Deferred compensation adjustment for terminated employees			437			—			—
	Allocated additional minimum pension liability			(2,529	)		—			—
	Allocated unrealized losses on investments and derivatives, net of tax			(21,306	)		(4,812	)		(11,922	)
	Allocated cumulative translation adjustments			85,494			6,981			14,237
	Other allocated equity adjustments			(3,334	)		(1,367	)		(1,877	)
	Balance at end of period		$	2,585,884		$	2,280,352		$	1,750,280

(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

GG-81

corresponding to that series of stock. As of December 31, 2002, there were approximately 3.2 million Biosurgery designated shares and 1.7 million Molecular Oncology designated shares.

NeuroCell Joint Venture Refund

        In February 2002, Genzyme Biosurgery paid $27.1 million to Genzyme General, representing $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 Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum. The refund arose because Diacrin/Genzyme LLC, our joint venture with Diacrin, failed to initiate a phase 3 trial of NeuroCell-PD for Parkinson's disease by June 30, 2001.

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:

•

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;



•

2001—$12.0 million in exchange for an additional reserve of approximately 1.9 million Biosurgery designated shares; and



•

2002—none.

        At December 31, 2002, $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:

•

2000—$15.0 million in exchange for a reserve of approximately 0.7 million Molecular Oncology designated shares;



•

2001—$4.0 million in exchange for an additional reserve of approximately 0.3 million Molecular Oncology designated shares; and



•

2002—none.

GG-82

        At December 31, 2002, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

Stock Compensation Plans

        The disclosure regarding how we account for our four stock-based compensation plans: the 1997 Equity Incentive Plan, the 2001 Equity Incentive Plan, the 1998 Director Stock Option Plan (each of which are stock option plans) and the 1999 Employee Stock Purchase Plan is included in Note A., "Significant Accounting Policies—Accounting for Stock-Based Compensation," to Genzyme General's combined financial statements.

NOTE P.    OTHER 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, 2002 which, if adversely decided, would have a material adverse effect on Genzyme General's results of operations, financial condition or liquidity.

        In 2000, we recorded a gain of approximately $5.1 million in connection with proceeds received from the settlement of a lawsuit. The lawsuit, initiated in 1993, pertained to insurance coverage for an accidental spill of Ceredase enzyme at a fill facility operated by a contractor to Genzyme General. We allocated these proceeds to Genzyme General and recorded them as other income.

        Pursuant to the terms of our joint venture agreement with BioMarin, for the development and commercialization of Aldurazyme enzyme, we are obligated to pay BioMarin a $12.1 million milestone payment upon receipt of FDA approval of the BLA for Aldurazyme enzyme.

Guarantees

        In November 2002, the FASB issued FIN 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FIN 34." The adoption of FIN 45 did not have a material effect on our consolidated financial statements or the combined financial statements of Genzyme General for the year ended December 31, 2002. For more information, we suggest you read Note O., "Other Commitments and Contingencies," to our consolidated financial statements. We incorporate that information into this note by reference.

GG-83

NOTE Q.    INCOME TAXES

        Genzyme General's income before income taxes and the related income tax expense (benefit) are described in the following table:

		For the Years Ended December 31,
		2002			2001			2000
		(Amounts in thousands)
Domestic		$	195,052		$	36,445		$	165,266
Foreign			12,195			20,100			13,329
	Total	$	207,247		$	56,545		$	178,595
Currently payable:
Federal		$	22,867		$	96,766		$	90,483
State			5,579			6,576			4,737
Foreign			7,694			8,123			3,607
	Total		36,140			111,465			98,827
Deferred::
Federal			20,368			(41,416	)		(2,930	)
State			(407	)		(2,770	)		(182	)
Foreign			415			(14,613	)		(3,076	)
	Total		20,376			(58,799	)		(6,188	)
Provision for income taxes		$	56,516		$	52,666		$	92,639

        Genzyme General's provisions for income taxes were at rates other than the U.S. federal statutory tax rate for the following reasons:

		For the Years Ended December 31,
		2002		2001		2000
Tax at U.S. statutory rate		35.0	%	35.0	%	35.0	%
	Losses in less than 80% owned subsidiaries with no current tax benefit	—		—		(1.9	)
	State taxes, net	2.5		6.7		2.0
	Foreign sales corporation and extra-territorial income	(4.5	)	(18.3	)	(4.4	)
	Nondeductible amortization	—		19.3		1.2
	Benefit of tax credits	(7.6	)	(6.5	)	(1.7	)
	Utilization of operating loss carryforwards	—		(3.8	)	—
	Charge for purchased research and development	—		57.6		23.3
	Foreign rate differential	1.9		1.8		(0.9	)
	Other, net	—		1.3		(0.7	)
Effective tax rate		27.3	%	93.1	%	51.9	%

GG-84

        The components of net deferred tax assets are described in the following table:

		December 31,
		2002			2001
		(Amounts in thousands)
Deferred tax assets:
	Net operating loss carryforwards	$	8,189		$	34,211
	Tax credits		26,335			19,448
	Realized and unrealized capital losses		21,796			—
	Inventory		3,966			8,328
	Intercompany profit in inventory elimination		63,005			31,878
	Reserves, accruals and other		16,589			32,388
	Allocation of tax asset from Genzyme Biosurgery		9,335			11,779
	Allocation of tax asset from Genzyme Molecular Oncology		372			269
Gross deferred tax asset			149,587			138,301
Valuation allowance			(1,022	)		—
Net deferred tax asset			148,565			138,301
Deferred tax liabilities:
	Depreciable assets		(12,125	)		(17,108	)
	Realized and unrealized capital gains		—			(8,640	)
	Deferred gains		(898	)		(898	)
	Intangibles		(112,381	)		(122,155	)
Deferred tax liability			(125,404	)		(148,801	)
Net deferred tax asset (liability)		$	23,161		$	(10,500	)

        Our ability to realize the benefit of net deferred tax assets is dependent on our generating sufficient taxable income and capital gain income before loss and capital 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, 2002 Genzyme General had for U.S. income tax purposes allocated net operating loss carryforwards of $18.1 million and an allocated tax credit carryforward of $26.3 million. The net operating loss carryforwards expire between 2007 and 2021 and the tax credits expire between 2009 and 2022. For foreign purposes, Genzyme General had net operating loss carryforwards of $14.9 million in 2002, which carryforward indefinitely.

        Our federal and various state income tax returns are currently under examination. While the ultimate results of such examinations cannot be predicted with certainty, we believe that the examinations will not have a material adverse effect on the future operating results of Genzyme General. As a result of the resolution of several tax audit matters in 2001, Genzyme General recognized $2.2 million of net tax benefits.

        Genzyme General recognized a $4.3 million tax benefit during the fourth quarter of 2002 as a result of tax credits identified during the preparation of our 2001 tax return.

GG-85

NOTE R.    BENEFIT PLANS

        Note Q., "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.

Retirement Plans

        We have defined benefit pension plans for certain employees in foreign countries. These plans are funded in accordance with requirements of the appropriate regulatory bodies governing each plan.

        The following table sets forth the funded status and amounts recognized as of December 31, 2002 and 2001 for our foreign defined benefit pension plans:

	2002			2001
Change in benefit obligation:
Projected benefit obligation, beginning of year	$	22,520		$	19,213
Service cost		1,293			869
Interest cost		1,399			1,151
Plan participants' contributions		694			497
Actuarial loss		1,669			1,475
Foreign currency exchange rate changes		2,836			(419	)
Benefits paid		(266	)		(266	)
Projected benefit obligation, end of year	$	30,145		$	22,520
Change in plan assets:
Fair value of plan assets, beginning of year	$	15,748		$	17,117
Actual return on plan assets		(3,742	)		(2,167	)
Employer contribution		1,527			935
Plan participants' contributions		694			497
Foreign currency exchange rate changes		1,561			(499	)
Benefits paid		(149	)		(135	)
Fair value of plan assets, end of year	$	15,639		$	15,748
Benefit obligation in excess of plan assets	$	(14,506	)	$	(6,772	)
Unrecognized net actuarial loss		11,988			4,517
Additional minimum pension liability, pre-tax		(3,614	)		—
Net amount recognized	$	(6,132	)	$	(2,255	)
Net amount recognized:
Prepaid benefit cost	$	476		$	305
Accrued benefit liability		(2,994	)		(2,560	)
Additional minimum pension liability, pre-tax		(3,614	)		—
Net amount recognized	$	(6,132	)	$	(2,255	)

GG-86

        The weighted average assumptions used in determining related obligations of pension benefit plans are shown below:

		December 31,
		2002		2001
Weighted average assumptions:
	Discount rate	5.75	%	6.00	%
	Expected return on assets	7.00	%	6.75	%
	Rate of compensation increase	3.50	%	3.50	%

        The components of net pension expense for the years ended December 31 are as follows (amounts in thousands):

	2002			2001
Service cost	$	1,293		$	869
Interest cost		1,399			1,151
Expected return on plan assets		(1,205	)		(1,151	)
Amortization and deferral of actuarial loss		158			19
Net pension expense	$	1,645		$	888

        The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets are as follows (amounts in thousands):

	2002		2001
Projected benefit obligation	$	30,145	$	22,520
Accumulated benefit obligation		21,723		16,199
Fair value of plan assets		15,639		15,748

        The $3.6 million additional minimum liability, $2.5 million net of tax, was recorded to accumulated other comprehensive income during 2002 as a result of the fair value of the plan assets for our pension plan in the United Kingdom being below the accumulated benefit obligation of the same plan.

NOTE S.    SEGMENT INFORMATION

        In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent with the method we use to report this information to our management. Applying SFAS 131, Genzyme General has three reportable segments:

•

Therapeutics, which develops, manufactures and distributes human 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. The business derives substantially all of its revenue from sales of Cerezyme enzyme, Fabrazyme enzyme and Thyrogen hormone;

GG-87

•

Renal, which develops products that treat patients suffering from renal diseases, including chronic renal failure. The segment manufactures and sells, and derives all of it revenue from sales of, Renagel phosphate binder; and



•

Diagnostic Products, which provides diagnostic products to niche markets, focusing on in vitro diagnostics.

GG-88

        We have provided information concerning the operations in these reportable segments in the following table:

		For the Years Ended December 31,
		2002			2001			2000
		(Amounts in thousands)
Revenues:
	Therapeutics(1)	$	704,613		$	606,815		$	550,931
	Renal(1,2)		156,864			176,921			49,748
	Diagnostic Products(1)		83,065			76,858			61,469
	Other(3)		132,684			118,008			89,371
	Eliminations/Adjustments(4)		2,959			3,324			964
Total		$	1,080,185		$	981,926		$	752,483
Depreciation and amortization expense(5):
	Therapeutics(1)	$	27,228		$	50,990		$	7,816
	Renal(1,2)		24,647			24,894			1,097
	Diagnostic Products(1)		7,000			7,819			4,940
	Other(3)		5,348			7,066			7,226
	Eliminations/Adjustments(4)		31,798			27,184			20,127
Total		$	96,021		$	117,953		$	41,206
Equity in net loss of unconsolidated affiliates:
	Therapeutics	$	(14,928	)	$	(30,214	)	$	(26,867	)
	Renal(1,2,6)		—			—			(15,934	)
	Diagnostic Products		—			—			—
	Other(3)		—			126			(64	)
	Eliminations/Adjustments(7)		(1,930	)		(4,277	)		(2,100	)
Total		$	(16,858	)	$	(34,365	)	$	(44,965	)
Income tax (expense) benefits:
	Therapeutics(1)	$	(76,999	)	$	(8,891	)	$	(95,834	)
	Renal(1,2)		6,680			(8,631	)		42,788
	Diagnostic Products(1)		1,585			1,269			(2,056	)
	Other(3)		(2,504	)		(4,818	)		1,006
	Eliminations/Adjustments(4)		14,722			(31,595	)		(38,543	)
Total		$	(56,516	)	$	(52,666	)	$	(92,639	)
Division net income:
	Therapeutics(1)	$	165,849		$	66,945			170,132
	Renal(1,2)		(11,473	)		14,992			(76,067	)
	Diagnostic Products(1)		1,084			(1,075	)		3,004
	Other(3)		4,300			8,383			(1,792	)
	Eliminations/Adjustments(8)		(9,029	)		(85,366	)		(9,323	)
	Division net income before cumulative effect of change in accounting for derivative financial instruments		150,731			3,879			85,956
	Cumulative effect of change in accounting for derivative financial instruments, net of tax(9)		—			4,167			—
Division net income		$	150,731		$	8,046		$	85,956

GG-89

(1)

Results of operations of companies acquired and allocated to Genzyme General and amortization of intangible assets related to these acquisitions are included in Genzyme General's segment results beginning on the date of acquisition. Charges for IPR&D related to these acquisitions is included in the segment results in the year of acquisition. Acquisitions completed since January 1, 2000 include:

Company Acquired	Date Acquired	Business Segment(s)	IPR&D Charge
Novazyme	September 26, 2001	Therapeutics	$86.8 million
Wyntek	June 1, 2001	Diagnostic Products	$8.8 million
GelTex	December 14, 2000	Therapeutics and Renal	$118.0 million

(2)

In 2002, we created the Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of the Therapeutics reporting segment and amounts attributable to our renal research and development programs had been included in Eliminations/Adjustments for Genzyme General. We have reclassified Genzyme General's 2001 and 2000 segment disclosures to conform to its 2002 presentation.

(3)

Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.

(4)

Eliminations/Adjustments consist primarily of amounts related to Genzyme General's research and development and administrative activities, including investment income and interest expense, that we do not specifically allocate to a particular segment of Genzyme General.

(5)

On January 1, 2002, in connection with the adoption of SFAS No. 142, we ceased amortizing goodwill and workforce intangible assets.

(6)

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 D., "Acquisitions," above.

(7)

Represents our portion of the net loss of GTC, an unconsolidated affiliate through May 2002, which we do not specifically allocate to a particular segment of Genzyme General.

(8)

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 and $22.7 million in 2000, recognized in accordance with our policy pertaining to affiliate sales of stock, all of which resulted from the sale of common stock by GTC, an unconsolidated affiliate;



•

losses on equity investments of:



•

$15.4 million in 2002, including charges of: $9.2 million to write down our investment in GTC, $3.4 million to write down our investment in Cambridge Antibody Technology Group, $2.0 million to write down our investment in Dyax and $0.8 million to write down our investment in Targeted Genetics; and

GG-90

•

$26.0 million in 2001, including charges of: $8.5 million to write-off our investment in Pharming Group, $11.8 million to write down our investment in Cambridge Antibody Technology Group and $4.5 million to write down our investment in Targeted Genetics;




•

net gains on sales of investments in equity securities of $23.2 million in 2000; and



•

net proceeds of $5.1 million received in connection with the settlement of a lawsuit in 2000.

(9)

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 warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General.

        We provide information concerning the assets of the reportable segments in the following table:

		December 31,
		2002		2001		2000
		(Amounts in thousands)
Segment assets(1):
	Therapeutics(2)	$	1,127,493	$	885,158	$	946,282
	Renal(2,3)		467,164		462,336		395,374
	Diagnostic Products(4)		103,636		105,354		89,236
	Other(5)		89,705		84,239		77,153
	Eliminations/Adjustments(6)		1,767,803		1,688,167		991,008
Total		$	3,555,801	$	3,225,254	$	2,499,053

(1)

Segment assets for Genzyme General include primarily accounts receivable, inventory and certain fixed and intangible assets.

(2)

Segment assets for Therapeutics for:

•

2001 include $25.9 million of assets resulting from the acquisition of Novazyme, including $17.2 million of goodwill; and

•

2000 include $370.5 million of goodwill and $198.5 million of other intangible assets resulting from our acquisition of GelTex.

Segment assets for Renal for 2001 include $82.0 million of goodwill and $266.6 million of other intangible assets also resulting from our acquisition of GelTex.

See Note D., "Acquisitions," above.

(3)

In 2002, we created the Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of the Therapeutics reporting segment and amounts attributable to our renal research and development programs had been included in Eliminations/Adjustments for Genzyme General. We have reclassified Genzyme General's 2001 and 2000 segment disclosures to conform to its 2002 presentation.

GG-91

(4)

Segment assets for Diagnostic Products for 2001 include $71.5 million of assets resulting from the acquisition of Wyntek, including $20.3 million of goodwill and $39.4 million of other intangible assets. See Note D., "Acquisitions," above.

(5)

Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both which operate within Genzyme General.

(6)

Eliminations/Adjustments for 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,
	2002		2001		2000
	(Amounts in thousands)
Cash, cash equivalents, and short- and long-term investments	$	1,077,904	$	961,879	$	339,259
Due from Genzyme Biosurgery		32,641		29,513		18,645
Due from Genzyme Molecular Oncology		5,494		7,086		4,660
Deferred tax assets—current		105,094		70,196		46,836
Notes Receivable—related parties		11,918		—		—
Property, plant and equipment, net		414,077		420,684		332,423
Goodwill, net		5,287		15		7,261
Other intangibles, net		25		5,128		22,936
Investment in equity securities		42,945		88,686		119,648
Due from Genzyme Biosurgery—noncurrent		9,390		—		—
Other		63,028		104,980		99,340
Total Eliminations/Adjustments	$	1,767,803	$	1,688,167	$	991,008

        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, Ireland 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 the Ireland is Genzyme General's primary distributor of therapeutic products in Europe.

GG-92

        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:

		For the Years Ended December 31,
		2002		2001		2000
		(Amounts in thousands)
Revenues:
	U.S.	$	622,489	$	604,740	$	436,001
	Europe		345,709		271,345		223,933
	Other		111,987		105,841		92,549
Total		$	1,080,185	$	981,926	$	752,483

		December 31,
		2002		2001		2000
		(Amounts in thousands)
Long-lived assets:
	U.S.	$	1,257,858	$	1,411,055	$	868,916
	Europe		252,996		110,362		46,315
	Other		1,752		1,477		1,359
Total		$	1,512,606	$	1,522,894	$	916,590

        Genzyme General's results of operations are highly dependent on sales of Cerezyme enzyme. Sales of this product represented 63% of Genzyme General's product revenue in 2002, 63% of product revenue in 2001 and 78% of product revenue in 2000. We manufacture Cerezyme enzyme at a single manufacturing facility in Allston, Massachusetts. Genzyme General sells this product directly to physicians, hospitals and treatment centers as well as through unaffiliated distributors. Distributor sales of Cerezyme enzyme represented approximately 43% of Cerezyme enzyme revenue in 2002, approximately 33% in 2001 and approximately 28% in 2000. Sales of Cerezyme enzyme to one of our U.S. distributors represented approximately 11% of Genzyme General's total revenue in 2002, approximately 11% in 2001 and approximately 14% in 2000. We believe that our credit risk associated with trade receivables is mitigated as a result of the fact that this product is sold to a large number of customers and over a broad geographic area.

        Sales of Renagel phosphate binder represented approximately 16% of Genzyme General's product revenue in 2001, 20% of Genzyme General's product revenue in 2001 and approximately 7% of Genzyme General's product revenue in 2000. Distributor sales of Renagel phosphate binder represented approximately 72% of Renagel phosphate binder revenue in 2002, approximately 89% in 2001 and approximately 86% in 2000.

GG-93

NOTE T.    QUARTERLY RESULTS (UNAUDITED)

	1st Quarter 2002		2nd Quarter 2002		3rd Quarter 2002		4th Quarter 2002(1)
	(Amounts in thousands)
Total revenue	$	242,147	$	267,168	$	272,823	$	298,047
Gross profit		180,173		201,557		206,504		219,960
Division net income		24,309		44,411		44,518		37,493

	1st Quarter 2001		2nd Quarter 2001		3rd Quarter 2001			4th Quarter 2001
	(Amounts in thousands)
Total 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)

Includes fourth quarter 2002 charges of:

•

$15.4 million to write down our investment in certain strategic equity investments because we considered the decline in value of these investments to be other than temporary;

•

$14.0 million to write off engineering and design costs related to a manufacturing facility that was being constructed in Framingham, Massachusetts;

•

$5.5 million to reverse excess accruals related to the cost of fulfilling our legal obligation to provide human transgenic alpha-glucosidase during the transition of Pompe clinical trial patients to a CHO-cell product;

•

$4.2 million for severance costs;

•

$3.6 million to write-off our 50% share of costs associated with the write-off of certain production runs during the scale up of Aldurazyme enzyme manufacturing;

•

$2.8 million for costs associated with a planned major maintenance shutdown of a recombinant protein manufacturing facility in November 2002; and

•

$2.2 million attributable to product damaged when mishandled by a carrier during shipment to a customer for which we are seeking insurance reimbursement.

        In addition, we recognized a $4.3 million tax benefit in the fourth quarter of 2002 as a result of additional tax credits identified during the preparation of our 2001 tax return, which we allocated to Genzyme General.

NOTE U. SUBSEQUENT EVENT

        In 2001, our wholly-owned subsidiary in the United Kingdom established a home nursing and infusion service to support patients receiving Cerezyme enzyme and our other enzyme replacement therapies following the expiration of a contract with a third party service provider. This third party lodged a complaint with the Office of Fair Trading, or OFT, in the United Kingdom. The OFT is a

GG-94

non-governmental organization empowered to enforce certain consumer and competition legislation in the United Kingdom. The OFT commenced an investigation of this service, alleging that it contravened competition laws in the United Kingdom. While we believe that the provision of home healthcare services by our subsidiary and our pricing for Cerezyme enzyme in the United Kingdom fully complies with applicable laws, we cooperated in this investigation. On March 27, 2003, the OFT ruled that this service did, in fact, violate U.K. competition law, and as a result fined our subsidiary approximately 6.8 million Pounds Sterling and required modifications to our pricing structure for Cerezyme enzyme in the United Kingdom. We do not believe the OFT followed a fair procedure in conducting its investigation, nor do we believe its ruling is supported by either law or fact. We have notified the Competition Commission Appeal Tribunal that we will appeal the OFT's ruling. Based on the advice of counsel, management does not believe it is probable that we will be required to pay a material fine or modify our Cerezyme pricing structure. We have not accrued any amounts in connection with this contingency.

GG-95

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 at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the year ended December 31, 2002 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 combined 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.

        As discussed in Note J to these combined financial statements, the Company changed its method of accounting for goodwill in 2002.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 7, 2003, except for Note U, as to which the date is March 28, 2003

GG-96

EX-13.3

Use these links to rapidly review the document
FINANCIAL STATEMENTS GENZYME BIOSURGERY A Division of Genzyme Corporation

EXHIBIT 13.3

FINANCIAL STATEMENTS
GENZYME BIOSURGERY
A Division of Genzyme Corporation

	Page No.
Combined Selected Financial Data	GBS-2
Management's Discussion and Analysis of Genzyme Biosurgery's Financial Condition and Results of Operations	GBS-6
Combined Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000	GBS-31
Combined Balance Sheets as of December 31, 2002 and 2001	GBS-32
Combined Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000	GBS-33
Notes to Combined Financial Statements	GBS-35
Report of Independent Accountants	GBS-64

GBS-1

GENZYME BIOSURGERY
A Division of Genzyme Corporation

Combined Selected Financial Data

        These selected financial data have been derived from the audited, combined financial statements of Genzyme Biosurgery. You should read the following information in conjunction with the audited financial statements and related notes of Genzyme Biosurgery and Genzyme contained elsewhere in this annual report. These selected financial data may not be indicative of Genzyme Biosurgery's future financial condition due to the risks and uncertainties described under the caption "Management's Discussion and Analysis of Genzyme Biosurgery's Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report.

        Genzyme Biosurgery is our operating division that develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedic and cardiothoracic markets.

        A series of our common stock, Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," is designed to reflect the value and track the financial performance of this division. Biosurgery Stock is common stock of Genzyme Corporation, not of Genzyme Biosurgery; Genzyme Biosurgery is a division, not a company or legal entity, and therefore does not and cannot issue stock. The chief mechanisms intended to cause Biosurgery Stock to "track "the performance of Genzyme Biosurgery are provisions in our charter governing dividends and distributions. These provisions factor the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Biosurgery Stock is defined in our charter as the net income or loss of Genzyme Biosurgery determined in accordance with accounting principles generally accepted in the U.S., and as adjusted for tax benefits allocated to or from Genzyme Biosurgery in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among the divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock, combine existing tracking stocks, or change our earnings allocation methodology. Because the earnings allocated to Biosurgery Stock are based on the income or losses attributable to Genzyme Biosurgery, we provide financial statements and management's discussion and analysis of Genzyme Biosurgery to aid investors in evaluating its performance.

GBS-2

COMBINED STATEMENTS OF OPERATIONS DATA(1)

			For the Years Ended December 31,
			2002			2001			2000			1999			1998
			(Amounts in thousands)
Revenues:
	Net product sales		$	215,028		$	211,523		$	121,870		$	111,951		$	103,958
	Net service sales			24,770			23,614			23,321			20,305			17,008
	Revenues from research and development contracts			285			5			23			97			109
		Total revenues		240,083			235,142			145,214			132,353			121,075
Operating costs and expenses:
	Cost of products sold(2)			95,975			113,250			69,489			67,212			72,274
	Cost of services sold			14,297			12,733			12,298			13,237			13,438
	Selling, general and administrative			106,950			122,020			92,238			87,841			81,876
	Research and development (including research and development related to contracts)			52,336			47,159			37,000			36,075			29,050
	Amortization of intangibles(3)			31,280			46,828			7,096			5,750			5,748
	Purchase of in-process research and development(4)			1,879			—			82,143			—			—
	Charge for impaired assets(5)			8,958			—			4,321			—			—
		Total operating costs and expenses		311,675			341,990			304,585			210,115			202,386
Operating loss				(71,592	)		(106,848	)		(159,371	)		(77,762	)		(81,311	)
Other income (expenses):
	Equity in net loss of unconsolidated affiliates(6,7)			—			(1,316	)		—			(3,403	)		(7,680	)
	Loss on sale of investment in equity securities(8)			—			—			(7,300	)		—			—
	Loss on sale of product line(9)			—			(24,999	)		—			—			—
	Other			192			124			(15	)		138			60
	Investment income			1,303			1,753			5,833			4,808			1,320
	Interest expense			(9,225	)		(13,884	)		(1,364	)		(1,858	)		(2,631	)
		Total other income (expenses)		(7,730	)		(38,322	)		(2,846	)		(315	)		(8,931	)
Division net loss before cumulative effect of change in accounting for goodwill				(79,322	)		(145,170	)		(162,217	)		(78,077	)		(90,242	)
Cumulative effect of change in accounting for goodwill(3)				(98,270	)		—			—			—			—
Division net loss			$	(177,592	)	$	(145,170	)	$	(162,217	)	$	(78,077	)	$	(90,242	)

GBS-3

COMBINED BALANCE SHEET DATA(1)(10)

		December 31,
		2002			2001		2000		1999		1998
		(Amounts in thousands)
Cash and investments		$	32,747		$	38,623	$	78,163	$	135,498	$	7,732
Working capital(11)			(247,867	)		64,121		103,140		110,577		26,253
Total assets			560,792			704,671		811,600		390,572		253,170
Long-term debt, capital lease obligations and convertible debt, including current portion(12)			294,724			245,629		229,453		18,000		12,579
Division equity			186,223			394,454		511,106		350,463		210,692
	There were no cash dividends paid.

(1)

We formed Genzyme Biosurgery as a separate division of Genzyme on December 18, 2000 by combining two of our divisions, Genzyme Surgical Products and Genzyme Tissue Repair and simultaneously acquiring Biomatrix, Inc. These data reflect the financial position, results of operations and cash flows attributable to Genzyme Biosurgery as if it had been accounted for as a separate division of the corporation for all periods presented as it relates to Genzyme Surgical Products and Genzyme Tissue Repair. The results of operations of Biomatrix are included in Genzyme Biosurgery's results from December 18, 2000, the date of acquisition.

(2)

Cost of products sold for 1998 includes a $10.4 million charge to write-down our Sepra products inventory to net realizable value.

(3)

Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," Genzyme Biosurgery ceased amortizing goodwill. Genzyme Biosurgery recorded $15.5 million in 2001 and $3.9 million in 2000 of amortization expense related to its goodwill. In connection with the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our consolidated statements of operations and the combined statements of operations of Genzyme Biosurgery for the year ended December 31, 2002.

(4)

Charges for IPR&D represent $1.9 million incurred in connection with the investment in Myosix in 2002 and $82.1 million incurred in connection with the acquisition of Biomatrix in 2000.

(5)

Represents a $9.0 million charge to write off the assets or our bulk HA manufacturing facility in Haverhill, England in 2002 and a $4.3 million charge to write off abandoned equipment in 2000 at our Springfield Mills manufacturing facility, also in England.

(6)

Operations of Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc., commenced in October 1996. In May 1999, we reallocated our ownership interest in the joint venture from Genzyme Biosurgery to Genzyme General.

(7)

In January 2001, Focal, Inc. exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We recorded our portion of the results of Focal in equity in net loss of unconsolidated affiliate. We allocated this investment to Genzyme Biosurgery. On June 30, 2001, we acquired the remaining 78% of the outstanding shares in an exchange of shares of Biosurgery Stock for shares of Focal common stock and have included Focal's results in Genzyme Biosurgery's results of operations since that date. We allocated the acquired assets and liabilities to Genzyme Biosurgery and accounted for the acquisition as a purchase.

(8)

Represents a charge for the write down of our investment in Focal common stock because we considered its decline in fair value to be other than temporary.

(9)

Represents the loss from sale of the Snowden-Pencer line of surgical instruments in 2001.

(10)

In January 2001, we purchased all of the outstanding Class A limited partnership interests of GDP for a payment of approximately $25.7 million in cash plus royalties payable over ten years on sales of certain Sepra products.

GBS-4

(11)

At December 31, 2002, $284.0 million in principal drawn under our revolving credit facility and $10.0 million in principal of our 6.9% convertible subordinated note due May 2003 are included in the determination of working capital.

(12)

Long-term debt, capital lease obligations and convertible debt, including current portion, consists primarily of:

•   At December 31, 2002—$284.0 million in principal drawn under our revolving credit facility due December 2003 and $10.0 million in principal of our 6.9% convertible subordinated note due May 2003.

•

At December 31, 2001—$234.0 million in principal drawn under our revolving credit facility and $10.0 million in principal of our 6.9% convertible subordinated note.

•

At December 31, 2000—$218.0 million in principal drawn under our revolving credit facility and $10.0 million in principal of our 6.9% convertible subordinated note.

•

At December 31, 1999—$18.0 million in principal drawn under our revolving credit facility.

•

At December 31, 1998—$12.6 million in principal of our 5% convertible subordinated note due February 2000.

GBS-5

MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME BIOSURGERY'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described under "Factors Affecting Future Operating Results" below as well as in Exhibit 99.2 to this annual report. These risks and uncertainties could cause actual results to differ materially from those forecast in forward-looking statements or implied by past results and trends. Forward-looking statements are statements that attempt to project or anticipate future developments in our business; we encourage you to review the examples of forward looking statements under "Note Regarding Forward Looking Statements." 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 in light of future developments.

INTRODUCTION

        Genzyme Biosurgery is our operating division that develops and markets biotherapeutic and biomaterial products, with an emphasis on orthopaedics, heart disease and broader surgical applications.

        We prepare the combined financial statements of Genzyme Biosurgery in accordance with accounting principles generally accepted in the U.S. We present financial information and accounting policies specific to Genzyme Biosurgery in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should read our consolidated financial statements in conjunction with the combined financial statements of Genzyme Biosurgery. Note A., "Summary of Significant Accounting Policies," to our consolidated financial statements contains our accounting policies.

        Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," is a series of our common stock that is designed to reflect the value and track the performance of Genzyme Biosurgery. The chief mechanisms intended to cause Biosurgery Stock to "track" the financial performance of Genzyme Biosurgery are provisions in our charter governing dividends and distributions. The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        The provisions in our charter governing dividends and distributions factor the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Biosurgery Stock is defined in our charter as the net income or loss of Genzyme Biosurgery determined in accordance with accounting principles generally accepted in the U.S. and as adjusted for tax benefits allocated to or from Genzyme Biosurgery in accordance with our management and accounting policies. Our charter also requires that all income and expenses of Genzyme be allocated among the divisions in a

GBS-6

reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to Biosurgery Stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock, combine existing tracking stocks or change our earnings allocation methodology. Because the earnings allocated to Biosurgery Stock are based on the income or losses attributable to Genzyme Biosurgery, we provide financial statements and management's discussion and analysis of Genzyme Biosurgery to aid investors in evaluating its performance.

