EX-99.1 2 a2148237zex-99_1.htm EX-99.1
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Exhibit 99.1


UNAUDITED, PRO FORMA COMBINED FINANCIAL INFORMATION

        The following unaudited, pro forma combined financial information describes the pro forma effect of our transaction with ILEX Oncology, Inc., or ILEX, on our statements of operations for the year ended December 31, 2003 and the nine months ended September 30, 2004, as if the transaction had occurred on January 1, 2003, and our balance sheet as of September 30, 2004, as if the transaction had occurred on this date. Certain historical financial information of ILEX has been reclassified to conform with the presentation of our historical financial statements.

        This pro forma combined financial information is for informational purposes only. It does not purport to indicate the results that would have actually been obtained had the transaction been completed on the assumed date or for the periods presented, or which may be obtained in the future. To produce the pro forma financial information, we allocated the purchase price using our best estimates. The unaudited, pro forma combined financial statements should be read in conjunction with the historical consolidated financial statements, including notes thereto, of both Genzyme and ILEX. Our historical consolidated financial statements are included in Exhibit 13.1 to our annual report on Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange Commission, or SEC, on March 15, 2004 and our quarterly report on Form 10-Q for the quarterly period ended September 30, 2004, filed with the SEC on November 9, 2004. The historical consolidated financial statements of ILEX are included in pages F-1 through F-31 of ILEX's annual report on Form 10-K for the year ended December 31, 2003, filed with the SEC on March 12, 2004 and pages 3 through 10 of ILEX's quarterly report on Form 10-Q for the quarterly period ended September 30, 2004, filed with the SEC on November 9, 2004.

        Pursuant to the merger agreement, each share of ILEX common stock outstanding was converted into the right to receive 0.4682 of a share of our common stock, which we refer to as Genzyme Stock. An aggregate of approximately 18,457,800 shares of Genzyme Stock are being issued as consideration. We are paying cash for any fractional shares that result from the conversion of the ILEX common stock to Genzyme Stock. In addition, we have assumed all of the outstanding options to purchase shares of ILEX common stock. These ILEX options have been converted into options to acquire approximately 1,736,702 shares of Genzyme Stock, adjusted to reflect the exchange ratio referred to above.

        We have prepared the unaudited, pro forma combined financial information using the purchase method of accounting for the transaction. We expect to have reorganization and restructuring expenses as well as potential operating efficiencies as a result of the transaction. The unaudited, pro forma combined financial statements and related notes do not reflect these potential expenses and efficiencies.

1

GENZYME CORPORATION
UNAUDITED, PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2003
(Amounts in thousands)

 
   Historical
Genzyme
Corporation
   Historical
ILEX
Oncology, Inc.
   Pro Forma
Adjustments
   Footnote
Reference
   Pro Forma
Genzyme
Corporation
  
Revenues:                              
  Net product sales   $ 1,563,509   $ —   $ —       $ 1,563,509  
  Product profit and royalty     —     23,315     —         23,315  
  Net service sales     130,984     —     —         130,984  
  Outlicensing revenue     —     2,773     —         2,773  
  Revenues from research and development contracts:                              
    Related parties     1,836     —     —         1,836  
    Other     17,542     8,701     —         26,243  
   
 
 
     
 
      Total revenues     1,713,871     34,789     —         1,748,660  
   
 
 
     
 
Operating costs and expenses:                              
  Cost of products sold     399,961     —     —         399,961  
  Cost of services sold     75,683     —     —         75,683  
  Selling, general and administrative     519,977     14,713     —         534,690  
  Research and development (including research and development related to contracts)     335,256     60,693     —         395,949  
  Amortization of intangibles     80,257     4,945     19,113   [A1]     104,315  
  Purchase of in-process research and development     158,000     —     —         158,000  
  Charge for impaired goodwill     102,792     —     —         102,792  
  Charge for impaired assets     10,894     213     —         11,107  
  Settlement charge     —     16,500     —         16,500  
   
 
 
     
 
