<PAGE> 1
As filed with the Securities and Exchange Commission on August 16, 1995.
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
GENZYME CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 06-1047163
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139 (617) 252-7500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
HENRI A. TERMEER
Chairman, President and Chief Executive Officer
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
(617) 252-7500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
with copies to:
MAUREEN P. MANNING, ESQUIRE GEOFFREY E. LIEBMANN, ESQUIRE
Palmer & Dodge Cahill Gordon & Reindel
One Beacon Street 80 Pine Street
Boston, Massachusetts 02108 New York, New York 10005
(617) 573-0100 (212) 701-3000
----------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
----------------------
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------------
Page 1 of 57 Sequential Pages
Exhibit Index appears on Page 55
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of each class of securities Amount to be maximum offering maximum aggregate Amount of
to be registered registered(1) price per share (2) offering price(1)(2) registration fee
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tissue Repair Division Common 3,450,000 shares $11.25 $38,812,500 $13,384
Stock, $0.01 par value
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 450,000 shares which the Underwriters may purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee and
computed pursuant to Rule 457(c) and based on the average of the high and
low sales prices on August 9, 1995, as reported on the Nasdaq National
Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
SUBJECT TO COMPLETION, DATED AUGUST 16, 1995
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SHARES
-------------
GENZYME
TISSUE REPAIR DIVISION COMMON STOCK
($.01 PAR VALUE)
All of the shares of Genzyme Tissue Repair Division Common Stock ("TR
Stock") offered hereby are being sold by Genzyme Corporation (the "Company" or
"Genzyme"). The TR Stock is listed on the Nasdaq National Market under the
symbol "GENZL." On August 15, 1995, the reported last sale price of the TR Stock
on the Nasdaq National Market was $16.125 per share.
The TR Stock is common stock of the Company and is intended to reflect the
value and track the performance of the Genzyme Tissue Repair Division ("GTR"),
which is engaged in the field of tissue repair through the development,
production and marketing of technologically advanced products and services for
the treatment and prevention of serious tissue damage. The TR Stock is one of
two classes of the Company's common stock, the other being Genzyme General
Division Common Stock ("General Division Stock"). The relative voting power of
one share of TR Stock and one share of General Division Stock will fluctuate
based upon the relative Fair Market Values (as defined herein) of one share of
TR Stock and one share of General Division Stock as set forth herein. Subject to
certain conditions, the TR Stock may be exchanged, at the Company's option, for
cash, General Division Stock, or a combination thereof, at a 30% premium over
the then current Fair Market Value of the TR Stock. In the event of a
disposition by the Company of all or substantially all of the assets attributed
to GTR, the Company must exchange the TR Stock for cash, General Division Stock,
or a combination thereof, at a 30% premium over the then current Fair Market
Value of the TR Stock. Dividends on the TR Stock will be payable when, as and if
declared by the Board of Directors of the Company out of the lesser of funds of
the Company legally available therefor and the Available Tissue Repair Dividend
Amount. Genzyme has never paid a cash dividend on any class of its capital stock
and currently intends to retain all earnings for use in its business. Upon a
liquidation of Genzyme (other than in connection with a merger, business
combination or sale of substantially all assets), holders of outstanding General
Division Stock and TR Stock are entitled to receive the assets, if any,
remaining for distribution to common stockholders on a per share basis in
proportion to the respective per share liquidation units of such class, which
are presently one liquidation unit for each share of General Division Stock and
.29 liquidation units for each share of TR Stock. The liquidation unit amounts
will not be adjusted except to avoid dilution in the aggregate liquidation
rights of either class in the event of a stock split or combination, stock
dividend or the like. See "Description of Genzyme Capital Stock."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE TR STOCK, SEE "RISK FACTORS" ON PAGE 7 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company(1)
-------- ------------- -----------
<S> <C> <C> <C>
Per share.......................
Total (2).......................
</TABLE>
(1) Before deduction of expenses payable by the Company estimated at
$____________.
(2) The Company has granted the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase a maximum of _________
additional shares to cover over-allotments of shares. If the option is
exercised in full, the total Price to Public will be $____________,
Underwriting Discounts and Commissions will be $______________ and
Proceeds to Company will be $______________.
The Shares are offered by the several Underwriters when, as and if issued
by the Company, delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that the Shares
will be ready for delivery on or about __________________, 1995.
CS FIRST BOSTON
COWEN & COMPANY
PAINEWEBBER INCORPORATED
THE DATE OF THIS PROSPECTUS IS ___________________, 1995.
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE TR STOCK AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH
THIS OFFERING CERTAIN UNDERWRITERS AND THEIR AFFILIATES MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE TR STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. (SEE
"UNDERWRITING.")
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance with
the Exchange Act files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company has filed a
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with the Commission
with respect to the TR Stock offered hereby. This Prospectus, which constitutes
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and reference is made to the Registration
Statement and the exhibits thereto for further information with respect to the
Company and the TR Stock. Such reports, proxy statements, Registration Statement
and exhibits and other information omitted from this Prospectus can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington D.C. 20549 and at the Commission's
Regional Offices located at Seven World Trade Center, Suite 1300, New York, NY
10048 and 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference the
following documents heretofore filed with the Commission pursuant to the
Exchange Act: (i) the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, as amended by Amendment No. 1 thereto on Form 10-K/A filed
with the Commission on June 15, 1995; (ii) the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995; (iii) the
description of TR Stock contained in the Company's Registration Statement on
Form 8-A filed with the Commission on September 9, 1994, as amended by Form
8-A/A, filed with Commission on December 14, 1994; (iv) the description of
Tissue Repair Division Common Stock Purchase Rights contained in the Company's
Registration Statement on Form 8-A, filed with the Commission on November 28,
1994; and (v) the financial statements appearing at pages III-19 to III-42 of
Annex III, pages IV-38 to IV-41 of Annex IV, pages V-37 to V-41 of Annex V and
pages VI-2 to VI-6 of Annex VI to the Prospectus/Joint Proxy Statement included
in Genzyme's Registration Statement on Form S-4 (File No. 33-83346), which
became effective on November 9, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the offering shall be deemed to be incorporated in this
Prospectus by reference and to be a part hereof from the respective dates of the
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is,
or is deemed to be, incorporated by reference herein, modifies or
3
<PAGE> 5
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents which are not specifically incorporated by
reference into such documents. Requests for such copies should be directed to
the executive offices of the Company, One Kendall Square, Cambridge,
Massachusetts 02139, Attention: Shareholder Services, telephone (617) 252-7526.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements appearing elsewhere in this Prospectus
and in the documents incorporated in this Prospectus by reference. Unless
otherwise indicated, information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised. The shares of Tissue
Repair Division Common Stock ("TR Stock") offered hereby involve a high degree
of risk. Investors should carefully consider the information set forth under the
heading "Risk Factors."
THE TISSUE REPAIR DIVISION
Genzyme's Tissue Repair Division ("GTR") focuses on developing, producing
and marketing technologically advanced products and services for the treatment
and prevention of serious tissue damage. GTR's strategy is to create the leading
business in the field of tissue repair by bringing a comprehensive approach to
the treatment of the complex medical problems associated with serious tissue
injury. Genzyme created GTR in December 1994 by acquiring BioSurface Technology,
Inc. ("BioSurface") and combining BioSurface's programs with several of
Genzyme's programs in the field of tissue repair. As a result of the combination
of programs from BioSurface and Genzyme, GTR has strong capabilities in three
core technologies -- autologous cell processing, therapeutic protein
development, and biomaterials engineering -- which it is using to develop and
market a portfolio of novel products and services to apply to unmet medical
needs in the field of tissue repair. In March 1995, GTR introduced the
CARTICEL(SM) Autologous Chondrocyte Service (the "CARTICEL(SM) Service"), which
provides orthopedic surgeons with the cell culturing services and other support
necessary to utilize a patient's own (autologous) articular cartilage cells
(chondrocytes) to repair articular cartilage defects in that patient's knee. GTR
plans to focus a substantial portion of its resources in the near term on
further developing and marketing the CARTICEL(SM) Service. GTR also markets the
Epicel(SM) Service, which involves the culturing of autologous skin cells, to
provide burn victims with a lifesaving alternative form of permanent skin
replacement, and is developing Vianain(R) Debriding Product for the treatment of
burns and skin ulcers and TGF-(beta)2, a recombinant protein, for the treatment
of chronic skin ulcers and multiple sclerosis.
The CARTICEL(SM) Service has attracted significant interest from the
orthopedic community since publication of the results of GTR's academic
collaborators' innovative work on knee cartilage repair in the October 6, 1994
issue of the New England Journal of Medicine. As reported in this article, 19 of
23 patients had restored or improved joint function after implementation of
cultured autologous articular cartilage cells. Based on this data and GTR's
ongoing analysis of results obtained in approximately 130 additional patients
treated in Sweden, GTR has concluded that this treatment can provide long term
repair of damaged knee cartilage tissue. GTR believes that its CARTICEL(SM)
Service is the only such therapy currently available. GTR estimates that each
year between 200,000 and 300,000 individuals in the United States and Europe may
be candidates for treatment using the CARTICEL(SM) Service.
GTR is building the infrastructure required to make the CARTICEL(SM)
Service widely available to orthopedic surgeons in the United States and Europe.
Although the CARTICEL(SM) Service is not currently regulated by the United
States Food and Drug Administration ("FDA"), GTR has developed a quality systems
approach to the delivery of this service. Drawing on its seven years of
experience with the Epicel(SM) Service, GTR has validated a commercial scale
cartilage cell processing facility, developed a rigorous surgeon training
program, established standards for patient outcomes data collection, and
assembled an experienced sales and marketing staff. Since the introduction of
the service in March 1995, GTR has trained 41 orthopedic surgeons, has provided
cultured cartilage cells for the treatment of six patients, and is processing
cartilage cells for 32 additional patients.
GTR's near term strategy is to concentrate its efforts on building a
substantial business based on the CARTICEL(SM) Service. This will require
significant investments in processing capacity, working capital and market
development. GTR believes that the creation of a substantial business based on
the CARTICEL(SM) Service would establish GTR as a leader in the application of
biotechnology to the orthopedic market, support future research and development
efforts, and enable GTR to finance acquisitions of complementary technologies.
GTR will continue to build its product portfolio through development of the
Vianain(R) Debriding Product for burns and skin ulcers, TGF-(beta)2 for chronic
skin ulcers and multiple sclerosis, and alternate versions of the CARTICEL(SM)
and Epicel(SM) Services for cartilage resurfacing and
5
<PAGE> 7
permanent skin replacement, respectively. GTR believes this family of diverse
tissue repair products will offer a comprehensive treatment portfolio in the
currently fragmented field of tissue repair.
THE OFFERING
<TABLE>
<S> <C>
TR Stock offered by the Company............................................ shares
------------
TR Stock to be outstanding after the offering.............................. shares(1)
------------
Use of proceeds............................................................ To accelerate the market introduction of the
CARTICEL(SM) Service, including for related
capital expenditures and working capital, and to
fund other research and development activities
of GTR
Nasdaq National Market symbol.............................................. GENZL
</TABLE>
----------------------------------
(1) Based on shares outstanding on August 1, 1995. Excludes 1,736,796 shares
of TR Stock reserved for issuance upon exercise of outstanding options
with a weighted average exercise price of $6.1923 per share, and
1,290,465 TR Designated Shares, 1,280,616 of which are reserved for
issuance upon the exercise or conversion of outstanding General Division
stock options, warrants and convertible notes. See "Description of
Genzyme Capital Stock - TR Designated Shares and General Designated
Shares."
6
<PAGE> 8
RISK FACTORS
RISKS RELATED TO TWO CLASSES OF COMMON STOCK:
Genzyme currently has two classes of common stock outstanding: General
Division Stock and TR Stock. TR Stock is intended to reflect the value and track
the performance of GTR, and General Division Stock is intended to reflect the
value and track the performance of all of Genzyme's business other than the
business of GTR. Prospective investors in TR Stock should carefully consider the
following factors in evaluating such an investment.