        While Biosurgery Stock is designed to reflect Genzyme Biosurgery's performance, it is common stock of Genzyme Corporation and not Genzyme Biosurgery; Genzyme Biosurgery is a division, not a company or legal entity, and therefore does not and cannot issue stock. Consequently, holders of Biosurgery Stock have no specific rights to assets allocated to Genzyme Biosurgery. Genzyme Corporation continues to hold title to all of the assets allocated to Genzyme Biosurgery and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to Genzyme Biosurgery. Holders of Biosurgery Stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to Genzyme Biosurgery are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of Biosurgery Stock and other tracking stockholders would only have the rights of common stockholders in the combined assets of Genzyme.

        Our charter requires us to manage and account for transactions between Genzyme Biosurgery and our other divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our divisional management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitudes and extent of allocations to each series of common stock without shareholder approval.

        We present earnings per share data for Biosurgery Stock in our consolidated financial statements. We present financial information and accounting policies specific to Genzyme Biosurgery in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should, therefore, read this discussion and analysis of Genzyme Biosurgery's financial position and results of operations in conjunction with the combined financial statements and related notes of Genzyme Biosurgery, the discussion and analysis of Genzyme's financial position and results of operations, and the consolidated financial statements and related notes of Genzyme, all of which are included in this annual report.

ACQUISITIONS

        The following acquisitions have been allocated to Genzyme Biosurgery and were accounted for as purchases. The results of operations of Focal, GDP and Biomatrix are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from the date of acquisition.

        On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as merger consideration. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis.

GBS-7

        In January 2001, we acquired the outstanding Class A limited partnership interests in Genzyme Development Partners, L.P., which we refer to as GDP, a limited partnership engaged in developing, producing and commercializing Sepra products, for an aggregate of $25.7 million plus royalties on sales of certain Sepra products for ten years.

        On December 18, 2000, we acquired Biomatrix, Inc. for 17.5 million shares of Biosurgery Stock valued at $206.5 million, $252.4 million of cash and options and other costs valued at $23.5 million. At the time of the merger, we created Genzyme Biosurgery as a new division. We reallocated the businesses of two of our then-existing divisions—Genzyme Surgical Products and Genzyme Tissue Repair—to Genzyme Biosurgery and allocated the acquired assets and liabilities of Biomatrix to Genzyme Biosurgery. As a result of this transaction, we amended our charter to create Biosurgery Stock and eliminate Genzyme Surgical Products Division common stock, which we refer to as "Surgical Products Stock" and Genzyme Tissue Repair Division common stock, which we refer to as "Tissue Repair Stock."

DISPOSITION

        In November 2001, we sold our Snowden-Pencer line of surgical instruments for $15.9 million in net cash. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery in connection with this sale.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

        The preparation of the combined financial statements of Genzyme Biosurgery under accounting principles generally accepted in the U.S. requires us to make certain estimates and judgments that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in these financial statements. Our actual results could differ from these estimates under different assumptions and conditions.

        We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of Genzyme Biosurgery's combined financial statements:

•

Policies Relating to Tracking Stocks;



•

Revenue Recognition;



•

Inventories;



•

Long-Lived Assets; and



•

Asset Impairments.

Policies Relating to Tracking Stocks

Allocation of Revenue, Expenses, Assets, and Liabilities

        Our charter sets forth which operations and assets were initially allocated to Genzyme Biosurgery and states that going forward the division will also include all business, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between Genzyme Biosurgery and our other divisions and with third parties, and any resulting 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.

GBS-8

        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. Our board also allocates long-term debt and strategic investments.

        Any future changes that our board of directors may make to the methods for allocating revenue, expenses, assets, and liabilities among our divisions could materially change the results of operations or the financial condition of Genzyme Biosurgery and the income allocated to one or more series of our stock.

Income Tax Allocation Policy

        If at the end of any fiscal quarter, a division cannot use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we may allocate the tax benefit to other divisions in proportion to their taxable income without any compensating payments or allocation to the division generating the benefit. Genzyme Biosurgery has not yet generated taxable income, and thus has not had the ability to use any projected annual tax benefits. Genzyme General has generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery. Consistent with our policy, we have allocated the tax benefits generated by Genzyme Biosurgery to Genzyme General without any compensating payments or allocations to Genzyme Biosurgery. Income tax benefits allocated from Genzyme Biosurgery to Genzyme General are recorded as a reduction of Genzyme Biosurgery's division equity and do not impact Genzyme Biosurgery's division net loss.

Determination of Available Dividend Amounts

        The chief mechanisms intended to cause Biosurgery Stock to "track" the financial performance of Genzyme Biosurgery are provisions in our charter governing dividends and distributions. The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or

GBS-9

•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        Within these parameters, and other general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. To date, we have never paid or declared a cash dividend on shares of any of our series of common stock, nor do we anticipate doing so in the foreseeable future. Unless declared, no dividends accrue on our tracking stocks.

        Determining the dividend limit for each series of our stock can involve significant judgment, including assessing the amount that would be legally available for dividends under Massachusetts law. If we concluded that a division would be unable to pay dividends under Massachusetts law as a separate corporation, we would be unable to allocate losses to the corresponding series of our stock. This could materially impact the allocation of income and losses among our three series of tracking stock.

Revenue Recognition

        Genzyme Biosurgery recognizes revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, title and risk of loss have passed to the customer and collection from the customer is reasonably assured. Genzyme Biosurgery recognizes revenue from service sales, such as Carticel chondrocyte services, when we have finished providing the service. Genzyme Biosurgery recognizes revenue from contracts to perform research and development services and selling and marketing services over the term of the applicable contract and as it completes its obligations under that contract. Genzyme Biosurgery recognizes 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 Genzyme Biosurgery has no continuing performance obligations is recognized upon achievement of the related milestone. When Genzyme Biosurgery has continuing performance obligations, it recognizes milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;



•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and



•

the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

        Genzyme Biosurgery receives royalties related to the manufacture, sale or use of its products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, Genzyme Biosurgery recognizes revenue based on estimates of royalties earned during the applicable period and adjusts for differences between the estimated and actual royalties in the following quarter. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, Genzyme Biosurgery recognizes revenue upon receipt of royalty statements from the licensee.

        The timing of product shipments and receipts can have a significant impact on the amount of revenue that Genzyme Biosurgery recognizes in a particular period. Also, several of Genzyme Biosurgery's products, including Synvisc viscosupplementation product, are sold at least in part through distributors. Inventory in the distribution channel consists of inventory held by distributors, who are Genzyme Biosurgery's customers, and inventory held by retailers, such as pharmacies and hospitals.

GBS-10

Genzyme Biosurgery's revenue in a particular period can be impacted by increases or decreases in distributor inventories. If distributor inventories increased to excessive levels, Genzyme Biosurgery could experience reduced purchases in subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand or product expiration.

        Genzyme Biosurgery uses a variety of data sources to determine the amount of inventory in its U.S. distribution channel. For Synvisc viscosupplementation product, Genzyme Biosurgery receives data on sales and inventory levels directly from our primary distributor.

        Genzyme Biosurgery records allowances for product returns as a reduction of revenue at the time product sales are recorded. The product returns reserve is estimated based on Genzyme Biosurgery's experience of returns for each of our products, or for similar products. If the history of product returns changes, the reserve is adjusted appropriately. Genzyme Biosurgery's estimate of distribution channel inventory is also used to assess the reasonableness of its product returns reserve.

        Genzyme Biosurgery maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Genzyme Biosurgery's customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

Inventories

        Genzyme Biosurgery values inventories at cost or, if lower, fair value. It determines cost using the first-in, first-out method. Genzyme Biosurgery analyzes inventory levels quarterly and writes down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected requirements. Inventory with a life in excess of its shelf life is disposed of and the related costs are written off. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

        Genzyme Biosurgery capitalizes inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If a product is not approved for sale, it would result in the write-off of the inventory and a charge to earnings. At December 31, 2002, Genzyme Biosurgery's total inventories did not include any inventory for products that have not yet been approved for sale.

Long-Lived Assets

        In the ordinary course of our business, Genzyme Biosurgery incurs substantial costs to purchase and construct property, plant and equipment. The treatment of costs to purchase or construct such assets depends on the nature of the costs and the stage of construction. Costs incurred in the initial design and evaluation phase, such as the cost of performing feasibility studies and evaluating alternatives, are charged to expense. Qualifying costs incurred in the committed project planning and design phase, and in the construction and installation phase, are capitalized as part of the cost of the asset. Genzyme Biosurgery stops capitalizing costs when an asset is substantially complete and ready for its intended use. Determining the appropriate period during which to capitalize costs, and assessing whether particular costs qualify for capitalization, requires Genzyme Biosurgery to make significant judgments. These judgments can have a material impact on its reported results.

        Genzyme Biosurgery generally depreciates plant and equipment using the straight-line method over its estimated economic life, which ranges from 3 to 10 years. Determining the economic lives of plant and equipment requires it to make significant judgments that can materially impact Genzyme Biosurgery's operating results. There can be no assurance that Genzyme Biosurgery's estimates are accurate. If these estimates require adjustment, it could have a material impact on Genzyme Biosurgery's reported results.

GBS-11

        In accounting for acquisitions, Genzyme Biosurgery allocates the purchase price to the fair value of the acquired tangible and intangible assets, including acquired IPR&D. This requires Genzyme Biosurgery to make several significant judgments and estimates. For example, it generally estimates the value of acquired intangible assets and IPR&D using a discounted cash flow model, which requires it to make assumptions and estimates about, among other things:

•

the time and investment that will be required to develop products and technologies;



•

the ability to develop and commercialize products before its competitors develop and commercialize products for the same indications;



•

revenues that will be derived from the products; and



•

appropriate discount rates to use in the analysis.

Use of different estimates and judgments could yield materially different results in this analysis, and could result in materially different asset values and IPR&D charges.

        As of December 31, 2002, there was approximately $110.4 million of goodwill on Genzyme Biosurgery's balance sheet. Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," Genzyme Biosurgery ceased amortizing goodwill. As of December 31, 2002, there were approximately $282.8 million of other intangible assets on Genzyme Biosurgery's balance sheet. Genzyme Biosurgery amortizes acquired intangible assets using the straight-line method over their estimated economic lives, which range from 1.5 to 40 years. Determining the economic lives of acquired intangible assets requires Genzyme Biosurgery to make significant judgments and estimates, and can materially impact its operating results. Genzyme Biosurgery reassesses the economic lives of acquired intangible assets wherever there are changes in facts and circumstances that impact estimated remaining economic lives.

Asset Impairments

        Genzyme Biosurgery periodically evaluates long-lived assets for potential impairment under SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets." Genzyme Biosurgery performs these evaluations whenever events or changes in circumstances 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 cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If Genzyme Biosurgery believes an indicator of potential impairment exists, it tests to determine whether the impairment recognition criteria in SFAS No. 144 have been met. In evaluating long-lived assets for potential impairment, Genzyme Biosurgery makes several significant estimates and judgments, including:

•

determining the appropriate grouping of assets at the lowest level for which cash flows are available;



•

estimating future cash flows associated with the asset or group of assets; and



•

determining an appropriate discount rate to use in the analysis.

GBS-12

Use of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

        During 2002, Genzyme Biosurgery conducted impairment tests for approximately $283.0 million of its net other intangible assets. These tests did not result in an impairment charge.

        Effective January 1, 2002, Genzyme Biosurgery adopted SFAS No. 142, 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 unless these lives are determined to be indefinite. Unlike SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," 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 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. Effective January 1, 2002, we reclassified $1.8 million of acquired workforce intangible assets previously classified as other intangible assets, net of related deferred tax liabilities, to goodwill as required by SFAS No. 142.

        In November 2001, we sold our Snowden-Pencer line of surgical instruments, a component of Genzyme Biosurgery's Biosurgical Specialties reporting segment, and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, upon adoption of SFAS No. 142, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our consolidated statements of operations and the combined statements of operations for Genzyme Biosurgery for the year ended December 31, 2002.

        We completed the transitional and annual impairment tests for the $110.4 million of net goodwill related to Genzyme Biosurgery's other reporting units as provided by SFAS No. 142, and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of our acquisitions, various analyses, assumptions, significant judgments and estimates were made at the time of each 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.

RESULTS OF OPERATIONS

        The following discussion summarizes the key factors our management believes are necessary for an understanding of Genzyme Biosurgery's combined financial statements.

GBS-13

REVENUES

			2002		2001		2000		02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
			(Amounts in thousands, except percentage data)
Product revenue:
	Orthopaedics		$	89,920	$	83,373	$	4,159	8	%	1,905	%
	Biosurgical Specialties			53,376		59,032		41,305	(10	)%	43	%
	Cardiothoracic			71,732		69,118		76,406	4	%	(10	)%
		Total product revenue		215,028		211,523		121,870	2	%	74	%
Service revenue:
	Orthopaedics			20,253		18,417		18,229	10	%	1	%
	Biosurgical Specialties			4,517		5,197		5,092	(13	)%	2	%
		Total service revenue		24,770		23,614		23,321	5	%	1	%
Research and development revenue:
	Other			285		5		23	5,600	%	(78	)%
		Total revenues	$	240,083	$	235,142	$	145,214	2	%	62	%

2002 As Compared to 2001

Product Revenue

        Orthopaedics product revenue increased 8% to $89.9 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001 due to an increase in the sales of Synvisc viscosupplementation product. Synvisc viscosupplementation product sales increased primarily due to increased utilization of the product within the existing customer base as well as new accounts. We believe that a potentially significant competitor is currently seeking FDA approval for a viscosupplementation product for possible U.S. launch during the second half of 2003 that could have an adverse affect on future sales of Synvisc viscosupplementation product.

        Biosurgical specialties product revenue decreased 10% to $53.4 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001. The decrease is due to a decrease in sales of surgical instruments to $0.9 million resulting from the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001, partially offset by a 36% increase in sales of Sepra products to $39.1 million primarily due to increased market penetration.

        Cardiothoracic products include fluid management (chest drainage) systems, surgical closures, biomaterials, and instruments for conventional and minimally invasive cardiac surgery. Cardiothoracic product revenue increased 4% to $71.7 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily due to a 15% increase in the combined sales of FocalSeal-L surgical sealant and instruments for minimally-invasive and off-pump cardiac surgery to $17.0 million and a 10% increase in the revenues from sales of fluid management (chest drainage) systems to $32.4 million due to a change in the buying pattern of distributors. These increases were partially offset by a 7% decrease in revenue from sales of surgical closures to $17.6 million resulting from our withdrawal of certain commodity suture lines in Europe during the first half of 2001.

Service Revenue

        Orthopaedics service revenue increased 10% to $20.3 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily due to a change in the classification of reimbursed expenses from partners from a reduction in operating expenses to service revenues.

GBS-14

Excluding the $1.5 million of additional service revenue resulting from the change in classification of reimbursed expenses, Orthopaedics service revenue did not change significantly during 2002 as compared to 2001. Increased sales of Carticel chondrocyte services in the U.S. for 2002 were offset by decreased European sales of the service because we have not been actively seeking new partners or marketing Carticel chondrocytes in Europe since the second quarter of 2001. The 13% decrease in Biosurgical Specialties service revenue to $4.5 million in 2002 as compared to $5.2 million in 2001 is attributable to decreased sales of Epicel skin grafts, which are used to treat victims of severe burns. Sales of Epicel skin grafts are variable based upon a number of unpredictable factors, including the number of severe burn patients and their survival rate prior to treatment with Epicel skin grafts.

International Revenue

        International revenue as a percentage of total sales for 2002 was 28% as compared to 29% in 2001. The decrease was primarily due to the relative increased sales of Synvisc supplementation product in the U.S.

2001 As Compared to 2000

Product Revenue

        Orthopaedics product revenue increased in 2001 as compared to 2000 primarily due to the sales of Synvisc viscosupplementation product, which we added to the Orthopaedics product category in December 2000 through our acquisition of Biomatrix.

        The increase in Biosurgical Specialties product revenue in 2001 as compared to 2000 was due primarily to increases in sales of Seprafilm bioresorbable membrane and Sepramesh biosurgical composite. An increase in sales of products sold to original equipment manufacturers and sales generated from Hylaform biomaterial product and other skin care products, which were added to the Biosurgical Specialties product category in December 2000, also contributed to the overall increase in Biosurgical Specialties product revenue. The increase in sales was partially offset by a decrease in sales of instruments for plastic surgery, due to the sale of Snowden-Pencer line of surgical instruments during the fourth quarter of 2001.

        The decrease in Cardiothoracic product revenue in 2001 as compared to 2000 was due to decreased sales of chest drainage systems resulting from competitive pricing pressures in that market as well as the withdrawal from certain commodity suture lines in Europe. The decrease was offset, in part, by the continued growth in sales of minimally invasive cardiac surgery products and the sales revenue from the FocalSeal-L surgical sealant. We added FocalSeal-L surgical sealant to the Cardiothoracic product category in the third quarter of 2000 pursuant to a distribution and marketing agreement with Focal which, prior to our acquisition of Focal in June 2001, provided us with exclusive distribution rights for this product in North America.

Service Revenue

        Orthopaedics and Biosurgical Specialties service revenue did not change significantly during 2001 as compared to 2000.

International Revenue

        International revenue as a percentage of total revenue in 2001 was 29% as compared to 25% in 2000. International revenue as a percentage of total revenue increased during the year primarily due to the addition of sales of Synvisc viscosupplementation product.

GBS-15

MARGINS

		2002			2001			2000			02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
		(Amounts in thousands except percentage data)
Product margin		$	119,053		$	98,273		$	52,381		21	%	88	%
	% of product revenue		55	%		46	%		43	%
Service margin		$	10,473		$	10,881		$	11,023		(4	)%	(1	)%
	% of service revenue		42	%		46	%		47	%
Total gross margin		$	129,526		$	109,154		$	63,404		19	%	72	%
	% of total product and service revenue		54	%		46	%		44	%

2002 As Compared to 2001

Product Margin

        Genzyme Biosurgery sells or provides a broad range of healthcare products and services. As a result, Genzyme Biosurgery's gross margins may vary significantly depending on the market conditions of each product or service.

        The 21% increase in product margin and the increase in product margin as a percentage of product revenue for 2002 as compared to 2001 was primarily attributable to an increase in product revenue of $3.5 million and a decrease in cost of products sold of $17.3 million. Cost of products sold in 2001 includes $11.3 million of costs related to our December 18, 2000 acquisition of Biomatrix which was allocated to Genzyme Biosurgery, for which there are no comparable amounts in 2002. As part of the Biomatrix acquisition, we adjusted the acquired inventory to fair value, resulting in an increase of $11.3 million. In June 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock not previously acquired. As part of the Focal acquisition, we adjusted the acquired inventory to fair value and amortized the adjustment to cost of products sold as the acquired inventory was sold, of which $2.4 million was amortized in 2002 and $1.4 million was amortized in 2001. Excluding the adjustments described above, product margin increased 9% in 2002, to $121.4 million as compared to 2001 as a result of an increase in sales of Synvisc viscosupplementation product, a higher margin product, and to a general reduction in unit costs for Seprafilm bioresorbable membrane in 2002.

Service Margin

        Service margin for services allocated to Genzyme Biosurgery decreased 4% in 2002 as compared to 2001 primarily due to a 13% decrease in sales of Epicel skin grafts to $4.5 million and a 12% increase in cost of services sold to $14.3 million.

2001 As Compared to 2000

Product Margin

        Genzyme Biosurgery recorded charges to cost of products sold in 2001 of $11.3 million relating to the increased basis of the inventory obtained in connection with our acquisition of Biomatrix in December 2000 and $1.4 million relating to the increased basis of the inventory obtained in connection with our acquisition of Focal in June 2001. Additionally, Genzyme Biosurgery included a $0.8 million charge related to the underfunding of an acquired retirement plan in cost of products sold. Excluding the adjustments described above, product margins increased in 2001 as compared to 2000, as a result of an increase in sales of higher margin products such as Synvisc viscosupplementation product and devices for minimally invasive cardiac surgery in 2001.

GBS-16

Service Margin

        Service margin for services allocated to Genzyme Biosurgery decreased in 2001 as compared to 2000 primarily due to a significant decline in volume of Epicel skin graft services due to an increase in discounts and cancellations. This decrease is partially offset by the increase in service margin for Carticel chondrocytes due to higher average sales prices resulting from a price increase and controlled spending.

OPERATING EXPENSES

2002 As Compared to 2001

Selling, General and Administrative Expenses

        Selling, general and administrative expenses decreased 12% to $107.0 million in 2002 as compared to 2001. The decrease is primarily due to $9.1 million of costs attributable to the sale of our former Snowden-Pencer line of surgical instruments in 2001 for which there are no comparable amounts in 2002 and to efforts within Genzyme Biosurgery to streamline and consolidate selling activities in 2002. In addition, Genzyme Biosurgery's selling, general and administrative expenses for 2002 include a credit of $1.3 million for amounts in excess of Genzyme Biosurgery's actual severance costs for employees included in a plan of consolidation of Genzyme Biosurgery's European Operations. In addition, there were $5.5 million of costs in 2001 associated with the consolidation of European operations for which there are no comparable amounts in 2002. A $2.6 million charge for severance costs relating to Genzyme Biosurgery's Cardiothoracic business was recorded in 2002 for which there were no comparable amounts in 2001.

Research and Development Expenses

        Research and development expenses increased 11% to $52.3 million in 2002 as compared to 2001 primarily due to a $2.8 million increase in spending on Orthopaedics development programs, particularly other indications for Synvisc viscosupplementation product and a $2.1 million increase in expenses for the Biosurgical Specialties development programs, particularly clinical trial activities for Hylaform biomaterial product. The terms of the existing contract with Inamed Corporation, Genzyme Biosurgery's distributor of Hylaform biomaterial product were revised in 2002 to allow for increased participation by Inamed in research and development activities and to provide Genzyme Biosurgery with cost reimbursement upon the achievement of development milestones. The upfront fee and milestone payments to be received under this agreement will be recognized in accordance with our revenue recognition policy for such payments. Research and development expenses did not change significantly for the Cardiothoracic development programs; however, in 2002 Genzyme Biosurgery focused more spending on cardiac science programs, particularly cell therapy, and less on spending for cardiac device programs.

2001 As Compared to 2000

Selling, General and Administrative Expenses

        The increase in selling, general and administrative expenses in 2001 as compared to 2000 was due to the additional selling, general and administrative expenses related to the Biomatrix business, which we purchased in December 2000 and an increase in patent litigation costs which were $4.1 million. In addition, Genzyme Biosurgery recorded $7.2 million in costs associated with the consolidation of European operations.

Research and Development Expenses

        The increase in research and development expenses in 2001 as compared to 2000 due to increased spending on orthopaedics and cardiothoracic development programs. The increase in spending was

GBS-17

primarily a result of the addition of Synvisc viscosupplementation product to the orthopaedics line in December 2000 and the addition of FocalSeal-L surgical sealant to the cardiothoracic line in June 2001.

Amortization of Intangibles

        Amortization of intangibles expense decreased 33% to $31.3 million in 2002 as compared to 2001 due to Genzyme Biosurgery's adoption of SFAS No. 142 in January 2002. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. In accordance with the provisions of SFAS No. 142, Genzyme Biosurgery ceased amortizing goodwill as of January 1, 2002.

        The following table presents the impact SFAS No. 142 would have had on Genzyme Biosurgery's amortization of intangibles expense had the standard been in effect for the years ended December 31, 2001 and 2000 (amounts in thousands):

	Year Ended December 31, 2001							Year Ended December 31, 2000
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	46,828	$	(15,521	)	$	31,307	$	7,096	$	(3,894	)	$	3,202

        The increase in amortization of intangibles for 2001 as compared to 2000 was primarily attributable to intangible assets acquired in 2001 and 2000 in connection with our acquisitions of Biomatrix in December 2000, the GDP Class A limited partnership interests in January 2001, Focal, Inc. in June 2001 and the Class B limited partnership interests in August 2001.

Purchase of In-Process Research and Development

Myosix

        In July 2002, we entered into a collaboration with Myosix, a privately-held French biotechnology company, for the development and commercialization of a certain autologous cell culture technology, which we refer to as the Myosix Technology. The Myosix Technology was developed by the founders of Myosix with funding from the AP-HP, which owns and exclusively licenses the Myosix Technology and related patents to Myosix. In connection with the collaboration, we entered into several agreements with Myosix, including an equity purchase agreement, all effective July 29, 2002. Pursuant to the terms of the equity purchase agreement, we acquired 49% of the common stock of Myosix in exchange for 625,977 shares of Biosurgery Stock. The entire initial acquisition cost of $1.9 million, of which $1.6 million represents the fair market value of the shares of Biosurgery Stock exchanged and $0.3 million represents acquisition costs, was allocated to IPR&D and charged to expense in our consolidated statements of operations and the combined statements of operations of Genzyme Biosurgery. We allocated this charge and our ownership interest in Myosix to Genzyme Biosurgery.

        The sublicense that we obtained from Myosix grants us use of the Myosix Technology for the treatment of congestive heart failure. Phase 2 clinical trials commenced in the fourth quarter of 2002, and FDA approval is projected for 2009. As of December 31, 2002, the Myosix Technology has not achieved technological feasibility for any application and will require significant future development before an application can be completed.

        Pursuant to the terms of our various collaboration agreements with Myosix, we have sole responsibility for the cost, management, control and conduct of product development and commercialization, though we have entered into an agreement with AP-HP that obligates AP-HP to bear a portion of the costs associated with Phase 2 clinical trials. Myosix will act as a sub-contractor to us for these activities. We currently have the right to designate all of the members of Myosix's Board of Directors and, so long as we own at least 34% of Myosix, its Chief Executive Officer. We can acquire

GBS-18

the remaining shares of Myosix common stock upon achievement of certain milestones during the development and commercialization of products based on the Myosix Technology. Effective July 29, 2002, because of our ownership interest in and level of control of Myosix, we consolidate the results of Myosix.

Biomatrix

        In connection with our acquisition of Biomatrix, we allocated approximately $82.1 million to IPR&D, which Genzyme Biosurgery recorded as a charge to expense in its combined statements of operations for the year ended December 31, 2000. As of December 31, 2002, the technological feasibility of the Biomatrix IPR&D projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

        Below is a brief description of the Biomatrix IPR&D projects, including an estimation of when our management believes we may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication	Development Status at December 31, 2002	Value at Acquisition Date		Estimated Cost to Complete at December 31, 2002		Year of Expected Product Launch
			(in millions)
Viscosupplementation	Use of elastoviscous solutions and viscoelastic gels in disease conditions to supplement tissues and body fluids, alleviating pain and restoring normal function.	•    Preclinical for hip indications in U.S. •    Preclinical for knee indications •    Preclinical for other joints •    Product launched for hip indications in Europe in September 2002	$	33.8	$	24.9	2002 to 2008
Visco-augmentation and Visco-separation (Adhesion prevention)	Use of viscoelastic gels to provide scaffolding for tissue regeneration and to separate tissues and decrease formation of adhesions and excessive scars after surgery.	•    Preclinical—gynecological and pelvic indications •    Clinical trials—pivotal safety and efficacy study on-going in U.S. for Hylaform biomaterial product •    Phase 2—spine indications; program cancelled during 2002; no further development planned		48.3		4.7             N/A	2003 to 2006             N/A
		Total:	$	82.1	$	29.6

        Except for our viscosupplementation product for the hip launched in Europe in 2002, substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once 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. We cannot give 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.

GBS-19

Charge for Impaired Assets

        In 1997, we temporarily suspended bulk production of HA at our bulk HA manufacturing facility in Haverhill, England because we determined that we had sufficient quantities of HA on hand to meet the demand for our Sepra products for the near term. In the first quarter of 2002, we began a capital expansion program to build HA manufacturing capacity at one of our existing manufacturing facilities in Framingham, Massachusetts. During the third quarter of 2002, we determined that we had sufficient inventory levels to meet demand until the Framingham facility is completed and validated, which is estimated to be within one year. In connection with this assessment, we concluded that we no longer require the manufacturing capacity at the HA plant in England and we recorded an impairment charge of approximately $9.0 million to write off the assets at the England facility. This charge resulted in an increase of $9.0 million in the long-term portion of the amount due from Genzyme Biosurgery to Genzyme General at December 31, 2002.

        In 2000, we recorded a $4.3 million charge for abandoned equipment at our Springfield Mills manufacturing facility located in the England. The write-off of equipment was related to the Sepra product line and did not have alternative uses. We allocated this charge to Genzyme Biosurgery.

OTHER INCOME AND EXPENSES

		2002			2001			2000			02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliate		$	—		$	(1,316	)	$	—		(100	)%	N/A
Loss on investment in equity securities			—			—			(7,300	)	N/A		(100	)%
Loss on sale of product line			—			(24,999	)		—		(100	)%	N/A
Other			192			124			(15	)	55	%	(927	)%
Investment income			1,303			1,753			5,833		(26	)%	(70	)%
Interest expense			(9,225	)		(13,884	)		(1,364	)	(34	)%	918	%
	Total other income (expenses)	$	(7,730	)	$	(38,322	)	$	(2,846	)	(80	)%	1,247	%

2002 As Compared to 2001

Equity in Net Loss of Unconsolidated Affiliate

        In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated our investment in Focal to Genzyme Biosurgery. Genzyme Biosurgery recorded in equity in net loss of unconsolidated affiliate its portion of the results of Focal. On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Genzyme Biosurgery's equity in net loss of unconsolidated affiliate decreased in 2002 when compared to 2001 because Genzyme Biosurgery began accounting for Focal as a wholly-owned subsidiary in 2001, when the remaining outstanding shares were purchased.

Loss on Sale of Product Line

        In November 2001, we sold the Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery for $15.9 million in net cash. The purchaser acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we

GBS-20

lease in Tucker, Georgia. The assets sold had a net carrying value of approximately $41 million at the time of the sale. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery in connection with this sale. Genzyme Biosurgery had no similar charge in 2002.

Investment Income

        Investment income decreased 26% in 2002 as compared to 2001 as a result of a decline in interest rates and average cash balances.

Interest Expense

        Interest expense decreased 34% in 2002 as compared to 2001 primarily as a result of a decrease in the interest rates on borrowings under our revolving credit facility.

2001 As Compared to 2000

Equity in Net Loss of Unconsolidated Affiliate

        In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated our investment in Focal to Genzyme Biosurgery. Genzyme Biosurgery recorded in equity in net loss of unconsolidated affiliate its portion of the results of Focal. Genzyme Biosurgery's equity in net loss of unconsolidated affiliate increased in 2001 when compared to 2000 because Genzyme Biosurgery did not account for our interest in Focal under the equity method of accounting in 2000. On June 30, 2001, we acquired the remaining 78% of the outstanding shares in an exchange of shares of Biosurgery Stock for shares of Focal common stock, at which time we began accounting for Focal as a wholly-owned subsidiary.

Loss on Investments in Equity Securities

        In 2000, Genzyme Biosurgery recorded a $7.3 million charge for the write-down of Genzyme Biosurgery's investment in the common stock of Focal, because we considered the decline in the value of this investment to be other than temporary. Genzyme Biosurgery had no similar charge in 2001.

Loss on Sale of Product Line

        In November 2001, we sold our Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery for $15.9 million in net cash which was allocated to Genzyme Biosurgery. The purchaser acquired all of the assets directly associated with the Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery.

Investment Income

        Investment income decreased 70% in 2001 when compared to 2000 as a result of lower average cash balances.

Interest Expense

        Interest expense increased primarily as a result of the $234.0 million of debt outstanding as of December 31, 2001, under the portion of our revolving credit facility that we allocated to Genzyme Biosurgery. In December 2000, we drew $200.0 million under this facility and allocated the proceeds to Genzyme Biosurgery to finance a portion of the cash component of the Biomatrix merger

GBS-21

consideration. In November 2001, we drew $17.0 million under this facility and allocated the proceeds to Genzyme Biosurgery. We repaid $1.0 million of these borrowings in December 2001 using cash allocated to Genzyme Biosurgery.

Cumulative Effect of Change in Accounting for Goodwill

        On January 1, 2002, we adopted SFAS No. 142, 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 unless these lives are determined to be indefinite. SFAS No. 142 requires a transitional impairment test to compare the fair value of a reporting unit with the carrying amount of the goodwill.