      Total operating costs and expenses     1,682,820     97,064     19,113         1,798,997  
   
 
 
     
 
Operating income (loss)     31,051     (62,275 )   (19,113 )       (50,337 )
   
 
 
     
 
Other income (expenses):                              
  Equity in loss of equity method investments     (16,743 )   —     —         (16,743 )
  Minority interest     2,232     —     —         2,232  
  Loss on investments in equity securities     (1,201 )   —     —         (1,201 )
  Loss on sale of product line     (27,658 )   —     —         (27,658 )
  Other     959     18     —         977  
  Investment income     43,015     4,304     —         47,319  
  Interest expense     (26,600 )   (4,137 )   —         (30,737 )
   
 
 
     
 
      Total other income (expenses)     (25,996 )   185     —         (25,811 )
   
 
 
     
 
Income (loss) before income taxes     5,055     (62,090 )   (19,113 )       (76,148 )
(Provision for) benefit from income taxes     (72,647 )   (24 )   29,907   [A2]     (42,764 )
   
 
 
     
 
Net income (loss)   $ (67,592 ) $ (62,114 ) $ 10,794       $ (118,912 )
   
 
 
     
 

See Notes to Unaudited, Pro Forma Combined Financial Statements.

2

GENZYME CORPORATION
UNAUDITED, PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2003
(Amounts in thousands, except per share data)

 
   Historical Genzyme Corporation
  
Historical ILEX
Oncology, Inc.
   Pro Forma Adjustments
   Footnote Reference
   Pro Forma Genzyme Corporation
  
Net income (loss) per share:                              
Allocated to Genzyme Stock(1):                              
  Genzyme General net income (loss)   $ 82,143   $ (62,114 ) $ 10,794   [A3]   $ 30,823  
  Tax benefit allocated from Genzyme Biosurgery     8,720     —     —         8,720  
  Tax benefit allocated from Genzyme Molecular Oncology     3,420     —     —         3,420  
   
 
 
     
 
  Net income (loss) allocated to Genzyme Stock   $ 94,283   $ (62,114 ) $ 10,794       $ 42,963  
   
 
 
     
 
  Net income per share of Genzyme Stock:                              
    Basic   $ 0.43                   $ 0.18  
   
                 
 
    Diluted   $ 0.42                   $ 0.18  
   
                 
 
  Weighted average shares outstanding:                              
    Basic     219,376                     237,834  
   
                 
 
    Diluted     225,419                     244,162  
   
                 
 

Allocated to Biosurgery Stock (through June 30, 2003)(1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Genzyme Biosurgery net loss   $ (166,656 )                 $ (166,656 )
  Allocated tax benefit     14,005                     14,005  
   
                 
 
  Net loss allocated to Biosurgery Stock   $ (152,651 )                 $ (152,651 )
   
                 
 
  Net loss per share of Biosurgery Stock—basic and diluted   $ (3.76 )                 $ (3.76 )
   
                 
 
  Weighted average shares outstanding     40,630                     40,630  
   
                 
 

Allocated to Molecular Oncology Stock (through June 30, 2003)(1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net loss allocated to Molecular Oncology Stock   $ (9,224 )                 $ (9,224 )
   
                 
 
  Net loss per share of Molecular Oncology Stock—basic and diluted   $ (0.54 )                 $ (0.54 )
   
                 
 
  Weighted average shares outstanding     16,958                     16,958  
   
                 
 
(1)
Effective July 1, 2003, in connection with the elimination of our tracking stock structure, we ceased allocating earnings to Genzyme Biosurgery and Genzyme Molecular Oncology. From that date forward, all of our earnings are allocated to Genzyme General. Earnings or losses allocated to Genzyme Biosurgery and Genzyme Molecular Oncology prior to July 1, 2003 remain allocated to those divisions and are not affected by the elimination of our tracking stock structure.

See Notes to Unaudited, Pro Forma Combined Financial Statements.