STOCKHOLDERS OF ONE COMPANY; FINANCIAL IMPACTS ON ONE DIVISION COULD AFFECT THE
OTHER. Genzyme continues to hold title to all of its assets and is responsible
for all of its liabilities, and the holders of the General Division Stock and
the TR Stock have no specific claim against the assets attributed for financial
statement presentation purposes to the division whose performance is associated
with the class of stock they hold. Liabilities or contingencies of either
division that affect Genzyme's resources or financial condition could affect the
financial condition or results of operations of both divisions. Prospective
investors in TR Stock should, therefore, read Genzyme's consolidated financial
statements in conjunction with the financial statements of GTR, which have each
been incorporated herein by reference. See also "Genzyme Tissue Repair Division
Selected Financial Data" and "Additional Financial Data."
NO RIGHTS OR ADDITIONAL DUTIES WITH RESPECT TO THE DIVISIONS; POTENTIAL
CONFLICTS. Holders of General Division Stock and TR Stock have only the rights
of stockholders of Genzyme, and, except in limited circumstances, do not have
any rights specifically related to the General Division or GTR, respectively.
The existence of separate classes of common stock may give rise to
occasions when the interests of holders of General Division Stock and holders of
TR Stock may diverge or appear to diverge. Although Genzyme is aware of no
precedent concerning the manner in which Massachusetts law would be applied to
the duties of a board of directors in the context of two classes of common stock
with divergent interests, Genzyme believes that a Massachusetts court would hold
that a board of directors owes an equal duty to all stockholders regardless of
class and does not have separate or additional duties to any group of
stockholders. That duty is the fiduciary duty to act in good faith and in a
manner it reasonably believes to be in the best interests of the corporation.
Genzyme believes that, under Massachusetts law, a good faith determination by a
disinterested and adequately informed board of directors that an action is in
the best interests of the corporation should represent an appropriate defense to
any challenge by or on behalf of the holders of any class of stock that such
action could have a disparate effect on different classes of common stock.
Disproportionate ownership interests of members of the Board of
Directors of Genzyme (the "Board") in either class of common stock or
disparities in the value of such stock could create or appear to create
potential conflicts of interest when directors are faced with decisions that
could have different implications for each class of stock. Nevertheless, Genzyme
believes that a director would be able to discharge his or her fiduciary
responsibilities even if his or her interests in shares of such classes were
disproportionate or had disparate values. The Board may also from time to time
establish one or more committees to review matters presented to it that raise
conflict issues, which committee(s) would report to the full Board on such
matters.
NO ADDITIONAL SEPARATE VOTING RIGHTS. Holders of General Division Stock and
holders of TR Stock vote together as a single class on all matters as to which
common stockholders generally are entitled to vote. Except in certain limited
circumstances provided under Massachusetts law, in Genzyme's Articles of
Organization, as amended, and in the management and accounting policies adopted
by the Board, holders of each class of common stock have no rights to vote on
matters as a separate class. Accordingly, except in limited circumstances,
holders of shares of one class of common stock could not bring a proposal to a
vote of the holders of that class of common stock only, but would be required to
bring any proposal to a vote of both classes of common stock.
On all matters as to which common stockholders generally are entitled to
vote, each share of General Division Stock has one vote, and each share of TR
Stock will, through December 31, 1996, have .29 votes. On January 1, 1997 and on
January 1 every two years thereafter, the number of votes to which each share of
TR Stock is entitled will be adjusted to equal the ratio of the Fair Market
Value of one share of TR Stock to the Fair Market Value of one share of General
Division Stock as of such date. The term Fair Market Value is defined in
Genzyme's Articles of Organization and under the heading "Description of Genzyme
Capital Stock - Exchange of TR Stock" herein.
7
<PAGE> 9
Certain matters as to which the holders of common stock are entitled to
vote may involve a divergence or the appearance of a divergence in the interests
of holders of General Division Stock and holders of TR Stock. If, when a
stockholder vote is taken on any matter as to which a separate vote by either
class is not required and the holders of either class of common stock would have
more than the number of votes required to approve any such matter, the holders
of that class would control the outcome of the vote on such matter. Holders of
General Division Stock and holders of TR Stock currently have approximately 91%
and 9%, respectively, of the total voting power of Genzyme, and after this
offering, holders of General Division Stock and TR Stock will have approximately
___% and ___%, respectively, of the total voting power of Genzyme. As a result,
on matters which are submitted to a vote of the holders of both classes of
common stock, the preferences of the holders of General Division Stock are
likely to dominate and determine the outcome of such vote unless and until the
relative number of shares outstanding and/or the market value of General
Division Stock and TR Stock materially changes. The holders of TR Stock are
likely to have significant influence on the outcome of a matter submitted to the
holders of both classes of common stock only if the holders of General Division
Stock are approximately equally divided with respect to the matter.
EXCHANGE OF TR STOCK. The Board can, in its sole discretion, determine to
exchange shares of TR Stock for cash or shares of General Division Stock (or any
combination thereof) at a 30% premium over Fair Market Value of the TR Stock at
any time after the later of (i) December 31, 1995 and (ii) the date on which
equity investments in TR Stock by third-party investors or the allocation of
cash or cash equivalents from the General Division to GTR, or any combination of
the two, equal an aggregate of at least $10 million. Thus, upon successful
completion of this offering, the Board could elect to make such an exchange
after December 31, 1995. In addition, following a disposition of all or
substantially all assets of GTR, the shares of TR Stock are subject to mandatory
exchange by Genzyme for cash and/or shares of General Division Stock at a 30%
premium over Fair Market Value of the TR Stock as determined by the trading
prices during a specified period prior to public announcement of the
disposition. See "Description of Genzyme Capital Stock - Exchange of TR Stock"
and "Management and Accounting Policies Governing the Relationship of Genzyme
Divisions - Open Market Purchases of Shares of any Class."
NO ADJUSTMENT TO LIQUIDATING DISTRIBUTIONS. In the event of a voluntary or
involuntary dissolution, liquidation or winding up of the affairs of Genzyme
(other than pursuant to a merger, business combination or sale of substantially
all assets), holders of outstanding shares of General Division Stock and TR
Stock would receive the assets, if any, remaining for distribution to common
stockholders on a per share basis in proportion to the respective per share
liquidation units of such class. Currently, each share of General Division Stock
has one liquidation unit and each share of TR Stock has .29 liquidation units.
Because the liquidation units will not be adjusted to reflect changes in the
relative market value or performance of the General Division and GTR, the per
share liquidating distribution to a holder of TR Stock or General Division Stock
is not likely to correspond to the value of the assets of GTR or the General
Division, respectively, at the time of a dissolution, liquidation or winding up
of Genzyme.
MANAGEMENT AND ACCOUNTING POLICIES SUBJECT TO CHANGE. The Board has adopted
certain management and accounting policies applicable to the preparation of the
financial statements of both Divisions, the allocation of corporate expenses,
assets and liabilities and other accounting matters, the reallocation of assets
between Divisions and other matters. These policies may, except as stated
therein, be modified or rescinded in the sole discretion of the Board without
the approval of Genzyme's stockholders, subject to the Board's fiduciary duty to
all holders of Genzyme's capital stock, although there is no present intention
to do so. The Board may also adopt additional policies depending upon the
circumstances.
LIMITED TRADING HISTORY. As discussed above, the General Division Stock and the
TR Stock are intended to reflect the value and track the performance of the
General Division and GTR, respectively. Since the General Division Stock and the
TR Stock have only a limited trading history, there can be no assurance as to
the degree to which the market price of such classes of common stock will
reflect the value and track the performance of the General Division and GTR as
reflected in their respective financial statements. In addition, Genzyme cannot
predict the impact that certain terms of the securities, such as the ability of
Genzyme to exchange each share of TR Stock for cash and/or shares of General
Division Stock, will have on the market prices of each class of common stock.
8
<PAGE> 10
RISKS RELATED TO GTR:
An investment in TR Stock involves a high degree of risk. Prospective
investors should carefully consider the following factors in evaluating an
investment in TR Stock.
EARLY STAGE OF COMMERCIALIZATION OF THE CARTICEL(SM) SERVICE. The proceeds of
this offering will be used primarily to accelerate the market introduction of
the CARTICEL(SM) Service. GTR anticipates that the revenues generated from sales
of the CARTICEL(SM) Service will be used to fund the development of other
products and services. See "Use of Proceeds." Consequently, GTR's future success
depends in large part on the successful commercialization of the CARTICEL(SM)
Service. GTR is engaged in the process of gathering data concerning the efficacy
of the CARTICEL(SM) Service, and GTR plans to continue gathering such data as
the CARTICEL(SM) Service is being marketed. The commercialization of the
CARTICEL(SM) Service could be materially adversely affected if such data were to
raise questions concerning the efficacy, or the duration of the efficacy, of the
CARTICEL(SM) Service.
The commercialization of the CARTICEL(SM) Service by GTR is in its early
stages, and GTR has not yet grown cartilage cell cultures in the quantities that
will be necessary to meet the demands of the market that GTR expects will
develop for the CARTICEL(SM) Service. In order to produce such quantities of
cartilage cells, GTR will need to make substantial expenditures for production
facilities and will need to hire and train additional production and support
staff. Any significant delays encountered in these activities may delay the
commercialization of the CARTICEL(SM) Service and have a material adverse effect
on GTR's results of operations.
GTR is marketing the CARTICEL(SM) Service to orthopedic surgeons. In
order to commercialize the CARTICEL(SM) Service successfully, GTR will need to
hire and train additional sales personnel, which will market the CARTICEL(SM)
Service to surgeons and hospitals directly. The success of the CARTICEL(SM)
Service depends on the success of such sales force in creating demand for the
CARTICEL(SM) Service and the extent to which sufficient numbers of orthopedic
surgeons who are trained by GTR incorporate the CARTICEL(SM) Service into their
existing practices. There can be no assurance that GTR will be successful in
marketing the CARTICEL(SM) Service to such surgeons or that such surgeons will
use the CARTICEL(SM) Service to the extent anticipated by GTR.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY TECHNOLOGY. GTR has devoted
significant time and resources to develop proprietary know-how related to the
growth of cartilage cells. GTR does not yet have any patent protection covering
the methodologies used in providing the CARTICEL(SM) Service. Consequently, GTR
is unable to prevent a competitor from developing the ability to grow cartilage
cell cultures and from offering a service that is similar or superior to the
CARTICEL(SM) Service. GTR's results of operations could be materially and
adversely affected if a competitor were to develop such know-how. Moreover, even
if GTR were to obtain patent protection for aspects of its CARTICEL(SM) Service,
there can be no assurance that such protection would prevent others from selling
a similar but noninfringing service.
Proprietary rights relating to GTR's other products and services are
protected from unauthorized use by third parties only to the extent that they
are covered by patents or are maintained in confidence as trade secrets. Genzyme
has filed for patents and has rights to numerous patents and patent applications
worldwide relating to GTR products and services. While certain of Genzyme's
patents have been allowed or issued, there can be no assurance that any
additional patents will be allowed or will issue or that, to the extent issued,
such patents will effectively protect the proprietary technology of GTR. GTR has
also relied upon trade secrets, proprietary know-how and continuing
technological innovation to develop and maintain its competitive position with
respect to its other products and services. There can be no assurance that
others will not independently develop such know-how or otherwise obtain access
to GTR's technology. While GTR's employees, consultants and corporate partners
with access to proprietary information are generally required to enter into
confidentiality agreements, there can be no assurance that these agreements will
be honored. Certain of GTR's consultants have developed portions of GTR's
proprietary technology at their respective universities or in government
laboratories. There can be no assurance that such universities or governmental
authorities will not assert rights to intellectual property arising out of
university or government based research conducted by such consultants. In
addition, patent litigation is widespread in the biotechnology industry and it
is not possible to predict how any such litigation will affect GTR.
9
<PAGE> 11
Parties not affiliated with Genzyme may hold pending or issued patents
relating to the technology utilized by GTR in its products or services. GTR may,
depending on the final formulation of such products or services, need to acquire
licenses to, or contest the validity of, such patents or any other similar
patents that may be issued. The extent to which GTR may need to license such
rights or contest the validity of such patents depends on the scope and validity
of such patents and on the design or formulation of GTR's products or services.
The cost and ability to license any such rights and the likelihood of
successfully contesting the validity of such patents are uncertain.
NEED FOR ADDITIONAL FUNDS. Genzyme anticipates that the net proceeds from this
offering, together with existing cash balances and revenues generated from the
CARTICEL(SM) Service and the Epicel(SM) Service, will be sufficient to fund
GTR's operations through 1996. GTR may require additional funds sooner if
demand for the CARTICEL(SM) Service grows more rapidly than anticipated.