        In November 2001, we sold our Snowden-Pencer line of surgical instruments. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, upon adoption of SFAS No. 142, Genzyme Biosurgery tested the goodwill of the cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. Genzyme Biosurgery recorded an impairment charge of $98.3 million, which was reflected as a cumulative effect of a change in accounting for goodwill in the consolidated statements of operations and the combined statements of operations for Genzyme Biosurgery for the year ended December 31, 2002.

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.

GBS-22

        Below is a brief description of our significant research and development programs that have been allocated to Genzyme Biosurgery:

Program	Program Description or Indication	Development Status at December 31, 2002	Year of Expected Product Launch
HIF-1a	Angiogenic gene therapy to treat coronary artery disease and peripheral artery disease	Phase 1 clinical trials ongoing	2008 through 2010
Cardiac cell therapy (for injection)	Tissue regeneration to treat congestive heart failure	Phase 1 clinical trial ongoing in Europe; IND expected to be filed in the U.S. in 2003	2009
Synvisc (Hylan G-F20)(1)	Next stage viscosupplementation products to treat osteoarthritis of the knee, hip and other joints	• Preclinical for hip indications in U.S. • Preclinical for knee indications • Preclinical for other joints • Product launched in Europe for hip indications in September 2002	2003 through 2008
Sepra technologies(1)	Next stage products to prevent surgical adhesions for various indications	Preclinical; safety and efficacy study ongoing in the U.S. for Hylaform biomaterials	2003 through 2007

        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, 2001	$	19.8
Costs incurred for the year ended December 31, 2002	$	27.8
Cumulative costs incurred as of December 31, 2002	$	98.1
Estimated costs to complete as of December 31, 2002	$	300.0 to $350.0

(1)

Includes programs acquired in connection with the December 2000 acquisition of Biomatrix.

        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, 2002, Genzyme Biosurgery had cash and cash equivalents of $32.7 million, a decrease of approximately $5.9 million from December 31, 2001.

        Genzyme Biosurgery's operating activities used $23.3 million of cash for the year ended December 31, 2002 as compared to $44.1 million for the year ended December 31, 2001. Net cash used by operating activities was impacted by Genzyme Biosurgery's division net loss of $177.6 million, offset by:

•

$37.9 million of depreciation and amortization, of which, $6.6 million resulted from the depreciation of the property, plant and equipment and $31.3 million resulted from the

GBS-23

amortization of intangible assets, including intangible assets acquired in connection with our acquisitions of Biomatrix and Focal;

•

a $1.9 million non-cash charge for in-process research and development due to the investment in Myosix;

•

a $9.0 million impairment charge related to manufacturing capacity no longer required at our HA plant in England;

•

$98.3 million for the cumulative effect of a change in accounting for goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of SFAS No. 142; and

•

$6.6 million attributable to the net decrease in working capital.

        Genzyme Biosurgery's investing activities used $5.7 million of cash in 2002 as compared to $27.3 million in 2001, primarily to fund capital expenditures.

        Genzyme Biosurgery's financing activities provided $24.5 million of cash in 2002 as compared to $32.2 million in 2001. Net cash provided from financing activities was primarily a result of the $50.0 million draw under the revolving credit facility allocated to Genzyme Biosurgery. This was partially offset by a $27.1 million payment to Genzyme General, representing 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 Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum.

        In connection with our acquisition of Biomatrix, we assumed a 6.9% convertible subordinated note due May 2003, in favor of UBS Warburg LLC. The $10.0 million principal of this note remains outstanding and was included in current portion of long-term debt, convertible notes and capital lease obligations in Genzyme Biosurgery's combined balance sheet at December 31, 2002.

        During 2002, we drew down $50.0 million under our $350.0 million revolving credit facility, all of which matures in December 2003, and allocated the proceeds to Genzyme Biosurgery. At December 31, 2002, $284.0 million had been drawn down and remained outstanding under our revolving credit facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin, which was, in the aggregate, 2.5% at December 31, 2002. We intend to refinance our revolving credit facility during 2003.

        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 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. At December 31, 2002, $3.0 million remained available to Genzyme Biosurgery under this arrangement.

GBS-24

        As of December 31, 2002, we were committed to make the following payments under contractual obligations using cash allocated to Genzyme Biosurgery:

	Payments Due by Period
Contractual Obligations
	Total		2003		2004		2005		2006		2007		After 2007
	(Amounts in millions)
Long-term debt	$	294.0	$	294.0	$	—	$	—	$	—	$	—	$	—
Long-term portion of intercompany payable to Genzyme General		11.9		2.5		2.3		2.3		2.2		1.7		0.9
Capital lease obligations		0.7		0.7		—		—		—		—		—
Operating leases		23.7		4.7		4.4		4.2		4.2		2.0		4.2
Unconditional purchase obligations		—		—		—		—		—		—		—
Research and development agreements		3.0		3.0		—		—		—		—		—
Total contractual cash obligations	$	333.3	$	304.9	$	6.7	$	6.5	$	6.4	$	3.7	$	5.1

        In July 2002, we entered into an agreement to lease 61,101 square feet of additional office space in Cambridge, Massachusetts. We allocate the future minimum payments due under this lease 50% to Genzyme General and 50% to Genzyme Biosurgery based upon our current assessment of the long-term occupancy ratio for this location. The term of the lease is seven years with rent payable monthly in advance commencing on October 1, 2002. Remaining fixed rent payments during the term of the lease are as follows (amounts in thousands):

2003	$	1,016
2004		1,045
2005		1,076
2006		1,099
2007		1,099
Thereafter		1,923
Total	$	7,258

        Pursuant to the terms of the lease agreement, we are obligated to pay, in addition to yearly fixed rent, our pro rata share of the landlord's operating costs and the real estate taxes for the property in excess of the landlord's operating costs and real estate taxes for 2002. In addition, the landlord will charge us for direct use of electricity at cost. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms with rent equal to the greater of the current base rent or 95% of fair market value. The lease also provides three options to lease a total of 45,577 square feet of additional space at the property. In addition, the lease provides us with first offer options on additional space that becomes available in the building.

        We anticipate that Genzyme Biosurgery's cash resources, together with amounts available from the following sources, will be sufficient to finance its planned operations and capital requirements through at least the fourth quarter of 2003:

•

revenues generated from sales of its products and sales under distribution agreements;

•

the $3.0 million remaining under the interdivisional financing arrangement with Genzyme General; and

•

amounts available to Genzyme Biosurgery under our revolving credit facility.

        Genzyme Biosurgery intends to use substantial portions of its available cash for:

•

repayment of the 6.9% convertible subordinated note due in May 2003;

•

research and development;

•

product development and marketing;

GBS-25

•

improving manufacturing efficiency;

•

enforcing patent and other intellectual property rights;

•

transactional activity related to acquiring and disposing of assets;

•

consolidating facilities and related relocation activities; and

•

working capital.

        Genzyme Biosurgery's cash needs may differ from those planned as a result of many factors, including the:

•

results of research and development efforts;

•

ability to establish and maintain strategic alliances;

•

ability to enter into licensing arrangements and additional distribution arrangements;

•

ability to share costs of product development with research and marketing partners;

•

costs involved in enforcing patent claims and other intellectual property rights;

•

costs involved in defending or settling post-closing acquired liabilities in connection with our sale of the Snowden-Pencer line of surgical instruments;

•

market acceptance of novel approaches and therapies;

•

success of its initiatives to reduce expenses and streamline its operations;

•

development of competitive products; and

•

ability to satisfy regulatory requirements of the FDA and other governmental authorities.

        Genzyme Biosurgery will require significant additional financing to continue operations at anticipated levels. We cannot guarantee that Genzyme Biosurgery will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on terms that we consider favorable. If Genzyme Biosurgery has insufficient funds or is unable to raise additional funds, it may delay, scale back or eliminate certain of its programs. Genzyme Biosurgery may also have to give third parties rights to commercialize technologies or products that it would otherwise have sought to commercialize itself.

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 Biosurgery could differ materially from the results described above due to the risks and uncertainties described below and under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report.

A failure to increase sales of Synvisc viscosupplementation product could have a negative effect on Genzyme Biosurgery's business.

        Genzyme Biosurgery expects to generate a substantial portion of its product revenues from sales of Synvisc viscosupplementation product. Net product sales of Synvisc viscosupplementation product totaled $89.8 million for the year ended December 31, 2002, representing approximately 37% of Genzyme Biosurgery's total revenues for that year.

GBS-26

        Failure to achieve sales growth for Synvisc viscosupplementation product may adversely affect Genzyme Biosurgery's business. Biosurgery Stock to decline. Revenues from Synvisc viscosupplementation product could be impacted negatively if competitive treatments for the symptoms of osteoarthritis of the knee are deemed more efficacious, more convenient to use or cost effective. Products competitive to Synvisc viscosupplementation product are currently being sold. Some companies are developing competitive products, and other companies may do so in the future.

        The commercial success of Synvisc viscosupplementation product also will depend on many other factors, including:

The availability of third-party reimbursement.

An important factor to achieving sales growth for Synvisc viscosupplementation product is the availability of reimbursement from third party payors, including managed care organizations, private health insurers and government healthcare administrative authorities. Genzyme Biosurgery has been generally successful in obtaining and maintaining broad coverage and adequate reimbursement in the United States for Synvisc viscosupplementation product. Medicare carriers in all 50 states provide benefits for Synvisc viscosupplementation product. Approximately 90% of commercial insurers also cover the product. Genzyme Biosurgery is working to expand existing coverage to plans that do not provide benefits for Synvisc viscosupplementation product and in situations where coverage policies may be limited in scope. Outside the United States, reimbursement is often provided by government healthcare administrative authorities. Reimbursement is not offered by any such authority outside the United States. Genzyme Biosurgery continues to seek coverage for Synvisc viscosupplementation product from such authorities, particularly in Canada, Europe and Australia. To manage and reduce healthcare costs, third party payors increasingly seek opportunities to contain healthcare costs. These efforts include challenging the price of healthcare products, limiting coverage and the level of coverage that will be provided, and shifting reimbursable costs to other parties through co-payment, coinsurance and other risk sharing arrangements. We cannot guarantee that any third-party payor that currently provides reimbursement for Synvisc viscosupplementation product will continue to provide coverage or reimbursement at adequate levels, or that additional third-party payors will begin to provide coverage or reimbursement at adequate levels.

Continued relations with marketing partners.

Genzyme Biosurgery has entered into several distribution agreements for marketing and distributing Synvisc viscosupplementation product. Genzyme Biosurgery has in the past and may in the future periodically reacquire distribution rights in some territories if partners fail to perform under agreements relating to these territories. Genzyme Biosurgery may not be able to maintain or replace these marketing partners. In this event, there may be disruptions in sales associated with restructuring Genzyme Biosurgery's distribution arrangements.

        The future commercial success of Synvisc viscosupplementation product, as well as the other marketed products allocated to Genzyme Biosurgery, is highly uncertain. For additional details concerning the risks associated with commercializing novel biotechnology products, you should review the factors described 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" included in Exhibit 13.1 of this annual report.

The commercial success of Carticel chondrocytes is uncertain.

        Carticel cartilage repair service involves a proprietary process for growing autologous chondrocytes (a patient's own cartilage cells) to replace those that are damaged or lost. Revenues from Carticel chondrocytes services total $18.8 million for the year ended December 31, 2002, representing

GBS-27

approximately 8% of Genzyme Biosurgery's total revenue for that year. The commercial success of Carticel chondrocytes will depend on many factors, including the following:

•

positive results from post-marketing studies;

•

FDA approval of a device to improve the procedure for implanting Carticel chondrocytes;

•

the availability of third-party reimbursement;

•

market acceptance by orthopaedic surgeons;

•

our continuing relationship with key collaborators; and

•

the success of competitive products.

We are aware of at least three other companies that have competitive cell-based therapies for cartilage repair in the European market. Further, at least three other companies are engaged in research on cultured cartilage cell products. Also, several pharmaceutical and biotechnology companies are developing alternative treatments for knee cartilage damage. One or more of these companies may develop products or services superior to Carticel chondrocytes.

Genzyme Biosurgery has and will continue to devote significant resources to develop novel products and treatments that may not be commercially successful.

        Genzyme Biosurgery has devoted a significant amount of money to developing products that will represent alternatives to traditional surgical procedures or treatments. These products will likely require several years of aggressive and costly marketing before they might become widely accepted by the surgical community. Genzyme Biosurgery expects to develop products that are designed to enable surgeons to perform minimally invasive cardiovascular surgery. The medical conditions that can be treated with minimally invasive cardiovascular surgery are currently being treated with widely accepted surgical procedures such as coronary artery bypass grafting and catheter-based treatments, including balloon angioplasty, atherectomy and coronary stenting. To date, minimally invasive cardiovascular surgery has been performed on a limited basis and its further adoption by the surgical community will partly depend on Genzyme Biosurgery's ability to educate cardiothoracic surgeons about its effectiveness and to facilitate the training of cardiothoracic surgeons in minimally invasive cardiovascular surgery techniques.

        Similarly, until recently surgeons have not used products designed to reduce the incidence and extent of postoperative adhesions. Since 1996, when Seprafilm bioresorbable membrane was introduced, market acceptance of anti-adhesion products has been slow. To increase sales of the Sepra™ products, Genzyme Biosurgery has had to educate surgeons and hospital administrators about the problems of, and costs associated with, adhesions and the benefits of preventing adhesions. Genzyme Biosurgery also has had to, and continues to have to, train surgeons on the proper handling and use of these products.

        We cannot guarantee that Genzyme Biosurgery's continued efforts in educating and training the surgical community will result in the widespread adoption of minimally invasive cardiovascular surgery and anti-adhesion products or that surgeons adopting these procedures and products will use Genzyme Biosurgery's products.

Adverse events in the field of gene therapy may negatively affect regulatory approval or public perception of Genzyme Biosurgery's gene therapy products.

        Recent adverse events in gene therapy clinical trials may result in greater governmental regulation, increased development costs and potential regulatory delays relating to the testing or approval of Genzyme Biosurgery's gene therapy products.

        The commercial success of any gene therapy products that Genzyme Biosurgery develops will depend in part on public acceptance of the use of gene therapies for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene therapy is unsafe, and gene

GBS-28

therapy may not gain the acceptance of the public or the medical community. Negative public reaction to gene therapy could result in:

•

greater government regulation;

•

stricter clinical trial oversight;

•

tighter commercial product labeling requirements of gene therapies; and

•

a decrease in the demand for any gene therapy product that Genzyme Biosurgery may develop.

Because Genzyme Biosurgery has significant fixed payments, it will need to devote a substantial portion of its cash flow to make the payments and may need to borrow money in the future to make debt payments and operate its business.

        As of December 31, 2002, we had allocated to Genzyme Biosurgery approximately $284.0 million borrowed under our corporate credit facility. Genzyme Biosurgery will use a large part of its cash flow to make principal and interest payments on this debt. If Genzyme Biosurgery's cash flow from operations is insufficient to meet these obligations, we may need to borrow additional funds on behalf of Genzyme Biosurgery to make these payments. We cannot guarantee that such additional financing will be available or available on favorable terms.

        In connection with our acquisition of Biomatrix, we assumed a 6.9% convertible subordinated note in favor of UBS Warburg LLC that matures in May 2003. At December 31, 2002, $10.0 million principal amount of this note remained outstanding, all of which we allocated to Genzyme Biosurgery. Genzyme Biosurgery will use a part of its cash flow to satisfy debt service on this note. If all or a portion of the note is not converted at the option of the holder into Biosurgery Stock, at maturity Genzyme Biosurgery's cash reserves will be diminished by the amount necessary to repay the outstanding principal of the note.

Genzyme Biosurgery anticipates future losses and may never become profitable.

        Genzyme Biosurgery expects to have operating losses before amortization of intangibles through at least the second quarter of 2003 as it continues to spend substantial amounts of money on, among other things, conducting research, development, regulatory and commercialization activities to support its expanded product lines. This strategy involves risks, which include supporting higher levels of operating expenses, attracting and retaining employees, and dealing with other management difficulties that arise from rapid growth and operating loss. If Genzyme Biosurgery cannot increase revenues and/or reduce operating expenses effectively, it may not become profitable.

Changes in Genzyme Biosurgery's manufacturing capabilities could significantly reduce its ability to deliver its products.

        Genzyme Biosurgery is engaged in the production of a wide variety of products and services. Genzyme Biosurgery's manufacturing processes are highly complex and are regulated by the government. It is possible that Genzyme Biosurgery will have problems maintaining or expanding its facilities in the future. These problems could cause delays in production or delivery. Any significant disruption in Genzyme Biosurgery's manufacturing operations or in its ability to manufacture products cost effectively could have an adverse effect on its business, results of operations and financial condition.

GBS-29

Competition from other medical device and technology companies could hurt Genzyme Biosurgery's performance.

        The human health care products and services industry is extremely competitive. Major medical device and technology companies compete or may compete with Genzyme Biosurgery. These include such companies as:

•

Atrium Medical Corporation and a division of Tyco International, Ltd., in the cardiovascular fluid management market;

•

Ethicon Inc., a Johnson & Johnson company, and U.S. Surgical Corporation, a division of Tyco, in the cardiovascular closure market;

•

CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical, Guidant Corporation and Ethicon in the minimally invasive cardiovascular surgery market;

•

Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc. and Gliatech, Inc. in the anti-adhesion market; and

•

Fidia S.p.A., Q-Med AB, Sanofi and OrthoLogic Corp., Anika Therapeutics, Inc., Seikagiku Corporation, Bio-Technology General Corp. and Smith & Nephew in the viscosupplementation product market.

        These competitors may have superior research and development, marketing and production capabilities. Some competitors also may have greater financial resources than Genzyme Biosurgery. The division is likely to incur significant costs developing and marketing new products without any guarantee that they will be competitively successful in one or more markets. The future success of Genzyme Biosurgery will depend on its ability to effectively develop and market its products against those of its competitors.

The trend toward consolidation in the surgical devices industry may adversely affect Genzyme Biosurgery's ability to market successfully its products to some significant purchasers.

        The current trend among hospitals and other significant consumers of surgical devices is to combine into larger purchasing groups to increase their purchasing power and thus reduce their purchase prices for surgical devices. Partly in response to this development, surgical device manufacturers have been consolidating to be able to offer more comprehensive product lines to these larger purchasing groups. In order to market successfully its products to larger purchasing groups, Genzyme Biosurgery may have to expand its product lines or enter into joint marketing or distribution agreements with other manufacturers of surgical devices. We cannot guarantee that Genzyme Biosurgery will be able to employ either of these initiatives or that, when employed, these initiatives will increase the marketability of its products.

GBS-30

GENZYME BIOSURGERY
A Division of Genzyme Corporation
Combined Statements of Operations

				For the Years Ended December 31,
				2002			2001			2000
				(Amounts in thousands)
Revenues:
	Net product sales			$	215,028		$	211,523		$	121,870
	Net service sales				24,770			23,614			23,321
	Revenues from research and development contracts				285			5			23
		Total revenue			240,083			235,142			145,214
Operating costs and expenses:
	Cost of products sold				95,975			113,250			69,489
	Cost of services sold				14,297			12,733			12,298
	Selling, general and administrative				106,950			122,020			92,238
	Research and development (including research and development related to contracts)				52,336			47,159			37,000
	Amortization of intangibles				31,280			46,828			7,096
	Purchase of in-process research and development				1,879			—			82,143
	Charge for impaired assets				8,958			—			4,321
		Total operating costs and expenses			311,675			341,990			304,585
Operating loss					(71,592	)		(106,848	)		(159,371	)
Other income (expenses):
	Equity in net loss of unconsolidated affiliates				—			(1,316	)		—
	Loss on sale of investment in equity securities				—			—			(7,300	)
	Loss on sale of product line				—			(24,999	)		—
	Other				192			124			(15	)
	Investment income				1,303			1,753			5,833
	Interest expense				(9,225	)		(13,884	)		(1,364	)
		Total other income (expenses)			(7,730	)		(38,322	)		(2,846	)
Division net loss before cumulative effect of change in accounting for goodwill					(79,322	)		(145,170	)		(162,217	)
Cumulative effect of change in accounting for goodwill					(98,270	)		—			—
Division net loss				$	(177,592	)	$	(145,170	)	$	(162,217	)
Comprehensive loss, net of tax:
	Division net loss			$	(177,592	)	$	(145,170	)	$	(162,217	)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			(5,306	)		979			(332	)
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period, net		—			97			(5,558	)
			Reclassification adjustment for losses included in division net loss		—			—			7,300
	Other comprehensive income				(5,306	)		1,076			1,410
Comprehensive loss				$	(182,898	)	$	(144,094	)	$	(160,807	)

The accompanying notes are an integral part of these combined financial statements.

GBS-31

GENZYME BIOSURGERY
A Division of Genzyme Corporation
Combined Balance Sheets

			December 31,
			2002		2001
			(Amounts in thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	32,747	$	38,623
	Accounts receivable, net			35,594		38,293
	Inventories			42,413		43,545
	Prepaid expenses and other current assets			2,015		2,734
		Total current assets		112,769		123,195
Property, plant and equipment, net				52,582		53,794
Goodwill, net				110,376		209,596
Other intangible assets, net				282,817		315,582
Other noncurrent assets				2,248		2,504
		Total assets	$	560,792	$	704,671
LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accounts payable		$	8,480	$	7,835
	Accrued expenses			23,665		25,142
	Due to Genzyme General			32,641		25,192
	Deferred revenue			1,126		—
	Current portion of long-term debt, convertible notes and capital lease obligations			294,724		905
		Total current liabilities		360,636		59,074
Due to Genzyme General—noncurrent				9,390		4,321
Long-term debt and capital lease obligations				—		234,724
Convertible notes				—		10,000
Deferred revenue-noncurrent				1,771		—
Other noncurrent liabilities				2,772		2,098
		Total liabilities		374,569		310,217
Commitments and contingencies (Notes K, M, O)
Division equity				186,223		394,454
		Total liabilities and division equity	$	560,792	$	704,671

The accompanying notes are an integral part of these combined financial statements.

GBS-32

GENZYME BIOSURGERY
A Division of Genzyme Corporation
Combined Statements of Cash Flows

					For the Years Ended December 31,
					2002			2001			2000
					(Amounts in thousands)
Cash Flows from Operating Activities:
	Division net loss				$	(177,592	)	$	(145,170	)	$	(162,217	)
	Reconciliation of division net loss to net cash used in operating activities:
		Depreciation and amortization				37,886			60,931			11,622
		Non-cash compensation expense				—			66			—
		Provision for bad debts				1,081			701			1,359
		Charge for purchases of in-process research and development				1,879			—			82,143
		Charge for impaired assets				8,958			—			4,321
		Loss on investment in equity securities				—			—			7,300
		Equity in net loss of unconsolidated affiliates				—			1,316			—
		Loss on sale of product line				—			24,999			—
		Other				(345	)		25			2,737
		Cumulative effect of change in accounting for goodwill				98,270			—			—
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			2,797			(361	)		(6,904	)
			Inventories			2,424			13,097			(7,561	)
			Prepaid expenses and other current assets			768			6,502			(1,178	)
			Accounts payable and accrued expenses			(2,803	)		(17,118	)		6,975
			Due to Genzyme General			3,390			10,868			6,585
				Cash flows from operating activities		(23,287	)		(44,144	)		(54,818	)
Cash Flows from Investing Activities:
	Purchases of investments					—			—			(96,456	)
	Sales and maturities of investments					—			—			198,593
	Purchase of equity securities					—			(5,000	)		(5,000	)
	Purchases of property, plant and equipment					(5,477	)		(12,874	)		(2,850	)
	Sales of property, plant and equipment					—			1,047			26
	Proceeds from sale of product line					—			15,862			—
	Acquisitions, net of acquired cash					—			(23,805	)		(196,284	)
	Other					(204	)		(2,554	)		(11,554	)
				Cash flows from investing activities		(5,681	)		(27,324	)		(113,525	)
Cash Flows from Financing Activities:
	Allocated proceeds from issuance of Biosurgery Stock					939			1,562			299
	Allocated proceeds from issuance of Surgical Products Stock					—			—			910
	Allocated proceeds from issuance of Tissue Repair Stock					—			—			797
	Proceeds from draw on credit facility					50,000			17,000			200,000
	Payments of debt and capital lease obligations					(904	)		(1,765	)		—
	Payment of NeuroCell joint venture refund to Genzyme General					(27,063	)		—			—
	Net cash allocated from Genzyme General					—			11,993			9,910
	Bank overdraft					(1,194	)		443			2,783
	Payments received for notes receivable from stockholders					182			2,841			—
	Other					2,501			81			(54	)
				Cash flows from financing activities		24,461			32,155			214,645
Effect of exchange rate changes on cash						(1,369	)		(227	)		(185	)
Increase (decrease) in cash and cash equivalents						(5,876	)		(39,540	)		46,117
Cash and cash equivalents at beginning of period						38,623			78,163			32,046
Cash and cash equivalents at end of period					$	32,747		$	38,623		$	78,163
Supplemental disclosures of cash flows:
Cash paid during the year for:
	Interest				$	9,195		$	11,916		$	1,620
Supplemental disclosures of non-cash transactions:
Acquisitions—Note D.
Disposition of Assets—Note E.
Property, plant and equipment—Note H.

GBS-33

        In conjunction with the acquisitions of Focal, Biomatrix and GDP, we assumed the following assets and liabilities, which were allocated to Genzyme Biosurgery:

		For the Years Ended December 31,
		2001			2000
		(Amounts in thousands)
Fair value of assets acquired		$	33,506		$	375,732
Goodwill			9,779			112,262
Acquired in-process research and development			—			82,143
Deferred compensation			—			66
Issuance of common stock and options			(9,801	)		(217,895	)
Net cash paid for acquisition and acquisition costs			(24,223	)		(208,371	)
Existing equity investment			(5,488	)		—
Liabilities for exit activities and integration			—			(6,716	)
Net deferred tax liability assumed			—			(106,122	)
	Net liabilities assumed	$	3,773		$	31,099

The accompanying notes are an integral part of these combined financial statements.

GBS-34

GENZYME BIOSURGERY
A Division of Genzyme Corporation

Notes to Combined Financial Statements

NOTE A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

        Genzyme Biosurgery is our operating division that develops and markets biotherapeutic and biomaterial products, with an emphasis on orthopaedics, heart disease and broader surgical applications.

        In December 2000, we acquired Biomatrix, Inc., a publicly-held company engaged in the development and manufacture of viscoelastic biomaterials for use in orthopaedic and other medical applications, for an aggregate purchase price of $482.4 million. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Immediately prior to the acquisition, we combined two of our operating divisions, Genzyme Surgical Products and Genzyme Tissue Repair, to form a new division called Genzyme Biosurgery. We allocated the acquired assets and liabilities of Biomatrix to Genzyme Biosurgery. The combination of Genzyme Surgical Products and Genzyme Tissue Repair to form Genzyme Biosurgery did not result in any adjustments to the book values of the net assets of the divisions because they remained divisions of the same corporation. We present the financial statements of Genzyme Biosurgery as though the divisions had been combined for all periods presented, and include the operations of Biomatrix from December 18, 2000, the date of acquisition.

        In connection with the formation of Genzyme Biosurgery, we created Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock". Biosurgery Stock is designed to track the performance of our Genzyme Biosurgery division. We converted each outstanding share of Surgical Products Stock into 0.6060 of a share of Biosurgery Stock, and each outstanding share of Tissue Repair Stock into 0.3352 of a share of Biosurgery Stock. We converted all outstanding options to purchase Surgical Products Stock and Tissue Repair Stock into options to purchase Biosurgery Stock at the applicable conversion rate.

Basis of Presentation

        The combined financial statements of Genzyme Biosurgery for each period include the balance sheets, results of operations and cash flows of the businesses we allocate to Genzyme Biosurgery. We also allocate a portion of our corporate operations to Genzyme Biosurgery using methods described in our allocation policy below. These combined financial statements are prepared using amounts included in our consolidated financial statements included in this annual report. We have reclassified certain 2001 and 2000 data to conform with the 2002 presentation.

        We prepare the combined financial statements of Genzyme Biosurgery in accordance with accounting principles generally accepted in the U.S. We present financial information and accounting policies specific to Genzyme Biosurgery in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should read our consolidated financial statements in conjunction with the combined financial statements of Genzyme Biosurgery. Note A., "Summary of Significant Accounting Policies," to our consolidated financial statements contains a summary of our accounting policies. We incorporate that information into this note by reference.

GBS-35

Tracking Stock

        Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," is a series of our common stock that is designed to reflect the value and track the performance of Genzyme Biosurgery. The chief mechanisms intended to cause Biosurgery Stock to "track" the financial performance of Genzyme Biosurgery are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to Genzyme Biosurgery into the determination of the amount available to pay dividends on Biosurgery Stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock if all or substantially all of the assets allocated to Genzyme Biosurgery are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of Biosurgery Stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        Within these parameters, and other general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. Unless declared, no dividends accrue on our tracking stocks.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Biosurgery Stock is defined in our charter as the net income or loss of Genzyme Biosurgery determined in accordance with accounting principles generally accepted in the U.S. and as adjusted for tax benefits allocated to or from Genzyme Biosurgery in accordance with our management and accounting policies. Our charter also requires that all income and expenses of Genzyme be allocated among the divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock, combine existing tracking stocks, or change our earnings allocation methodology. Because the earnings allocated to Biosurgery Stock are based on the income or losses attributable to Genzyme Biosurgery, we include financial statements and management's discussion and analysis of Genzyme Biosurgery to aid investors in evaluating its performance.

GBS-36

        While Biosurgery Stock is designed to reflect Genzyme Biosurgery's performance, it is common stock of Genzyme Corporation and not Genzyme Biosurgery; Genzyme Biosurgery is a division, not a company or legal entity, and therefore does not and cannot issue stock. Consequently, holders of Biosurgery Stock have no specific rights to assets allocated to Genzyme Biosurgery. Genzyme Corporation continues to hold title to all of the assets allocated to Genzyme Biosurgery and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to Genzyme Biosurgery. Holders of Biosurgery Stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of Genzyme liquidation, insolvency or similar event, holders of Biosurgery Stock and other tracking stockholders would only have the rights of common stockholders in the combined assets of Genzyme.

Allocation Policy

        Our charter sets forth what operations and assets are initially allocated to Genzyme Biosurgery and states that going forward the division will also include all businesses, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between Genzyme Biosurgery and our other divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to the division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to a division;



•

actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the services are performed on a cost basis. Such charges are generally based on direct labor hours;



•

proportionate usage—costs incurred which benefit more that 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

GBS-37

•

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

        Genzyme Biosurgery uses the equity method to account for investments in entities in which we have a substantial ownership interest (20% to 50%), or over which we exert significant influence. Genzyme Biosurgery's combined division net loss includes our share of the earnings of these entities.

Translation of Foreign Currencies

        Genzyme Biosurgery translates the financial statements of its foreign subsidiaries from local currency into U.S. dollars using:

•

the current exchange rate at each balance sheet date for assets and liabilities;



•

the average exchange rate prevailing during each period for revenues and expenses; and



•

the historical exchange rate for investments in its foreign subsidiaries.

Genzyme Biosurgery considers the local currency for all of its foreign subsidiaries to be the functional currency for that subsidiary. As a result, Genzyme Biosurgery included translation adjustments net of tax for these subsidiaries in division equity. Genzyme Biosurgery also records as a charge or credit to division equity, exchange gains and losses on intercompany balances that are of a long-term investment nature. Genzyme Biosurgery's division equity includes net cumulative foreign currency charges of $(4.7) million at December 31, 2002 and net cumulative foreign currency credits of $0.6 million at December 31, 2001.

        Gains and losses on all other foreign currency transactions are included in Genzyme Biosurgery's results of operations.

Revenue Recognition

        We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, title and risk of loss have passed to the customer and collection from the customer is reasonably assured. We recognize revenue from service sales, such as Carticel® chondrocyte services, when we have finished providing the service. We recognize revenue from contracts to perform research and development services and selling and marketing services over the term of the applicable contract and as we complete our obligations under that contract. We recognize non-refundable, up-front license fees over the related performance period or at the time we have no remaining performance obligations.