3

GENZYME CORPORATION
UNAUDITED, PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2004
(Amounts in thousands, except per share amounts)

 
   Historical Genzyme Corporation
  
Historical ILEX
Oncology, Inc.
   Pro Forma Adjustments
   Footnote Reference
   Pro Forma Genzyme Corporation
  
Revenues:                              
  Net product sales   $ 1,451,044   $ —   $ —       $ 1,451,044  
  Product profit and royalty     —     17,015     —         17,015  
  Net service sales     150,885     —     —         150,885  
  Outlicensing revenue     —     1,762     —         1,762  
  Revenues from research and development contracts     8,139     6,606     —         14,745  
   
 
 
     
 
      Total revenues     1,610,068     25,383     —         1,635,451  
   
 
 
     
 
Operating costs and expenses:                              
  Cost of products sold     323,544     —     —         323,544  
  Cost of services sold     101,145     —     —         101,145  
  Selling, general and administrative     443,956     16,940     (4,710 ) [A4]     456,186  
  Research and development (including research and development related to contracts)     284,374     51,784     —         336,158  
  Amortization of intangibles     81,147     3,738     14,306   [A1]     99,191  
   
 
 
     
 
      Total operating costs and expenses     1,234,166     72,462     9,596         1,316,224  
   
 
 
     
 
Operating income (loss)     375,902     (47,079 )   (9,596 )       319,227  
   
 
 
     
 
Other income (expenses):                              
  Equity in loss of equity method investments     (12,467 )   —     —         (12,467 )
  Minority interest     3,715     —     —         3,715  
  Gain (loss) on investments in equity securities     (2,282 )   —     —         (2,282 )
  Other     (733 )   (26 )   —         (759 )
  Investment income     17,845     1,709     —         19,554  
  Interest expense     (33,250 )   (1,319 )   —         (34,569 )
   
 
 
     
 
      Total other income (expenses)     (27,172 )   364     —         (26,808 )
   
 
 
     
 
Income (loss) before income taxes     348,730     (46,715 )   (9,596 )       292,419  
(Provision for) benefit from income taxes     (104,861 )   (31 )   20,753   [A2]     (84,139 )
   
 
 
     
 
Net income (loss)   $ 243,869   $ (46,746 ) $ 11,157       $ 208,280  
   
 
 
     
 

See Notes to Unaudited, Pro Forma Combined Financial Statements.

4

GENZYME CORPORATION
UNAUDITED, PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2004
(Amounts in thousands, except per share amounts)

 
   Historical Genzyme Corporation
  
Historical ILEX
Oncology, Inc.
   Pro Forma Adjustments
   Footnote Reference
   Pro Forma Genzyme Corporation
Net income (loss) per share allocated to Genzyme Stock(1):                            
  Net income (loss) allocated to Genzyme Stock   $ 243,869   $ (46,746 ) $ 11,157   [A3]   $ 208,280
   
 
 
     
  Net income (loss) per share of Genzyme Stock:                            
    Basic   $ 1.08                   $ 0.85
   
                 
    Diluted   $ 1.05                   $ 0.83
   
                 
  Weighted average shares outstanding:                            
    Basic     226,815                     245,273
   
                 
    Diluted     232,727                     251,470
   
                 
(1)
Effective July 1, 2003, in connection with the elimination of our tracking stock structure, we ceased allocating earnings to Genzyme Biosurgery and Genzyme Molecular Oncology. From that date forward, all of our earnings are allocated to Genzyme General. Earnings or losses allocated to Genzyme Biosurgery and Genzyme Molecular Oncology prior to July 1, 2003 remain allocated to those divisions and are not affected by the elimination of our tracking stock structure.

See Notes to Unaudited, Pro Forma Combined Financial Statements.