Significant additional funds will be required to expand further the
CARTICEL(SM) Service, including for working capital and additional processing
capacity, and to fund the development, clinical testing, and commercialization
of GTR's other products and services. Subject to certain conditions, Genzyme is
obligated to allocate up to $30 million in cash from the General Division to
GTR in the period through June 1998 (the "Funding Commitment"). However, the
Funding Commitment will be reduced or suspended under certain circumstances.
See "Business - Relationship with Genzyme General Division."
In addition, GTR's cash requirements may vary materially from those now
planned as a result of revenue fluctuations, results of research and development
and clinical testing by GTR and its collaborators, competitive advances and
other factors. There can be no assurance that additional funding will be
available on terms that are acceptable to GTR, if at all. Insufficient funds may
require GTR to delay, scale back or eliminate certain of its programs or to
license third parties to commercialize technologies or products that GTR would
otherwise undertake itself. Such actions may adversely affect the market price
of the TR Stock.
GOVERNMENT REGULATION OF TISSUE REPAIR PRODUCTS. The production and sale of
health care products, including many of the products and services to be
developed by GTR, are highly regulated at the state and federal levels. Federal
or state regulation could result in significant expense to GTR, limit GTR's
reimbursement for its services and otherwise materially adversely affect the
results of operations of GTR. See "Business - Government Regulation."
As a matter of policy and discretion, the CARTICEL(SM) and Epicel(SM)
Services are not being actively regulated by the FDA at this time. However, the
FDA has regulated the use of autologous patient tissues in other areas and will
be conducting a public hearing in the fall of 1995 to solicit information on
autologous cell implants for structural repair and reconstruction and to
consider various regulatory approaches in this area. The FDA has indicated that
it will provide GTR with sufficient time to comply with any new regulations that
it may promulgate relating to autologous cells.
A federal criminal statute prohibits the transfer of any human organ for
valuable consideration for use in human transplantation but permits recovery of
reasonable costs associated with such activities. This statute has not been
applied to the CARTICEL(SM) or Epicel(SM) Services to date. In addition, certain
states have laws requiring the licensure of tissue and organ banks and laws
governing the sale of human organs and the safety and efficacy of drugs, devices
and biologics, including skin, all of which could be interpreted to apply to
GTR's production and distribution of cultured tissue products. Provisions in
certain states' statutes prohibit the receipt of valuable consideration in
connection with the sale of human tissue by a tissue bank but permit licensed
tissue banks, including companies, to recover their reasonable costs associated
with such sales. One state's Department of Health has notified GTR that it
believes GTR must obtain a license under that state's tissue bank licensure
statute with respect to distribution of the Epicel(SM) Service. The Company is
in the process of applying for such a license.
RELIANCE ON AGREEMENTS WITH KEY COLLABORATORS. GTR's CARTICEL(SM) Service has
been developed based on the work of a group of Swedish physicians, the two
leaders of which are exclusively involved with GTR in the commercialization and
further development of the CARTICEL(SM) Service. These two physicians are
parties to research and development consulting agreements with GTR (the
"Consulting Agreements") which prohibit them from performing consulting services
for others related to cartilage and bone repair without GTR's consent. In
addition, pursuant to the Consulting Agreements, each physician (i) is
prohibited from engaging in any business activity that is in competition with
the products or services being developed, manufactured or sold by GTR during the
term of the Consulting Agreements (currently through 1998) and for a period of
one year after termination thereof, (ii) is subject to non-disclosure
10
<PAGE> 12
obligations, and (iii) has assigned to GTR all rights to inventions resulting
from work performed by each physician as a consultant to GTR, subject to
royalties payable to the inventing physician. There can be no assurance that the
two physicians will honor their obligations under the Consulting Agreements. In
addition, there can be no assurance that individuals who are familiar with the
know-how underlying GTR's CARTICEL(SM) Service through their association with
these physicians will not disclose such information to GTR's competitors. The
occurrence of either of these events could have a material adverse effect on
GTR's results of operations.
GTR is conducting additional research in connection with its
CARTICEL(SM) Service pursuant to a sponsored research agreement with the
University of Gotenburg in Sweden and certain physicians, including the two
referred to above. The sponsored research agreement requires that all members of
the investigative team maintain the confidentiality of all information
pertaining to GTR and its business that may become known to them in connection
with their work under the agreement. The agreement also states that all
inventions conceived or reduced to practice during the course of the research
program will be the property of GTR, subject to royalties payable to the
inventing physician. There can be no assurance that the sponsored research
agreement will be honored by the individuals performing services thereunder.
GTR OPERATING LOSSES. GTR is expected to experience significant operating losses
at least through the first half of 1997 as the market introduction of its
CARTICEL(SM) Service continues and its research and development and clinical
trial programs progress. There can be no assurance that GTR will ever achieve a
profitable level of operations or that profitability, if achieved, can be
sustained on an ongoing basis. In addition, the management and accounting
policies adopted by the Board provide that to the extent GTR is unable to
utilize its operating losses to reduce its allocated current or deferred income
tax expense, such losses will be reallocated to the General Division on a
quarterly basis. Accordingly, although the actual payment of taxes is a
corporate liability of Genzyme as a whole, separate financial statements are
prepared for each Division and any losses on GTR's financial statements that
cannot be utilized currently by GTR will not be carried forward to reduce the
taxes allocable to GTR's earnings in the future. This will result in GTR
recognizing a larger tax expense and reporting lower earnings after taxes in the
future than would have been the case if GTR had retained its losses in the form
of a net operating loss carryforward.
UNCERTAINTY OF PRODUCT DEVELOPMENT; COMPETITION IN THE TISSUE REPAIR FIELD.
GTR's future success is likely to be dependent upon its ability to develop,
produce and market additional products and services, in addition to completing
the market introduction of the CARTICEL(SM) Service and continuing to sell the
Epicel(SM) Service. Several of GTR's products and services are in an early stage
of development.
Competition is intense in the development of health care products,
particularly in the development of products through the application of
biotechnology. GTR's products and services will compete in fields characterized
by rapid technological progress. New developments in technology may have a
material adverse effect on the sales potential of GTR's products and services or
render them obsolete. Other companies, many of which have substantially greater
capital resources, marketing experience, research and development staffs and
facilities than Genzyme are currently engaged in the development of products and
services which may be competitive with GTR's products and services. These
companies may succeed in developing products and services that are more
effective than any that have been or may be developed by GTR and may also be
more successful than GTR in marketing these products and services. Genzyme is
aware of numerous companies developing competing products for cartilage repair
and the treatment of burns, chronic wounds and multiple sclerosis. See "Business
- Competition."
UNCERTAINTY REGARDING SUCCESS OF CLINICAL TRIALS. Several of GTR's products,
including TGF-(beta)2 and Vianain(R) Debriding Product, are currently in
clinical trials to test safety and efficacy in humans for various conditions.
There can be no assurance that GTR will not encounter problems in clinical
trials that will cause it to delay or suspend clinical trials. In addition,
there can be no assurance that such clinical testing, if completed, will
ultimately show these products to be safe and efficacious.
THIRD-PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT INITIATIVES. GTR
expects that a majority of its revenues will be attributable directly or
indirectly to payments received from third party payors. GTR's revenues and
profitability may be affected by ongoing efforts of third party payors to
contain such costs. In addition, during 1994, the Clinton administration and
Congress proposed the implementation of broad based health care cost containment
measures. While these proposals were not implemented, it is likely that health
care measures will again be proposed
11
<PAGE> 13
in the present or future Congressional sessions. Accordingly, the effects on GTR
of any such measures that are ultimately adopted cannot be assessed at this
time.
FLUCTUATION IN QUARTERLY RESULTS. The commercialization of the CARTICEL(SM)
Service is in its early stages. Revenues generated from the CARTICEL(SM) Service
are expected to fluctuate as GTR's sales force enrolls orthopedic surgeons for
training, such surgeons are trained by GTR, and the CARTICEL(SM) Service gains
market acceptance. GTR's management is unable to predict the timing or magnitude
of such fluctuations. In addition, GTR's revenues to date have derived primarily
from sales of the Epicel(SM) Service for the treatment of severe burns. Revenues
realized from the Epicel(SM) Service fluctuate from quarter to quarter due to
the dependency of such revenues on many unpredictable factors, including the
number and survival rate of patients for which the Epicel(SM) Service is the
indicated treatment. Since production of the Epicel(SM) Service requires GTR to
maintain extensive tissue culture facilities and a staff of trained personnel, a
significant portion of GTR's costs are fixed and, therefore, fluctuations in
demand can have a material adverse effect on GTR's results of operations.
PRODUCT LIABILITY AND LIMITATIONS OF INSURANCE. GTR may be subject to product
liability claims in connection with the commercial application of its products
and services. While GTR will take what it believes to be appropriate
precautions, there can be no assurance that GTR will avoid significant liability
exposure. Genzyme has only limited amounts of product liability insurance. If
Genzyme attempts to obtain additional insurance in the future, there can be no
assurance that it will be able to do so on acceptable terms, or that such
insurance will provide adequate coverage against claims asserted.
POSSIBLE VOLATILITY OF SHARE PRICE AND ABSENCE OF DIVIDENDS. The market prices
for securities of biotechnology companies have been volatile. Factors such as
announcements of technological innovations or new commercial products by Genzyme
or its competitors, governmental regulation, patent or proprietary rights
developments, public concern as to the safety or other implications of
biotechnology products and market conditions in general may have a significant
impact on the market price of TR Stock. In addition, the limited number of
shares of TR Stock outstanding may subject the price of the TR Stock to
additional volatility. No cash dividends have been paid to date on the TR Stock,
nor does Genzyme anticipate paying cash dividends on the TR Stock in the
foreseeable future.
CHANGE IN CONTROL. Certain provisions of Genzyme's charter and by-laws and the
terms of Genzyme's stockholder rights plan may have the effect of delaying,
deferring or preventing a change in control of Genzyme, thereby possibly having
the effect of depriving stockholders of the opportunity to receive a premium for
their shares. Certain provisions of Massachusetts law may have a similar effect.
See "Description of Genzyme Capital Stock - "Anti-Takeover" Provisions."
POTENTIAL DILUTION FROM FUNDING COMMITMENT AND PURCHASE OPTION. Pursuant to the
Funding Commitment and subject to certain conditions, Genzyme is obligated to
allocate up to $30 million in cash from the General Division to GTR in the
period up to June 1998 in exchange for an increase in the TR Designated Shares
at the rate of one share for each $10 allocated. To the extent that the Funding
Commitment is reduced, Genzyme still has an option to allocate, also at $10 per
TR Designated Share, the amount by which the Funding Commitment is reduced (the
"Purchase Option"). Consequently, a maximum of 3,000,000 TR Designated Shares
may be issued in connection with the Funding Commitment or exercise of the
Purchase Option. Genzyme may issue the TR Designated Shares as a stock dividend
to the holders of General Division Stock or issue the TR Designated Shares in a
public or private sale of TR Stock without any allocation of proceeds to GTR.
See "Business - Relationship with Genzyme General Division."
RISKS RELATED TO THE GENZYME GENERAL DIVISION:
Holders of TR Stock are stockholders of Genzyme, which owns all of the
assets and is responsible for all of the liabilities of GTR. Liabilities or
contingencies of the General Division that affect Genzyme's resources or
financial condition could affect the financial condition or results of
operations of GTR. Accordingly, the following risk factors should be considered
carefully in contemplating such an investment.
DEPENDENCE ON CEREDASE(R) AND CEREZYME(TM) ENZYME SALES. The General Division's
results of operations and cash flows are highly dependent upon sales of its
Ceredase(R) enzyme, a biotherapeutic product for the treatment of Gaucher
disease, and Cerezyme(TM) enzyme, a recombinant form of the enzyme. Commercial
sales of Ceredase(R) and Cerezyme(TM) began
12
<PAGE> 14
in April 1991 and June 1994, respectively, following receipt of FDA marketing
approval. During 1994, sales from these two products totalled $172.9 million, or
72% of General Division product sales.
The Ceredase(R) and Cerezyme(TM) products have each been given orphan
drug status by the FDA, which entitles Genzyme to market exclusivity for these
products until April 1998 and May 2001, respectively. Legislation has been
periodically introduced in recent years to amend the Orphan Drug Act to limit
market exclusivity in certain situations.