GBS-38

        Revenue from milestone payments for which we have no continuing performance obligations is recognized upon achievement of the related milestone. When we have continuing performance obligations, we recognize milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;



•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and



•

the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

        We receive royalties related to the manufacture, sale or use of its 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 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, we recognize revenue upon receipt of royalty statements from the licensee.

        We record allowances for product returns, rebates payable to Medicaid, managed care organizations, or customers and sales discounts. These allowances are recorded as reductions of revenue at the time product sales are recorded. These amounts include the amount of product in the distribution channel and the percent of product end-users covered by Medicaid or managed care organizations. We record consideration paid to a customer or reseller of our products as a reduction of revenue unless we receive an identifiable and separable benefit for the consideration, and we can reasonably estimate the fair value of the benefit received. If both conditions are met, we record the consideration paid to the customer as an expense.

        We maintain allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Genzyme Biosurgery's customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

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 included elsewhere in this annual report. 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.

GBS-39

Accounting for Stock Based Compensation

        On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123." This standard amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for those companies that voluntarily change to the fair value based method of accounting for stock-based employee compensation. In addition, this standard amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. We have not adopted the fair value method of accounting for stock-based compensation and will continue to apply the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. We do not recognize compensation expense for options granted under the provisions of these plans with fixed terms and an exercise price greater than or equal to the fair market value of the underlying series of our common stock on the date of grant. All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123, as amended, and EITF Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

        In accordance with the disclosure requirements of SFAS No. 148, the following table sets forth Genzyme Biosurgery's net loss data as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS No. 123 as amended, based on the fair value at the grant dates of the awards.

		For the Years Ended December 31,
		2002			2001			2000
		(Amounts in thousands)
Division net loss:
	As reported	$	(177,592	)	$	(145,170	)	$	(162,217	)
	Deduct: pro forma stock-based compensation included in as-reported, net of tax		—			42			—
	Add: stock-based compensation, net of tax		(6,757	)		(9,119	)		(4,406	)
	Pro forma	$	(184,349	)	$	(154,247	)	$	(166,623	)

        Note A., "Summary of Significant Accounting Policies—Accounting for Stock-Based Compensation," to our consolidated financial statements contains information regarding the assumptions we made in calculating pro forma compensation expense in accordance with SFAS No. 123. The effects of applying SFAS No. 123 are not likely to be representative of the effects on reported division net income (loss) in future years.

GBS-40

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. Accounting principles generally accepted in the U.S. require that any change in policy be preferable (in accordance with these principles) to the previous policy.

Interdivision 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 interdivision asset transfers at book value. The consideration paid for an asset transfer generally must be fair value as determined by our board of directors. The difference between the consideration paid and the book value of the assets transferred is recorded in division equity. Our board of directors determines fair value using either a risk-adjusted discounted cash flow model or a comparable transaction model.

        The risk-adjusted discounted cash flow model estimates fair value by taking the discounted value of all the cash inflows and outflows related to a program or product over a specified period of time, generally the economic life of the project, adjusted for the probabilities of certain outcomes occurring or not occurring. In performing this analysis, we consider various factors that could affect the success or failure of the program including:

•

the duration, cost and probability of success of each phase of development;



•

the current and potential size of the market and barriers to entry into the market;



•

the maximum number of patients likely to be treated with the product and the speed with which that maximum number will be reached;



•

reimbursement policies and pricing limitations;



•

current and potential competitors;



•

the net proceeds received by us upon the sale of the program or product; and



•

the costs of manufacturing and marketing the product or program.

        The comparable transaction model estimates fair value through comparison to valuations established for other transactions within the biotechnology and biosurgical areas involving similar programs and products having similar terms and structure. In identifying comparable transactions, we consider, among other factors, the following:

•

the similarity of market opportunity;



•

the comparability of the medical needs addressed;



•

the similarity of the regulatory, reimbursement and competitive environment;



•

the stage of products or program development; and

GBS-41

•

the risk profile of successfully commercializing the product or program.

        We customarily use the comparable transaction model to corroborate valuations derived under the risk-adjusted discounted cash flow model.

        When determining the fair value of a program under development using either model, our board of directors also takes into account the following criteria in the case of a program under development:

•

the commercial potential of the program;



•

the phase of clinical development of the program;



•

the expenses associated with realizing any income from the program and the likelihood and time of the realization; and



•

other matters that our board of directors and its financial advisors, if any, deem relevant.

        One division may compensate another division for a reallocation with cash or other consideration having a value equal to the fair market value of the reallocated assets. In the case of a reallocation of assets from Genzyme General to Genzyme Biosurgery, our board of directors may elect instead to account for the reallocation as an increase in Biosurgery designated shares in accordance with the provisions of our charter. Biosurgery designated shares are shares of Biosurgery Stock that are not issued and outstanding, but which our board of directors may issue, sell, or distribute without allocating the proceeds to Genzyme Biosurgery. No gain or loss is recognized as a result of these transfers.

        Our policy regarding transfers of assets between divisions may not be changed by our board of directors without the approval of the holders of Biosurgery Stock voting as a separate class unless the policy change does not affect Genzyme Biosurgery.

Other Interdivision Transactions

        Our divisions may engage in transactions directly with one or more other divisions or jointly with one or more other divisions and one or more third parties. These transactions may include agreements by one division to provide products and services for use by another division, license agreements and joint ventures or other collaborative arrangements involving more than one division to develop new products and services jointly and with third parties. The division providing these products and services does not recognize revenue on any of these transactions unless it provides them to unrelated third parties in the ordinary course of business. These transactions are subject to the following conditions:

•

We charge research and development (including clinical and regulatory support), distribution, sales, marketing, and general and administrative services (including allocated space) performed by one division for another division to the division for which the services are performed on a cost basis. We charge direct costs to the division for which we incur them. We allocate direct labor and indirect costs in reasonable and consistent manners based on the use by a division of relevant services.



•

We charge the manufacturing of goods and performance of services by one division exclusively for another division to the division for which it is performed on a cost basis. We allocate direct

GBS-42

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 interdivisional transactions are performed on terms and conditions obtainable in arm's length transactions with third parties.



•

Each division bills the other division on a monthly basis for the services and costs incurred on the other division's behalf. Payment by the other division is due within 45 days. To the extent asset impairment charges are recorded by a division and allocated to another division in accordance with the allocation policies described in Note A, "Significant Accounting Policies," payment of such charge is to be made monthly by the other division in an amount equal to the monthly depreciation or amortization that would have been allocated to the other division using the assets original useful life.



•

Our board of directors must approve interdivisional transactions that are performed on terms and conditions other than as described above and are material to one or more of the participating divisions. In giving its approval, our board of directors must determine that the transaction is fair and reasonable to each participating division and to holders of the common stock representing each participating division.



•

Divisions may make loans to other divisions. Any loan of $1.0 million or less matures within 18 months and accrues interest at the best borrowing rate available to the corporation for a loan of like type and duration. Our board of directors must approve any loan in excess of $1.0 million. In giving its approval, our board of directors must determine that the material terms of the loan, including the interest rate and maturity date, are fair and reasonable to each participating division and to holders of the common stock representing each such division.



•

All material interdivisional transactions are set forth in a written agreement that is signed by an authorized member of the management team of each division involved in the transaction.

        On December 31, 2002, Genzyme Biosurgery owed Genzyme General approximately $42.0 million in connection with these services and transactions. On December 31, 2001, approximately $29.5 million was owed.

Tax Allocations

        We file a consolidated tax return and allocate income taxes to each division based upon the financial statement income, taxable income, credits and other amounts properly allocable to each division under accounting principles generally accepted in the U.S. 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.

GBS-43

Access to Technology and Know-How

        Genzyme Biosurgery has unrestricted access to all technology and know-how owned or controlled by Genzyme Corporation that may be useful in its business, subject to any obligations or limitations that apply to the corporation generally.

NOTE C.    NET INCOME (LOSS) PER SHARE

        Note B., "Net Income (Loss) Per Share," to our consolidated financial statements contains information regarding the calculation of earnings per share for each series of our stock using the two-class method. 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 D.    ACQUISITIONS

Focal

        In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated this investment to Genzyme Biosurgery. On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as merger consideration. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We allocated the acquired assets and liabilities to Genzyme Biosurgery and accounted for the acquisition as a purchase. Accordingly, we included the results of operations of Focal in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from the date of acquisition.

GBS-44

        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 (amounts in thousands):

Issuance of 2,086,151 shares of Biosurgery Stock		$	9,450
Issuance of options to purchase 231,566 shares of Biosurgery Stock			351
Acquisition costs			638
Existing equity investment in Focal			5,488
Cash paid to selling security holder			11
	Total purchase price	$	15,938
Cash and cash equivalents		$	2,331
Other current assets			6,003
Property, plant and equipment			1,568
Intangible assets (to be amortized over 3 to 12 years)			7,909
Goodwill			1,365
Assumed liabilities			(3,773	)
Note receivable from stockholders			535
	Allocated purchase price	$	15,938

Genzyme Development Partners, L.P.

        In January 2001, we acquired the outstanding Class A limited partnership interests in GDP for an aggregate of $25.7 million in cash plus royalties payable over ten years on sales of certain Sepra products. In August 2001, we purchased the remaining outstanding GDP limited partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus additional royalties payable over ten years on sales of certain Sepra products. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, we include the results of operations of GDP in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

        We allocated the purchase prices to the fair value of the intangible assets acquired as follows (amounts in thousands):

		Total
Patents (to be amortized over 8 years)		$	5,909
Trademarks (to be amortized over 10 years)			2,755
Technology (to be amortized over 10 years)			8,827
Goodwill			8,414
	Total	$	25,905

Biomatrix

        In December 2000, we completed the acquisition of Biomatrix. Concurrent with the acquisition, we created Genzyme Biosurgery as a new division. We reallocated the businesses of two of our operating

GBS-45

divisions—Genzyme Surgical Products and Genzyme Tissue Repair—to Genzyme Biosurgery and allocated the acquired businesses of Biomatrix to Genzyme Biosurgery. As a result of this transaction, we amended our charter to create Biosurgery Stock and eliminated Surgical Products Stock and Tissue Repair Stock. Each outstanding share of, and option to purchase, Surgical Product Stock was converted into the right to receive 0.6060 of a share of, or option to purchase, Biosurgery Stock and each outstanding share of, or option to purchase, Tissue Repair Stock was converted into the right to receive 0.3352 of a share of, or option to purchase, Biosurgery Stock.

        We accounted for the acquisition as a purchase and accordingly, the results of operations of Biomatrix are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from December 18, 2000, the date of acquisition.

        The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (in thousands):

Cash paid			$	252,421
Issuance of 17.5 million shares of Biosurgery Stock.				206,522
Issuance of options and warrants to purchase 1.7 million shares of
	Biosurgery Stock			11,373
Acquisition costs				12,087
		Total purchase price.	$	482,403
Cash and cash equivalents			$	56,137
Current assets				37,639
Property, plant & equipment				39,504
Intangible assets (to be amortized straight-line over 1.5 to 11 years)				284,854
Goodwill				114,759
In-process research and development				82,143
Deferred tax asset				922
Deferred compensation				66
Assumed liabilities				(31,347	)
Liabilities for exit activities and integration				(8,216	)
Notes receivable from stockholders				14,760
Deferred tax liability				(108,818	)
		Allocated purchase price	$	482,403

        The approximately 17.5 million shares of Biosurgery Stock issued in exchange for all of the outstanding shares of Biomatrix common stock were valued using the combined five day average closing prices of Surgical Products Stock and Tissue Repair Stock, divided by the applicable exchange ratios. Options and warrants to purchase approximately 1.7 million shares of Biosurgery Stock, issued in exchange for options and warrants to purchase Biomatrix common stock were valued at $11.4 million using the Black-Scholes model. The intrinsic value of the portion of the unvested options related to the future service period was de minimis.

GBS-46

        Prior to the acquisition, Biomatrix sold 744,000 shares of its common stock to certain of its employees, directors and consultants in exchange for ten-year, full recourse promissory notes. The notes accrue interest at rates ranging from 5.30% to 7.18% and mature at various dates from May 2007 through September 2009, upon which all outstanding principal and accrued interest becomes payable. As a result of the acquisition, these shares were converted into 532,853 shares of Biosurgery Stock and we recorded $14.8 million of outstanding principal and accrued interest to division equity because the notes were received in exchange for the issuance of stock.

        At the date of acquisition, we began to implement plans for certain exit and integration activities including workforce reductions and the closure of Biomatrix's Canadian facility. Accordingly, we recorded liabilities of $6.7 million for severance and related integration costs and assigned to Biomatrix's Canadian facility a value equal to the amount we estimated that we would obtain upon disposal or sale. In 2002 and 2001, we recorded adjustments to and charges against the restructuring reserve as follows (amounts in thousands):

Liabilities for exit activities and integration recorded at acquisition	$	6,716
Payments in 2000		(746	)
Balance at December 31, 2000		5,970
Additional reserve recorded in 2001		1,500
Payments in 2001		(5,891	)
Balance at December 31, 2001		1,579
Payments in 2002		(1,674	)
Revision of estimate		95
Balance at December 31, 2002	$	—

        In October 2001, we completed the sale of the Canadian facility for net proceeds of approximately $1.0 million, which we allocated to Genzyme Biosurgery. We adjusted the allocated fair value of the Canadian facility to equal the proceeds of the disposal.

        As of December 31, 2002, the restructuring was complete and a total of $8.3 million of costs had been charged for exit activity and integration costs.

        In connection with the purchase of Biomatrix, we allocated approximately $82.1 million of the purchase price to IPR&D. In accordance with accounting principles generally accepted in the U.S., the amount allocated to IPR&D was charged as an expense in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery for the year ended December 31, 2000.

        Our management is responsible for determining the fair value of the acquired IPR&D. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected to result from each project once it has reached technological feasibility. A 38% discount rate was used which is consistent with the risks of each project. In estimating future cash flows, management considered other tangible and intangible assets, including core technology, required for successful exploitation of the technology resulting from each purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased

GBS-47

research and development was the amount attributable to the efforts of Biomatrix up to the time of acquisition. This amount was estimated through application of the "stage of completion" calculation, which involves multiplying total estimated revenue for IPR&D by the percentage of completion of each purchased research and development project at the time of acquisition.

        The significant assumptions underlying the valuations included potential revenues, costs of completion, the timing of product approvals and the selection of appropriate probability of success and discount rate. None of Biomatrix's IPR&D projects had reached technological feasibility at the date of acquisition nor did they have any alternative future use. Consequently, in accordance with accounting principles generally accepted in the U.S. the amount allocated to IPR&D was charged as an expense in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery for the year ended December 31, 2000. Genzyme Biosurgery is amortizing the remaining acquired intangible assets arising from the acquisition on a straight-line basis over their estimated lives, which range from 1.5 years to 11 years. As of December 31, 2002, except for our viscosupplementation product for the hip launched in Europe in 2002, the technological feasibility of the acquired programs and technology platforms had not been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Unaudited Pro Forma Financial Summary

        The following unaudited pro forma financial summary is presented as if the acquisitions of Biomatrix and Focal were completed as of January 1, 2001 and 2000. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated at those dates, or of the future operations of the combined entities. Material nonrecurring charges related to these acquisitions, such as the acquired IPR&D charges of $82.1 million related to our Biomatrix acquisition, are not reflected in the following unaudited pro forma financial summary:

	For the Years Ended December 31,
	2001			2000
	(Unaudited, amounts in thousands)
Total revenues	$	235,289		$	221,103
Division net loss		(152,648	)		(142,547	)

NOTE E.    DISPOSITION OF ASSETS

        In November 2001, we sold our Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery for $15.9 million in net cash, which was allocated to Genzyme Biosurgery. The purchaser acquired all of the assets directly associated with Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a net carrying value of approximately $41 million, at the time of the sale. Genzyme Biosurgery recorded a loss of $25.0 million in connection with this sale.

GBS-48

NOTE F.    ACCOUNTS RECEIVABLE

        Genzyme Biosurgery's trade receivables primarily represent amounts due from distributors and healthcare service providers. Genzyme Biosurgery performs credit evaluations of its customers on an ongoing basis and generally does not require collateral. Genzyme Biosurgery states accounts receivable at fair value after reflecting an allowance for doubtful accounts. This allowance was $2.4 million at December 31, 2002 and $1.9 million at December 31, 2001.

NOTE G.    INVENTORIES

		December 31,
		2002		2001
		(Amounts in thousands)
Raw materials		$	11,817	$	13,301
Work-in-process			8,833		11,517
Finished products			21,763		18,727
	Total inventory	$	42,413	$	43,545

NOTE H.    PROPERTY, PLANT AND EQUIPMENT

	December 31,
	2002			2001
	(Amounts in thousands)
Plant and equipment	$	34,487		$	32,221
Land and buildings		39,525			38,891
Leasehold improvements		2,826			2,720
Furniture and fixtures		7,348			7,001
Construction-in-progress		1,932			1,112
		86,118			81,945
Less accumulated depreciation		(33,536	)		(28,151	)
Property, plant and equipment, net	$	52,582		$	53,794

        Genzyme Biosurgery's depreciation expense was $6.6 million in 2002, $14.1 million in 2001, and $4.3 million in 2000.

        In 1997, we temporarily suspended bulk production of HA at our bulk HA manufacturing facility in Haverhill, England, because we determined that we had sufficient quantities of HA on hand to meet the demand for our Sepra products for the near term. In the first quarter of 2002, we began a capital expansion program to build HA manufacturing capacity at one of our existing manufacturing facilities in Framingham, Massachusetts. During the third quarter of 2002, we determined that we had sufficient inventory levels to meet demand until the Framingham facility is completed and validated, which is estimated to be within one year. In connection with this assessment, at September 30, 2002, we concluded that we no longer require the manufacturing capacity at the HA plant in England and

GBS-49

recorded an impairment charge of approximately $9.0 million in our consolidated statements of operations and the combined statements of operations of Genzyme Biosurgery to write off the assets at the England facility.

        In 2000, Genzyme Biosurgery recorded a $4.3 million charge for the write-off of abandoned equipment at our Springfield Mills manufacturing facility located in England. The write-off of equipment was related to the Sepra product line and did not have other alternative uses.

NOTE I.    GOODWILL AND OTHER INTANGIBLE ASSETS

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by Genzyme Biosurgery effective at the beginning of fiscal year 2002.

Goodwill

        Effective January 1, 2002, Genzyme Biosurgery adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. Unlike SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," 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 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. Effective January 1, 2002, we reclassified $1.8 million of acquired workforce intangible assets previously classified as other intangible assets, net of related deferred tax liabilities, to goodwill as required by SFAS No. 142.

        In November 2001, we sold our Snowden-Pencer line of surgical instruments, a component of Genzyme Biosurgery's Biosurgical Specialties reporting segment, and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, upon adoption of SFAS No. 142, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the

GBS-50

present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our consolidated statements of operations and the combined statements of operations for the year ended December 31, 2002.

        We completed the transitional and annual impairment tests for the $110.4 million of net goodwill related to Genzyme Biosurgery's other reporting units during 2002 as provided by SFAS No. 142, and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable.

        The following table contains the changes in net goodwill attributable to Genzyme Biosurgery's reporting segments during 2002 (amounts in thousands):

			As of December 31, 2001			Adjustments			Impairments			As of December 31, 2002
Goodwill:
	Orthopaedics(1)		$	114,760		$	(903	)	$	—		$	113,857
	Biosurgical Specialties			8,414			—			—			8,414
	Cardiothoracic(2,3)			113,447			412			(113,859	)		—
		Total		236,621			(491	)		(113,859	)		122,271
Accumulated Amortization				(27,025	)		(459	)		15,589			(11,895	)
Goodwill, net			$	209,596		$	(950	)	$	(98,270	)	$	110,376

(1)

Adjustments for the Orthopaedics reporting segment include:

•

$1.4 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of Biomatrix reclassified as required by SFAS No. 142; and

•

$(2.3) million resulting from a reclassification adjustment related to our acquisition of Biomatrix.

(2)

Adjustments for the Cardiothoracic reporting segment represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of Focal, reclassified as required by the provisions of SFAS No. 142.

(3)

Impairment for the Orthopaedic reporting segment represents the impairment charge recorded by Genzyme Biosurgery in accordance with the transitional provisions of SFAS No. 142, related to the goodwill allocated to its cardiothoracic reporting unit.

GBS-51

Other Intangible Assets

        The following table contains information on other intangible assets allocated to Genzyme Biosurgery for the periods presented (amounts in thousands):

		As of December 31, 2002							As of December 31, 2001
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	173,379	$	(31,928	)	$	141,451	$	173,379	$	(16,123	)	$	157,256
Patents			79,423		(20,151	)		59,272		79,423		(12,769	)		66,654
Trademarks			85,228		(15,055	)		70,173		85,228		(9,504	)		75,724
License fees			890		(147	)		743		385		(45	)		340
Distribution agreement			13,950		(3,550	)		10,400		13,950		(1,807	)		12,143
Other			2,197		(1,419	)		778		4,626		(1,161	)		3,465
	Total	$	355,067	$	(72,250	)	$	282,817	$	356,991	$	(41,409	)	$	315,582

        All of Genzyme Biosurgery's other intangible assets are amortized over their estimated useful lives, which range from 1.5 years to 40 years. Total amortization expense for Genzyme Biosurgery's other intangible assets was:

•

$31.3 million for the year ended December 31, 2002;



•

$31.3 million for the year ended December 31, 2001; and



•

$3.2 million for the year ended December 31, 2000.

        The estimated future amortization expense for other intangible assets allocated to Genzyme Biosurgery for the five succeeding fiscal years is as follows (amounts in thousands):

Year Ended December 31,	Estimated Amortization Expense
2003	$	31,136
2004		30,788
2005		30,361
2006		30,225
2007		30,158

GBS-52

Adjusted Net Loss

        The following tables present the impact SFAS No. 142 would have had on Genzyme Biosurgery's amortization of intangibles expense and division net loss had the standard been in effect for the years ended December 31, 2001 and 2000 (amounts in thousands):

	Year Ended December 31, 2001									Year Ended December 31, 2000
	As Reported			Goodwill Amortization Adjustment			As Adjusted			As Reported			Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	46,828		$	(15,521	)	$	31,307		$	7,096		$	(3,894	)	$	3,202
Division net income (loss)		(145,170	)		15,521			(129,649	)		(162,217	)		3,894			(158,323	)

NOTE J. INVESTMENTS

        Investments in marketable securities consisted of the following:

		December 31,
		2002				2001
		Cost		Market Value		Cost		Market Value
		(Amounts in thousands)
Cash equivalents(1):
	Money market fund(2)	$	24,453	$	24,453	$	33,838	$	33,838

(1)

Cash equivalents are included as part of cash and cash equivalents on our balance sheets.

(2)

Genzyme Biosurgery's investments in money market funds have initial maturities of three months or less.

        Genzyme Biosurgery records gross unrealized holding gains and losses in division equity. Genzyme Biosurgery did not record any such amounts in 2002 and 2001.

        Note J., "Investments in Marketable Securities and Strategic Equity Investments," to our consolidated financial statements contains information regarding Genzyme Biosurgery's equity investment in Focal. We incorporate that information into this note by reference

NOTE K. NEUROCELL JOINT VENTURE REFUND

        Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc. did not initiate a phase 3 clinical trial of NeuroCell-PD for Parkinson's disease by June 30, 2001. Because a phase 3 trial of the product was not initiated by June 30, 2001, Genzyme General had the right to elect to receive a refund of $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in the joint venture plus accrued interest thereon at a rate of 13.5% per annum. On August 2, 2001, Genzyme Biosurgery received notification from Genzyme General of its election to receive the refund. Genzyme Biosurgery could pay the refund amount in cash, Biosurgery designated shares or both. The refund was due and payable within 90 days after Genzyme Biosurgery received the notice from Genzyme General. Genzyme

GBS-53

General and Genzyme Biosurgery agreed to extend Genzyme Biosurgery's deadline to refund the $20.0 million to February 1, 2002. In February 2002, Genzyme Biosurgery paid $27.1 million to Genzyme General, representing the $20.0 million plus accrued interest.

NOTE L. ACCRUED EXPENSES

	December 31,
	2002		2001
	(Amounts in thousands)
Compensation	$	9,419	$	11,507
Bank overdrafts		2,032		2,330
Royalties		2,681		4,522
Other		9,533		6,783
Total	$	23,665	$	25,142

NOTE M. LONG-TERM DEBT AND LEASES

        Our long-term debt and capital lease obligations consist of the following:

		December 31,
		2002			2001
		(Amounts in thousands)
Revolving credit facility maturing in December 2003		$	284,000		$	234,000
6.9% convertible subordinated note due in May 2003			10,000			10,000
Capital leases			724			1,629
			294,724			245,629
Less current portion			(294,724	)		(905	)
	Total	$	—		$	244,724

        Note M., "Long Term Debt and Leases," to our consolidated financial statements contains information regarding our:

•

revolving credit facility;



•

6.9% convertible subordinated note; and



•

capital leases resulting from the acquisitions of Biomatrix and Focal.

        We incorporate that information into this note by reference.

Operating Leases

        In July 2002, we entered into an agreement to lease 61,101 square feet of additional office space in Cambridge, Massachusetts. We allocate the future minimum lease payments under this lease 50% to Genzyme Biosurgery and 50% to Genzyme General based upon our current assessment of the long-term occupancy ratio for this location. The term of the lease is seven years with rent payable

GBS-54

monthly in advance commencing on October 1, 2002. Remaining fixed rent payments during the term of the lease are as follows (amounts in thousands):

2003	$	1,016
2004		1,045
2005		1,076
2006		1,099
2007		1,099
Thereafter		1,923
Total	$	7,258

Pursuant to the terms of the lease agreement, we are obligated to pay, in addition to yearly fixed rent, our pro rata share of the landlord's operating costs and the real estate taxes for the property in excess of the landlord's operating costs and real estate taxes for 2002. In addition, the landlord will charge us for direct use of electricity at cost. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms with rent equal to the greater of the current base rent or 95% of fair market value. The lease also provides three options to lease a total of 45,577 square feet of additional space at the property. In addition, the lease provides us with first offer options on additional space that becomes available in the building.

        Genzyme Biosurgery leases facilities and personal property under operating leases with terms in excess of one year. Genzyme Biosurgery's total expense under operating leases was (amounts in millions):

For the Years Ended December 31,
2002	2001		2000
$3.1	$	3.3	$	2.7

        Over the next five years, Genzyme Biosurgery will be required to repay the following amounts under operating leases (amounts in millions):

2003	2004		2005		2006		2007		After 2007
$4.7	$	4.4	$	4.2	$	4.2	$	2.0	$	4.2

GBS-55

NOTE N. DIVISION EQUITY

        The following table contains the components of division equity for Genzyme Biosurgery for the periods presented:

	December 31,
	2002			2001			2000
	(Amounts in thousands)
Balance at beginning of period	$	394,454		$	511,106		$	350,463
Division net loss		(177,592	)		(145,170	)		(162,217	)
Allocated tax benefits		9,706			18,189			448
Allocation of proceeds from issuance of Biosurgery Stock under stock plans		939			1,555			298
Allocation of proceeds from issuance of Tissue Repair Stock under stock plans		—			—			798
Allocation of proceeds from issuance of Surgical Products Stock under stock plans		—			—			910
Allocation of cash from Genzyme General to Genzyme Biosurgery for Biosurgery designated shares(1)		—			12,000			—
Allocation of cash from Genzyme General to Genzyme Tissue Repair for Tissue Repair designated shares(1)		—			—			9,910
NeuroCell joint venture refund to Genzyme General		(27,063	)		—			—
Allocated value of Biosurgery Stock issued upon acquisition of Myosix		1,588			—			—
Allocated value of Biosurgery Stock issued upon acquisition of Focal		—			9,801			—
Allocated value of Biosurgery Stock issued upon acquisition of Biomatrix		—			—			217,895
Tax benefit related to acquisition		—			1,774			107,044
Amortization of deferred tax liabilities		(9,706	)		(18,189	)		—
Notes receivable from stockholders		—			(535	)		(14,760	)
Payment and write off of Focal notes receivable		369			72			—
Payment of Biomatrix notes receivable		—			2,769			—
Accrued interest receivable on Biomatrix notes		(613	)		—			—
Accrued interest receivable on Focal notes		(9	)		—			—
Allocated stock compensation expense		—			66			—
Conversion of 51/4% convertible notes		—			7			—
Issuance of Tissue Repair Stock in connection with research programs		—			—			289
Allocated cumulative translation adjustments		(5,306	)		979			(332	)
Other allocated equity adjustments		(544	)		30			360
Balance at end of period	$	186,223		$	394,454		$	511,106

(1)

Biosurgery designated shares are shares of Biosurgery Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Biosurgery. As of December 31, 2002, there were approximately 3.2 million Biosurgery designated shares.

GBS-56

        As a result of recording a deferred tax liability related to the purchase of Biomatrix, Genzyme Biosurgery released a corresponding deferred tax asset valuation allowance totaling $107.0 million. This reversal was recorded to division equity.

Stock Compensation Plans

        The disclosure regarding how we account for our four stock-based compensation plans: the 1997 Equity Incentive Plan, the 2001 Equity Incentive Plan, the 1998 Director Stock Option Plan (each of which are stock option plans) and the 1999 Employee Stock Purchase Plan is included in Note A., "Significant Accounting Policies—Accounting for Stock-Based Compensation," to Genzyme Biosurgery's combined financial statements.

Interdivisional Financing Arrangement

        Our board of directors has made $25.0 million of Genzyme General's cash available to Genzyme Biosurgery. Under this arrangement, Genzyme Biosurgery is able to draw down funds as needed each quarter in exchange for designated shares based on the fair market value (as defined in our charter) of Biosurgery Stock at the time of the draw. Genzyme Biosurgery has made the following draws during the past three fiscal years:

•

In 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; and



•

In 2002—None.

        At December 31, 2002, $3.0 million remained available to Genzyme Biosurgery under this arrangement.

NOTE O. OTHER 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, 2002 which, if adversely decided, would have a material adverse effect on Genzyme Biosurgery's results of operations, financial condition or liquidity.

Guarantees

        In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FIN 34." The adoption of FIN 45 did not have a material effect on our consolidated financial statements or the combined financial statements of Genzyme Biosurgery for the year ended December 31, 2002. For more information, we suggest you read Note O., "Other Commitments and Contingencies," to our consolidated financial statements. We incorporate that information into this note by reference.

GBS-57

NOTE P. COLLABORATION WITH MYOSIX

        In July 2002, we entered into a collaboration with Myosix, a privately-held French biotechnology company, for the development and commercialization of a certain autologous cell culture technology, which we refer to as the Myosix Technology. The Myosix Technology was developed by the founders of Myosix with funding from the AP-HP, which owns and exclusively licenses the Myosix Technology and related patents to Myosix. In connection with the collaboration, we entered into several agreements with Myosix, including an equity purchase agreement, all effective July 29, 2002. Pursuant to the terms of the equity purchase agreement, we acquired 49% of the common stock of Myosix in exchange for 625,977 shares of Biosurgery Stock. The entire initial acquisition cost of $1.9 million, of which $1.6 million represents the fair market value of the shares of Biosurgery Stock exchanged and $0.3 million represents acquisition costs, was allocated to IPR&D and charged to expense in our consolidated statement of operations and the combined statements of operations of Genzyme Biosurgery for the year ended December 31, 2002. We allocated this charge and our ownership interest in Myosix to Genzyme Biosurgery.

        The sublicense that we obtained from Myosix grants us use of the Myosix Technology for the treatment of congestive heart failure. As of July 29, 2002, the date of acquisition, phase 1 clinical testing had been completed with funding from the AP-HP. Phase 2 clinical trials commenced in December 2002, and FDA approval for cardiac cell therapy is projected for 2009. As of December 31, 2002, the Myosix Technology has not achieved technological feasibility for any application and will require significant future development before an application can be completed.

        Pursuant to the terms of our various collaboration agreements with Myosix, we have sole responsibility for the cost, management, control and conduct of product development and commercialization, though we have entered into an agreement with AP-HP that obligates AP-HP to bear a portion of the costs associated with Phase 2 clinical trials. Myosix will act as sub-contractor to us for these activities. We currently have the right to designate all of the members of Myosix's Board of Directors and, so long as we own at least 34% of Myosix, its Chief Executive Officer. We can acquire the remaining shares of Myosix common stock upon achievement of certain milestones during the development and commercialization of products based on the Myosix Technology. Effective July 29, 2002, because of our ownership interest in and level of control of Myosix, we consolidate the results of Myosix.