5

GENZYME CORPORATION
UNAUDITED, PRO FORMA COMBINED BALANCE SHEETS
As of September 30, 2004
(Amounts in thousands, except par value amounts)

 
   Historical Genzyme Corporation
   Historical
ILEX
Oncology, Inc.
   Pro Forma Adjustments
   Footnote Reference
   Pro Forma Genzyme Corporation
  
ASSETS                              
Current assets:                              
  Cash and cash equivalents   $ 331,232   $ 68,926   $ —       $ 400,158  
  Short-term investments     24,785     59,493     —         84,278  
  Restricted short-term investments     —     604     —         604  
  Accounts receivable, net     501,990     10,564     —         512,554  
  Inventories     266,478     —     —         266,478  
  Prepaid expenses and other current assets     88,574     4,554     —         93,128  
  Deferred tax assets     134,977     —     39,743   [A5]     174,720  
   
 
 
     
 
    Total current assets     1,348,036     144,141     39,743         1,531,920  
Property, plant and equipment, net     1,231,775     2,450     —         1,234,225  
Long-term investments     467,429     1,050     —         468,479  
Restricted long-term investments     —     1,691     —         1,691  
Notes receivable—related parties     9,588     —     —         9,588  
Goodwill, net     801,350     —     392,701   [A5]     1,194,051  
Other intangible assets, net     868,008     56,087     232,613   [A5]     1,156,708  
Investments in equity securities     116,124     —     —         116,124  
Other noncurrent assets     70,404     1,581     (2,459 ) [A6]     69,526  
   
 
 
     
 
    Total assets   $ 4,912,714   $ 207,000   $ 662,598       $ 5,782,312  
   
 
 
     
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:                              
  Accounts payable   $ 63,533   $ 7,768   $ —       $ 71,301  
  Accrued expenses     330,750     6,024     10,775   [A6]     347,549  
  Deferred revenue     12,722     592     —         13,314  
  Current portion of long-term debt and capital lease obligations     119,184     19,709     —         138,893  
   
 
 
     
 
    Total current liabilities     526,189     34,093     10,775         571,057  
Long-term debt and capital lease obligations     147,094     —     —         147,094  
Convertible notes     690,000     —     —         690,000  
Deferred revenue—noncurrent     7,792     833               8,625  
Deferred tax liabilities     177,084     —     16,842   [A5]     193,926  
Other noncurrent liabilities     51,724     729     —         52,453  
   
 
 
     
 
    Total liabilities     1,599,883     35,655     27,617         1,663,155  
   
 
 
     
 
Commitments and contingencies                              
Stockholders' equity:                              
  Preferred stock, $0.01 par value     —     —     —         —  
  Common stock-Genzyme Stock, $0.01 par value     2,293     —     185   [A5]     2,478  
  Additional paid-in capital-Genzyme Stock     3,094,350     —     1,080,741   [A5]     4,175,091  
  Notes receivable from stockholders     (13,711 )   —     —         (13,711 )
  Accumulated earnings (deficit)     45,309     —     (274,600 ) [A5]     (229,291 )
  Accumulated other comprehensive income     184,590     —     —         184,590  
  ILEX Oncology, Inc. convertible preferred stock, $0.01 par value     —     —     —         —  
  ILEX Oncology, Inc. common stock, $0.01 par value     —     392     (392 ) [A7]     —  
  ILEX Oncology, Inc. additional paid-in capital     —     562,722     (562,722 ) [A7]     —  
  ILEX Oncology, Inc. deferred compensation     —     (166 )   166   [A7]     —  
  ILEX Oncology, Inc. accumulated deficit     —     (392,290 )   392,290   [A7]     —  
  ILEX Oncology, Inc. accumulated other comprehensive income     —     687     (687 ) [A7]     —  
   
 
 
     
 
    Total stockholders' equity     3,312,831     171,345     634,981         4,119,157  
   
 
 
     
 
    Total liabilities and stockholders' equity   $ 4,912,714   $ 207,000   $ 662,598       $ 5,782,312  
   
 
 
     
 

See Notes to Unaudited, Pro Forma Combined Financial Statements.

6


NOTES TO UNAUDITED, PRO FORMA COMBINED FINANCIAL STATEMENTS

(1) PRO FORMA INFORMATION

Pro Forma Information

        The following unaudited, pro forma combined financial information describes the pro forma effect of our transaction with ILEX on our statements of operations for the year ended December 31, 2003 and for the nine months ended September 30, 2004, as if the transaction had occurred on January 1, 2003, and our balance sheet as of September 30, 2004, as if the transaction had occurred on this date. Certain historical financial information of ILEX has been reclassified to conform to the presentation of our historical financial statements.

