EX-13.2 8 a2105085zex-13_2.htm EXHIBIT 13.2

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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

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GENZYME GENERAL
A Division of Genzyme Corporation

Combined Selected Financial Data

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

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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

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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.

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(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.

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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.

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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

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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

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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.

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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

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•: the amount of the milestone is reasonable in relation to the level of effort associated with achievement of the milestone.

If any of these conditions are not met, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

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.

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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

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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

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•: 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

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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.

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

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•: 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	%

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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.

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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

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•: 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.

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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

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.

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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

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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	%

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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

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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,

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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.

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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

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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.

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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.

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Wyntek

In June 2001, in connection with our acquisition of Wyntek, we allocated approximately $8.8 million of the purchase price to IPR&D. Genzyme General recorded this amount as a charge to expense in its combined statement of operations for the year ended December 31, 2001. We estimated the fair value assigned to purchased IPR&D by discounting, to present value, the cash flows expected to result from the project once it has reached technological feasibility. We applied a discount rate of 25% to estimate the present value of these cash flows, which is consistent with the risks of the project. In estimating future cash flows, management considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets. The value assigned to purchased IPR&D was the amount attributable to the efforts of Wyntek up to the time of acquisition. In the allocation of purchase price to IPR&D, the concept of alternative future use was specifically considered for the program under development. There are no alternative uses for the in-process program in the event that the program fails in clinical trials or is otherwise not feasible.

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.

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Below is a brief description of the GelTex IPR&D projects, including an estimation of when management believes Genzyme General may realize revenues from the sales of these products 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								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	)

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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.

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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								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	)

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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

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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

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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

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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.

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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

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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.

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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

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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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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.

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Allocation Policy

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.

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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

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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.

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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

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•: 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.

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•: 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

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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.

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The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (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

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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.

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.

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The purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (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.

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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.

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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

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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.

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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

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

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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.

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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.

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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

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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

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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.

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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.

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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.

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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

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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.

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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

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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

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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.

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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

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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

•: 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.

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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.

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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	%

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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.

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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	)

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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;

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•: 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.

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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

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(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

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•: $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.

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(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.

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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.

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NOTE T. QUARTERLY RESULTS (UNAUDITED)

	1^st Quarter 2002		2^nd Quarter 2002		3^rd Quarter 2002		4^th 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

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

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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.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Genzyme Corporation:

In our opinion, the accompanying combined balance sheets and the related combined statements of operations and of cash flows present fairly, in all material respects, the financial position of Genzyme General 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

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