GBS-58

NOTE Q. INCOME TAXES

        Genzyme Biosurgery's provisions for income taxes were at rates other than the U.S. federal statutory tax rate for the following reasons:

	For the Years Ended December 31,
	2002		2001		2000
Tax provision (benefit) at U.S. statutory rate	(35.0	)%	(35.0	)%	(35.0	)%
State taxes, net	(1.7	)	(1.3	)	(1.0	)
Benefit of tax credits	(0.1	)	—		—
Nondeductible amortization	—		3.2		0.9
Other, net	0.4		0.3		0.2
Charge for purchase of in-process research and development	0.8		—		17.7
Write-off of non-deductible goodwill	—		3.6		—
Deductions subject to deferred tax valuation	35.6		29.2		17.2
Effective tax rate	0.0	%	0.0	%	0.0	%

        The components of net deferred tax assets are described in the following table:

		December 31,
		2002			2001
		(Amounts in thousands)
Deferred tax assets:
	Net operating loss carryforwards	$	168,450		$	151,970
	Tax credits		2,491			2,414
	Inventory		8,920			9,611
	Reserves and other		2,511			4,431
Gross deferred tax asset			182,372			168,426
Valuation allowance			(102,463	)		(73,733	)
Net deferred tax asset		$	79,909		$	94,693
Deferred tax liabilities:
	Intangible amortization	$	(77,814	)	$	(92,430	)
	Depreciable assets		(2,095	)		(2,263	)
Net deferred tax liabilities		$	—		$	—

        As a result of uncertainty surrounding our ability to realize certain tax benefits that primarily relate to operating loss carryforwards and capital losses from the purchase of IPR&D, we placed a valuation allowance of $102.5 million in 2002 and $73.7 million in 2001 against otherwise recognizable deferred tax assets.

        As Genzyme Biosurgery recognizes these deferred tax assets in accordance with accounting principles generally accepted in the U.S., the benefits of those assets are reflected in its tax provision. However, the benefit of these deferred tax assets has previously been allocated to Genzyme General in accordance with our management and accounting policies, and will be reflected as a reduction of

GBS-59

Genzyme Biosurgery's net income (loss) to determine net income (loss) attributable to Biosurgery Stock.

NOTE R. BENEFIT PLANS

        Note Q., "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.

        We have a U.S. defined benefit plan for the former employees of Deknatel Snowden Pencer, Inc. which was frozen as of December 31, 1995 and which is fully funded as of December 31, 2002.

NOTE S. 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 Biosurgery has three reportable segments:

•

Orthopaedics, which includes Synvisc viscosupplementation product and Carticel chondrocytes;



•

Biosurgical Specialties, which includes biomaterial products for the general, plastic and cardiovascular surgery markets, including the Sepra products and Epicel skin grafts; and



•

Cardiothoracic, which includes chest drainage systems, lung sealants, and instruments and closures used in coronary artery bypass, valve replacement, lung and other cardiothoracic surgeries.

GBS-60

        We have provided information concerning the operations in these reportable segments in the following table:

		For the Years Ended December 31,
		2002		2001		2000
		(Amounts in thousands)
Revenues(1):
	Orthopaedics	$	110,173	$	101,790	$	22,388
	Biosurgical Specialties		57,893		64,229		46,397
	Cardiothoracic(2)		71,732		69,118		76,406
	Other(3)		285		5		23
Total		$	240,083	$	235,142	$	145,214
Gross Profit(1):
	Orthopaedics	$	79,892	$	59,884	$	9,998
	Biosurgical Specialties		27,063		15,995		22,870
	Cardiothoracic(2)		22,571		33,275		30,536
	Other(3)		285		5		23
Total		$	129,811	$	109,159	$	63,427

(1)

In December 2000, we acquired Biomatrix. The results of operations of Biomatrix are included in the results of Genzyme Biosurgery from December 18, 2000, the date of acquisition.

(2)

In June 2001, we acquired Focal and allocated the acquisition to the Cardiothoracic reporting segment. The results of operations of Focal are included in the results of Genzyme Biosurgery beginning June 30, 2001, the date of acquisition.

(3)

The Other category includes revenue from Genzyme Biosurgery's research and development contracts which we do not allocate to a particular reporting segment of Genzyme Biosurgery.

Segment Assets

        Except for intangible assets, we do not allocate assets within Genzyme Biosurgery for purposes of segment information.

        In connection with the adoption of SFAS No. 142 on January 1, 2002, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our consolidated statements of operations and the combined statements of operations of Genzyme Biosurgery for the year ended December 31, 2002.

GBS-61

        The following table contains revenue information by geographic area:

			For the Years Ended December 31,
			2002		2001		2000
			(Amounts in thousands)
Revenues:
	U.S.		$	173,799	$	167,116	$	109,132
	Europe			41,219		45,351		24,589
	Other			25,065		22,675		11,493
		Total	$	240,083	$	235,142	$	145,214

        Long-lived assets are primarily situated in the United States.

        Genzyme Biosurgery markets its products directly to physicians and hospitals. Genzyme Biosurgery also markets its products through distributors and had the following sales to three unaffiliated distributors:

				For the Years Ended December 31,
				2002		2001		2000
				(Amounts in thousands)
Revenues:
	Orthopaedics:
		Distributor A		$	76,346	$	68,990	$	—
	Cardiothoracic:
		Distributor B			5,975		10,060		17,579
		Distributor C			9,752		5,096		9,888
			Total	$	92,073	$	84,146	$	27,467

GBS-62

NOTE T. QUARTERLY RESULTS (UNAUDITED)

	1st Quarter 2002			2nd Quarter 2002			3rd Quarter 2002			4th Quarter 2002(1)
	(Amounts in thousands)
Total revenue	$	53,371		$	62,863		$	65,061		$	58,788
Gross profit		25,783			33,521			36,917			33,590
Division net loss		(118,652	)		(17,522	)		(24,464	)		(16,954	)

	1st Quarter 2001			2nd Quarter 2001			3rd Quarter 2001			4th Quarter 2001
	(Amounts in thousands)
Total revenue	$	54,156		$	60,364		$	63,219		$	57,403
Gross profit		22,381			25,422			32,943			28,413
Division net loss		(35,327	)		(37,608	)		(21,525	)		(50,710	)

(1)

Includes a fourth quarter credit for the reversal of $1.3 million of amounts in excess of our actual severance costs for employees included in a plan of consolidation of Genzyme Biosurgery's European operations.

GBS-63

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Genzyme Corporation:

        In our opinion, the accompanying combined balance sheets and the related combined statements of operations and of cash flows present fairly, in all material respects, the financial position of Genzyme Biosurgery at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the year ended December 31, 2002 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 combined financial statements, Genzyme Biosurgery is a division of Genzyme Corporation; accordingly, the combined financial statements of Genzyme Biosurgery should be read in conjunction with the audited consolidated financial statements of Genzyme Corporation and Subsidiaries.

        As discussed in Note I to these combined financial statements, the Company changed its method of accounting for goodwill in 2002.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 7, 2003

GBS-64

EX-13.4

Use these links to rapidly review the document
FINANCIAL STATEMENTS GENZYME MOLECULAR ONCOLOGY A Division of Genzyme Corporation

EXHIBIT 13.4

FINANCIAL STATEMENTS
GENZYME MOLECULAR ONCOLOGY
A Division of Genzyme Corporation

	Page No.
Combined Selected Financial Data	GMO-2
Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations	GMO-4
Combined Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000	GMO-17
Combined Balance Sheets as of December 31, 2002 and 2001	GMO-18
Combined Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000	GMO-19
Notes to Combined Financial Statements	GMO-20
Report of Independent Accountants	GMO-36

GMO-1

GENZYME MOLECULAR ONCOLOGY
A Division of Genzyme Corporation

Combined Selected Financial Data

        These selected financial data have been derived from the audited, combined financial statements of Genzyme Molecular Oncology. You should read the following information in conjunction with the audited financial statements and related notes of Genzyme Molecular Oncology and Genzyme contained elsewhere in this annual report. These selected financial data may not be indicative of Genzyme Molecular Oncology's future financial condition due to the risks and uncertainties described under the caption "Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report.

        Genzyme Molecular Oncology is our operating division that is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        A series of our common stock, Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock," is designed to reflect the value and track the performance of this division. Molecular Oncology Stock is common stock of Genzyme Corporation, not of Genzyme Molecular Oncology; Genzyme Molecular Oncology is a division, not a company or legal entity, and therefore does not and cannot issue stock. The chief mechanisms intended to cause Molecular Oncology Stock to "track" the performance of Genzyme Molecular Oncology are provisions in our charter governing dividends and distributions. These provisions factor the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Molecular Oncology Stock is defined in our charter as the net income or loss of Genzyme Molecular Oncology determined in accordance with accounting principles generally accepted in the U.S., and as adjusted for tax benefits allocated to or from Genzyme Molecular Oncology in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock, combine existing tracking stocks or change our earnings allocation methodology. Because the earnings allocated to Molecular Oncology Stock are based on the income or losses attributable to Genzyme Molecular Oncology, we provide financial statements and management's discussion and analysis of Genzyme Molecular Oncology to aid investors in evaluating its performance.

GMO-2

COMBINED STATEMENTS OF OPERATIONS DATA

			For the Years Ended December 31,
			2002			2001			2000			1999			1998
			(Amounts in thousands)
Revenues:
	Service revenue		$	300		$	700		$	—		$	1,920		$	2,229
	Service revenue—related party			185			—			—			50			466
	Revenue from research and development contracts			6,048			3,412			584			—			3,256
	Revenue from research and development contracts—related party			—			—			—			496			2,177
	Licensing revenue			2,819			2,302			4,936			2,125			11,275
	Royalty revenue			37			148			151			28			4
		Total revenues		9,389			6,562			5,671			4,619			19,407
Operating costs and expenses:
	Cost of services sold			287			273			—			620			1,374
	Cost of revenue from research and development contracts and licensing revenue			4,568			2,803			826			698			4,073
	Selling, general and administrative			7,402			7,552			5,851			5,529			7,155
	Research and development			21,557			26,540			18,908			15,997			12,743
	Amortization of intangibles(1)			—			—			5,420			11,825			11,983
		Total operating costs and expenses		33,814			37,168			31,005			34,669			37,328
Operating loss				(24,425	)		(30,606	)		(25,334	)		(30,050	)		(17,921	)
Other income (expenses):
	Equity in net loss of unconsolidated affiliate(2)			—			—			—			(1,870	)		(1,647	)
	Investment income			791			945			1,211			469			782
	Interest expense			(80	)		(57	)		(187	)		(28	)		(2,968	)
		Total other income (expenses)		711			888			1,024			(1,429	)		(3,833	)
Loss before income taxes				(23,714	)		(29,718	)		(24,310	)		(31,479	)		(21,754	)
Tax benefit				—			—			1,214			2,647			2,647
Division net loss			$	(23,714	)	$	(29,718	)	$	(23,096	)	$	(28,832	)	$	(19,107	)

COMBINED BALANCE SHEET DATA

	December 31,
	2002		2001		2000		1999			1998
	(Amounts in thousands)
Cash and investments	$	13,112	$	41,135	$	30,151	$	3,587		$	11,900
Working capital		3,528		28,807		22,100		(5,889	)		9,189
Total assets		13,981		42,419		30,752		9,692			35,952
Division equity		3,554		26,813		19,526		(1,215	)		23,364

(1)

SFAS No. 142, "Goodwill and Other Intangible Assets," which we adopted effective January 1, 2002, requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill for impairment and that other intangible assets be amortized over their useful lives unless these useful lives are determined to be indefinite. As of January 1, 2002, Genzyme Molecular Oncology had no goodwill or other intangible assets, therefore, adoption of SFAS No. 142 had no effect on its combined financial statements for the year ended December 31, 2002. Genzyme Molecular Oncology had no amortization expense in 2001. Amortization of intangibles in 2000 includes $2.2 million of goodwill amortization.

(2)

StressGen/Genzyme LLC was dissolved in 1999.

GMO-3

MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME MOLECULAR
ONCOLOGY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described under "Factors Affecting Future Operating Results" below as well as in Exhibit 99.2 to this annual report. These risks and uncertainties could cause actual results to differ materially from those forecast in forward-looking statements or implied by past results and trends. Forward-looking statements are statements that attempt to project or anticipate future developments in our business; we encourage you to review the examples of forward looking statements under "Note Regarding Forward Looking Statements." 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 in light of future developments.

INTRODUCTION

        Genzyme Molecular Oncology is our operating division that is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        We prepare the combined financial statements of Genzyme Molecular Oncology in accordance with accounting principles generally accepted in the U.S. We present financial information and accounting policies specific to Genzyme Molecular Oncology in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should, therefore, read our consolidated financial statements in conjunction with the combined financial statements of Genzyme Molecular Oncology. Note A., "Summary of Significant Accounting Policies," to our consolidated financial statements contains a summary of our accounting policies.

        Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock," is a series of our common stock that is designed to reflect the value and track the performance of Genzyme Molecular Oncology. Molecular Oncology Stock is common stock of Genzyme Corporation, not of Genzyme Molecular Oncology; Genzyme Molecular Oncology is a division, not a company or legal entity, and therefore does not and cannot issue stock. The chief mechanisms intended to cause Molecular Oncology Stock to "track" the performance of Genzyme Molecular Oncology are provisions in our charter governing dividends and distributions. The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        The provisions in our charter governing dividends and distributions factor the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Molecular Oncology Stock is defined in our charter as the net income or loss of Genzyme Molecular Oncology

GMO-4

determined in accordance with accounting principles generally accepted in the U.S. and as adjusted for tax benefits allocated to or from Genzyme Molecular Oncology in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock, combine existing tracking stocks or change our earnings allocation methodology. Because the earnings allocated to Molecular Oncology Stock are based on the income or losses attributable to Genzyme Molecular Oncology, we provide financial statements and management's discussion and analysis of Genzyme Molecular Oncology to aid investors in evaluating its performance.

        While Molecular Oncology Stock is designed to reflect Genzyme Molecular Oncology's performance, it is common stock of Genzyme Corporation and not Genzyme Molecular Oncology; Genzyme Molecular Oncology is a division, not a company or legal entity, and therefore does not and cannot issue stock. Consequently, holders of Molecular Oncology Stock have no specific rights to assets allocated to Genzyme Molecular Oncology. Genzyme Corporation continues to hold title to all of the assets allocated to Genzyme Molecular Oncology and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to Genzyme Molecular Oncology. Holders of Molecular Oncology Stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to Genzyme Molecular Oncology are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of Molecular Oncology Stock and other tracking stockholders would only have the rights of common stockholders in the combined assets of Genzyme.

        Our charter requires us to manage and account for transactions between Genzyme Molecular Oncology and our other divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our divisional management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        We present earnings per share data for Genzyme Molecular Oncology Stock in our consolidated financial statements. We present financial information and accounting policies specific to Genzyme Molecular Oncology in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should, therefore, read this discussion and analysis of Genzyme Molecular Oncology's financial position and results of operations in conjunction with the combined financial statements and related notes of Genzyme Molecular Oncology, the discussion and analysis of Genzyme's financial position and results of operations, and the consolidated financial statements and related notes of Genzyme, all of which are included in this annual report.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

        The preparation of the combined financial statements of Genzyme Molecular Oncology in accordance with accounting principles generally accepted in the U.S. requires us to make certain estimates and judgments that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in our financial statements. Actual results could differ from these estimates under different assumptions and conditions. We believe that the following critical

GMO-5

accounting policies affect the more significant judgments and estimates used in the preparation of Genzyme Molecular Oncology's combined financial statements:

•

Policies Relating to Tracking Stocks; and



•

Revenue Recognition.

Policies Relating to Tracking Stocks

Allocation of Revenue, Expenses, Assets and Liabilities

        Our charter sets forth which operations and assets were initially allocated to Genzyme Molecular Oncology and states that going forward the division will also include all business, products or programs, developed by or acquired for the division, as determined by our board of directors. We then manage and account for transactions between Genzyme Molecular Oncology and our other divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors. We publicly disclose our management and accounting policies, which are filed as Exhibit 99.1 to this annual report. Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, 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. Our board also allocates long-term debt and strategic investments.

        Any future changes that our board of directors may make to the methods for allocating revenue, expenses, assets, and liabilities among our divisions could materially change the results of operations or the financial condition of Genzyme Molecular Oncology and the income allocated to one or more series of our stock.

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 allocate the tax benefit to other divisions in proportion to their taxable income without any compensating payments or

GMO-6

allocation to the division generating the benefit. Genzyme Molecular Oncology has not yet generated taxable income, and thus has not had the ability to use any projected annual tax benefits. Genzyme General has generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Molecular Oncology. Consistent with our policy, we have allocated the tax benefits generated by Genzyme Molecular Oncology to Genzyme General without any compensating payments or allocations to Genzyme Molecular Oncology. Income tax benefits allocated from Genzyme Molecular Oncology to Genzyme General are recorded as a reduction of Genzyme Molecular Oncology's division equity and do not impact Genzyme Molecular Oncology's division net loss.

Determination of Available Dividend Amounts

        The chief mechanisms intended to cause Molecular Oncology Stock to "track" the performance of Genzyme Molecular Oncology are provisions in our charter governing dividends and distributions. The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        Within these parameters, and other general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. To date, we have never paid or declared a cash dividend on shares of any of our series of common stock, nor do we anticipate doing so in the foreseeable future. Unless declared, no dividends accrue on our tracking stocks.

        Determining the dividend limit for each series of our stock can involve significant judgment, including assessing the amount that would be legally available for dividends under Massachusetts law. If we concluded that a division would be unable to pay dividends under Massachusetts law as a separate corporation, we would be unable to allocate losses to the corresponding series of our stock. This could materially impact the allocation of income and losses among our three series of tracking stock.

Revenue Recognition

        Genzyme Molecular Oncology recognizes revenue from service sales when it has finished providing the service and collection from customers is reasonably assured. Genzyme Molecular Oncology recognizes revenue from contracts to perform research and development services over the term of the applicable contract and as we complete our obligations under that contract. Genzyme Molecular Oncology recognizes non-refundable up-front license fees over the related performance period or at the time it has no remaining performance obligations.

        Revenue from milestone payments for which Genzyme Molecular Oncology has no continuing performance obligations is recognized upon achievement of the related milestone. When Genzyme Molecular Oncology has continuing performance obligations, it recognizes milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;



•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and

GMO-7

•

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 Genzyme Molecular Oncology completes its performance obligations.

        Genzyme Molecular Oncology receives royalties related to the manufacture, sale or use of products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, revenue is recognized based on estimates of royalties earned during the applicable period and adjusted for differences between the estimated and actual royalties in the following quarter. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, Genzyme Molecular Oncology recognizes revenue upon receipt of royalty statements from the licensee.

        Genzyme Molecular Oncology maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of Genzyme Molecular Oncology's customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

RESULTS OF OPERATIONS

        The following discussion summarizes the key factors management believes are necessary for an understanding of Genzyme Molecular Oncology's combined financial statements.

REVENUES

	2002		2001		2000		02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
	(Amounts in thousands, except percentage data)
Service revenue	$	485	$	700	$	—	(31	)%	N/A
Research and development revenue		6,048		3,412		584	77	%	484	%
Licensing revenue		2,819		2,302		4,936	22	%	(53	)%
Royalty revenue		37		148		151	(75	)%	(2	)%
Total revenues	$	9,389	$	6,562	$	5,671	43	%	16	%

2002 As Compared to 2001

        Genzyme Molecular Oncology's service revenue for the years ended December 31, 2002 and 2001 consist of revenues from the provision of services related to the SAGE genomics technology. Genzyme Molecular Oncology provides these services sporadically as customers request them. The focus of its SAGE business remains directed to granting licenses to the technology.

        Research and development revenue for the year ended December 31, 2002 consists of $6.0 million of revenue for research performed on behalf of:

•

Purdue Pharma L.P. under the cancer antigen discovery agreement that was initiated in October 2000; and



•

Kirin Brewery Co., Ltd. under a collaboration agreement related to the tumor endothelial marker (TEM) program that was initiated in November 2001.

GMO-8

        Research and development revenue increased in 2002, as compared to 2001, primarily as a result of the performance of a full year of research under the Kirin agreement and an increase in revenue from research performed under the Purdue agreement.

        Licensing revenue for 2002 consisted primarily of technology access fees Genzyme Molecular Oncology received from Purdue and Kirin upon entry into those collaborations. Genzyme Molecular Oncology is amortizing these fees over the course of the associated research programs. Licensing revenue increased in 2002 primarily as a result of the recognition of a full year of revenue related to the technology access fee from Kirin. Genzyme Molecular Oncology also recognizes licensing revenue from licenses of rights to the SAGE technology and, prior to the transfer of its non-core in vitro cancer diagnostic assets to Genzyme General in December 2001, licenses associated with these assets. As a result of the asset transfer, Genzyme Molecular Oncology will not receive license revenue from those assets in the future.

        Royalty revenue consists of royalties received under licenses to the SAGE technology and, through December 2001, under Genzyme Molecular Oncology's diagnostic assets. Because Genzyme Molecular Oncology transferred its in vitro cancer diagnostic assets to Genzyme General in December 2001, it will not receive royalty revenue generated by those assets in the future.

2001 As Compared to 2000

        Genzyme Molecular Oncology's service revenue is comprised of amounts received under an agreement with a pharmaceutical company around the LongSAGE technology. No such revenues were recorded in 2000.

        Research and development revenue in 2001 is attributable to research performed on behalf of Purdue and Kirin. Research and development revenue increased in 2001 as compared to 2000 as a result of the performance of a full year of research under the Purdue agreement and the commencement of work under the Kirin agreement.

        Licensing revenue in 2001 consisted primarily of the amortized portions of the technology access fees Genzyme Molecular Oncology received from Purdue and Kirin. Genzyme Molecular Oncology also recognized licensing revenue in 2001 from licenses of rights to the SAGE technology and under its diagnostic patent estate. Licensing revenue decreased in 2001 compared to 2000, notwithstanding the fact that Genzyme Molecular Oncology recognized a larger portion of the Purdue technology access fee, as a result of a $2.0 million milestone payment it received from Schering-Plough Ltd. in 2000.

        Royalty revenue in both periods consisted of royalties received under licenses to the SAGE technology and under Genzyme Molecular Oncology's diagnostic assets.

COST OF REVENUES

		2002		2001		2000		02/01 Increase/ (Decrease) % Change		01/00 Increase/ (Decrease) % Change
		(Amounts in thousands, except percentage data)
Cost of services sold		$	287	$	273	$	—	5	%	N/A
Cost of research and development contracts and licensing revenue			4,568		2,803		826	63	%	239	%
	Total cost of revenues	$	4,855	$	3,076	$	826	58	%	272	%

        Genzyme Molecular Oncology's cost of services sold in both 2002 and 2001 consists solely of $0.3 million of costs associated with the performance of services using the SAGE technology.

GMO-9

        Genzyme Molecular Oncology's cost of research and development contracts and licensing revenue for 2002 includes:

•

$4.5 million of costs associated with work performed under funded research and development agreements, including those with Purdue and Kirin; and



•

$0.1 million of costs associated with royalties payable to third parties, most notably The Johns Hopkins University, for technology that Genzyme Molecular Oncology has licensed from them.

Cost of research and development contracts and licensing revenue increased in 2002 compared to 2001 primarily due to completion of a full year of work under the Kirin collaboration, combined with an increase in resources applied to the Purdue collaboration.

OPERATING EXPENSES

2002 As Compared to 2001

Selling, General and Administrative Expenses

        Genzyme Molecular Oncology's selling, general and administrative expenses decreased 2% to $7.4 million in 2002, as compared to 2001, due to normal business fluctuations.

Research and Development Expenses

        Genzyme Molecular Oncology's research and development expenses decreased 19% to $21.6 million for 2002, as compared to 2001, primarily due to:

•

a planned increase in the amount of research and development funded by collaborators. These collaborator-funded research expenses are included in Genzyme Molecular Oncology's cost of research and development contracts and licensing revenues rather than as a research and development expense;



•

non-recurring expenses incurred in the patient-specific vaccine program during the second quarter of 2001 for which there were no comparable amounts in 2002, and



•

the initiation of efforts in late 2002 to conserve available cash by reducing research and development expenses, principally by delaying the start of a planned clinical trial of a patient-specific cancer vaccine.

2001 As Compared to 2000

Selling, General and Administrative Expenses

        Genzyme Molecular Oncology's selling, general and administrative expenses increased as a result of enhanced business development efforts and increased expenses related to information technology, legal, accounting and general management services.

Research and Development Expenses

        Genzyme Molecular Oncology's research and development expense increased as a result of:

•

the expansion of preclinical and clinical efforts in its antigen-specific and patient-specific cancer vaccine programs;



•

enhanced support for its antigen discovery program, particularly for its strategic collaboration with Purdue; and



•

increased spending in support of its antiangiogenesis program, including the initiation of its strategic collaboration with Kirin.

GMO-10

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 Molecular Oncology:

Program	Program Description or Indication	Development Status at December 31, 2002	Year of Expected Product Launch
Dendritic/tumor cell fusion vaccines	Multiple cancer indications	Phase 1-2 clinical trials ongoing	2007 through 2009
Melan-A/MART-1 and gp-100 antigen-specific cancer vaccines	Melanoma	Phase 1-2 clinical trials completed	2008 through 2010

        The aggregate actual and estimated research and development expense for the above programs is as follows (amounts in millions):

Costs incurred for the year ended December 31, 2001	$12.6
Costs incurred for the year ended December 31, 2002	$9.6
Cumulative costs incurred as of December 31, 2002	$37.9
Estimated cost to complete as of December 31, 2002	$125.0 to $175.0

        Our current estimates of the time and investment required to develop these products may change depending on the approach we take to pursue them, the results of preclinical and clinical studies, and the content and timing of decisions made by the FDA and other regulatory authorities, and cash resources available to fund our development programs. We cannot provide assurance that any of these programs will ever result in products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indication. If certain of our development-stage programs do not result in commercially viable products, our results of operations could be materially affected.

Amortization of Intangibles

        Genzyme Molecular Oncology's amortization of intangibles is attributable to intangible assets acquired in connection with the acquisition of PharmaGenics, Inc. in June 1997. These assets were fully amortized by June 2000.

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these useful lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by Genzyme Molecular Oncology

GMO-11

effective at the beginning of fiscal year 2002. As of January 1, 2002, Genzyme Molecular Oncology had no goodwill or other intangible assets, therefore, adoption of the standard had no effect on Genzyme Molecular Oncology's combined financial statements for the year ended December 31, 2002.

        The following table presents the impact that SFAS No. 142 would have had on Genzyme Molecular Oncology's amortization expense and division net loss had the standard been in effect for the year ended December 31, 2000 (amounts in thousands):

	Year Ended December 31, 2000
	As Reported			Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	5,420		$	(2,227	)	$	3,193
Division net income (loss)	$	(23,096	)	$	2,227		$	(20,869	)

Other Income and Expenses

2002 As Compared to 2001

        Genzyme Molecular Oncology's other income decreased $0.2 million in 2002, as compared to 2001, primarily due to a $0.2 million decrease in investment income and a slight increase in interest expense. The decrease in investment income is attributable to lower average cash balances throughout the year. The increase in interest expense is attributable to an increase in the commitment fees allocated to Genzyme Molecular Oncology under the corporate revolving credit facility. The investment income for 2003 is expected to decrease as compared to 2002 as a result of the continued use of cash and investments to fund ongoing operations and research and development programs.

2001 As Compared to 2000

        Genzyme Molecular Oncology's other income decreased in 2001 due to a decrease in investment income that is attributable to lower average cash balances during most of the year. Interest expense decreased in 2001 in comparison to 2000 due to the repayment, in May 2000, of $5.0 million that Genzyme Molecular Oncology borrowed under our revolving credit facility in 1999.

Liquidity and Capital Resources

        At December 31, 2002, Genzyme Molecular Oncology had cash, cash equivalents and short-term investments of approximately $13.1 million, a decrease of $28.0 million from cash and cash equivalents of $41.1 million at December 31, 2001.

        Genzyme Molecular Oncology's operating activities used $28.4 million of cash for the year ended December 31, 2002 as compared to $26.0 million for the year ended December 31, 2001. Net cash utilized by operating activities was impacted primarily by Genzyme Molecular Oncology's division net loss of $23.7 million for the year ended December 31, 2002 and $4.9 million attributable to the net increase in working capital.

        Genzyme Molecular Oncology's investing activities used $11.5 million of cash in 2002, for the net purchases, sales and maturities of investments. In 2002, Genzyme Molecular Oncology received $0.3 million of allocated proceeds from the issuance of Molecular Oncology Stock attributable to the exercise of stock options and shares issued under our stock purchase program.

        Genzyme Molecular Oncology, together with our other operating divisions, has access to our $350.0 million revolving credit facility that matures in December 2003, of which $66.0 million remained available for borrowing at December 31, 2002. Borrowings under this facility bear interest at LIBOR

GMO-12

plus an applicable margin, which was, in the aggregate, 2.5% at December 31, 2002. We intend to refinance our revolving credit facility during 2003.

        Our board of directors has made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed in exchange for designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. Genzyme Molecular Oncology has made the following draws during the past three fiscal years:

•

In 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.



•

In 2002—None.

At December 31, 2002, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

        Genzyme Molecular Oncology has obligations of approximately $1.4 million in 2003 under significant research and development programs and will be required to pay additional amounts in support of its clinical trial activities as expenses are incurred.

        We anticipate that Genzyme Molecular Oncology's current cash resources, together with amounts available from the following sources, will be sufficient to fund its operations through the end of 2003:

•

committed research funding from collaborators;



•

the $11.0 million remaining under the interdivisional financing arrangement with Genzyme General; and



•

amounts available to Genzyme Molecular Oncology under our revolving credit facility.

        Genzyme Molecular Oncology plans to spend substantial amounts of funds on, among other things:

•

research and development;



•

preclinical and clinical testing;



•

pursuing regulatory approvals; and



•

working capital.

        Genzyme Molecular Oncology's cash needs may differ from those planned, however, because of many factors, including the:

•

results of research and development and clinical testing;



•

achievement of milestones under existing licensing arrangements;



•

ability to establish and maintain additional strategic collaborations and licensing arrangements;



•

costs involved in enforcing patent claims and other intellectual property rights;



•

market acceptance of novel approaches and therapies;



•

development of competing products and services; and



•

ability to satisfy regulatory requirements of the FDA and other government authorities.

        Genzyme Molecular Oncology will require significant additional financing to continue operations at anticipated levels. We cannot guarantee that Genzyme Molecular Oncology will be able to obtain any

GMO-13

additional financing, extend any existing financing arrangement, or obtain either on terms that we consider favorable. To this end, management is managing its cash reserves closely by focusing its research and development spending on programs that it believes have the greatest potential for successful commercialization or valuable collaboration. If Genzyme Molecular Oncology has insufficient funds or is unable to raise additional funds, it may delay, reduce or eliminate certain of its programs. Genzyme Molecular Oncology may also have to sell or give to third parties rights to commercialize technologies or products that it would otherwise have sought to commercialize itself.

New Accounting Pronouncements and Market Risk

        See "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" included in this annual report.

Factors Affecting Future Operating Results

        The future operating results of Genzyme Molecular Oncology could differ materially from the results described above due to the risks and uncertainties described below and under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Factors Affecting Future Operating Results" included in this annual report.

Genzyme Molecular Oncology may never be able to successfully develop or commercialize any of its cancer therapies.

        Genzyme Molecular Oncology does not have any cancer therapies on the market and its only therapies in clinical development are at an early stage. Before commercializing any cancer therapies, Genzyme Molecular Oncology will need to conduct substantial additional research and development, including, in some cases, the replication of studies performed by third parties, undertake preclinical and clinical testing and obtain regulatory approvals. This process involves a high degree of uncertainty and may take several years. Its product development efforts may fail for many reasons, including: the product fails in preclinical studies; clinical trials may not support the safety or effectiveness of the product; or we fail to obtain the required regulatory approvals. We cannot guarantee that Genzyme Molecular Oncology will successfully develop any particular product or that any product it successfully develops will gain market acceptance.

Genzyme Molecular Oncology anticipates future losses and may never become profitable.