(2) PURCHASE PRICE ALLOCATION

        The estimated aggregate purchase price is comprised of the following (amounts in thousands):

Issuance of 18,457,800 shares of Genzyme Stock   $ 1,036,222
Issuance of options to purchase 1,736,702 shares of Genzyme Stock     44,704
Transaction costs     8,270
   
Total purchase price   $ 1,089,196
   

        Pursuant to the merger agreement with ILEX, each share of ILEX common stock outstanding on December 20, 2004 (the measurement date) was converted into the right to receive 0.4682 of a share of Genzyme Stock. Approximately 18.5 million shares of Genzyme Stock valued at approximately $1.0 billion will be issued in exchange for the outstanding shares of ILEX common stock, based on the three day average trading price commencing December 16, 2004 (two trading days before the measurement date).

        Options to purchase approximately 3,709,922 shares of ILEX common stock have been exchanged for options to purchase approximately 1,736,702 shares of Genzyme Stock based on the exchange ratio referred to above. Using the value of Genzyme Stock to be issued in the transaction and certain other assumptions in the Black-Scholes option valuation model, the Genzyme options issued in exchange for the ILEX options are estimated, for purposes of these unaudited, pro forma financial statements, to be valued at approximately $44.7 million. The estimated value of these options may change as a result of changes in the assumptions used to complete the final Black-Scholes option valuation model for these options.

        For purposes of the unaudited, pro forma combined financial statements, we allocated the aggregate purchase price of approximately $1.1 billion to the acquired tangible and intangible assets

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and assumed liabilities of ILEX based on their estimated respective fair values as of September 30, 2004 (amounts in thousands):

Cash and cash equivalents   $ 68,926  
Short-term investments     58,819  
Restricted short-term investments     604  
Accounts receivable     10,564  
Deferred tax assets-current     39,743  
Other current assets     5,228  
Long-term investments     1,050  
Restricted long-term investments     1,691  
Property, plant and equipment     2,450  
Other intangible assets (to be amortized straight-line over 12 years)     288,700  
Goodwill     392,701  
In-process research and development     274,600  
Other assets     1,581  
Assumed liabilities:        
  Note payable     (19,709 )
  Other assumed liabilities     (20,910 )
Deferred tax liability     (16,842 )
   
 
Allocated purchase price   $ 1,089,196  
   
 

        The total purchase price, the estimated fair values of assets acquired and liabilities assumed, the allocation of purchase price and the lives of intangible assets remain subject to change pending completion of the final valuation of the transaction and may vary from the amounts we have presented in these unaudited, pro forma combined financial statements.

        In connection with the transaction, we have acquired in-process research and development, or IPR&D, related to three development projects, CAMPATH (for indications other than B-cell chronic lymphocytic leukemia), clofarabine and ILX-651.

        CAMPATH is a humanized monoclonal antibody that binds to a specific target, CD52, on cell surfaces leading the body's immune system to destroy malignant, or cancerous, cells. CAMPATH was launched in May 2001 in the United States and in August 2001 in Europe under the name MABCAMPATH. The product is approved for use in patients with B-cell chronic lymphocytic leukemia who have been treated with alkylating agents and who have failed fludarabine therapy, and ILEX is now conducting trials in non-Hodgkin's lymphoma and multiple sclerosis as well.

        Clofarabine is a next-generation, purine nucleoside antimetabolite that is currently under investigation in pediatric and adult leukemias and solid tumors. ILEX has submitted the final section of its "rolling" New Drug Application with the FDA for acute pediatric leukemias based on phase II clinical trial data.