LIMITED SUPPLY OF KEY RAW MATERIAL; NECESSITY OF APPROVALS FOR PRODUCTION OF
CEREZYME(TM). Genzyme produces Ceredase(R) enzyme from raw material extracted
from human placental tissue. Pasteur Merieux, located in France, is the only
significant source of this material. Under its agreement with Genzyme, Pasteur
Merieux is obligated to process at least 50% of its placental tissue and supply
all of its output to Genzyme. Currently, it is processing all of its available
material and supplying the output to Genzyme. If this agreement were terminated
prior to the scheduled expiration in 2001 due to Pasteur Merieux's inability or
failure to perform its obligations thereunder, or if Pasteur Merieux were to
reduce the amount of material it processes, Genzyme might not be able to obtain
alternative sources of the raw material at a commercially reasonable cost, if at
all.
The supply of starting material available for the production of
Ceredase(R) enzyme effectively limits the amount of product that can be
produced. During 1994, Genzyme and its supplier were successful in improving the
yield of enzyme obtained from the starting material, thereby increasing the
amount of product that could be produced. However, there can be no assurance
that further improvements in yield will occur. Any disruption in the supply or
manufacturing process of Ceredase(R) enzyme may have a material adverse effect
on revenue in any period. To address supply constraints, Genzyme has developed
Cerezyme(TM) enzyme, a recombinant form of the enzyme that is not derived from
human placental tissue. In 1994, Genzyme received approval to market this
product in the U.S. and Israel and currently is working to expedite the foreign
approvals needed to market Cerezyme(TM) enzyme elsewhere abroad. Manufacturing
constraints on Cerezyme(TM) enzyme, presently produced in Genzyme's small scale
cell culture plant, will limit the availability of the product for new patients
until receipt of regulatory approval to use Genzyme's large scale mammalian cell
culture manufacturing plant in Allston, Massachusetts for production of
Cerezyme(TM) enzyme.
FUTURE CAPITAL NEEDS. Although the General Division currently has substantial
cash resources, it has committed to utilize a portion of such funds for certain
purposes, such as making certain payments to third parties in connection with
strategic collaborations and acquisitions. In addition, should Genzyme exercise
its option to acquire Neozyme II Corporation callable common stock or its option
to acquire the partnership interests in Genzyme Development Partners, L.P. using
cash to pay some or all the exercise prices, its cash resources will be
substantially depleted and, as a result, Genzyme's obligation to allocate assets
to GTR pursuant to the Funding Commitment may be suspended or relieved.
See "Business - Relationship with Genzyme General Division."
USE OF PROCEEDS
The net proceeds to be received from the sale of the Shares offered
hereby are estimated to be approximately $______________ (approximately
$____________ if the Underwriters' over-allotment option is exercised in full)
and will be allocated in full to GTR. While GTR currently has no commitments for
use of the net proceeds of the offering, GTR's management anticipates that the
net proceeds, including interest thereon, will be used to accelerate the market
introduction of GTR's CARTICEL(SM) Service, including for related capital
expenditures and working capital, and to fund other research and development
activities of GTR. Until applied to any of the foregoing uses, the net proceeds
of this offering will be invested in high-quality, short-term interest bearing
investments or deposit accounts.
Genzyme anticipates that the net proceeds from this offering, together
with existing cash balances and revenues generated from the CARTICEL(SM) and
Epicel(SM) Services, will be sufficient to fund GTR's operations through 1996.
GTR may require additional funds sooner if demand for the CARTICEL(SM) Service
grows more rapidly than anticipated. Significant additional funds will be
required to expand further its CARTICEL(SM) Service, including for working
capital and additional processing capacity, and to fund the development,
clinical testing, and commercialization of GTR's other products and services.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of GTR as of June
30, 1995 and as adjusted to reflect the issuance of the shares of TR Stock
offered hereby:
<TABLE>
<CAPTION>
JUNE 30, 1995
--------------------------------------------
(DOLLARS IN THOUSANDS)
As
Actual adjusted(1)
------ -----------
<S> <C> <C>
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ 19 $______
Division equity (2) . . . . . . . . . . . . . . . . . . . . . 14,922 $______
------
Total capitalization . . . . . . . . . . . . . . . . . . . . $14,941 $
----------------------- ======= =======
</TABLE>
(1) As adjusted to reflect the application of the net proceeds of the
offering, approximately $________, assuming __________ shares are
issued at a price to the public of $______, the closing sale price on
August __, 1995.
(2) Based on shares outstanding on August 1, 1995. Excludes 1,736,796
shares of TR Stock reserved for issuance upon exercise of outstanding
options with a weighted average exercise price of $6.1923 per share,
and 1,290,465 TR Designated Shares, 1,280,616 of which are reserved
for issuance upon the exercise or conversion of outstanding General
Division stock options, warrants and convertible notes.
PRICE RANGE OF TR STOCK
AND DIVIDEND POLICY
The TR Stock is traded in the over-the-counter market and prices are
quoted on the Nasdaq National Market under the symbol GENZL. The following
table sets forth, for the periods indicated, the high and low sale prices for
the TR Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C>
1994:
Fourth Quarter (commencing December 16, 1994)(1) . . . . . . . . . . . . $ 5 3/8 $ 3 5/8
1995:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3/4 3 1/2
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 5/8 5 1/8
Third Quarter (through August 15, 1995) . . . . . . . . . . . . . . . . . 16 1/8 6 1/2
-----------------------
</TABLE>
(1) GTR was formed, and the TR Stock commenced trading, on December 16,
1994.
On August 15, 1995, the closing sale price of TR Stock as reported by
Nasdaq was $16.125 per share. There were approximately 2,719 holders of record
of TR Stock as of August 1, 1995.
Genzyme has never paid a cash dividend on any class of its capital
stock and currently intends to retain all earnings for use in its business.
14
<PAGE> 16
GENZYME TISSUE REPAIR DIVISION
SELECTED FINANCIAL DATA
The following table represents selected historical combined statement
of operations and balance sheet data of GTR. The balance sheet data presented
below as of December 31, 1992, 1993 and 1994 and the statement of operations
data presented below for each of the years in the four-year period ended
December 31, 1994 are derived from GTR's financial statements, which have been
audited by Coopers & Lybrand L.L.P., independent accountants. The financial
statements as of December 31, 1993 and 1994 and for each of the years in the
three-year period ended December 31, 1994 and the report of Coopers & Lybrand
L.L.P., relating thereto are incorporated by reference in this Prospectus and
the selected financial data presented below are qualified in their entirety by
reference thereto. The balance sheet data presented below as of December 31,
1990 and 1991 and the statement of operations data presented below for the year
ended December 31, 1990 are derived from GTR's unaudited financial statements.
The balance sheet data presented below as of June 30, 1995 and statement of
operations data for the six-month periods ended June 30, 1994 and 1995 are
derived from GTR's unaudited financial statements which are also incorporated
herein by reference. In the opinion of management, the unaudited financial
statements have been prepared on a basis consistent with the audited financial
statements and include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for these periods. The operating results for the six
months ended June 30, 1994 or 1995 are not necessarily indicative of the
results that may be expected for the entire fiscal year. The data should be
read in conjunction with the historical financial statements and notes thereto
and related Management's Discussion and Analysis of Financial Condition and
Results of Operations of GTR presented herein. See "Incorporation of Certain
Documents by Reference." Amounts are in thousands, except for per share
amounts.
<TABLE>
<CAPTION> FOR THE SIX
MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Product revenues..................................... $ - $ - $ - $ - $ 324 $ - $ 2,277
Revenues from research and development contracts (1). 861 2,291 2,666 4,684 - - -
Operating costs and expenses......................... 467 2,552 3,174 3,506 4,889 1,944 11,827
Purchase of in-process research and development (2).. - - - 25,000 11,215 - -
Net income (loss) attributable to TR Stock (3)....... $394 $ (211) $ (508) $(24,115) $(15,751) $(1,944) $(8,969)
GTR COMMON SHARE DATA (3):
Per common share................................... $0.17 $ (0.08) $(0.17) $ (7.43) $ (4.40) $ (0.59) $ (1.03)
Average shares outstanding......................... 2,282 2,739 3,019 3,245 3,578 3,287 8,721
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------- AT JUNE 30,
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and investments $ - $ - $ - $ - $24,808 $16,240
Working capital - - (149) - 20,557 12,076
Total assets - - - - 28,435 19,152
Division equity (4) - - (149) - 23,313 14,922
There were no cash dividends paid.
____________________________________
</TABLE>
(1) In July 1993, Genzyme received a technology license fee of $2,000,000 from
Neozyme I related to expansion of the field of the Vianain(R) Debriding
Product.
(2) In December 1993, Genzyme exercised its option to purchase the rights to
the Vianain(R) Debriding Product research program being funded by Neozyme I.
The transaction was accounted for as a purchase of in-process research and
development and, accordingly, Genzyme charged the $25,000,000 acquisition cost
to GTR's operations in 1993. In December 1994, GTR acquired BioSurface in a
transaction accounted for as a purchase. The excess of the purchase price over
the fair market value of the net assets acquired, $11,215,000, was charged to
in-process research and development.
(3) Net income (loss) attributable to TR Stock and net income (loss) per
common and common equivalent share for the years ended December 31, 1990, 1991,
1992, 1993 and 1994 and for the six months ended June 30, 1994 give effect to
the provisions of the Management and Accounting Policies adopted by the Board in
connection with the creation of GTR and, accordingly, are pro forma
presentations.
(4) In December 1994, Genzyme issued 5,000,000 shares of TR Stock valued at
$25.3 million in connection with the acquisition of BioSurface.
15
<PAGE> 17
GTR MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Genzyme created GTR in December 1994 by acquiring BioSurface and combining
it with several Genzyme programs and collaborations in the area of tissue
repair. In December 1994, the stockholders of Genzyme approved a
reclassification of Genzyme's common stock in which the authorized shares of
Genzyme common stock were redesignated as General Division Stock on a
share-for-share basis and a second class of common stock, TR Stock, was
created. The General Division Stock and the TR Stock are intended to reflect
the value and track the performance of the General Division and GTR,
respectively, without diminishing the benefits of remaining a single
corporation or precluding future transactions affecting either division.
Genzyme continues to hold title to all of its assets and be responsible for
all of its liabilities and the holders of the General Division Stock and the TR
Stock have no specific claim against the assets attributed for financial
statement presentation purposes to the division whose performance is associated
with the class of stock they hold. Liabilities or contingencies of either
division that affect Genzyme's resources or financial condition could affect
the financial condition or results of operations of both divisions.
Accordingly, Genzyme's consolidated financial statements, which are
incorporated herein by reference, should be read in conjunction with the
financial statements of the General Division or GTR, as appropriate.
Genzyme issued 5 million shares of TR Stock, valued at approximately $25.3
million and representing 50% of the initial equity of GTR, to the stockholders
of BioSurface to effect the acquisition. A total of 5,000,000 additional
shares of TR Stock were either distributed to the holders of General Division
Stock on the basis of .135 of one share of TR Stock for each share of General
Division Stock held on December 16, 1994 or reserved for issuance upon the
exercise or conversion of General Division stock options, warrants and
convertible notes outstanding on December 16, 1994.
The acquisition of BioSurface was accounted for as a purchase.
Accordingly, the associated net assets and operations of BioSurface have been
included in GTR's financial statements and in Genzyme's consolidated financial
statements since the acquisition date.
RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1995 AS COMPARED TO THE FIRST SIX MONTHS OF 1994
Product revenues for the three and six months ended June 30, 1995 were
$1,247,000 and $2,277,000, respectively. GTR had no revenues for the
comparable periods in 1994 because prior to Genzyme's acquisition of BioSurface
in December 1994, GTR had no products or services on the market. Revenues in
1995 consisted primarily of sales of the Epicel(SM) Service which are dependent
upon numerous factors, many of which are not in GTR's control. As a result,
GTR expects Epicel(SM) Service sales to fluctuate from period to period.
Product revenues also included $10,000 and $50,000 for the three and six months
ended June 30, 1995 from sales of the CARTICEL(SM) Service, which commenced in
the first quarter of 1995.