        Genzyme Molecular Oncology has not generated significant revenues to date and does not expect to do so for several years. As of December 31, 2002, Genzyme Molecular Oncology had an accumulated deficit of approximately $145.5 million. We expect Genzyme Molecular Oncology to have significant operating losses for the next several years. Genzyme Molecular Oncology plans to spend substantial amounts of money on, among other things: research and development; preclinical and clinical testing; and pursuing regulatory approvals. We cannot guarantee that the efforts underlying these expenditures will be successful or that Genzyme Molecular Oncology's operations will ever be profitable.

Genzyme Molecular Oncology may not receive significant payments from collaborators due to unsuccessful results in existing collaborations or a failure to enter into future collaborations.

        Genzyme Molecular Oncology's strategy to develop and commercialize some of its products and services includes entering into various arrangements with academic and corporate collaborators and licensees. It depends on the success of these parties in performing research, preclinical and clinical testing and marketing. These arrangements may require Genzyme Molecular Oncology to transfer important rights to its corporate collaborators and licensees. These collaborators and licensees could

GMO-14

choose not to devote resources to these arrangements or, under certain circumstances, may terminate them early. In addition, these collaborators and licensees, outside of their arrangements with Genzyme Molecular Oncology, may develop technologies or products that are competitive with those that Genzyme Molecular Oncology is developing. As a result, we cannot guarantee that Genzyme Molecular Oncology will receive revenues from these relationships or that any of its strategic collaborations will continue or not terminate early. In addition, we cannot guarantee that Genzyme Molecular Oncology will be able to enter into collaborations in the future.

Genzyme Molecular Oncology may be required to license technology from competitors or others in order to develop and commercialize some of its products and services, and it is uncertain whether these licenses will be available.

        Third party patent rights and pending patent applications filed by third parties, if issued, may cover some of the products Genzyme Molecular Oncology is developing or testing. As a result, Genzyme Molecular Oncology may be required to obtain licenses from the holders of these patents in order to use or sell certain products and services. We cannot guarantee that these licenses will be made available on acceptable terms or at all. If these licenses are not available, Genzyme Molecular Oncology's ability to commercialize its products and services may be impaired.

        In its cancer vaccine program, Genzyme Molecular Oncology is in the process of evaluating the therapeutic administration of peptide products and genes that encode specific tumor antigens, including MART-1 and gp100. Genzyme Molecular Oncology is aware of two issued U.S. patents directed to the gene that encodes MART-1. While it has obtained rights under one of these patents, Genzyme Molecular Oncology is still in the process of evaluating the scope and validity of the other to determine whether it needs to obtain a license. Genzyme Molecular Oncology is also evaluating an issued U.S. patent covering the gene that encodes gp100 and three published Patent Cooperation Treaty applications by three different applicants that may cover antigens derived from gp100. Genzyme Molecular Oncology is in the process of evaluating the scope and validity of these patents and patent applications to determine whether it needs to obtain licenses.

Genzyme Molecular Oncology may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

        If Genzyme Molecular Oncology or one of its strategic collaborators initiates litigation to enforce Genzyme Molecular Oncology's patent or license rights, or is required to defend these rights in response to third party claims, its business or financial position may be negatively affected. Genzyme Molecular Oncology has licensed its p53 gene therapy rights to Schering-Plough. These patent rights are the subject of an interference proceeding in the U.S. and an opposition proceeding in Europe. Adverse determinations in these proceedings may negatively affect Genzyme Molecular Oncology's ability to receive future milestones and product royalties under its agreement with Schering-Plough.

Adverse events in the field of gene therapy may negatively affect regulatory approval or public perception of Genzyme Molecular Oncology's gene therapy products.

        Recent adverse events in gene therapy clinical trials may result in greater governmental regulation, increased development costs and potential regulatory delays relating to the testing or approval of Genzyme Molecular Oncology's gene therapy products. The commercial success of any gene therapy products that Genzyme Molecular Oncology develops will depend in part on public acceptance of the use of gene therapies for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. Negative public reaction to gene therapy could result in:

•

greater government regulation;

GMO-15

•

stricter clinical trial oversight;



•

tighter commercial product labeling requirements of gene therapies; and



•

a decrease in the demand for any gene therapy product that Genzyme Molecular Oncology may develop.

GMO-16

GENZYME MOLECULAR ONCOLOGY
A Division of Genzyme Corporation

Combined Statements of Operations

			For the Years Ended December 31,
			2002			2001			2000
			(Amounts in thousands)
Revenues:
	Service revenue		$	300		$	700		$	—
	Service revenue—related party			185			—			—
	Revenue from research and development contracts			6,048			3,412			584
	Licensing revenue			2,819			2,302			4,936
	Royalty revenue			37			148			151
		Total revenues		9,389			6,562			5,671
Operating costs and expenses:
	Cost of services sold			287			273			—
	Cost of revenue from research and development contracts and licensing revenue			4,568			2,803			826
	Selling, general and administrative			7,402			7,552			5,851
	Research and development			21,557			26,540			18,908
	Amortization of intangibles			—			—			5,420
		Total operating costs and expenses		33,814			37,168			31,005
Operating loss				(24,425	)		(30,606	)		(25,334	)
Other income (expenses):
	Investment income			791			945			1,211
	Interest expense			(80	)		(57	)		(187	)
		Total other income (expenses)		711			888			1,024
Loss before income taxes				(23,714	)		(29,718	)		(24,310	)
Tax benefit				—			—			1,214
Division net loss			$	(23,714	)	$	(29,718	)	$	(23,096	)
Comprehensive loss, net of tax:
	Division net loss		$	(23,714	)	$	(29,718	)	$	(23,096	)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments		3			(1	)		—
		Unrealized gains (losses) on securities, net		133			—			—
	Other comprehensive income (loss)			136			(1	)		—
Comprehensive loss			$	(23,578	)	$	(29,719	)	$	(23,096	)

The accompanying notes are an integral part of these combined financial statements.

GMO-17

GENZYME MOLECULAR ONCOLOGY
A Division of Genzyme Corporation

Combined Balance Sheets

			DECEMBER 31,
			2002		2001
			(Amounts in thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	1,459	$	41,135
	Short-term investments			11,653		—
	Accounts receivable, net			229		463
	Prepaid expenses and other current assets			614		702
		Total current assets		13,955		42,300
Equipment, net				26		119
		Total assets	$	13,981	$	42,419
LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accrued expenses		$	760	$	1,400
	Due to Genzyme General			5,494		7,086
	Deferred revenue—current portion			4,173		5,007
		Total current liabilities		10,427		13,493
Deferred revenue—long-term portion				—		2,113
		Total liabilities		10,427		15,606
Contingencies (Note K)
Division equity				3,554		26,813
		Total liabilities and division equity	$	13,981	$	42,419

The accompanying notes are an integral part of these combined financial statements.

GMO-18

GENZYME MOLECULAR ONCOLOGY
A Division of Genzyme Corporation

Combined Statements of Cash Flows

					For The Years Ended December 31,
					2002			2001			2000
					(Amounts in thousands)
Cash Flows from Operating Activities:
	Division net loss				$	(23,714	)	$	(29,718	)	$	(23,096	)
	Reconciliation of division net loss to net cash used in operating activities:
		Depreciation and amortization				93			125			5,572
		Provision for bad debts				—			113			—
		Deferred income tax benefit				—			—			(1,214	)
		Other				29			6			(142	)
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			234			(345	)		(231	)
			Prepaid expenses and other current assets			88			(576	)		92
			Accrued expenses and deferred revenue			(3,587	)		1,954			5,665
			Due to Genzyme General			(1,592	)		2,426			938
				Cash flows from operating activities		(28,449	)		(26,015	)		(12,416	)
Cash Flows from Investing Activities:
	Purchases of investments					(31,613	)		—			(30,175	)
	Sales and maturities of investments					20,069			7,942			22,383
				Cash flows from investing activities		(11,544	)		7,942			(7,792	)
Cash Flows from Financing Activities:
	Allocated proceeds from issuance of Molecular Oncology Stock					315			959			28,830
	Repayments of debts					—			—			(5,000	)
	Net cash allocated from Genzyme General					—			36,040			15,000
				Cash flows from financing activities		315			36,999			38,830
Effect of exchange rate changes on cash						2			—			—
Increase (decrease) in cash and cash equivalents						(39,676	)		18,926			18,622
Cash and cash equivalents at beginning of period						41,135			22,209			3,587
Cash and cash equivalents at end of period					$	1,459		$	41,135		$	22,209

The accompanying notes are an integral part of these combined financial statements.

GMO-19

GENZYME MOLECULAR ONCOLOGY
A Division of Genzyme Corporation

Notes to Combined Financial Statements

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

        Genzyme Molecular Oncology is our operating division that is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

Basis of Presentation

        The combined financial statements of Genzyme Molecular Oncology for each period include the balance sheets, results of operations and cash flows of the businesses we allocate to Genzyme Molecular Oncology. We also allocate a portion of our corporate operations to Genzyme Molecular Oncology using methods described in our allocation policy below. These combined financial statements are prepared using amounts included in our consolidated financial statements included in this annual report.

        We prepare the financial statements of Genzyme Molecular Oncology in accordance with accounting principles generally accepted in the U.S. We present financial information and accounting policies specific to Genzyme Molecular Oncology in the accompanying combined financial statements. We present financial information and accounting policies relevant to the corporation and its operating divisions taken as a whole in our consolidated financial statements. You should read our consolidated financial statements in conjunction with the financial statements of Genzyme Molecular Oncology. Note A., "Summary of Significant Accounting Policies," to our consolidated financial statements contains a summary of our accounting policies. We incorporate that information into this note by reference.

Tracking Stock

        Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock," is a series of our common stock that is designed to reflect the value and track the performance of Genzyme Molecular Oncology. The chief mechanisms intended to cause Molecular Oncology Stock to "track" the financial performance of Genzyme Molecular Oncology are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to Genzyme Molecular Oncology into the determination of the amount available to pay dividends on Molecular Oncology Stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Molecular Oncology Stock if all or substantially all of the assets allocated to Genzyme Molecular Oncology are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of Molecular Oncology Stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        The provisions governing dividends provide that our board of directors has discretion to decide if and when to declare dividends, subject to certain limitations. To the extent that the following amount

GMO-20

does not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division is the greater of:

•

the amount that would be legally available for dividends under Massachusetts law if the division were a separate corporation; or



•

the amount by which the greater of the fair value of the division's allocated net assets, or its allocated paid-in capital plus allocated earnings, exceeds its corresponding stock's par value, preferred stock preferences and debt obligations.

        Within these parameters, and other general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. Unless declared, no dividends accrue on our tracking stocks.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Molecular Oncology Stock is defined in our charter as the net income or loss of Genzyme Molecular Oncology determined in accordance with accounting principles generally accepted in the U.S., and as adjusted for tax benefits allocated to or from Genzyme Molecular Oncology in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock, combine existing tracking stocks or change our earnings allocation methodology. Because the earnings allocated to Molecular Oncology Stock are based on the income or losses attributable to Genzyme Molecular Oncology, we include financial statements and management's discussion and analysis of Genzyme Molecular Oncology to aid investors in evaluating its performance.

        While Molecular Oncology Stock is designed to reflect Genzyme Molecular Oncology's performance, it is common stock of Genzyme Corporation and not Genzyme Molecular Oncology; Genzyme Molecular Oncology is a division, not a company or legal entity, and therefore does not and cannot issue stock. Consequently, holders of Molecular Oncology Stock have no specific rights to assets allocated to Genzyme Molecular Oncology. Genzyme Corporation continues to hold title to all of the assets allocated to Genzyme Molecular Oncology and is responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to Genzyme Molecular Oncology. Holders of Molecular Oncology Stock, as common stockholders, are therefore subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to Genzyme Molecular Oncology are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of Molecular Oncology Stock and other tracking stockholders would only have the rights of common stockholders in the combined assets of Genzyme.

Allocation Policy

        Our charter sets forth what operations and assets were initially allocated to Genzyme Molecular Oncology and states that going forward the division will also include all businesses, products or programs, developed by or acquired for the division, as determined by our board of directors. We then

GMO-21

manage and account for transactions between Genzyme Molecular Oncology and our other divisions and with third parties, and any resulting re-allocations of assets and liabilities, by applying consistently across divisions a detailed set of policies established by our board of directors.

        Our charter requires that all of our assets and liabilities be allocated among our divisions. Our board of directors, however, retains considerable discretion in determining the types, magnitude and extent of allocations to each series of common stock without shareholder approval.

        Allocations to our divisions are based on one of the following methodologies:

•

specific identification—assets that are dedicated to the production of goods of a division or which solely benefit a division are allocated to that division. Liabilities incurred as a result of the performance of services for the benefit of a division or in connection with the expenses incurred in activities which directly benefit a division are allocated to that division. Such specifically identified assets and liabilities include cash, investments, accounts receivable, inventories, property and equipment, intangible assets, accounts payable, accrued expenses and deferred revenue. Revenues from the licensing of a division's products or services to third parties and the related costs are allocated to that division;



•

actual usage—expenses are charged to the division for whose benefit such expenses are incurred. Research and development, sales and marketing and direct general and administrative services are charged to the divisions for which the service is performed on a cost basis. Such charges are generally based on direct labor hours;



•

proportionate usage—costs incurred which benefit more than one division are allocated based on management's estimate of the proportionate benefit each division receives. Such costs include facilities, legal, finance, human resources, executive and investor relations; or



•

board directed—programs and products, both internally developed and acquired, are allocated to divisions by the board of directors. The board of directors also allocates long-term debt and strategic investments.

        Note B., "Policies Governing the Relationship of Genzyme's Operating Divisions," further describes our policies concerning interdivisional transactions and income tax allocations.

        We believe that the divisional allocations are reasonable and have been consistently applied. However, a division's results of operations may not be indicative of what would have been realized if the division was a stand-alone entity.

Revenue Recognition

        We recognize revenue from service sales when we have finished providing the service and collection from the customer is reasonably assured. We recognize revenue from contracts to perform research and development services over the term of the applicable contract and as we complete our obligations under that contract. We recognize non-refundable up-front license fees over the related performance period or at the time when 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

GMO-22

obligations, we recognize milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;



•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and



•

the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

        We receive royalties related to the manufacture, sale or use of products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, revenue is recognized 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, we recognize revenue upon receipt of royalty statements from the licensee.

        We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

        Revenue from milestone payments for which we have no continuing performance obligations is recognized upon achievement of the related milestone. When we have continuing performance obligations, we recognize milestone payments as revenue upon the achievement of the milestone only if all of the following conditions are met:

•

the milestone payments are non-refundable;



•

achievement of the milestone was not reasonably assured at the inception of the arrangement;



•

there is a substantial effort involved in achieving the milestone; and



•

the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

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 included elsewhere in this annual report. 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.

GMO-23

Accounting for Stock Based Compensation

        On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123." This standard amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for those companies that voluntarily change to the fair value based method of accounting for stock-based employee compensation. In addition, this standard amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. We have not adopted the fair value method of accounting for stock-based compensation and will continue to apply the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. We do not recognize compensation expense for options granted under the provisions of these plans with fixed terms and an exercise price greater than or equal to the fair market value of the underlying series of our common stock on the date of grant. All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123, as amended, and EITF Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

        In accordance with the disclosure requirements of SFAS No. 148, the following table sets forth Genzyme Molecular Oncology's net income (loss) data as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS No. 123 as amended, based on the fair value at the grant dates of the awards. The resulting compensation expense would be allocated to each division in accordance with our allocation policies:

		For the Years Ended December 31,
		2002			2001			2000
		(Amounts in thousands)
Division net loss:
	As reported	$	(23,714	)	$	(29,718	)	$	(23,096	)
	Deduct: pro forma stock-based compensation, net of tax		(3,742	)		(4,794	)		(2,927	)
	Pro forma	$	(27,456	)	$	(34,512	)	$	(26,023	)

        Note A., "Summary of Significant Accounting Policies—Accounting for Stock-Based Compensation," to our consolidated financial statements contains information regarding the assumptions we made in calculating pro forma compensation expense in accordance with SFAS No. 123. The effects of applying SFAS No. 123 are not likely to be representative of the effects on reported division net income (loss) in future years.

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

GMO-24

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. Accounting principles generally accepted in the U.S. require that any change in policy be preferable (in accordance with these principles) to the previous policy.

Interdivisional Asset Transfers

        Our board of directors may at any time reallocate any program, product or other asset from one division to any other division, except in the case of certain enumerated key programs allocated to Genzyme Molecular Oncology, which may not be transferred out of Genzyme Molecular Oncology without a class vote of Molecular Oncology Stock unless such program has application outside of oncology, in which case it may be transferred out only for the non-oncology applications. We account for interdivisional asset transfers at book value. The consideration paid for an asset transfer generally must be fair value as determined by our board of directors. The difference between the consideration paid and the book value of the assets transferred is recorded in division equity. Our board of directors determines fair value using either a risk-adjusted discounted cash flow model or a comparable transaction model.

        The risk-adjusted discounted cash flow model estimates fair value by taking the discounted value of all the cash inflows and outflows related to a program or product over a specified period of time, generally the economic life of the project, adjusted for the probabilities of certain outcomes occurring or not occurring. In performing this analysis, we consider various factors that could affect the success or failure of the program including:

•

the duration, cost and probability of success of each phase of development;



•

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;

GMO-25

•

the stage of product or program development; and



•

the risk profile of successfully commercializing the product or program.

        We customarily use the comparable transaction model to corroborate valuations derived under the risk-adjusted discounted cash flow model.

        When determining the fair value of a program under development using either model, our board of directors also takes into account the following criteria:

•

the commercial potential of the program;



•

the phase of clinical development of the program;



•

the expenses associated with realizing any income from the program and the likelihood and time of the realization; and



•

other matters that our board of directors and its financial advisors, if any, deem relevant.

        One division may compensate another division for a reallocation with cash or other consideration having a value equal to the fair market value of the reallocated assets. In the case of a reallocation of assets from Genzyme General to Genzyme Molecular Oncology, our board of directors may elect instead to account for the reallocation as an increase in Molecular Oncology designated shares in accordance with the provisions of our charter. Molecular Oncology designated shares are authorized but unissued shares of Molecular Oncology Stock that our board of directors may from time to time issue, sell or otherwise distribute without allocating the proceeds to Genzyme Molecular Oncology. No gain or loss is recognized as a result of these transfers.

        Our policy regarding transfers of assets between divisions may not be changed by our board without the approval of the holders of Molecular Oncology Stock voting as a separate class unless the policy change does not affect Genzyme Molecular Oncology.

Other Interdivisional Transactions

        Our divisions may engage in transactions directly with one or more other divisions or jointly with one or more other divisions and one or more third parties. These transactions may include agreements by one division to provide products and services for use by another division, license agreements and joint ventures or other collaborative arrangements involving more than one division to develop new products and services jointly and with third parties. The division providing these products and services does not recognize revenue on any of these transactions unless it provides them to unrelated third parties in the ordinary course of business. These transactions are subject to the conditions described below:

•

We charge research and development (including clinical and regulatory support), distribution, sales, marketing, and general and administrative services (including allocated space) performed by one division for another division to the division for which the services are performed on a cost basis. We charge direct costs to the division for which we incur them. We allocate direct labor and indirect costs in reasonable and consistent manners based on the use by a division of relevant services.

GMO-26

•

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 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.



•

Each division bills the other division on a monthly basis for the services and costs incurred on the other division's behalf. Payment by the other division is due within 45 days. To the extent asset impairment charges are recorded by a division and allocated to another division in accordance with the allocation policies described in Note A., "Summary of Significant Accounting Policies," payment of such charge is to be made monthly by the other division in an amount equal to the monthly depreciation or amortization that would have been allocated to the other division using the assets original useful life.



•

Our board of directors must approve interdivision transactions that are performed on terms and conditions other than as described above and are material to one or more of the participating divisions. In giving its approval, our board of directors must determine that the transaction is fair and reasonable to each participating division and to holders of the common stock representing each participating division.



•

Divisions may make loans to other divisions. Any loan of $1.0 million or less matures within 18 months and accrues interest at the best borrowing rate available to the corporation for a loan of like type and duration. Our board of directors must approve any loan in excess of $1.0 million. In giving its approval, our board of directors must determine that the material terms of the loan, including the interest rate and maturity date, are fair and reasonable to each participating division and to holders of the common stock representing each such division.



•

All material interdivision transactions are set forth in a written agreement that is signed by an authorized member of the management team of each division involved in the transaction.

        On December 31, 2002, Genzyme Molecular Oncology owed Genzyme General approximately $5.5 million in connection with these services. On December 31, 2001, approximately $7.1 million was owed to Genzyme General.

Tax Allocations

        We file a consolidated tax return and allocate income taxes to each division based upon the financial statement income, taxable income, credits and other amounts properly allocable to it under accounting principles generally accepted in the U.S., 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

GMO-27

deferred income tax expense, we allocate the tax benefit to the other divisions in proportion to their taxable income without any compensating payment or allocation.

Access to Technology and Know-How

        Genzyme Molecular Oncology has access to all technology and know-how owned or controlled by Genzyme Corporation that may be useful in its business, subject to any obligations or limitations that apply to the corporation generally.

NOTE C. NET INCOME (LOSS) PER SHARE

        Note B., "Net Income (Loss) Per Share," to our consolidated financial statements contains information regarding the calculation of earnings per share for each series of our stock using the two-class method. 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 D. ACCOUNTS RECEIVABLE

        Genzyme Molecular Oncology's trade receivables primarily represent amounts due from third party collaborators. Genzyme Molecular Oncology performs credit evaluations of its customers on an on going basis and generally does not require collateral. Genzyme Molecular Oncology states accounts receivable at fair value after reflecting an allowance for doubtful accounts. This allowance was approximately $75,000 at December 31, 2002 and $431,000 at December 31, 2001.

NOTE E. EQUIPMENT

	December 31,
	2002			2001
	(Amounts in thousands)
Equipment	$	824		$	824
Furniture and fixtures		13			13
		837			837
Less accumulated depreciation		(811	)		(718	)
Equipment, net	$	26		$	119

        Genzyme Molecular Oncology's depreciation expense was $93,000 in 2002, $125,000 in 2001 and $152,000 in 2000.

NOTE F. GOODWILL AND OTHER INTANGIBLE ASSETS

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with

GMO-28

periodic tests of the goodwill for impairment and that other intangible assets be amortized over their useful lives unless these useful lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by Genzyme Molecular Oncology effective at the beginning of fiscal year 2002. As of January 1, 2002, Genzyme Molecular Oncology had no goodwill or other intangible assets, therefore, adoption of the standard had no effect on Genzyme Molecular Oncology's combined financial statements for the year ended December 31, 2002.

        The following table presents the impact that SFAS No. 142 would have had on Genzyme Molecular Oncology's amortization of intangibles expense and division net loss had the standard been in effect for the year ended December 31, 2000 (amounts in thousands):

	Year Ended December 31, 2000
	As Reported			Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	5,420		$	(2,227	)	$	3,193
Division net income (loss)	$	(23,096	)	$	2,227		$	(20,869	)

NOTE G. RESEARCH AND DEVELOPMENT AGREEMENTS

Kirin

        In November 2001, we entered into a collaboration with Kirin Brewery Co., Ltd. of Japan to develop and commercialize human monoclonal antibodies to be used as therapies in the areas of antiangiogenesis and vascular targeted cancer drug delivery. Product candidates will be generated using Genzyme Molecular Oncology's portfolio of proprietary tumor endothelial markers as targets. Upon entering into the agreement, we received a $2.0 million up-front fee, along with committed funding to support a research program for two years. Because Genzyme Molecular Oncology is amortizing the up-front fee over the course of the research program, approximately 50% of the fee was recognized as licensing revenue in 2002 and 6% of the fee was recognized in 2001. Genzyme Molecular Oncology will receive milestone payments from Kirin upon satisfaction of certain research milestones during the two-year research period.

Purdue Pharma

        In October 2000, we entered into an arrangement with Purdue Pharma L.P. relating to the discovery and development of cancer antigens. Under this arrangement, we received approximately $12.0 million in cash, in the form of an up-front fee, research funding and an equity investment. We will receive approximately $9.0 million in committed research funding over the course of a research period expiring in 2003. The equity portion of this arrangement provided for two affiliates of Purdue Pharma to purchase an aggregate of 532,066 shares of Molecular Oncology Stock at a premium to the market price for those shares.

GMO-29

NOTE H. INVESTMENTS

Marketable Securities

		December 31,
		2002				2001
		Cost		Market Value		Cost		Market Value
		(Amounts in thousands)
Cash equivalents(1):
	Money market fund	$	1,197	$	1,197	$	40,392	$	40,392
Short-term:
	Corporate notes(2)	$	10,747	$	10,871	$	—	$	—
	U.S. Governmental agencies		773		782		—		—
		$	11,520	$	11,653	$	—	$	—
Total cash equivalents and short-term investments		$	12,717	$	12,850	$	40,392	$	40,392

(1)

Cash equivalents are included as part of cash and cash equivalents on our balance sheets.

(2)

Short-term corporate notes includes $4.5 million of long-term corporate notes that mature in more than one year because Genzyme Molecular Oncology will need to utilize these investments within the next twelve months to fund its operating activities.

Realized and unrealized gains and losses on marketable securities and Investments in Equity Securities

        Genzyme Molecular Oncology records gross unrealized holding gains and losses in division equity.

The following table contains information regarding the range of contractual maturities of Genzyme Molecular Oncology's investments in debt securities:

	December 31,
	2002				2001
	Cost		Market Value		Cost		Market Value
	(Amounts in thousands)
Within 1 year	$	8,223	$	8,311	$	40,392	$	40,392
1-2 years(1)		1,063		1,070		—		—
2-10 years(1)		3,431		3,469		—		—
	$	12,717	$	12,850	$	40,392	$	40,392

(1)

These investments are classified as short-term investments as of December 31, 2002 because Genzyme Molecular Oncology will need to utilize these investments within the next twelve months to fund operating activities.

GMO-30

NOTE I. LONG-TERM DEBT INSTRUMENTS

        Genzyme Molecular Oncology, together with our other operating divisions, has access to our $350.0 million revolving credit facility that matures in December 2003, of which $66.0 million remained available for borrowing at December 31, 2002. At December 31, 2002, no amounts borrowed under this facility were allocated to Genzyme Molecular Oncology. Borrowings under this facility bear interest at LIBOR plus an applicable margin, which was, in the aggregate, 2.5% at December 31, 2002.

NOTE J. DIVISION EQUITY

        The following table contains the components of division equity for Genzyme Molecular Oncology for the periods presented:

	December 31,
	2002			2001			2000
	(Amounts in thousands)
Balance at beginning of period	$	26,813		$	19,526		$	(1,215	)
Division net loss		(23,714	)		(29,718	)		(23,096	)
Allocated proceeds from issuance of Molecular Oncology Stock under stock plans		315			959			1,833
Allocation of cash from Genzyme General for Molecular Oncology designated shares(1)		—			4,040			15,000
Allocation of cash from Genzyme General in exchange for the reallocation of diagnostic assets from Genzyme Molecular Oncology to Genzyme General		—			32,000			—
Allocated proceeds from sale of Molecular Oncology Stock		—			—			27,001
Allocated unrealized gain on investments		133			—			—
Allocated foreign currency adjustment		3			(1	)		—
Allocated equity adjustments		4			7			3
Balance at end of period	$	3,554		$	26,813		$	19,526

(1)

Molecular Oncology designated shares are shares of Molecular Oncology Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Molecular Oncology. As of December 31, 2002, there were approximately 1.7 million Molecular Oncology designated shares.

Stock Compensation Plans

        The disclosure regarding how we account for our four stock-based compensation plans: the 1997 Equity Incentive Plan, the 2001 Equity Incentive Plan, the 1998 Director Stock Option Plan (each of which are stock option plans) and the 1999 Employee Stock Purchase Plan is included in Note A., "Significant Accounting Policies—Accounting for Stock-Based Compensation," to Genzyme Molecular Oncology's combined financial statements.

GMO-31

Interdivisional Financing Arrangement

        Our board of directors has made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed each quarter in exchange for designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. Genzyme Molecular Oncology has made the following draws during the past three fiscal years:

•

In 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; and



•

In 2002—none.

        At December 31, 2002, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

Offering of Molecular Oncology Stock

        In July 2000, we sold approximately 1.6 million shares of Molecular Oncology Stock to a limited number of purchasers at a price of $12.91 per share. We received approximately $20.8 million in net proceeds from the offering, which we allocated to Genzyme Molecular Oncology.

Asset Reallocation

        In December 2001, we reallocated certain intellectual property rights and licenses related to in vitro cancer diagnostics from Genzyme Molecular Oncology to Genzyme General. In exchange for the reallocation, Genzyme General paid to Genzyme Molecular Oncology $32.0 million in cash and will pay an additional $1.0 million if a specified milestone is met.

NOTE K. OTHER 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, 2002 which, if adversely decided, would have a material adverse effect on Genzyme Molecular Oncology's results of operations, financial condition, or liquidity.

Guarantees

        In November 2002, the FASB issued FIN 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FIN 34." The adoption of FIN 45 did not have a material effect on our consolidated financial statements or the combined financial statements of Genzyme Molecular Oncology for the year ended December 31, 2002. For more information, we suggest you read Note O., "Other Commitments and Contingencies," to our consolidated financial statements. We incorporate that information into this note by reference.

GMO-32

NOTE L. INCOME TAXES

        There was no provision for income taxes due to Genzyme Molecular Oncology's continuing operating losses. As part of the acquisition of PharmaGenics, Genzyme Molecular Oncology recorded a deferred tax liability of $7.6 million resulting from the difference between the book and tax basis of the completed technology computed at a 38% incremental tax rate. This amount was amortized over three years consistent with the life of the completed technology. Genzyme Molecular Oncology recorded deferred tax benefits of $1.2 million in 2000. Amortization of this deferred tax benefit was completed in 2000.

        The following summarizes Genzyme Molecular Oncology's benefit from income taxes:

			December 31,
			2002		2001		2000
			(Amounts in thousands)
Deferred:
	Federal		$	—	$	—	$	(1,118	)
	State			—		—		(96	)
		Total income tax benefit	$	—	$	—	$	(1,214	)

        The differences between the effective tax rates and the U.S. federal statutory tax rates were as follows:

	2002		2001		2000
Tax provision (benefit) at U.S. statutory rate	(35.0	)%	(35.0	)%	(35.0	)%
State income taxes, net of federal benefit	(1.8	)	(1.8	)	(0.9	)
Tax credits	(2.4	)	(3.2	)	(3.1	)
Nondeductible amortization	—		—		3.2
Deductions subject to deferred tax valuation allowance	39.2		40.0		30.8
Effective tax rate	0.0	%	0.0	%	(5.0	)%

        The components of net deferred tax assets were as follows:

		December 31,
		2002			2001
		(Amounts in thousands)
Deferred tax assets:
Net operating loss carryforwards		$	39,053		$	31,108
Reserves and other			372			269
Tax credits			5,273			4,411
Gross deferred tax asset			44,698			35,788
Valuation allowance			(44,698	)		(35,788	)
	Net deferred tax assets	$	—		$	—

        As a result of uncertainty surrounding our ability to realize certain tax benefits that primarily relate to operating loss carryforwards and capital losses from the purchase of IPR&D, we placed

GMO-33

valuation allowances of $44.7 million in 2002 and $35.8 million in 2001 against otherwise recognizable deferred tax assets.

        As Genzyme Molecular Oncology recognizes these deferred tax assets in accordance with accounting principles generally accepted in the U.S., the benefits of those assets will be reflected in its tax provision. However, the benefit of these deferred tax assets has previously been allocated to Genzyme General in accordance with our management and accounting policies, and will be reflected as a reduction of Genzyme Molecular Oncology's net income (loss) to determine net income (loss) attributable to Molecular Oncology Stock.

        The federal and various state income tax returns are currently under examination. While the ultimate results of such examinations cannot be predicted with certainty, we believe that the examinations will not have a material adverse effect on future operating results of Genzyme Molecular Oncology.

NOTE M. BENEFIT PLANS

        Note Q., "Benefit Plans," to our consolidated financial statements contains information regarding our 401(k) plan. We incorporate that information into this note by reference.