        ILX-651 is a next-generation synthetic pentapeptide analog of the natural substance dolastatin-15. This product candidate targets tubulin and has been chemically modified to provide improved pharmacological properties over earlier members of its class. ILEX initiated phase II clinical trials of ILX-651 in late 2003 in recurrent or metastatic melanoma and in locally advanced or metastatic non-small cell lung cancer.

8


        As of September 30, 2004, none of these projects had reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D, and charged to accumulated deficit in our unaudited, pro forma combined balance sheet as of September 30, 2004, $274.6 million, representing the portion of the purchase price attributable to these projects, of which $115.8 million is attributable to the CAMPATH development project, $118.6 million is attributable to the clofarabine development project and $40.2 million is related to the ILX-651 development project. The portion of the purchase price estimated to be attributable to these programs will be charged to expense in our statement of operations in December 2004. Material non-recurring charges, such as IPR&D, are not reflected in these unaudited, pro forma combined financial statements of operations for the year ended December 31, 2003 and nine months ended September 30, 2004.

        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 cash flows expected to result from each project once it has reached technological feasibility. We used a discount rate of 11% and cash flows that have been probability-adjusted to reflect the risks of advancement through the product approval process. In estimating future cash flows, we also considered other tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D projects and adjusted future cash flows for a charge reflecting the contribution to value of these assets.

(3) PRO FORMA ADJUSTMENTS

        The following adjustments reflect the exchange of ILEX common stock for Genzyme Stock in the transaction as well as the exchange of options to purchase shares of ILEX common stock for fully vested options to purchase shares of Genzyme Stock.

I. Unaudited, Pro Forma Combined Statements of Operations of Genzyme

(A1)
To record the amortization of acquired other intangible assets, all of which will be amortized straight-line over 12 years, for the year ended December 31, 2003 and the nine months ended September 30, 2004 (amounts in thousands):

Other Intangible Assets:
   Assigned
Value
   Annual
Amortization
   Nine
Months
Amortization
Developed technology   $ 178,900   $ 14,908   $ 11,181
Core technology     105,500     8,792     6,594
Trademark     2,400     200     150
Technology license     1,900     158     119
   
 
 
  Total   $ 288,700   $ 24,058   $ 18,044
   
 
 
(A2)
To adjust the tax provision for the impact of the historical losses of ILEX and the pro forma adjustments related to the transaction.

(A3)
The pro forma adjustments to net income (loss) reflect the aggregate impact of all pro forma adjustments on our income (loss).

(A4)
To eliminate $4.7 million of non-recurring transaction costs included in the historical statements of operations of ILEX for the nine months ended September 30, 2004. There were no similar

9

    transaction costs included in the historical statements of operations of ILEX for the year ended December 31, 2003.

II. Unaudited, Pro Forma Combined Balance Sheets of Genzyme

(A5)
To record the assumption of the net assets of ILEX and the issuance of approximately 18.5 million shares of Genzyme Stock.

    The other intangible assets of approximately $288.7 million are comprised of the following (amounts in thousands):

Other Intangible Assets:
   Assigned
Value
Developed technology   $ 178,900
Core technology     105,500
Trademark     2,400
Technology license     1,900
   
  Total   $ 288,700
   

    Material non-recurring charges, such as the acquired IPR&D charge of $274.6 million resulting from the transaction, are not reflected in our unaudited, pro forma combined statements of operations for the year ended December 31, 2003 or nine months ended September 30, 2004. The $274.6 million allocated to IPR&D has been charged to accumulated deficit for purposes of the pro forma balance sheet presentation only and will be charged to expense in our statements of operations in December 2004.

(A6)
To accrue the following expenses which have not been reflected in our historical balances as of September 30, 2004:

•
$8.3 million for the estimated merger costs we expect to incur; and

•
$7.3 million for severance and bonus payments to certain officers of ILEX that we would be contractually obligated to pay.

    Our historical other noncurrent assets as of September 30, 2004 include $2.5 million of merger costs incurred prior to that date.

(A7)
To eliminate ILEX's historical stockholders' equity amounts totaling $171.3 million.

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UNAUDITED, PRO FORMA COMBINED FINANCIAL INFORMATION