Gross margins for the three and six months ended June 30, 1995 were 29% and
30%, respectively. GTR incurs direct selling, general and administrative
expenses as well as a selling, general and administrative charge, based on
actual amounts incurred, from the General Division for selling, general and
administrative work performed by the General Division on behalf of GTR.
Selling, general and administrative expenses for the three and six months ended
June 30, 1995 were $2,541,000 and $4,293,000, respectively, compared to
$226,000 and $389,000, respectively, for the corresponding periods in 1994.
The increase was due to increased support of GTR research and development by
the General Division and to the acquisition of BioSurface in the fourth quarter
of 1994.
16
<PAGE> 18
GTR incurs direct research and development expenses as well as a charge for
research and development work performed by the General Division on behalf of
GTR. Research and development expenses for the three and six months ended June
30, 1995 were $3,115,000 and $5,929,000, respectively, compared to $903,000 and
$1,555,000, respectively, for the corresponding periods in 1994. Solely for
purposes of comparison, research and development expenses related solely to the
operations acquired from BioSurface by Genzyme were $1,732,000 and $3,490,000,
respectively, for the three and six months ended June 30, 1995. Excluding
research and development expenses related to BioSurface, research and
development expenses increased 53% and 57%, respectively, for the three and six
months ended June 30, 1995, due primarily to increased outside clinical trials
and manufacturing support related to the Vianain(R) Debriding Product.
1994 AS COMPARED TO 1993
Product revenues, which consisted solely of revenues from sales of the
Epicel(SM) Service for the period from December 16, 1994, the acquisition date
of BioSurface, through December 31, 1994, were $324,000.
GTR earned no revenues from research and development contracts in 1994 as
compared to $4.7 million in 1993. Neozyme I funded the development of the
Vianain(R) Debriding Product from 1990 through the end of 1993 when GTR
acquired the development program from Neozyme I. Revenues from research and
development in 1993 also included a $2.0 million technology license fee related
to expansion of the field of the Vianain(R) Debriding Product to include both
burns and ulcers.
General and administrative expenses are borne across Genzyme's entire
activity base and charges to a specific activity, such as research and
development, are a function of total spending within that activity as well as
the size of the overall activity base. GTR also incurs direct selling, general
and administrative charges as a result of the acquisition of BioSurface.
Selling, general and administrative expenses for 1994 increased 38% to
$964,000. Of this increase, 18% corresponds to the increase in spending on
research and development for the same period with the remaining increase
resulting from the operations of BioSurface.
Research and development expenses for 1994 increased 30% to $3.6 million
including $306,000 related to the operations of BioSurface. Excluding the
effect of BioSurface, research and development expenses increased 19% due
primarily to increased outside clinical trials related to the Vianain(R)
Debriding Product and increased manufacturing support.
The excess of the purchase price over the fair market value of the net
assets acquired in the acquisition of BioSurface, $11.2 million, was allocated
to in-process research and development and charged to operations.
1993 AS COMPARED TO 1992
GTR's revenues from research and development contracts for 1993 were $4.7
million, as compared to $2.7 million in 1992, an increase of 76%, due primarily
to a technology license fee of $2.0 million from Neozyme I related to expansion
of the field of the Vianain(R) Debriding Product to include the treatment of
ulcers.
General and administrative expenses decreased 15% to $701,000 in 1993 due
to a lower percentage charge resulting from an increase in Genzyme's overall
activity base.
Research and development expenses for 1993 increased 19% to $2.8 million.
The increase in spending was due primarily to increased outside clinical trials
related to the Vianain(R) Debriding Product and increased manufacturing
support.
In December 1993, GTR completed the purchase of the rights to the
Vianain(R) Debriding Product technology from Neozyme I and charged the $25.0
million purchase price to operations as in-process research and development.
17
<PAGE> 19
LIQUIDITY AND FINANCIAL RESOURCES
As of June 30, 1995, GTR had approximately $16.2 million of cash, cash
equivalents and investments in marketable securities, a decrease of $8.6
million from December 31, 1994. The decrease was due to GTR's net loss and an
increase in working capital requirements, net of the portion funded by
additional amounts payable to the General Division and proceeds from the
issuance of stock under stock option and stock purchase plans.
GTR anticipates that, excluding the proceeds from this offering, currently
available funds plus revenues generated from the CARTICEL(SM) Service and from
sales of the Epicel(SM) Service will be sufficient to fund GTR's operations
through the end of 1995. Significant additional funds will be required to
complete clinical testing and commercialization of GTR's other products and
services.
Genzyme is committed to allocate from the assets of the General Division
not less than $30 million to fund the operations of GTR at the rate of $10
million by June 1996, an additional $10 million by June 1997 and a third $10
million by June 1998, subject to certain limitations. See "Business -
Relationship with Genzyme General Division."
18
<PAGE> 20
ADDITIONAL FINANCIAL DATA
Genzyme holds title to all of its assets and is responsible for all of
its liabilities, and the holders of the TR Stock have no specific claim against
the assets attributed for financial statement presentation purposes to GTR.
Liabilities or contingencies of either division that affect Genzyme's resources
or financial condition could affect the financial condition or results of
operations of both divisions. Therefore, the following consolidated balance
sheet data of Genzyme and statement of operations data of the General Division
are presented as additional information due to the nature of Genzyme's
financial reporting structure.
The following table represents summary historical consolidated balance
sheet data of Genzyme as derived from the Company's financial statements and
summary historical combined statement of operations data of the General
Division as derived from the General Division's financial statements. The
General Division operating results for the six months ended June 30, 1995 are
not necessarily indicative of the results that may be expected for the entire
fiscal year. The data should be read in conjunction with the historical
financial statements and notes thereto, and related Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company and
the General Division, respectively, incorporated by reference in this
Prospectus. See "Incorporation of Certain Documents by Reference." Amounts
are in thousands, except for per share amounts.
<TABLE>
<CAPTION>
GENZYME CORPORATION:
At December 31, At June 30,
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and investments (1) ............................... $ 47,059 $283,473 $ 248,325 $ 168,953 $153,460 $102,607
Working capital ........................................ 62,252 147,007 166,324 99,605 103,871 134,896
Total assets ........................................... 129,625 403,643 481,896 542,052 658,408 638,880
Long-term debt and capital lease obligations
excluding current portion(2) ........................... 5,694 104,609 105,369 144,674 126,729 128,321
Stockholders' equity (3) ............................... 103,300 268,333 322,613 334,072 418,964 451,308
</TABLE>
<TABLE>
<CAPTION>
GENZYME GENERAL DIVISION:
------------------------ For the Six
Months Ended
For the Years Ended December 31, June 30,
--------------------------------------------------- ------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA(4):
Revenues................................................ $ 60,688 $119,624 $ 216,413 $ 265,687 $310,727 $148,660 $179,517
Operating income (loss) (5)............................. (37,582) 8,494 (27,565) (7,633) 49,922 23,824 32,974
Net income (loss)....................................... (26,382) 20,938 (30,012) 8,456 30,194 18,702 21,303
Net income (loss) attributable to General
Stock (6)............................................... (26,382) 20,938 (29,809) 18,020 32,054 19,499 24,965
Per General Division common and common equivalent
share (6):............................................
Net income (loss)..................................... $ (1.56) $ 0.89 $ (1.33) $ 0.69 $ 1.22 $ 0.75 $ 0.89
Average shares outstanding............................ 16,910 23,554 22,370 26,250 26,169 25,988 28,105
-------------------------
<FN>
There were no cash dividends paid.
(1) Cash and investments includes cash, cash equivalents, and short- and
long-term investments.
(2) In October 1991, Genzyme issued $100.0 million of its 6 3/4% convertible
subordinated notes due October 2001 and received net proceeds of $97.3
million.
(3) In April 1991, Genzyme completed the sale to the public of 4,025,000 shares
of Genzyme Common Stock for net proceeds of $136.4 million. In December 1994,
Genzyme issued 5,000,000 shares of TR Stock valued at $25.3 million in
connection with the acquisition of BioSurface.
(4) In October 1992, the General Division acquired all the outstanding common
shares of Vivigen, Inc. in a transaction accounted for as a pooling of
interests. Accordingly, the General Division's financial data has been
restated to include Vivigen for all periods presented.
(5) Operating income (loss) includes the purchase of in-process research and
development totaling $20.8 million, $51.1 million and $24.0 million,
respectively, for the years ended December 31, 1990, 1992 and 1993; goodwill
impairment and restructuring costs totaling $26.5 million for the year ended
December 31, 1993; and charges for purchase options and financing expenses
totaling $9.0 million and $16.9 million, respectively, for the years ended
December 31, 1990 and 1992.
(6) Net income (loss) attributable to General Stock and net income (loss) per
common equivalent share for the years ended December 31, 1990, 1991, 1992, 1993
and 1994 and for the six months ended June 30, 1994 give effect to the
provisions of the Management and Accounting Policies adopted by the Board in
connection with the creation of GTR and, accordingly, are pro forma
presentations. The tax benefit generated by GTR retroactively allocated
to the General Division is $0, $0, $0.2 million, $9.6 million, $1.9 million
and $0.8 million for the years ended December 31, 1990, 1991, 1992, 1993
and 1994 and the six months ended June 30, 1994, respectively. For the six
months ended June 30, 1995, the tax benefit generated by GTR allocated to the
General Division is $3.7 million.
</TABLE>
19
<PAGE> 21
BUSINESS
OVERVIEW
GTR focuses on developing, producing and marketing technologically
advanced products and services for the treatment and prevention of serious
tissue damage. GTR's strategy is to create the leading business in the field of
tissue repair by bringing a comprehensive approach to the treatment of the
complex medical problems associated with serious tissue injury. Genzyme created
GTR in December 1994 by acquiring BioSurface and combining BioSurface's programs
with several of Genzyme's programs in the field of tissue repair. As a result
of the combination of programs from BioSurface and Genzyme, GTR has strong
capabilities in three core technologies -- autologous cell processing,
therapeutic protein development, and biomaterials engineering -- which it is
using to develop and market a portfolio of novel products and services to apply
to unmet medical needs in the field of tissue repair. In March 1995, GTR
introduced the CARTICEL(SM) Service, which provides orthopedic surgeons with the
cell culturing services and other support necessary to utilize a patient's own
articular chondrocytes to repair articular cartilage defects in that patient's
knee. GTR plans to focus a substantial portion of its resources in the near
term on further developing and marketing the CARTICEL(SM) Service. GTR also
markets the Epicel(SM) Service, which involves the culturing of autologous skin
cells to provide burn victims with a lifesaving alternative form of permanent
skin replacement, and is developing Vianain(R) Debriding Product for the
treatment of burns and skin ulcers and TGF-Beta 2, a recombinant protein, for
the treatment of chronic skin ulcers and multiple sclerosis.
The CARTICEL(SM) Service has attracted significant interest from the
orthopedic community since publication of the results of GTR's academic
collaborators innovative work on knee cartilage repair in the October 6, 1994
issue of the New England Journal of Medicine. As reported in this article, 19
of 23 patients had restored or improved joint function after implantation with
cultured autologous articular cartilage cells. Based on this data and GTR's
ongoing analysis of results obtained in approximately 130 additional patients
treated in Sweden, GTR has concluded that this treatment can provide long term
repair of damaged knee cartilage tissue. GTR believes that its CARTICEL(SM)
Service is the only such therapy currently available. GTR estimates that each
year between 200,000 and 300,000 individuals in the United States and Europe
may be candidates for treatment using the CARTICEL(SM) Service.
GTR is building the infrastructure required to make the CARTICEL(SM)
Service widely available to orthopedic surgeons in the United States and
Europe. Although the CARTICEL(SM) Service is not currently regulated by the
FDA, GTR has developed a quality systems approach to the delivery of this
service. Drawing on its seven years of experience with the Epicel(SM) Service,
GTR has validated a commercial scale cartilage cell processing facility,
developed a rigorous surgeon training program, established standards for
patient outcomes data collection, and assembled an experienced sales and
marketing staff. Since the introduction of the service in March 1995, GTR has
trained 41 orthopedic surgeons, has provided cultured cartilage cells for the
treatment of six patients, and is processing cartilage cells for 32 additional
patients.