NOTE N. SIGNIFICANT CUSTOMERS

        Genzyme Molecular Oncology has four significant pharmaceutical customers. The following table describes the revenue for each customer in comparison to total revenue:

	2002		% of Total Revenue		2001		% of Total Revenue		2000		% of Total Revenue
	(Amounts in thousands, except percentage data)
Customer A	$	5,517	59	%	$	4,692	72	%	$	908	16	%
Customer B	$	3,244	35	%	$	407	6	%		—	—
Customer C		—	—		$	700	11	%	$	1,280	23	%
Customer D		—	—			—	—		$	2,000	35	%

GMO-34

NOTE O. QUARTERLY RESULTS (UNAUDITED)

	1st Quarter 2002			2nd Quarter 2002			3rd Quarter 2002			4th Quarter 2002
	(Amounts in thousands)
Total revenue	$	2,422		$	2,346		$	2,282		$	2,339
Gross profit		1,168			1,011			1,131			1,224
Net loss		(6,031	)		(6,237	)		(6,305	)		(5,141	)

	1st Quarter 2001			2nd Quarter 2001			3rd Quarter 2001			4th Quarter 2001
	(Amounts in thousands)
Total revenue	$	1,412		$	1,279		$	1,224		$	2,647
Gross profit		868			794			556			1,268
Net loss		(6,274	)		(8,331	)		(7,494	)		(7,619	)

GMO-35

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Genzyme Corporation:

        In our opinion, the accompanying combined balance sheets and the related combined statements of operations and of cash flows present fairly, in all material respects, the financial position of Genzyme Molecular Oncology at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 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 combined financial statements, Genzyme Molecular Oncology is a division of Genzyme Corporation; accordingly, the combined financial statements of Genzyme Molecular Oncology should be read in conjunction with the audited consolidated financial statements of Genzyme Corporation and Subsidiaries.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 7, 2003

GMO-36

EX-21

                                                                      Exhibit 21

                         SUBSIDIARIES OF THE REGISTRANT



                                                                                                        JURISDICTION OF
NAME                                         DIRECT PARENT                      OWNERSHIP                INCORPORATION
- ----                                         -------------                      ---------                -------------
                                                                                             
Allston Landing Corporation                  Genzyme Corporation                     100%                Massachusetts

Allston Landing Corporation II               Genzyme Corporation                     100%                Massachusetts

BioMarin/Genzyme LLC                         Genzyme Corporation                      50%                  Delaware

GelTex Pharmaceuticals, Inc.                 Genzyme Corporation                     100%                Massachusetts

Genzyme Biosurgery Corporation               Genzyme Corporation                     100%                Massachusetts

Genzyme B.V.                                 Genzyme Corporation                     100%               The Netherlands

Genzyme GmbH                                 Genzyme B.V.                            100%                   Germany

Genzyme Ireland Limited                      GelTex Pharmaceuticals, Inc.            100%             Republic of Ireland

Genzyme Limited                              Genzyme Corporation                     100%               United Kingdom

Genzyme Securities Corporation               Genzyme Corporation                     100%                Massachusetts

EX-23

                                                                     Exhibit 23


                  CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File Nos. 33-61853, 333-51790, 333-31548, 333-63802,
333-66096, 333-68548, 333-100727) and in the Registration Statements on Form
S-8 (File Nos. 33-60437, 333-10003, 333-33249, 333-83677, 333-51906,
33-30007, 33-68208, 333-33265, 333-10005, 333-33251, 333-83669, 333-33291,
33-21241, 333-55126, 333-42371, 333-81275, 333-87967, 333-81277, 333-83673,
333-64103, 333-83681, 333-51872, 333-52202, 333-66130, 333-70310, 333-76762,
333-76766, 333-76768, 333-76770, 333-100722, 333-90514, 333-90512, 333-90510,
333-64095) of Genzyme Corporation, of our report dated February 7, 2003,
except for Note T, as to which the date is March 28, 2003, relating to the
consolidated financial statements and financial statement schedule of Genzyme
Corporation; of our report dated February 7, 2003, except for Note U, as to
which the date is March 28, 2003, relating to the combined financial
statements of Genzyme General; of our report dated February 7, 2003, relating
to the combined financial statements of Genzyme Biosurgery; and of our report
dated February 7, 2003, relating to the combined financial statements of
Genzyme Molecular Oncology; which appear in the Annual Report to
Shareholders, which is incorporated in this Annual Report on Form 10-K.

Boston, Massachusetts
March 28, 2003

EX-99.2

                                                                    Exhibit 99.2



                    FACTORS AFFECTING FUTURE OPERATING RESULTS

     From time to time, we or our management may make forward-looking statements
about our operations. These statements are subject to risks and uncertainties,
and our actual results may differ significantly than those described in the
forward-looking statements. These risks and uncertainties are described below.

     In this document, the words "we," "us," "our," and "Genzyme" refer to
Genzyme Corporation and all of its operating divisions taken as a whole, and
"our board of directors" refers to the board of directors of Genzyme
Corporation. In addition, we refer to our three operating divisions as follows:

     Genzyme General Division = "Genzyme General";

     Genzyme Biosurgery Division = "Genzyme Biosurgery"; and

     Genzyme Molecular Oncology Division = "Genzyme Molecular Oncology."

                            RISKS RELATED TO GENZYME


     The following risk factors relate to us generally and affect all of our
divisions.


A REDUCTION IN REVENUE FROM SALES OF PRODUCTS THAT TREAT GAUCHER DISEASE WOULD
HAVE AN ADVERSE EFFECT ON OUR BUSINESS.

     We generate a substantial portion of our product revenue from sales of
enzyme-replacement products for patients with Gaucher disease. We entered this
market in 1991 with Ceredase(R) enzyme. Because production of Ceredase enzyme
was subject to supply constraints, we developed Cerezyme enzyme, a recombinant
form of the enzyme. Recombinant technology uses specially engineered cells to
produce enzymes, or other substances, by inserting into the cells of one
organism the genetic material of a different species. In the case of Cerezyme
enzyme, scientists engineer Chinese hamster ovary cells to produce human alpha
glucosidase. We stopped producing Ceredase enzyme, except for small quantities,
during 1998, after substantially all the patients who previously used Ceredase
enzyme converted to Cerezyme enzyme. Sales of Ceredase enzyme and Cerezyme
enzyme totaled $619.2 million for the year ended December 31, 2002, representing
approximately 47% of our consolidated revenues for that year.


     Because our business is highly dependent on Cerezyme enzyme, a decline in
the growth rate of Cerezyme enzyme sales could have an adverse effect on our
operations and may cause the value of our securities to decline substantially.
We will lose revenues from Cerezyme enzyme if competitors develop alternative
treatments for Gaucher disease and these alternative products gain commercial
acceptance.


     Some companies have initiated efforts to develop competitive products, and
other companies may do so in the future. Oxford GlycoSciences plc, for example,
is developing Zavesca(R), a small molecule drug candidate for the treatment of
Gaucher disease. Zavesca has been granted orphan drug status in the United
States for treatment of Gaucher and Fabry diseases, and has been designated as
an orphan medicinal product in the European Union for the treatment of Gaucher
disease. In July 2002, the FDA issued a "non-approvable" letter to Oxford
Glycosciences in response to its NDA for Zavesca; in November 2002, however, the
agency agreed to examine additional data in support of that NDA. Also in
November 2002, the European Commission approved Oxford GlycoSciences' MAA for
Zavesca as an oral therapy for use in patients with mild to moderate Type 1
Gaucher disease for whom enzyme replacement



                                       1


therapy is unsuitable. Oxford Glycosciences is required to submit follow-up
safety data on the product as a condition of such approval. In January 2003,
a licensee of Oxford Glycosciences submitted an application for approval of
Zavesca with the Israeli Ministry of Health.

     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 until 2013.
The expiration of market exclusivity and orphan drug status in May 2001 will
likely subject Cerezyme enzyme to increased competition, which may decrease the
amount of revenue we receive from this product or the growth of that revenue.


     In addition, the patient population with Gaucher disease is limited.
Because a significant percentage of that population already uses Cerezyme
enzyme, opportunities for future sales growth are limited. Further, changes in
the methods for treating patients with Gaucher disease, including treatment
protocols that combine Cerezyme enzyme with other therapeutic products or reduce
the amount of Cerezyme enzyme prescribed, could result in a decline in Cerezyme
enzyme sales.


OUR FUTURE EARNINGS GROWTH WILL DEPEND ON OUR ABILITY TO INCREASE SALES OF
RENAGEL(R) PHOSPHATE BINDER.


     We currently market Renagel phosphate binder, a non-absorbed phosphate
binder, which has been approved for use by patients with end-stage renal disease
undergoing a form of treatment known as hemodialysis. We are currently
conducting additional clinical trials in order to determine the efficacy and
safety of Renagel phosphate binder when administered to pre-dialysis patients.
Our ability to increase sales of Renagel phosphate binder will depend on a
number of factors, including:

         o    acceptance by the medical community of Renagel phosphate binder
              over calcium-based phosphorous binders as the preferred treatment
              for elevated serum phosphorous levels in dialysis patients;

         o    our ability to effectively manage wholesaler inventories and
              maintain inventory management programs;

         o    the level of compliance with inventory management arrangements
              with wholesalers;

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

         o    our ability to expand manufacturing capacity;

         o    our ability to manufacture Renagel phosphate binder in sufficient
              quantities to meet demand;

         o    the results of additional clinical trials for additional
              indications and expanded labeling;

         o    the availability of competing treatments serving the dialysis
              market;

         o    our ability to manufacture Renagel phosphate binder at a
              reasonable price;

         o    the effectiveness of our sales force;

         o    the content and timing of our submissions to and decisions by
              regulatory authorities;



                                       2


         o    the availability of reimbursement from third-party payors, and the
              extent of coverage; and

         o    the accuracy of available information about dialysis patient
              populations and the accuracy of our expectations about growth in
              this population.

GOVERNMENT REGULATION IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE
DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND SERVICES.


     Our success will depend on our ability to satisfy regulatory requirements.
We may not receive required regulatory approvals on a timely basis or at all.
Government agencies heavily regulate the production and sale of healthcare
products and the provision of healthcare services. In particular, the FDA and
comparable agencies in foreign countries must approve human therapeutic and
diagnostic products before they are marketed. This approval process can involve
lengthy and detailed laboratory and clinical testing, sampling activities and
other costly and time-consuming procedures. This regulation may delay the time
at which a company like Genzyme can first sell a product or may limit how a
consumer may use a product or service or may adversely impact third-party
reimbursement. A company's failure to comply with applicable regulatory approval
requirements may lead regulatory authorities to take action against the company,
including:

         o    issuing warning letters;

         o    issuing fines and other civil penalties;

         o    suspending regulatory approvals;

         o    refusing approval of pending applications or supplements to
              approved applications;

         o    suspending product sales in the United States and/or exports from
              the United States;

         o    recalling products; and

         o    seizing products.

Furthermore, therapies that have received regulatory approval for commercial
sale may continue to face regulatory difficulties. The FDA and comparable
foreign regulatory agencies, for example, may require post-marketing clinical
trials or patient outcome studies. In addition, regulatory agencies subject a
marketed therapy, its manufacturer and the manufacturer's facilities to
continual review and periodic inspections. The discovery of previously unknown
problems with a therapy, the therapy's manufacturer or the facility used to
produce the therapy could prompt a regulatory authority to impose restrictions
on the therapy, manufacturer or facility, including withdrawal of the therapy
from the market.


LEGISLATIVE CHANGES MAY ADVERSELY IMPACT OUR BUSINESS.


     The FDA has designated some of our products as orphan drugs under the
Orphan Drug Act. The Orphan Drug Act provides incentives to manufacturers to
develop and market drugs for rare diseases, generally by entitling the first
developer that receives FDA marketing approval for an orphan drug to a
seven-year exclusive marketing period in the United States for that product. In
recent years Congress has considered legislation to change the Orphan Drug Act
to shorten the period of automatic market exclusivity and to grant marketing
rights to simultaneous developers



                                       3


of the drug. If the Orphan Drug Act is amended in this manner, any drugs for
which we have been granted exclusive marketing rights under the Orphan Drug Act
will face increased competition, which may decrease the amount of revenue we
receive from these products. In addition, the U.S. government has shown
significant interest in pursuing healthcare reform. Any government-adopted
reform measures could adversely affect:

         o    the pricing of therapeutic products and medical devices in the
              United States or internationally; and

         o    the amount of reimbursement available from governmental agencies
              or other third-party payors.

If the U.S. government significantly reduces the amount we may charge for our
products, or the amount of reimbursement available for purchases of our products
declines, our future revenues may decline and we may need to revise our research
and development programs.


THE DEVELOPMENT OF OUR PRODUCTS INVOLVES A LENGTHY AND COMPLEX PROCESS, AND WE
MAY BE UNABLE TO COMMERCIALIZE ANY OF THE PRODUCTS WE ARE CURRENTLY DEVELOPING.


     Before we can commercialize our development-stage products, we will need
to:

         o    conduct substantial research and development;

         o    undertake preclinical and clinical testing;

         o    develop and scale-up manufacturing processes; and

         o    pursue regulatory approvals.

     This process involves a high degree of risk and takes several years. Our
product development efforts may fail for many reasons, including:

         o    failure of the product in preclinical studies;

         o    clinical trial data that is insufficient to support the safety or
              effectiveness of the product;

         o    our inability to manufacture sufficient quantities of product
              for development or commercialization activities in a timely or
              cost-efficient manner; or

         o    our failure to obtain the required regulatory approvals.

For these reasons, and others, we may not successfully commercialize any of the
products we are currently developing.


ANY MARKETABLE PRODUCTS THAT WE DEVELOP MAY NOT BE COMMERCIALLY SUCCESSFUL.


     Even if we obtain regulatory approval for any of our development-stage
products, those products may not be accepted by the market or approved for
reimbursement by third-party payors. A number of factors may affect the rate and
level of market acceptance of these products, including:

         o    regulation by the FDA and other government authorities;

         o    market acceptance by doctors and hospital administrators;

         o    the effectiveness of our sales force and our distributors;

         o    the effectiveness of our production and marketing capabilities;



                                       4


         o    the success of competitive products; and

         o    the availability and extent of reimbursement from third-party
              payors.

If our products fail to achieve market acceptance, our profitability and
financial condition will suffer.


WE WILL REQUIRE SIGNIFICANT ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE OR
AVAILABLE ON TERMS FAVORABLE TO US.


     As of December 31, 2002, we had approximately $1.2 billion in cash, cash
equivalents and short and long-term investments, excluding investments in equity
securities. We intend to use substantial portions of our available cash for:

         o    product development and marketing;

         o    expanding existing and constructing new facilities;

         o    expanding staff;

         o    working capital, including satisfaction of our obligations under
              capital and operating leases; and

         o    strategic business initiatives.

We may further reduce available cash reserves to pay principal and interest on
the following debt:

         o    $575.0 million in principal under our 3% convertible subordinated
              debentures due May 2021, the entire amount of which is allocated
              to Genzyme General. These debentures may be converted into shares
              of Genzyme General Stock. Holders of debentures may require us to
              repurchase all or part of their debentures for cash on May 15,
              2006, 2011 or 2016, at a price equal to 100% of the principal
              amount of the debentures plus accrued interest through the date
              prior to the date of purchase;

         o    $284.0 million in principal under our revolving credit facility
              with a syndicate of commercial banks, all of which is allocated to
              Genzyme Biosurgery and which is due in December 2003; and

         o    $10.0 million in principal under our 6.9% convertible subordinated
              note in favor of UBS Warburg LLC, the entire amount of which is
              allocated to Genzyme Biosurgery. This note matures in May 2003 and
              is convertible into shares of Biosurgery Stock.

If we use cash to pay or redeem all or a portion of this debt, including the
principal and interest due on it, our cash reserves will be diminished.


     To satisfy these and other commitments, we may have to obtain additional
financing. We may be unable to obtain any additional financing, extend any
existing financing arrangement, or obtain either on terms that we consider
favorable.


WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW
COMPETITORS TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS.



                                       5


     Our long-term success largely depends on our ability to market
technologically competitive products. If we fail to obtain or maintain adequate
intellectual property protections, we may not be able to prevent third parties
from using our proprietary technologies. Our currently pending or future patent
applications may not result in issued patents. In the United States, patent
applications are confidential until patents issue, and because third parties may
have filed patent applications for technology covered by our pending patent
applications without us being aware of those applications, our patent
applications may not have priority over any patent applications of others. In
addition, our issued patents may not contain claims sufficiently broad to
protect us against third parties with similar technologies or products or
provide us with any competitive advantage. If a third party initiates litigation
regarding our patents, our collaborators' patents, or those patents for which we
have license rights, and is successful, a court could revoke our patents or
limit the scope of coverage for those patents.


     The U.S. Patent and Trademark Office, commonly referred to as the USPTO,
and the courts have not consistently treated the breadth of claims allowed in
biotechnology patents. If the USPTO or the courts begin to allow broader claims,
the incidence and cost of patent interference proceedings and the risk of
infringement litigation will likely increase. On the other hand, if the USPTO or
the courts begin to allow narrower claims, the value of our proprietary rights
may be limited. Any changes in, or unexpected interpretations of, the patent
laws may adversely affect our ability to enforce our patent position.


     We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. We protect this information with
reasonable security measures, including the use of confidentiality agreements
with our employees, consultants and corporate collaborators. It is possible that
these individuals will breach these agreements and that any remedies for a
breach will be insufficient to allow us to recover our costs. Furthermore, our
trade secrets, know-how and other technology may otherwise become known or be
independently discovered by our competitors.


WE MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS OR OTHERS IN ORDER
TO DEVELOP AND COMMERCIALIZE SOME OF OUR PRODUCTS AND SERVICES, AND IT IS
UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE.

     Third-party patents may cover some of the products or services that we
or our strategic partners are developing or testing. For example, the USPTO
has issued several patents generally relating to human recombinant
alpha-L-iduronidase, the enzyme on which Aldurazyme enzyme is based. These
patents are owned or controlled by one of our competitors. We believe that
these patents do not validly cover the manufacture, use or sale of Aldurazyme
enzyme. In addition, we are aware of a recently-issued United States patent
owned by Columbia University relating to the manufacture of recombinant
proteins in CHO cells. While we are currently licensed under that patent, we
are evaluating its validity to determine whether we will be required to
maintain that license and pay the associated royalty in order to manufacture
certain of our enzyme replacement therapies.

     A United States patent is entitled to a presumption of validity, and we
cannot guarantee that, if we were to elect to challenge the validity of such
a patent, we would be successful in doing so. In addition, even if we are
successful in challenging the validity of a patent, the challenge itself may
be expensive and require significant management attention.

     To the extent valid third party patent rights cover our products or
services, we or our strategic collaborators would be required to obtain
licenses from the holders of these patents in order to use, manufacture or
sell these products and services, and payments under these licenses may
reduce our revenue from these products. Furthermore, we may not be able to
obtain these licenses on acceptable terms or at all. If we fail to obtain a
required license or are unable to alter the design of our technology to fall
outside of a patent, we may be unable to effectively market some of our
products and services, which could limit our profitability.

WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.

     A third party may sue us or one of our strategic collaborators for
infringing the third-party's patent rights. Likewise, we or one of our strategic
collaborators may need to resort to litigation to enforce patent rights or to
determine the scope and validity of third-party proprietary rights. If we do not
prevail in this type of litigation, we or our strategic collaborators may be
required to:

         o    pay monetary damages;

         o    stop commercial activities relating to the affected products or
              services;



                                       6


         o    obtain a license in order to continue manufacturing or marketing
              the affected products or services; or

         o    compete in the market with a substantially similar product.

     Uncertainties resulting from the initiation and continuation of any
litigation could limit our ability to continue some of our operations. In
addition, a court may require that we pay expenses or damages and litigation
could disrupt our commercial activities.


WE MAY BE LIABLE FOR PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE.


     Individuals who use our products or services, including those we acquire in
business combinations, may bring product liability claims against us or our
subsidiaries. While we have taken, and continue to take, what we believe are
appropriate precautions, we may be unable to avoid significant liability
exposure. We have only limited amounts of product liability insurance, which may
not provide sufficient coverage against any product liability claims. We may be
unable to obtain additional insurance in the future, or we may be unable to do
so on acceptable terms. Any additional insurance we do obtain may not provide
adequate coverage against any asserted claims. In addition, regardless of merit
or eventual outcome, product liability claims may result in:

         o    diversion of management's time and attention;

         o    expenditure of large amounts of cash on legal fees, expenses and
              payment of damages;

         o    decreased demand for our products and services; and

         o    injury to our reputation.

OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE
SUPERIOR PRODUCTS, MANUFACTURING CAPABILITIES OR MARKETING POSITION.


     The human healthcare products and services industry is extremely
competitive. Our competitors include major pharmaceutical companies and other
biotechnology companies. Some of these competitors may have more extensive
research and development, marketing and production capabilities. Some
competitors also may have greater financial resources than we have. Our future
success will depend on our ability to effectively develop and market our
products against those of our competitors. For instance, we are seeking orphan
drug designation for some of our products that are still in development or are
currently being reviewed by the FDA for marketing approval, including
Fabrazyme(R) enzyme for the treatment of Fabry disease. We are aware of other
companies developing products for the treatment of Fabry disease. Transkaryotic
Therapies Inc. also has an application for marketing approval for its product
pending before the FDA, which was originally filed shortly before we submitted
our application for Fabrazyme enzyme. If Transkaryotic Therapies or any other
company receives FDA approval for a Fabry disease therapy with orphan drug
designation before we receive FDA approval for Fabrazyme enzyme, the Orphan Drug
Act may preclude us from selling Fabrazyme enzyme in the United States for up to
seven years. Both Genzyme and Transkaryotic Therapies received EMEA approval for
their respective Fabry disease therapies, and were granted the European
equivalent of orphan drug designation in the European Union for up to ten years.
If our products receive marketing approval, but cannot compete effectively in
the marketplace, our profitability and financial position will suffer.


IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS OR
SERVICES MAY BECOME OBSOLETE.



                                       7


     The field of biotechnology is characterized by significant and rapid
technological change. Although we attempt to expand our technological
capabilities in order to remain competitive, research and discoveries by others
may make our products or services obsolete. For example, some of our competitors
may develop a product to treat Gaucher disease that is more effective or less
expensive than Cerezyme enzyme. If we cannot compete effectively in the
marketplace, our profitability and financial position will suffer.


IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR PRODUCTS FROM
THIRD-PARTY PAYORS, THE COMMERCIAL POTENTIAL OF OUR PRODUCTS WILL BE
SIGNIFICANTLY LIMITED.


     A substantial portion of our revenue comes from payments by third-party
payors, including government health administration authorities and private
health insurers. As a result of the trend toward managed healthcare in the
United States, as well as legislative proposals to reduce payments under
government insurance programs, third-party payors are increasingly attempting to
contain healthcare costs by:

         o    challenging the prices charged for healthcare products and
              services;

         o    limiting both coverage and the amount of reimbursement for new
              therapeutic products;

         o    shifting payments for products and services through co-pays,
              coinsurance and other risk sharing arrangements;

         o    denying or limiting coverage for products that are approved by the
              FDA, but are considered experimental or investigational by
              third-party payors; and

         o    refusing in some cases to provide coverage when an approved
              product is used for disease indications in a way that has not
              received FDA marketing approval.

     Government and other third-party payors may not provide adequate insurance
coverage or reimbursement for our products and services, which could impair our
financial results. In addition, third-party payors may not reimburse patients
for newly approved healthcare products, which could decrease demand for our
products. Furthermore, Congress occasionally has discussed implementing
broad-based measures to contain healthcare costs. It is possible that Congress
will enact legislation specifically designed to contain healthcare costs. If
third-party reimbursement is inadequate to allow us to recover our costs or if
Congress passes legislation to contain healthcare costs, our profitability and
financial condition will suffer.


CHANGES IN THE ECONOMIC, POLITICAL, LEGAL AND BUSINESS ENVIRONMENTS IN THE
FOREIGN COUNTRIES IN WHICH WE DO BUSINESS COULD CAUSE OUR INTERNATIONAL SALES
AND OPERATIONS, WHICH ACCOUNT FOR A SIGNIFICANT PERCENTAGE OF OUR CONSOLIDATED
NET SALES, TO BE LIMITED OR DISRUPTED.


     Our international operations accounted for approximately 40% of our
consolidated revenues for the year ended December 31, 2002. We expect that
international sales will continue to account for a significant percentage of
our revenues for the foreseeable future. In addition, we have direct
investments in a number of subsidiaries outside of the United States,
primarily in the United Kingdom, the European Union, Latin America and Japan.
Our international sales and operations could be limited or disrupted, and the
value of our direct investments may be diminished, by any of the following:

                                       8


         o    economic problems that disrupt foreign healthcare payment
              systems;

         o    fluctuations in currency exchange rates;

         o    the imposition of governmental controls;

         o    less favorable intellectual property or other applicable laws;

         o    the inability to obtain any necessary foreign regulatory approvals
              of products in a timely manner;

         o    import and export license requirements;

         o    political instability;

         o    terrorist activities;

         o    trade restrictions;

         o    changes in tariffs;

         o    difficulties in staffing and managing international operations;
              and

         o    longer payment cycles.

     A significant portion of our business is conducted in currencies other than
our reporting currency, the U.S. dollar. We recognize foreign currency gains or
losses arising from our operations in the period in which we incur those gains
or losses. As a result, currency fluctuations among the U.S. dollar and the
currencies in which we do business have caused foreign currency transaction
gains and losses in the past and will likely do so in the future. Because of the
number of currencies involved, the variability of currency exposures and the
potential volatility of currency exchange rates, we may suffer significant
foreign currency transaction losses in the future due to the effect of exchange
rate fluctuations on our future operating results.


SEVERAL ANTI-TAKEOVER PROVISIONS MAY DEPRIVE OUR STOCKHOLDERS OF THE OPPORTUNITY
TO RECEIVE A PREMIUM FOR THEIR SHARES UPON A CHANGE IN CONTROL.


     Provisions of Massachusetts law and our charter, by-laws and shareholder
rights plan could delay or prevent a change in control of Genzyme or a change in
our management. Our tracking stock structure may also deprive our stockholders
of the opportunity to receive a premium for their shares upon a change in
control because, in order to obtain control of a particular division, an
acquiror would have to obtain control of the entire corporation. In addition,
our board of directors may, in its sole discretion:

         o    exchange shares of Molecular Oncology Stock or Biosurgery Stock
              for Genzyme General Stock at a 30% premium over the market value
              of the exchanged shares; and

         o    issue shares of undesignated preferred stock from time to time in
              one or more series.

     Either of these board actions could increase the cost of an acquisition of
Genzyme and thus discourage a takeover attempt.



                                       9


                    RISKS RELATED TO GENZYME TRACKING STOCKS


     We have three series of common stock designed to reflect the value and
track the performance of our three operating divisions as follows:

         o    Genzyme General Stock--designed to track the performance of
              Genzyme General;

         o    Biosurgery Stock--designed to track the performance of Genzyme
              Biosurgery; and

         o    Molecular Oncology Stock--designed to track the performance of
              Genzyme Molecular Oncology.

The following are risks related to owning shares of our tracking stock.


HOLDERS OF OUR TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY AND
UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE DIVISION COULD NEGATIVELY AFFECT THE
OTHER DIVISIONS.


     Our divisions are not separate legal entities. Holders of Genzyme General
Stock, together with holders of our other series of tracking stock, are
stockholders of a single company and face all of the risks of an investment in
Genzyme.


     For purposes of financial presentation, we allocate programs, products,
assets and liabilities among our three divisions. Genzyme Corporation and its
subsidiaries, however, own all of the assets and are responsible for all of the
liabilities of each division. A holder of Biosurgery Stock, for example, does
not have any specific rights to the assets allocated to Genzyme Biosurgery in
our financial statements. Furthermore, if we are unable to satisfy one
division's liabilities out of the assets we allocate to that division, we may be
required to satisfy those liabilities with assets we have allocated to another
division. We encourage you to review our consolidated financial statements and
the financial statements of each of our divisions included in the reports that
we file with the SEC.


OUR BOARD OF DIRECTORS MAY TAKE ACTIONS THAT HAVE AN UNEQUAL AND ADVERSE EFFECT
ON THE HOLDERS OF ONE OR MORE SERIES OF OUR TRACKING STOCK.


     At times, the interests of the holders of the different series of our
tracking stock may diverge or appear to diverge from each other. We are not
aware of any legal precedent interpreting the fiduciary duties of the directors
of a Massachusetts corporation in that situation. Recent cases in Delaware have
established that a Delaware court will afford considerable deference to business
decisions that are made in good faith by a disinterested and adequately informed
board of directors even when those decisions involve disparate treatment of
different series of tracking stock. These Delaware cases rely upon the premise
that the board of directors owes its fiduciary duties to the corporation and all
of its stockholders and does not owe separate duties to each class or series of
stockholders. If a Massachusetts court were to follow the reasoning in these
Delaware cases, a Genzyme stockholder may not be able to successfully challenge
an action by the board of directors that has a disadvantageous effect on a
particular series of our tracking stock.


MEMBERS OF OUR BOARD OF DIRECTORS MAY FAVOR ONE SERIES OF TRACKING STOCK OVER
ANOTHER IF THEY OWN A DISPROPORTIONATE AMOUNT OF THAT SERIES.

     A member of our board of directors may own a disproportionate amount of
tracking stock in a particular series, or the value of his or her holdings of a
particular series of stock may be different from the value of his or her
holdings in another series. This disparate stock ownership may cause the board
member to favor one series of stock over another. Nevertheless, we believe



                                       10


that a member of our board of directors could properly perform his or her
fiduciary responsibilities to all of our stockholders even if his or her
interests in shares of different series are disproportionate or of unequal
values. Our board of directors may create committees to review matters that
raise conflict-of-interest issues. If a committee is formed, it would report to
the full board of directors.

HOLDERS OF OUR TRACKING STOCK HAVE LIMITED DECISION-MAKING POWER BECAUSE THEY
HAVE LIMITED SEPARATE VOTING RIGHTS.


     Holders of all series of our tracking stock vote together as a single class
on all matters requiring common stockholder approval, including the election of
directors. Holders of one series of tracking stock do not have the right to vote
on matters separately from the other series except in limited circumstances.
These circumstances are dictated by Massachusetts law, our charter and our
management and accounting policies. Therefore, stockholders of one series of
tracking stock generally could not make a proposal that would require approval
only of the holders of that series. Instead, they would have to obtain approval
from all common stockholders.


     As of March 1, 2003, the relative voting power of our tracking stocks
was as follows:




                                                 APPROXIMATE PERCENTAGE OF
                        SERIES                          VOTING POWER
                        ------                   -------------------------
                                              
                 Genzyme General Stock                       98%
                 Biosurgery Stock                           1.5%
                 Molecular Oncology Stock                   0.5%



THE VOTES PER SHARE OF OUR TRACKING STOCKS ARE ADJUSTED EVERY TWO YEARS.


     Under our charter, Genzyme General Stock is entitled to one vote per share,
which is never adjusted. However, the votes per share of our other tracking
stocks are adjusted every two years. Specifically, on January 1, 2003 and every
second anniversary thereafter, the vote per share to which each tracking stock
is entitled will be recalculated based on its fair market value divided by the
fair market value of a share of Genzyme General Stock, with "fair market value"
meaning the average closing price over the 20 consecutive trading days beginning
the 30th trading day preceding the January 1st adjustment date. At the time of
an adjustment, the per share voting power of any tracking stock relative to the
other series of tracking stock could decrease materially. Additionally, during
the intervening period between adjustments, the per share voting power of each
tracking stock will remain the same even though its market price will fluctuate
relative to--and could become materially greater than--the market prices of the
other tracking stocks. Currently, Biosurgery Stock is entitled to 0.08 vote per
share and Molecular Oncology Stock is entitled to 0.07 vote per share.


THE LIQUIDATION RIGHTS FOR OUR TRACKING STOCKS ARE NOT ADJUSTED TO REFLECT
CHANGES IN THEIR MARKET VALUES.


     If we were to dissolve, liquidate or wind up our affairs, other than as
part of a merger, business combination or sale of substantially all of our
assets, our stockholders would receive any remaining assets according to the
percentage of total liquidation units that they hold. The number of liquidation
units per share for each series of our tracking stock outstanding is as follows:

         o    each share of Genzyme General Stock has 100 liquidation units;

         o    each share of Biosurgery Stock has 100 liquidation units; and



                                       11


         o    each share of Molecular Oncology Stock has 50 liquidation units.