GTR's near term strategy is to concentrate its efforts on building a
substantial business based on the CARTICEL(SM) Service. This will require
significant investments in processing capacity, working capital and market
development. GTR believes that the creation of a substantial business based on
the CARTICEL(SM) Service would establish GTR as a leader in the application of
biotechnology to the orthopedic market, support future research and development
efforts, and enable GTR to finance acquisitions of complementary technologies.
GTR will continue to build its product portfolio through development of the
Vianain(R) Debriding Product for burns and skin ulcers, TGF-Beta 2 for chronic
skin ulcers and multiple sclerosis, and alternate versions of the CARTICEL(SM)
and Epicel(SM) Services for cartilage resurfacing and permanent skin
replacement, respectively. GTR believes this family of diverse tissue repair
products will offer a comprehensive treatment portfolio in the currently
fragmented field of tissue repair.
20
<PAGE> 22
PRODUCTS AND SERVICES
GTR's activities can be divided into three main areas: cartilage
repair, consisting of the CARTICEL(SM) Service and CARTICEL II; skin repair,
including the Epicel(SM) Service and the TGF-Beta 2 and Vianain(R) Debriding
Product programs; and other tissue repair opportunities in the areas of multiple
sclerosis and bone repair.
CARTILAGE REPAIR - CARTICEL(SM) SERVICE
Scientific Background
Cartilage tissue consists of cartilage cells called chondrocytes,
which secrete and are embedded in a protein and carbohydrate based matrix.
Cartilage tissue can be found in several parts of the body and serves several
different purposes. Articular (hyaline) cartilage is a thin layer of tough
opaque tissue that lines the opposing bone surfaces of all moving joints in the
body to provide almost frictionless movement of the joint. Another type of
cartilage (fibrocartilage) serves a shock-absorbing function in the knee and in
the spine between the vertebrae. Cartilage is also the tissue which gives
shape to the ear and the nose.
Damage to cartilage causes significant medical problems. When
articular cartilage tissue in a joint suffers more than superficial damage, it
does not regenerate and may further deteriorate over time. Even damage which
creates a small defect in articular cartilage can impair joint movement,
restrict patient mobility and cause pain and joint locking. There were an
estimated 1.3 million procedures performed in the United States in 1994 to
treat soft tissue damage in the knee. A substantial number of these procedures
involved articular cartilage damage.
Arthroscopic techniques are currently used to relieve patients' pain
and lessen the chances of further tissue damage, but they do not repair the
defect or stop the degenerative process. One technique involves shaving the
margins of the damaged cartilage and irrigating the joint cavity. Another is
to drill holes through the underlying bone, allowing cells from the bone marrow
to migrate into the defect. These bone marrow cells produce fibrocartilage
scar tissue that can fill the defect but is mechanically inferior to normal
articular cartilage and wears poorly over time. Over a period of several
years, this scar tissue may deteriorate, leading to osteoarthritis, a
degenerative joint disease. Patients with osteoarthritis may require a total
joint replacement, which carries a significant risk of long-term failure.
Therefore, joint replacement is generally not recommended for patients under
the age of fifty, who would likely outlive the prosthesis.
GTR's CARTICEL(SM) Service has been developed based on seven years of
pioneering work by a group of Swedish physicians (the "Swedish Group"). The
Swedish Group, which was the first group in the world to report the use of
cultured autologous cartilage cells to treat cartilage damage, has treated 165
patients with knee cartilage defects. A retrospective review of safety data on
the initial 150 patients treated by the Swedish Group, which was conducted by
an independent data management organization hired by GTR and covered seven
years of data for the earliest patients, indicated no serious adverse events or
post-implantation infection. An ongoing retrospective review by GTR presently
covering 60 of these patients has yielded encouraging data on the efficacy of
the treatment, as measured by joint functionality and arthroscopic and
histological evaluation. In the October 6, 1994 issue of the New England
Journal of Medicine, the Swedish Group published data on the first 23 patients
to reach a two year follow-up evaluation. As reported in this article, 19 of
23 patients had restored or improved joint function after treatment with
cultured autologous chondrocytes.
Market Opportunity
GTR has estimated the market opportunity for the CARTICEL(SM) Service
by examining the number of surgical procedures used to treat knee injuries. In
the United States in 1994, there were an estimated 1.3 million procedures
performed to treat soft tissue damage in the knee, including ligaments, menisci
and articular cartilage. Approximately 500,000 of these procedures were
performed specifically to treat articular cartilage damage of traumatic origin.
GTR estimates that roughly 200,000 of these procedures were performed on
clinically significant injuries that would be suitable for intervention with
the CARTICEL(SM) Service.
Data concerning numbers of injuries or surgical procedures in Europe
are generally not available, and accordingly it is difficult to estimate the
size of the European market for the CARTICEL(SM) Service. A GTR commissioned
survey of the
21
<PAGE> 23
European market, which was based on 1993 data, suggests that the CARTICEL(SM)
Service is applicable to at least 56,000 patients in Europe annually.
The potential market opportunity for the CARTICEL(SM) Service also
encompasses the treatment of other joints. In the United States, there are
currently more than 400,000 arthroscopies performed each year on the shoulder,
ankle, elbow, wrist, hip and spine, some portion of which involve articular
cartilage defects. The Swedish Group has already begun treating patients with
articular cartilage defects in these joints. In addition, GTR is working to
expand the use of the CARTICEL(SM) Service for the management of end-stage
degenerative diseases (such as osteoarthritis) and cartilage damage that are
beyond treatment with current techniques, such as shaving the cartilage or
drilling the bone, or the existing CARTICEL(SM) Service. Cartilage diseases,
such as chondromalacia patellae and osteochondritis dessicans, affect an
estimated 200,000 patients in the United States per year, and GTR estimates that
16 million people in the United States suffer from osteoarthritis. In order to
take advantage of these market opportunities, GTR will need to conduct
additional development activities and clinical studies on the use of autologous
chondrocytes for these and other indications. See "Business - Products and
Services - CARTICEL(SM) Development Programs."
GTR believes that the CARTICEL(SM) Service offers an attractive
alternative to existing procedures used to treat severe articular cartilage
damage. Existing treatments do not repair the damage to the cartilage, and
consequently, many patients need to undergo more than one treatment for their
injury, and often never achieve lasting relief from pain. The CARTICEL(SM)
Service is designed to address cartilage damage by repairing the defect and
stopping the degenerative process. GTR believes that the benefits from the
CARTICEL(SM) Service will be long lasting and that a patient may not need to
repeat treatment with the CARTICEL(SM) Service.
GTR believes that the total costs associated with the CARTICEL(SM)
Service are less than the costs of a typical course of treatment ending with
knee replacement surgery. The list price of the CARTICEL(SM) Service is
currently $10,000 per patient. GTR has estimated that the additional costs of
the surgical procedures required to perform a biopsy and implant autologous
cartilage cells will range from $8,000 to $25,000 depending upon the complexity
of the repair required. Although prices may vary depending on the geographic
location, GTR estimates that the average total cost of a knee replacement
procedure is $26,000. However, before undergoing a knee replacement, many
patients will have received therapy and other procedures over the course of
several years, adding substantially to the overall cost of care.
Description of CARTICEL(SM) Service
The CARTICEL(SM) Service is an integrated program of surgeon training,
standardized cartilage cell processing, and rigorous collection and analysis of
outcomes data, which is aimed at providing broad surgeon access and achieving
and maintaining high quality patient outcomes. Although the CARTICEL(SM)
Service is not currently regulated by the FDA, GTR has developed a quality
systems approach to the delivery of this service. Each of the components of
the CARTICEL(SM) Service is described below.
Surgeon Training
The successful commercialization of the CARTICEL(SM) Service is
dependent on it being accepted by and incorporated into routine use by a large
number of orthopedic surgeons. The orthopedic marketplace in the United States
is comprised of approximately 17,000 board certified surgeons. Within major
European countries, there are approximately 18,000 orthopedic surgeons.
In order to gain access to GTR's cartilage cell processing services,
surgeons must complete comprehensive training in the surgical procedure for
autologous cartilage cell implantation. This training program currently is
composed of clinical, technical and practical orientation modules, providing a
minimum of 16 hours of concentrated exposure to autologous implantation
technology. The three-day training includes lecture presentations, a hands on
bioskills session involving practice of the surgical technique, and an on-site
training session in Sweden for observation of the surgical procedures (biopsy
harvesting, implantation and surgical follow-up) as performed by surgeons well
experienced in this technique. GTR believes that its exclusive ability to
provide surgeons with the opportunity to observe and interact with the Swedish
Group is a significant competitive advantage.
GTR has trained 41 surgeons to date and anticipates training 100
surgeons by the end of 1995. In order to accommodate the surgeons' limited
time availability, GTR plans to expand training capacity with the addition of a
training site in Cambridge,
22
<PAGE> 24
Massachusetts in the fourth quarter of 1995 and to modify to the training
curriculum to concentrate the program into a day and a half. Upon the
completion of this facility and by intensifying the training program, GTR will
have the capacity to train 500 surgeons per year. In order to maintain the
high quality standards of the CARTICEL(SM) Service training program, GTR plans
to utilize videotapes of the surgical biopsy and implantation procedures
performed by the Swedish Group and video teleconferencing links to Sweden to
facilitate interaction with members of the Swedish group.
Standardized Cartilage Cell Processing
To initiate the CARTICEL(SM) Service, a small sample of each patient's
healthy knee cartilage tissue is harvested by the surgeon via a minimally
invasive arthroscopic procedure. This cartilage biopsy is then shipped to GTR's
Cambridge processing facility in a specialized container provided by GTR. The
biopsy is processed, under rigorous quality control conditions, to yield a
suspension of the cartilage cells called chondrocytes. When placed in GTR's
proprietary cell culture system these chondrocytes gain the ability to rapidly
propagate. Each patient's cells are typically cultivated for a period of
approximately three weeks, yielding enough cartilage cells to fill the volume of
the cartilage defect diagnosed by the patient's surgeon. After quality control
testing and release, each patients cell's are packaged in a vial and returned to
the surgeon for implantation in a procedure described below. GTR's proprietary
technology allows a patient's cells to be stored indefinitely during the
cultivation process. Delivery of the patient's cells can then be coordinated
with the scheduled implantation procedure which may occur several months after
the biopsy. See "Business - Production."
The following figure indicates the steps required to implant
autologous cartilage cells:
[The graphic image that appears here consists of four numbered
illustrations. The first illustration shows the structure of the human
knee and an articular cartilage defect depicted with a dark circle
labeled "defect". It is captioned "Healthy cartilage biopsy taken from
patient." There is a line leading from this caption to the area in the
knee from which the cartilage biopsy is taken. The second
illustration, captioned "Biopsy sent to Genzyme Tissue Repair for
processing," portrays a technician examining a biopsy through a
microscope. The next segment is an image of cells in a test tube with a
caption "Cultured cells sent to surgeon." The final segment shows an
illustration of a knee with a periosteal flap sutured on top of the
defect and a syringe inserted underneath the periosteal flap from the
perimeter. This illustration is captioned "Cultured cartilage cells
injected under periosteal flap." There is also a caption to this
illustration which says "periosteal flap, taken from lower leg bone and
sutured on top of defect" and a line indicating the flap sutured over
the area of the defect.]
Figure Legend
Step 1: Arthroscopic Biopsy Procedure
The initial surgical procedure is an arthroscopy. If the physician
diagnoses an articular cartilage defect, he or she will perform a
biopsy procedure to retrieve a tiny sample of healthy cartilage
tissue.
Step 2: Biopsy Processing and Cell Culturing
The biopsy tissue is then sent to the specialized processing facility
at GTR. Under strict aseptic conditions, the cartilage cells from the
biopsy are nourished and grown in culture. Cell culturing usually
requires approximately three weeks, during which time the cartilage
cells will grow to many times their original number. Following
culturing, the cells will be ready for return to the physician for a
scheduled surgical implantation.
Steps 3 & 4: Surgical Implantation
To complete the implantation process, a second surgical procedure is
performed. An incision is made in the knee and the joint is opened.
Damaged cartilage tissue is removed, and the area of the defect is
prepared to receive the cultured cells. Another small incision is
then made over the tibia (shin bone) to remove a piece of periosteum,
the thin tissue which covers the bone. The periosteum is sutured over
the cartilage defect to serve as a protective cover for the cells
which are implanted beneath it.