     Although we adjust liquidation units to prevent dilution in the event of
some subdivisions, combinations or distributions of common stock, we do not
adjust them to reflect changes in the relative market value or performance of
the divisions. Therefore, at the time of a dissolution, liquidation or winding
up, the relative liquidation units attributable to each series of tracking stock
may not correspond to the value of the underlying assets allocated to that
division.

OUR BOARD OF DIRECTORS MAY CHANGE OUR MANAGEMENT AND ACCOUNTING POLICIES TO THE
DETRIMENT OF ONE SERIES OF TRACKING STOCK WITHOUT SHAREHOLDER APPROVAL.


     Our board of directors has adopted management and accounting policies that
are used to govern our business and to prepare our financial statements. These
policies cover the allocation of corporate expenses, assets and liabilities and
other accounting matters, and the reallocation of assets between divisions and
other matters. Our board of directors generally may modify or rescind these
policies or adopt new ones without shareholder approval. Any revised policies
could have different effects on each series of our tracking stock and could be
detrimental to one series as compared to another. The discretion of our board of
directors to make changes is limited only by the policies themselves and the
board's fiduciary duty to all of our stockholders. We encourage you to review
the full text of our management and accounting policies, a copy of which is
attached as Exhibit 3 to our Registration Statement on Form 8-A that we filed
with the SEC on December 19, 2000, as amended on June 6, 2001.


OUR BOARD OF DIRECTORS CAN REQUIRE INVESTORS TO EXCHANGE THEIR SHARES OF OUR
TRACKING STOCK.


     Our board of directors may at any time, in its sole discretion, decide to
exchange shares of Biosurgery Stock and/or Molecular Oncology Stock for any
combination of cash and shares of Genzyme General Stock at a 30% premium over
the exchanged stock's then current market value. At any time that all of a
division's assets are held through a wholly-owned subsidiary, our board can
choose to "spin off" that division by exchanging the outstanding shares of
tracking stock corresponding to that division for shares in the spun off
company, whereupon former tracking stockholders will no longer be Genzyme
stockholders.


     If we transfer or sell to a third party all or substantially all of the
assets allocated to Genzyme Biosurgery or Genzyme Molecular Oncology, the board
would have to either redeem, make a dividend payment on or exchange outstanding
Biosurgery Stock or Molecular Oncology Stock, as applicable. Our board will have
sole discretion in deciding whether to effect that redemption, dividend payment
or exchange using Genzyme General Stock or any combination of cash or other
property regardless of the form of consideration paid by the buyer. However, our
charter will require that any exchange for Genzyme General Stock be at a 10%
premium to the exchanged series' average market price following public
announcement of the sale and that any payment of cash or other property be equal
in value to the sale's after-tax net proceeds.


     Also, our board can exchange shares of Biosurgery Stock and/or Molecular
Oncology Stock into Genzyme General Stock at no premium to the exchanged stocks'
market value in the event of certain adverse tax developments, as discussed in
the immediately following risk factor.


WE MAY ELIMINATE TRACKING STOCK IF A CORPORATE OR SHAREHOLDER LEVEL TAX IS
IMPOSED ON THE ISSUANCE OR RECEIPT OF TRACKING STOCK.


     In 1999, the Clinton Administration proposed tax legislation that would
have imposed a corporate level tax on issuances of tracking stock. In 2000, the
Clinton Administration proposed



                                       12


legislation that would tax stockholders upon the receipt of tracking stock from
the issuing corporation as a distribution or in a tracking stock exchange.
Congress has not enacted either of these proposals into law. If similar
proposals are enacted into law or effected through Treasury Department
regulations, we could be taxed on an amount up to the gain realized in future
financings in which we sell tracking stock, including Genzyme General Stock.
Also, any use of our tracking stock to acquire other companies could result in a
tax on us, the stockholders of the target company, or both. We also may be taxed
if we distribute to stockholders "designated" shares of tracking stock, which
are shares designated by the tracked division as issuable at the option of our
board for Genzyme General's benefit. In addition, stockholders could be taxed if
they receive a distribution of designated shares of tracking stock or if they
receive shares of tracking stock in exchange for other Genzyme stock. These or
similarly adverse tax consequences could cause us to eliminate tracking stock
from our capital structure. We cannot predict, however, whether Congress will
enact legislation, or whether the Treasury Department will issue regulations
effecting these or similar proposals.


WE CANNOT ASSURE YOU THAT TRACKING STOCK WILL "TRACK" THE PERFORMANCE OF THE
CORRESPONDING DIVISION.


     Although we have attempted to design our tracking stocks to "track" the
performance of their corresponding divisions, we cannot assure that the market
prices of these stocks will indeed reflect that performance. The market may
assign values to a tracking stock that are based on factors other than a
corresponding division's reported financial performance. For instance, we cannot
be certain what, if any, valuation the market might place on the mandatory and
optional exchange features or the differing voting rights and liquidation units
of the tracking stocks. In addition, as discussed above under the subheading
"--HOLDERS OF OUR TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY AND
UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE DIVISION COULD NEGATIVELY AFFECT THE
OTHER DIVISIONS," financial developments in one division, particularly if
significant and/or adverse, may affect other divisions.


THE USE OF OPERATING LOSSES AT UNPROFITABLE DIVISIONS TO LOWER THE REPORTED TAX
LIABILITY OF OUR PROFITABLE DIVISIONS WILL CAUSE THE UNPROFITABLE DIVISIONS TO
REPORT LOWER EARNINGS IN THE FUTURE.


     Genzyme Corporation, rather than our divisions, is liable for taxes. Under
our management and accounting policies, for financial reporting purposes we
generally allocate taxes among our divisions as if they were separate taxpayers.
However, our board of directors has adopted a policy that provides that if any
of our divisions is unable to use its operating losses or other projected annual
tax benefits to reduce its current or deferred income tax expense, we may
reallocate these losses or benefits to our profitable divisions on a quarterly
basis for financial reporting purposes. This will result in a division with
current losses (such as Genzyme Biosurgery and Genzyme Molecular Oncology)
reporting lower earnings available to its common stockholders in the future than
would be the case if that division had retained its historical losses or other
benefits in the form of a net operating loss carry forward.


THE NON-COMPETE POLICY AMONG OUR DIVISIONS MAY NOT COVER ALL OF THE ACTIVITIES
OF A PARTICULAR DIVISION.


     Our board of directors has adopted a policy regarding competition among our
divisions. This non-compete policy requires that we develop certain products and
services within a given division, as opposed to another division, or through
joint ventures involving a given division, because the product or service is
within the field of activity of that division. This non-compete policy, however,
does not cover the entire field of activity of each division. We cannot
guarantee that all products and services we develop in a given field of activity
will be allocated to a division primarily engaged in that field of activity.


                                       13


FUTURE SALES OR DISTRIBUTIONS OF DESIGNATED SHARES MAY SIGNIFICANTLY DILUTE YOUR
OWNERSHIP.


     Our management and accounting policies require that we sell or distribute
any designated shares of a division that may be held by Genzyme General, subject
to certain limitations. Designated shares are created when cash or other assets
are transferred from Genzyme General to another division. Proceeds from a sale
or distribution will be allocated to Genzyme General but the issuance and sale
may substantially dilute your ownership of the other division. Circumstances
under which designated shares will be sold or distributed are described in our
management and accounting policies, a copy of which is attached as Exhibit 3 to
our Registration Statement on Form 8-A that we filed with the SEC on December
19, 2000, as amended on June 6, 2001.

                        RISKS RELATING TO GENZYME GENERAL

     The following risks and uncertainties may adversely affect the business of
Genzyme General.

GENZYME GENERAL IS SUBSTANTIALLY DEPENDENT UPON SALES OF CEREZYME ENZYME.

     Genzyme General derives a majority of its revenue from sales of Cerezyme
enzyme, our enzyme-replacement therapy for the treatment of Gaucher disease.
Accordingly, the risks described above under the heading "Management's
Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--A reduction in revenue from sales of products that treat Gaucher
disease would have an adverse effect on our business" included in this annual
report. The risks described in that section may also adversely affect the
business of Genzyme General.

FUTURE INCREASES IN GENZYME GENERAL'S EARNINGS WILL DEPEND ON OUR ABILITY TO
INCREASE SALES OF RENAGEL PHOSPHATE BINDER.

     We encourage you to read the material under the heading "Management's
Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--Our future earnings growth will depend on our ability to increase sales
of Renagel brand phosphate binder" included in this annual report. That material
describes the factors on which the commercial success of Renagel phosphate
binder depends. The risks described in that section may also adversely affect
the business of Genzyme General.

WE MAY NOT SUCCESSFULLY COMMERCIALIZE GENZYME GENERAL'S PRODUCT CANDIDATES.

     Genzyme General is developing or collaborating on the development of
treatments for, among other things, Fabry disease, MPS I and Pompe disease. 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, Israel and Brazil in 2000
and Canada in 2001, and plans to continue



                                       14


launching the product 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:

         o    regulation by the FDA and other regulatory authorities;

         o    our ability to obtain regulatory approvals in foreign countries;

         o    the development and commercial success of competitive products;
              and

         o    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:

         o    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

         o    a joint venture with BioMarin for the development and
              commercialization of Aldurazyme enzyme 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:

         o    terminate their agreements and Genzyme General's access to the
              underlying intellectual property;

         o    fail to devote significant financial or other resources to the
              alliances and thereby significantly hinder or delay development,
              manufacturing or commercialization activities;

         o    fail to successfully develop or commercialize any products; or

         o    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.

GENZYME GENERAL MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS IN
ORDER TO DEVELOP AND COMMERCIALIZE SOME OF ITS PRODUCTS AND SERVICES, AND IT
IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE.

     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 - We may be required to license technology from competitors or others
in order to develop and commercialize some of its products and services, and
it is uncertain whether these license will be available" included in this
annual report. The risks described in that section may also adversely affect
the business of Genzyme General.

                                       15


                       RISKS RELATED TO GENZYME BIOSURGERY

     Biosurgery Stock is intended to track the value and reflect the performance
of Genzyme Biosurgery. Accordingly, you should carefully consider the following
factors that may adversely affect the business of Genzyme Biosurgery.


A FAILURE TO INCREASE SALES OF SYNVISC VISCOSUPPLEMENTATION PRODUCT COULD HAVE A
NEGATIVE EFFECT ON GENZYME BIOSURGERY'S BUSINESS.


     Genzyme Biosurgery expects to generate a substantial portion of its product
revenues from sales of Synvisc viscosupplementation product. Net product sales
of Synvisc viscosupplementation product totaled $89.8 million for the year ended
December 31, 2002, representing approximately 37% of Genzyme Biosurgery's total
revenues for that year.


     Failure to achieve sales growth for Synvisc viscosupplementation product
may adversely affect Genzyme Biosurgery's business. Revenues from Synvisc
viscosupplementation product could be impacted negatively if competitive
treatments for the symptoms of osteoarthritis of the knee are deemed more
efficacious, more convenient to use or cost effective. Products competitive
to Synvisc viscosupplementation product are currently being sold. Some
companies are developing competitive products, and other companies may do so
in the future.

     The commercial success of Synvisc viscosupplementation product also will
depend on many other factors, including:

         THE AVAILABILITY OF THIRD-PARTY REIMBURSEMENT.

                  An important factor to achieving sales growth for Synvisc
                  viscosupplementation product is the availability of
                  reimbursement from third party payors, including managed care
                  organizations, private health insurers and government
                  healthcare administrative authorities. Genzyme Biosurgery has
                  been generally successful in obtaining and maintaining broad
                  coverage and adequate reimbursement in the United States for
                  Synvisc viscosupplementation product. Medicare carriers in all
                  50 states provide benefits for Synvisc viscosupplementation
                  product. Approximately 90% of commercial insurers also cover
                  the product. Genzyme Biosurgery is working to expand existing
                  coverage to plans that do not provide benefits for Synvisc
                  viscosupplementation product and in situations where coverage
                  policies may be limited in scope. Outside the United States,
                  reimbursement is often provided by government healthcare
                  administrative authorities. Reimbursement is not offered by
                  any such authority outside the United States. Genzyme
                  Biosurgery continues to seek coverage for Synvisc
                  viscosupplementation product from such authorities,
                  particularly in Canada, Europe and Australia. To manage and
                  reduce healthcare costs, third party payors increasingly seek
                  opportunities to contain healthcare costs. These efforts
                  include challenging the price of healthcare products, limiting
                  coverage and the level of coverage that will be provided, and
                  shifting reimbursable costs to other parties through
                  co-payment, coinsurance and other risk sharing arrangements.
                  We cannot guarantee that any third-party payor that currently
                  provides reimbursement for Synvisc viscosupplementation
                  product will continue to provide coverage or reimbursement at
                  adequate levels, or that additional third-party payors will
                  begin to provide coverage or reimbursement at adequate levels.

         CONTINUED RELATIONS WITH MARKETING PARTNERS.

                  Genzyme Biosurgery has entered into several distribution
                  agreements for marketing and distributing Synvisc
                  viscosupplementation product. Genzyme Biosurgery has in the
                  past and may in the future periodically reacquire



                                       16


                  distribution rights in some territories if partners fail to
                  perform under agreements relating to these territories.
                  Genzyme Biosurgery may not be able to maintain or replace
                  these marketing partners. In this event, there may be
                  disruptions in sales associated with restructuring Genzyme
                  Biosurgery's distribution arrangements.


     The future commercial success of Synvisc viscosupplementation product, as
well as the other marketed products allocated to Genzyme Biosurgery, is highly
uncertain. For additional details concerning the risks associated with
commercializing novel biotechnology products, you should review the factors
described above under the heading "--Risks Related to Genzyme."


THE COMMERCIAL SUCCESS OF CARTICEL(R) CHONDROCYTES IS UNCERTAIN.


     Carticel cartilage repair service involves a proprietary process for
growing autologous chondrocytes (a patient's own cartilage cells) to replace
those that are damaged or lost. The commercial success of Carticel chondrocytes
will depend on many factors, including the following:

         o    positive results from post-marketing studies;

         o    FDA approval of a device to improve the procedure for implanting
              Carticel chondrocytes;

         o    the availability of third-party reimbursement;

         o    market acceptance by orthopaedic surgeons;

         o    our continuing relationship with key collaborators; and

         o    the success of competitive products.

We are aware of at least three other companies that have competitive cell-based
therapies for cartilage repair in the European market. Further, at least three
other companies are engaged in research on cultured cartilage cell products.
Also, several pharmaceutical and biotechnology companies are developing
alternative treatments for knee cartilage damage. One or more of these companies
may develop products or services superior to Carticel chondrocytes.


GENZYME BIOSURGERY HAS AND WILL CONTINUE TO DEVOTE SIGNIFICANT RESOURCES TO
DEVELOP NOVEL PRODUCTS AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL.


     Genzyme Biosurgery has devoted a significant amount of money to developing
products that will represent alternatives to traditional surgical procedures or
treatments. These products will likely require several years of aggressive and
costly marketing before they might become widely accepted by the surgical
community. Genzyme Biosurgery expects to develop products that are designed to
enable surgeons to perform minimally invasive cardiovascular surgery. The
medical conditions that can be treated with minimally invasive cardiovascular
surgery are currently being treated with widely accepted surgical procedures
such as coronary artery bypass grafting and catheter-based treatments, including
balloon angioplasty, atherectomy and coronary stenting. To date, minimally
invasive cardiovascular surgery has been performed on a limited basis and its
further adoption by the surgical community will partly depend on Genzyme
Biosurgery's ability to educate cardiothoracic surgeons about its effectiveness
and to facilitate the training of cardiothoracic surgeons in minimally invasive
cardiovascular surgery techniques.


     Similarly, until recently surgeons have not used products designed to
reduce the incidence and extent of postoperative adhesions. Since 1996, when
Seprafilm(R) adhesion barrier was



                                       17


introduced, market acceptance of anti-adhesion products has been slow. To
increase sales of the Sepra(TM) products, Genzyme Biosurgery has had to educate
surgeons and hospital administrators about the problems of, and costs associated
with, adhesions and the benefits of preventing adhesions. Genzyme Biosurgery
also has had to, and continues to have to, train surgeons on the proper handling
and use of these products.


     We cannot guarantee that Genzyme Biosurgery's continued efforts in
educating and training the surgical community will result in the widespread
adoption of minimally invasive cardiovascular surgery and anti-adhesion products
or that surgeons adopting these procedures and products will use Genzyme
Biosurgery's products.


ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME BIOSURGERY'S GENE THERAPY PRODUCTS.


     Recent adverse events in gene therapy clinical trials may result in greater
governmental regulation, increased development costs and potential regulatory
delays relating to the testing or approval of Genzyme Biosurgery's gene therapy
products. The commercial success of any gene therapy products that Genzyme
Biosurgery develops will depend in part on public acceptance of the use of gene
therapies for the prevention or treatment of human diseases. Public attitudes
may be influenced by claims that gene therapy is unsafe, and gene therapy may
not gain the acceptance of the public or the medical community. Negative public
reaction to gene therapy could result in:

         o    greater government regulation;

         o    stricter clinical trial oversight;

         o    tighter commercial product labeling requirements of gene
              therapies; and

         o    a decrease in the demand for any gene therapy product that Genzyme
              Biosurgery may develop.

BECAUSE GENZYME BIOSURGERY HAS SIGNIFICANT FIXED PAYMENTS, IT WILL NEED TO
DEVOTE A SUBSTANTIAL PORTION OF ITS CASH FLOW TO MAKE THE PAYMENTS AND MAY NEED
TO BORROW MONEY IN THE FUTURE TO MAKE DEBT PAYMENTS AND OPERATE ITS BUSINESS.


     As of December 31, 2002, we had allocated to Genzyme Biosurgery
approximately $284.0 million borrowed under our corporate credit facility.
Genzyme Biosurgery will use a large part of its cash flow to make principal
and interest payments on this debt, which is due in December 2003. If Genzyme
Biosurgery's cash flow from operations is insufficient to meet these
obligations, we may need to borrow additional funds on behalf of Genzyme
Biosurgery to make these payments. We cannot guarantee that such additional
financing will be available or available on favorable terms.

     In connection with our acquisition of Biomatrix, we assumed a 6.9%
convertible subordinated note in favor of UBS Warburg LLC that matures in May
2003. At December 31, 2002, $10.0 million principal amount of this note remained
outstanding, all of which we allocated to Genzyme Biosurgery. Genzyme Biosurgery
will use a part of its cash flow to satisfy debt service on this note. If all or
a portion of the note is not converted at the option of the holder into
Biosurgery Stock, at maturity Genzyme Biosurgery's cash reserves will be
diminished by the amount necessary to repay the outstanding principal of the
note.



                                       18


GENZYME BIOSURGERY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE.


     Genzyme Biosurgery expects to have operating losses before amortization
of intangibles through at least the second quarter of 2003 as it continues to
spend substantial amounts of money on, among other things, conducting
research, development, regulatory and commercialization activities to support
its expanded product lines. This strategy involves risks, which include
supporting higher levels of operating expenses, attracting and retaining
employees, and dealing with other management difficulties that arise from
rapid growth and operating loss. If Genzyme Biosurgery cannot increase
revenues and/or reduce operating expenses effectively, it may not become
profitable.

IF GENZYME BIOSURGERY FAILS TO OBTAIN CAPITAL NECESSARY TO FUND ITS OPERATIONS,
IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS.


     We anticipate that Genzyme Biosurgery's current cash resources, together
with revenues generated from its products and distribution agreements and the $3
million remaining under the interdivisional financing arrangement with Genzyme
General, will be sufficient to fund its operations and capital requirements
through the first half of 2003.


     Genzyme Biosurgery intends to use substantial portions of its available
cash for:

     o        research and development;

     o        product development and marketing, including for Synvisc
              viscosupplementation product;

     o        improving manufacturing efficiency;

     o        enforcing patent and other intellectual property rights;

     o        transactional activity related to acquiring and disposing of
              assets

     o        consolidating facilities and related relocation activities; and

     o        working capital.


     Genzyme Biosurgery's cash needs may differ from those planned because of
many factors, including the:

         o    results of research and development efforts;

         o    ability to establish and maintain strategic alliances;

         o    ability to enter into and maintain licensing arrangements and
              additional distribution arrangements;

         o    ability to share costs of product development with research and
              marketing partners;

         o    costs involved in enforcing patent claims and other intellectual
              property rights;

         o    costs involved in defending or setting post-closing retained
              liabilities in connection with our sale of the Snowden-Pencer line
              of surgical instruments;

         o    market acceptance of novel approaches and therapies;



                                       19


         o    success of its initiatives to reduce expenses and streamline its
              operations;

         o    development of competitive products; and

         o    ability to satisfy regulatory requirements of the FDA and other
              government authorities.

     Genzyme Biosurgery will require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that we will be
able to obtain any additional financing, extend any existing financing
arrangement, or obtain either on terms we consider favorable. If Genzyme
Biosurgery has insufficient funds or is unable to raise additional funds, it may
delay, scale back or eliminate certain of its programs. Genzyme Biosurgery may
also have to sell to, or co-develop with third parties, rights to commercialize
technologies or products that it would otherwise have sought to commercialize
itself.


CHANGES IN GENZYME BIOSURGERY'S MANUFACTURING CAPABILITIES COULD SIGNIFICANTLY
REDUCE ITS ABILITY TO DELIVER ITS PRODUCTS.


     Genzyme Biosurgery is engaged in the production of a wide variety of
products and services. Genzyme Biosurgery's manufacturing processes are highly
complex and are regulated by the government. It is possible that Genzyme
Biosurgery will have problems maintaining or expanding its facilities in the
future. These problems could cause delays in production or delivery. Any
significant disruption in Genzyme Biosurgery's manufacturing operations or in
its ability to manufacture products cost effectively could have an adverse
effect on its business, results of operations and financial condition.


COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT
GENZYME BIOSURGERY'S PERFORMANCE.


     The human health care products and services industry is extremely
competitive. Major medical device and technology companies compete or may
compete with Genzyme Biosurgery. These include such companies as:

         o    Atrium Medical Corporation and a division of Tyco International,
              Ltd., in the cardiovascular fluid management market;

         o    Ethicon Inc., a Johnson & Johnson company, and U.S. Surgical
              Corporation, a division of Tyco, in the cardiovascular closure
              market;

         o    CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical,
              Guidant Corporation and Ethicon in the minimally invasive
              cardiovascular surgery market;

         o    Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc.
              and Gliatech, Inc. in the anti-adhesion market; and

         o    Fidia S.p.A., Q-Med AB, Sanofi and OrthoLogic Corp., Anika
              Therapeutics, Inc., Seikagiku Corporation, Bio-Technology
              General Corp. and Smith & Nephew in the viscosupplementation
              product market.

     These competitors may have superior research and development, marketing and
production capabilities. Some competitors also may have greater financial
resources than Genzyme Biosurgery. The division is likely to incur significant
costs developing and marketing new products without any guarantee that they will
be competitively successful in one or more markets.



                                       20


The future success of Genzyme Biosurgery will depend on its ability to
effectively develop and market its products against those of its competitors.


THE TREND TOWARD CONSOLIDATION IN THE SURGICAL DEVICES INDUSTRY MAY ADVERSELY
AFFECT GENZYME BIOSURGERY'S ABILITY TO MARKET SUCCESSFULLY ITS PRODUCTS TO SOME
SIGNIFICANT PURCHASERS.


     The current trend among hospitals and other significant consumers of
surgical devices is to combine into larger purchasing groups to increase their
purchasing power and thus reduce their purchase price for surgical devices.
Partly in response to this development, surgical device manufacturers have been
consolidating to be able to offer more comprehensive product lines to these
larger purchasing groups. In order to market successfully its products to larger
purchasing groups, Genzyme Biosurgery may have to expand its product lines or
enter into joint marketing or distribution agreements with other manufacturers
of surgical devices. We cannot guarantee that Genzyme Biosurgery will be able to
employ either of these initiatives or that, when employed, these initiatives
will increase the marketability of its products.


                  RISKS RELATING TO GENZYME MOLECULAR ONCOLOGY

     The following risks and uncertainties may adversely affect the business of
Genzyme Molecular Oncology.

GENZYME MOLECULAR ONCOLOGY MAY NEVER BE ABLE TO SUCCESSFULLY DEVELOP OR
COMMERCIALIZE ANY OF ITS CANCER THERAPIES.

     Genzyme Molecular Oncology does not have any cancer therapies on the market
and its only therapies in clinical development are at an early stage. Before
commercializing any cancer therapies, Genzyme Molecular Oncology will need to
conduct substantial additional research and development, including, in some
cases, the replication of studies performed by third parties, undertake
preclinical and clinical testing and obtain regulatory approvals. This process
involves a high degree of uncertainty and may take several years. Its product
development efforts may fail for many reasons, including: the product fails in
preclinical studies; clinical trials may not support the safety or effectiveness
of the product; or we fail to obtain the required regulatory approvals. We
cannot guarantee that Genzyme Molecular Oncology will successfully develop any
particular product or that any product it successfully develops will gain market
acceptance.

GENZYME MOLECULAR ONCOLOGY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.

     Genzyme Molecular Oncology has not generated significant revenues to date
and does not expect to do so for several years. As of December 31, 2002, Genzyme
Molecular Oncology had an accumulated deficit of approximately $145.5 million.
We expect Genzyme Molecular Oncology to have significant operating losses for
the next several years. Genzyme Molecular Oncology plans to spend substantial
amounts of money on, among other things: research and development; preclinical
and clinical testing; and pursuing regulatory approvals. We cannot guarantee
that the efforts underlying these expenditures will be successful or that
Genzyme Molecular Oncology's operations will ever be profitable.

IF GENZYME MOLECULAR ONCOLOGY FAILS TO OBTAIN THE CAPITAL NECESSARY TO FUND ITS
OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL
TRIALS.

     We anticipate that Genzyme Molecular Oncology's current cash resources,
together with amounts available from the following sources, will be sufficient
to fund its operations through the end of 2003:

         o    committed research funding from collaborators;



                                       21


         o    the $11 million remaining under the interdivisional financing
              arrangement with Genzyme General; and

         o    amounts available to Genzyme Molecular Oncology under our
              revolving credit facility.

     Genzyme Molecular Oncology plans to spend substantial amounts of funds on,
among other things:

         o    research and development;

         o    preclinical and clinical testing;

         o    pursuing regulatory approvals; and

         o    working capital.

     Genzyme Molecular Oncology's cash needs may differ from those planned,
however, because of many factors, including the: o results of research and
development and clinical testing;

         o    achievement of milestones under existing licensing arrangements;

         o    ability to establish and maintain additional strategic
              collaborations and licensing arrangements;

         o    costs involved in enforcing patent claims and other intellectual
              property rights;

         o    market acceptance of novel approaches and therapies;

         o    development of competing products and services; and

         o    ability to satisfy regulatory requirements of the FDA and other
              government authorities.

     Genzyme Molecular Oncology will require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that Genzyme
Molecular Oncology will be able to obtain any additional financing, extend any
existing financing arrangement, or obtain either on terms that we consider
favorable. If Genzyme Molecular Oncology has insufficient funds or is unable to
raise additional funds, it may delay, reduce or eliminate certain of its
programs. Genzyme Molecular Oncology may also have to sell or give to third
parties rights to commercialize technologies or products that it would otherwise
have sought to commercialize itself.

GENZYME MOLECULAR ONCOLOGY MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM
COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A
FAILURE TO ENTER INTO FUTURE COLLABORATIONS.

     Genzyme Molecular Oncology's strategy to develop and commercialize some of
its products and services includes entering into various arrangements with
academic and corporate collaborators and licensees. It depends on the success of
these parties in performing research, preclinical and clinical testing and
marketing. These arrangements may require Genzyme Molecular Oncology to transfer
important rights to its corporate collaborators and licensees.



                                       22


These collaborators and licensees could choose not to devote resources to these
arrangements or, under certain circumstances, may terminate them early. In
addition, these collaborators and licensees, outside of their arrangements with
Genzyme Molecular Oncology, may develop technologies or products that are
competitive with those that Genzyme Molecular Oncology is developing. As a
result, we cannot guarantee that Genzyme Molecular Oncology will receive
revenues from these relationships or that any of its strategic collaborations
will continue or not terminate early. In addition, we cannot guarantee that
Genzyme Molecular Oncology will be able to enter into collaborations in the
future.

GENZYME MOLECULAR ONCOLOGY MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM THIRD
PARTIES IN ORDER TO DEVELOP AND COMMERCIALIZE SOME OF ITS PRODUCTS AND
SERVICES, AND IT IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE.

     Third party patent rights and pending patent applications filed by third
parties, if issued, may cover some of the products Genzyme Molecular Oncology is
developing or testing. As a result, Genzyme Molecular Oncology may be required
to obtain licenses from the holders of these patents in order to use or sell
certain products and services. We cannot guarantee that these licenses will be
made available on acceptable terms or at all. If these licenses are not
available, Genzyme Molecular Oncology's ability to commercialize its products
and services may be impaired.

     In its cancer vaccine program, Genzyme Molecular Oncology is in the process
of evaluating the therapeutic administration of peptide products and genes that
encode specific tumor antigens, including MART-1 and gp100. Genzyme Molecular
Oncology is aware of two issued U.S. patents directed to the gene that encodes
MART-1. While it has obtained rights under one of these patents, Genzyme
Molecular Oncology is still in the process of evaluating the scope and validity
of the other to determine whether it needs to obtain a license. Genzyme
Molecular Oncology is also evaluating an issued U.S. patent covering the gene
that encodes gp100 and three published Patent Cooperation Treaty applications by
three different applicants that may cover antigens derived from gp100. Genzyme
Molecular Oncology is in the process of evaluating the scope and validity of
these patents and patent applications to determine whether it needs to obtain
licenses.

GENZYME MOLECULAR ONCOLOGY MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION
OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.

     If Genzyme Molecular Oncology or one of its strategic collaborators
initiates litigation to enforce Genzyme Molecular Oncology's patent or license
rights, or is required to defend these rights in response to third party claims,
its business or financial position may be negatively affected. Genzyme Molecular
Oncology has licensed its p53 gene therapy rights to Schering-Plough. These
patent rights are the subject of an interference proceeding in the U.S. and an
opposition proceeding in Europe. Adverse determinations in these proceedings may
negatively affect Genzyme Molecular Oncology's ability to receive future
milestones and product royalties under its agreement with Schering-Plough.

ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME MOLECULAR ONCOLOGY'S GENE THERAPY
PRODUCTS.

     Recent adverse events in gene therapy clinical trials may result in greater
governmental regulation, increased development costs, and potential regulatory
delays relating to the testing or approval of Genzyme Molecular Oncology's gene
therapy products. The commercial success of any gene therapy products that
Genzyme Molecular Oncology develops will depend in part on public acceptance of
the use of gene therapies for the prevention or treatment of human diseases.
Public attitudes may be influenced by claims that gene therapy is unsafe, and
gene therapy may not gain the acceptance of the public or the medical community.
Negative public reaction to gene therapy could result in:



                                       23


         o    greater government regulation;

         o    stricter clinical trial oversight;

         o    tighter commercial product labeling requirements of gene
              therapies; and

         o    a decrease in the demand for any gene therapy product that Genzyme
              Molecular Oncology may develop.



                                       24

EX-99.3

                                                                    EXHIBIT 99.3


                                CERTIFICATION OF
                             CHIEF EXECUTIVE OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



       I, Henri A. Termeer, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Genzyme Corporation (the "Company") on Form 10-K for the year
ended December 31, 2002 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in
such Annual Report fairly presents in all material respects the financial
condition and results of operations of the Company.


                                         By:       /s/ Henri A. Termeer
                                            -----------------------------------
                                            Name:  Henri A. Termeer
                                            Title: Chief Executive Officer
                                            Date:  March 28, 2003

EX-99.4

                                                                    EXHIBIT 99.4

                                CERTIFICATION OF
                             CHIEF FINANCIAL OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

       I, Michael S. Wyzga, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Genzyme Corporation (the "Company") on Form 10-K for the year
ended December 31, 2002 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in
such Annual Report fairly presents in all material respects the financial
condition and results of operations of the Company.


                                         By:       /s/ Michael S. Wyzga
                                            ------------------------------------
                                            Name:  Michael S. Wyzga
                                            Title: Chief Financial Officer
                                            Date:  March 28, 2003