23
<PAGE> 25
Collection and Analysis of Outcomes Data
The implantation of cultured autologous chondrocytes is an innovative
surgical approach for the repair and treatment of cartilage defects. GTR
believes that clinical data collection for analysis of surgical outcomes will
be critical to document and expand the use of the CARTICEL(SM) Service.
Therefore, GTR has established a registry of patients who receive cartilage
cells from the CARTICEL(SM) Service and requires that each surgeon obtain
consent from the surgeon's institutional review board ("IRB") to collect
outcomes data according to GTR's protocol. In addition, GTR will identify
surgeons who perform more specific long term follow-up data collection and cost
effectiveness studies, and GTR will fund these activities. GTR believes that
this registry will be a valuable resource for ongoing product performance
feedback to individual surgeons and for evaluating new surgical techniques.
GTR will encourage publication and presentation of individual case studies or
groups of patients by individual physicians or collaborators taking part in the
registry.
GTR has access to the clinical outcomes data from implantation
procedures performed by the Swedish Group over the last eight years. In
addition, in order to support further development of autologous chondrocyte
implantation, GTR will support a controlled multi-center, randomized study with
the Swedish Group. The study is scheduled to begin in the second half of 1995
and will include 60 patients, 40 of whom will be treated with GTR's CARTICEL(SM)
Service and 20 of whom will receive conventional bone drilling as a control
procedure. These patients will be followed for three years, at which time an
arthroscopy and biopsy will be performed.
Sales and Marketing
GTR markets the CARTICEL(SM) Service directly to orthopedic surgeons
in the United States and Europe. Since the launch of the CARTICEL(SM) Service,
GTR has built its United States and European sales and marketing organization
to a total of 24 sales people. GTR intends to expand its existing sales force
to 50 by the end of 1996 with sales people experienced in the orthopedic
market. GTR's sales force promotes the CARTICEL(SM) Service by contacting and
educating orthopedic surgeons about the CARTICEL(SM) Service and maintaining an
ongoing relationship with each surgeon who receives training from GTR;
assisting physicians with administrative, clinical and reimbursement issues
involved in arranging to perform the biopsy and implantation procedures at
hospitals; and assisting physicians in obtaining the necessary approval from
the hospital's IRB to collect outcomes data in accordance with GTR's protocol.
GTR further supports its sales and marketing efforts by attendance at and
participation in orthopedic congresses and symposia.
CARTICEL(SM) Development Programs
GTR currently has a number of ongoing development programs relating to
its CARTICEL(SM) Service, including work on arthroscopic implantation
procedures and development of the CARTICEL(SM) Service for other applications
(referred to as "CARTICEL II"). The primary objectives of these programs are
to: (i) improve GTR's general knowledge of cartilage repair, (ii) improve the
regenerative ability of the implanted, autologous chondrocytes and (iii) expand
the application of the CARTICEL(SM) Service to the repair of large surface area
defects such as those seen in osteoarthritic joints. The CARTICEL(SM) Service
is currently effective only for the repair of small area defects (less than two
centimeters in diameter).
In response to interest by many of the orthopedic surgeons contacted
by GTR, GTR is refining the CARTICEL(SM) Service to allow the use of
arthroscopic procedures for implanting the cultured cartilage cells. GTR has
commenced discussions with manufacturers of arthroscopic equipment regarding
the development of equipment specifically designed for arthroscopic
implantation. To facilitate arthroscopic implantation, GTR is developing a
synthetic biomaterial-based periosteal patch. GTR believes that such
refinements of the CARTICEL(SM) Service for arthroscopic procedures would be a
significant enhancement of the CARTICEL(SM) Service and would broaden its
appeal for many orthopedic surgeons.
GTR is working to develop CARTICEL II for the management of end-stage
degenerative diseases (e.g., osteoarthritis), and cartilage damage which has
progressed beyond treatment with other measures. In addition, CARTICEL II is
being developed to regenerate cartilage in large defects in which pre-existing
arthritic conditions are present. Specifically, GTR anticipates that CARTICEL
II will improve the regenerating capacity of autologous chondrocytes implanted
in arthritic joints and reduce healing time through agents that actively
stimulate cartilage regeneration. Additionally, GTR has access to the General
Division's hyaluronic acid technology and will be evaluating its application in
the treatment of osteoarthritis in conjunction with the CARTICEL(SM) Service.
24
<PAGE> 26
SKIN REPAIR
Scientific Background
Human skin is comprised of two distinct layers which together protect
the body from the surrounding environment. The epidermis is the body's
outermost protective barrier. It consists predominantly of keratinocytes,
epithelial cells organized in overlapping layers to form a continuous, smooth
sheet. Beneath the epidermis lies the dermis, a vascularized layer whose
principal cell type, fibroblasts, produce a matrix composed of collagen and
other extracellular proteins. Accidents or diseases which affect the skin may
cause partial-thickness wounds, in which the epidermis is destroyed but a
portion of the dermis remains intact, and full-thickness wounds, in which both
the epidermis and the dermis are destroyed. Partial-thickness wounds may heal
without the use of skin grafts because keratinocytes which surround the hair
follicles and sebaceous glands are capable of dividing and migrating toward the
surface, regenerating the epidermis. In full-thickness wounds, the hair
follicles and sebaceous glands are destroyed, leaving no source of
keratinocytes in the injured area. Although small full-thickness wounds can
heal from the edges, larger full- thickness wounds must be treated with skin
grafts. The figure below represents the structure of human skin and indicates
the depth of wounds in the skin:
NORMAL SKIN STRUCTURE
[The graphic image that appears here is a drawing of a
cross-section of skin. The illustration shows the epidermis,
dermis, subcutaneous tissue, capillaries, hair follicle and
sebaceous gland. The illustration also indicates the depth of
partial-thickness and full-thickness wounds.]
Burns
When a patient suffers a severe full-thickness burn injury that
completely destroys the epidermis and the dermis over a large body surface
area, the surgeon must replace the missing skin to enable the patient to
survive. At present, treatment for large full-thickness burns typically
involves the use of temporary dressings to limit infection, reduce pain and
prevent loss of body fluids, followed by grafting a portion of the patient's
own undamaged skin onto the burned area. In conventional skin grafting,
surgeons first debride the burn wound (i.e., remove the necrotic tissue so that
the body's normal healing process can occur) and then remove a sheet of skin
containing the entire epidermis and a portion of the dermis from an unburned
donor site on the patient, and transplant it onto the debrided burn wound.
The use of conventional skin grafts in burn treatment entails certain
disadvantages. Most importantly, in patients with extensive full-thickness
burn injuries, there is a limited amount of undamaged skin available for use as
donor sites for skin grafts. This shortage prevents rapid closure of the burn
wound and is, therefore, life-threatening. In addition, the harvesting of skin
grafts from a donor site produces a new wound, with attendant complications
including pain, blood loss, scarring and the creation of new sites for
potential infection.
Each year approximately 2,000,000 people in the United States suffer
burn injuries. According to the National Center for Health Statistics,
approximately 70,000 of these patients are admitted to hospitals for serious
burn injuries. GTR estimates that approximately 25,000 of the most severely
burned patients in the United States are admitted to one of the 140 specialized
burn centers. Industry analysts estimate that approximately $1 billion is
spent in the United States annually for the treatment of burns.
25
<PAGE> 27
Chronic Skin Ulcers
Chronic skin ulcers are open, often painful wounds found predominantly
on the lower extremities of elderly patients. Skin ulcers are divided into
three main categories: pressure ulcers, which are common in chronic care
hospitals and nursing homes, afflict approximately 1,500,000 patients per year;
venous ulcers afflict approximately 500,000 patients per year; and diabetic
ulcers afflict approximately 1,000,000 patients per year. Pressure ulcers form
in the skin of immobilized patients who are unable to shift position to relieve
the pressure caused by the body's own weight. Venous ulcers occur in patients
with damaged valves in the veins in their legs which leads to a pooling of
blood in the lower extremities and subsequent breakdown of the skin. Diabetic
ulcers result from circulatory deficiencies and nerve damage associated with
diabetes. These wounds frequently remain unhealed for months or years and may
lead to amputation of the limb.
The treatment of chronic skin ulcers can involve three stages: wound
debridement, tissue growth promotion and re-epithelialization or closure of the
wound. Wound debridement is necessary for the treatment of almost all serious
chronic skin ulcers and is accomplished through a variety of mechanical,
surgical and enzymatic methods. Mechanical debridement is a painful, labor
intensive process that can take many weeks to complete and slows the healing
process by removing viable tissue along with necrotic tissue. Surgical
debridement is a costly process that results in loss of viable tissue and is
complicated by the additional risks of anesthesia. Enzymatic debridement is
used infrequently because currently available enzymatic debridement products are
slow-acting and of limited efficacy. After debridement, traditional approaches
to treatment of chronic skin ulcers usually follow one of two courses. The most
common course of treatment for less advanced ulcers is to clean the wound and to
treat it with protective, but passive, dressings and topical medications to
prevent infection while allowing normal healing to occur. Even when
conventional therapy is successful, it still may require 12 to 20 weeks of
repeated treatments. The second approach utilizes conventional skin grafts and
is typically used for more advanced chronic skin ulcers. However, the difficulty
of healing donor sites created in the grafting process and the risks associated
with general anesthesia in the elderly often prevent the use of conventional
skin grafts in these patients. In addition, both treatment approaches are
expensive and have a high failure rate.
GTR estimates that approximately 2,600,000 cases of chronic or slow
healing skin ulcers are treated in the United States each year at a cost of
more than $7 billion, with individual treatment costing up to $40,000 per year.
GTR Skin Product Portfolio
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION INDICATION STATUS
<S> <C> <C> <C>
Epicel(SM) Service Autologous cultured Burns -- Permanent skin Burns -- Marketed since
epidermal skin graft replacement 1988
Ulcers -- Tissue growth Ulcers -- Marketed since
promotion and re- third quarter, 1994
epithelialization
TGF-Beta 2 Recombinant growth factor Tissue growth promotion Completed initial Phase
II trial; expanded Phase
II trial scheduled to
begin third quarter, 1995
Vianain(R) Debriding Enzyme preparation from Burns -- Wound Burns -- Phase I/II
Product plant extract debridement clinical trials
completed; Phase II
clinical trial in
progress
Ulcers -- Wound Ulcers -- Completed
debridement pilot trial; Phase I/II
trial to begin in early
1996
</TABLE>
26
<PAGE> 28
Epicel(SM) Service
Service Description
Skin grafts produced using the Epicel(SM) Service are a life-saving
product indicated for patients who suffer severe, full- thickness burns and
need permanent skin replacement. These epidermal grafts are grown from a
patient's own skin cells and, therefore, are not rejected by the patient's
immune system. Starting with a patient biopsy about the size of a postage
stamp, GTR can grow enough skin grafts in three to four weeks to cover a
patient's entire body surface area. Each skin graft consists of a sheet of
cultured skin cells, approximately 25 square centimeters in size and ranging
from two to eight cell layers thick, attached to a piece of surgical dressing
material. A 48 hour shelf life allows these grafts to be delivered anywhere in
the United States, Europe or Japan from GTR's production laboratories in
Cambridge, Massachusetts.
Development Status
Skin grafts produced using the Epicel(SM) Service were first
introduced in 1988 and remain the only commercially available laboratory-grown
skin grafts shown to provide permanent skin replacement. Most burn wounds
involving less than 60% body surface area are covered with conventional skin
grafts within the three to four weeks it currently takes to grow skin grafts
produced using the Epicel(SM) Service. Therefore, GTR believes that the
primary candidates for the Epicel(SM) Service are the approximately four
hundred patients each year in the United States who survive burn injuries
covering more than 60% of their body surface area. GTR markets the Epicel(SM)
Service to burn centers throughout the United States and in parts of Europe
through its own direct sales force. GTR began marketing the Epicel(SM) Service
in Japan in 1995 through its distributor, Toho Pharmaceuticals Co., Ltd.
GTR introduced the Epicel(SM) Service for the treatment of ulcers in
the third quarter of 1994 in response to physicians purchasing the burn product
for several years for use in the treatment of ulcers. However, GTR is not
actively promoting the Epicel(SM) Service for treating chronic ulcers because
it believes that the Epicel(SM) Service is not likely to be economical for this
indication.
Scientists postulate that autologous epidermal skin grafts stimulate
wound healing, including promotion of granulation tissue, attraction of
inflammatory cells, and re-epithelialization, or closure, of chronic wounds.
These scientists have reported that keratinocytes, which are the primary
component of Epicel(SM) skin grafts, produce over twenty cytokines and matrix
proteins, many of which are known to participate in the wound healing process.
In addition, several investigators have reported actual Epicel(SM) graft take
in large chronic wounds.
Epicel(SM) II
GTR is currently evaluating alternative approaches for use of the
Epicel(SM) Service which will represent an improvement over the clinical
utility and production methods of the Epicel(SM) Service. While treatment with
the Epicel(SM) Service is often a life saving procedure, several limitations in
its clinical utility and production methods have been identified. These
limitations include graft fragility, suboptimal graft cosmesis, variability in
graft acceptance, patient morbidity and mortality as a consequence of the
length of time before the graft is available following skin biopsy, difficult
handling characteristics of grafts, and cost of graft production. GTR is
evaluating several methods to address these limitations, including use of
synthetic membranes and composite skin grafts.
GTR believes that advances in the field of autologous keratinocyte
grafting coupled with one or both of the technologies described above may allow
the expanded use of autologous keratinocyte grafting for the treatment of
smaller burns (burn wounds involving 30-60% body surface area) as well as for
treatment of cutaneous ulcers which involve large surface area of the skin. In
the latter case, GTR believes an improved autologous keratinocyte graft could
effectively and economically provide final wound closure following effective
debridement and induction of granulation tissue deposition at the wound site.
Transforming Growth Factor Beta 2 ("TGF-Beta 2")
Product Description
TGF-Beta 2 is one of a family of proteins that play an important role
in the body's ability to promote normal wound healing by stimulating the growth
of connective tissue. GTR has licensed recombinant TGF-Beta 2 from Celtrix
Pharmaceuticals, Inc. ("Celtrix") and is collaborating with Celtrix on the use
of TGF-Beta 2 to promote the healing of chronic skin ulcers by supplementing
the body's own production of TGF-Beta 2. The product will consist of an
easy-to-use collagen sponge which serves as a delivery vehicle permitting the
release of a consistent dose of TGF-Beta 2 to the wound surface over time.
27
<PAGE> 29
Development Status
In January 1994, Celtrix announced the results of the Phase II clinical
trials of the TGF-Beta 2 wound healing product in the treatment of venous
ulcers. The results of the clinical trials were consistent with previous
findings which indicated a positive trend in wound healing. These results also
allowed Celtrix to reach the following important conclusions: (i) topically
applied TGF-Beta 2 is safe at the doses tested; (ii) the delivery vehicle is
well tolerated and (iii) the ease of treatment enables patients to apply
TGF-Beta 2 therapy themselves. However, due to variability in patient response
in the placebo groups, combined with a greater-than-expected placebo effect,
statistical significance was not achieved in this study.
GTR plans to begin a 12 center, double-blinded, randomized Phase II
clinical trial in September 1995. The study will group 200 diabetic patients
suffering from neurotrophic diabetic foot ulcers into one of three TGF-Beta 2
coated collagen sponge dose groups, a placebo group or a standard of care
control group.
During the first half of 1995, GTR concentrated its efforts on
refining the formulation and manufacturing process for the TGF-Beta 2 collagen
sponges for Phase II clinical trials at Genzyme's Allston, Massachusetts
facility. Genzyme successfully produced 10,000 sponges using bulk TGF-Beta 2
from Celtrix and collagen slurry from an outside source. Genzyme plans to
manufacture TGF-Beta 2 for Phase III clinical trials in its own facilities.
Upon commercialization, GTR will make royalty payments to Celtrix based on
cumulative product sales. GTR is also obligated to make milestone payments to
Celtrix for product development related achievements.
GTR's rights with respect to TGF-Beta 2 derive from a license and
development agreement which Genzyme and Celtrix entered into in June 1994 (the
"Celtrix Agreement"). The agreement provides for a collaboration between the
parties to develop and commercialize TGF-Beta 2 for any therapeutic uses for any
clinical indication (excluding soft tissue augmentation, vascular prostheses
and all ophthalmic and mucositis indications). Genzyme's rights and
obligations under the Celtrix Agreement have been allocated to GTR. Pursuant
to the Celtrix Agreement, GTR has worldwide commercialization rights, excluding
Asia, for all systemic indications and select other indications of TGF-Beta 2.
Celtrix may reacquire rights to indications not pursued by GTR.
Vianain(R) Debriding Product
Product Description
The Vianain(R) Debriding Product is a proprietary enzyme preparation
designed to remove necrotic tissue from the wound site. The Vianain(R)
Debriding Product is formulated in a hydrophilic cream delivery vehicle so that
it is highly viscous and easy to apply and cleanse from the wound site. Since
the Vianain(R) Debriding Product is designed to be applied at the bedside by a
nurse or technician, GTR believes that it may also be more cost effective than
currently available debridement methods. GTR intends to use the same
proprietary preparation of the Vianain(R) Debriding Product to remove necrotic
tissue from both burns and skin ulcers.
Development Status
Genzyme completed an initial Phase I/II study involving twenty-five
patients in August 1993. This study was designed to evaluate the safety of
escalating doses of Vianain(R) Debriding Product in burn patients and to
develop preliminary effectiveness parameters. In this Phase I/II safety study,
all patients had moderate to major burn injuries and received a maximum of
eight hours of treatment (i.e., either four, two-hour applications or two,
four-hour applications of Vianain(R) Debriding Product at various enzyme
concentrations). The wounds treated ranged in size from one to ten percent of
total body surface area. The following conclusions were drawn from the Phase
I/II study: (i) topically applied Vianain(R) Debriding Product is safe at the
doses tested; (ii) there is a dose response relationship between Vianain(R)
Debriding Product concentration and debridement results; (iii) the optimal
dosing regimen (the number and length of applications required to achieve
satisfactory debridement) requires further investigation; and (iv) the ability
to place skin grafts on Vianain(R) Debriding Product treated wounds should also
be studied.
GTR is nearing completion of a Phase II trial for the burn indication.
The trial is a multi-center debridement/dosing regimen study evaluating 60
patients with wounds requiring debridement, but not necessarily skin grafting,
for wound closure. The primary objectives of this study are to evaluate the
safety and efficacy of the Vianain(R) Debriding Product as compared to its
delivery vehicle in the removal of necrotic tissue, to determine the number of
applications of Vianain(R) Debriding Product needed to achieve debridement, and
to evaluate whether prompt treatment with Vianain(R) Debriding Product
following burn injury can speed the determination of early burn depth.
28
<PAGE> 30
A second Phase II single-center study evaluated the ability to
transplant skin grafts to full thickness burn injuries directly following
Vianain(R) Debriding Product treatment in ten patients. Data analysis is
ongoing. Preliminary clinical results indicate that the use of Vianain(R)
Debriding Product does not yield an immediately graftable bed in full thickness
burns. However, it appears to be an efficient debulking agent.
Phase I clinical studies for the Vianain(R) Debriding Product for the
treatment of chronic skin ulcers were completed in June 1995. A total of 15
chronic ulcer patients (8 venous, 5 diabetic, 2 pressure) were treated.
Preliminary results indicate that Vianain(R) Debriding Product is a safe and
effective debriding agent. The product appears to be most effective in venous
ulcers; six out of eight patients experienced at least 90% debridement (the
remaining 2 patients showed 50-89% debridement) and seven patients showed a
significant increase in the amount of healthy granulation tissue present. A
Phase II study is planned for 1996.
Acticel(SM) Wound Dressings
Acticel(SM) wound dressings are "living bandages" composed of
three-dimensional sheets of living epidermal tissue grown in the laboratory
from donor cells and attached to synthetic dressing materials. Acticel(SM)
wound dressings provide a covering to the wound and act as a barrier to
infectious agents and prevent dessication of the tissue. In August 1995, GTR
completed an interim analysis of data obtained from the first 77 patient in its
clinical trial of Acticel(SM) wound dressings as a treatment for partial
thickness burns. Although the results from treatment of the second half of
this patient group, which followed a clinical investigators' meeting to discuss
patient selection and use of the product, were at a level sufficient to meet
the stated trial objectives, it did not appear that data for the entire trial
would be sufficient to support a filing of an application for marketing
approval.
Based on this analysis, together with GTR's concerns as to the
commercial potential of the current product concept, and in order to focus
GTR's near-term efforts on the introduction of the CARTICEL(SM) Service, GTR
has elected to discontinue patient enrollment in the trial. GTR has also
determined that it will undertake a review of the product design and commercial
potential of Acticel(SM) prior to initiation of future clinical studies.
OTHER TISSUE REPAIR OPPORTUNITIES
Multiple Sclerosis
Scientific Background
Although the cause of multiple sclerosis ("MS") remains unknown, the
disease is thought to result from a patient's immune system mounting an
inflammatory response and thereby damaging the myelin sheath that forms the
protective covering of nerve tissue. Damage to this sheath, with the
subsequent development of scar tissue or "sclerosis", is believed to disrupt
the transmission of nerve signals and may cause a range of debilitating
symptoms, including fatigue, numbness, pain, slurred speech, blurred vision
and, ultimately, muscle spasm and paralysis. Although patients vary, there are
four typical patterns of the disease: benign (about 20% of cases),
exacerbating/remitting (20-30%), remitting/progressive (about 40%) and
progressive (about 10-20%). MS is rarely fatal. While most patients are
ambulatory, at least between flares, some patients may eventually become
paralyzed and confined to a wheelchair.
Current therapy for MS remains inadequate. Steroids can be used for
temporary, symptomatic relief in mild cases of the disease, but toxicity and
lack of effectiveness limit their usefulness. More recently, a beta
interferon-based immunomodulator for the treatment of MS has been approved by
the FDA based on data showing a modest reduction in the number and severity of
exacerbations in exacerbating/remitting MS patients. However, the
effectiveness of this product in slowing disease progression has not been
demonstrated and it is known to have significant adverse side effects. The
Company is aware of two other products for which NDAs have been filed, one of
which is beta interferon-based. Other therapies (such as cyclosporines,
antimetabolites, gold and radiation) appear to benefit some patients but are
also associated with treatment-limiting side effects.
Scientific evidence strongly suggests that TGF-Beta 2 is a critical
factor in mechanisms that normally control such processes as inflammation and
immune system activation. These control mechanisms are not yet fully
understood. Researchers have observed that MS patients experience a decline in
TGF-Beta levels just prior to an exacerbation and an increase in TGF-Beta levels
as they begin to recover from an attack. Researchers have also observed that
beta interferon therapy is accompanied by an increase in the patient's own
TGF-Beta level. This close tracking of disease activity with TGF-Beta levels
has suggested to researchers at GTR and Celtrix that patients' recovery might be
hastened and exacerbations avoided by supplementing the patients' own TGF-Beta 2
with injections of a
29
<PAGE> 31
recombinant TGF-Beta 2 product. Evidence to support this hypothesis is derived
from the reports of several investigators who have observed potent effects of
TGF-Beta 2 on reducing the frequency and/or intensity of exacerbations in an
animal model of MS.
Product Description
Recombinant TGF-Beta 2 will be formulated as an intravenous injectable
for administration to MS patients for the prevention of autoimmune damage of
nerve tissue.
Development Status
GTR is continuing the work begun by Celtrix on TGF-Beta 2 in people
suffering from multiple sclerosis. In April 1994, Celtrix initiated a Phase I
clinical study with recombinant TGF-Beta 2 in individuals with multiple
sclerosis. The study is being conducted by the National Institute of
Neurological Disorders and Stroke. The initial clinical evaluation of TGF-Beta
2 in patients with MS is an open-label, ascending-dose safety study involving
nine patients with the progressive form of the disease. It is anticipated that
this initial study, along with on-going preclinical safety and efficacy testing
of TGF-Beta 2 in MS animal models, will provide the basis for expanded clinical
studies. GTR will begin toxicity studies of TGF-Beta 2 in the second half of
1995 to support future Phase II clinical trials. GTR anticipates results from
the on-going Phase I trial in 1996. GTR has not committed to a development and
commercialization strategy for TGF-Beta 2 for MS and may in the future grant a
license to a third party for this indication.
Bone Repair
Scientific Background
Approximately two million bone fractures occur in the United States
every year, and 500,000 of these experience problems with repair. In these
cases, repair may be inhibited by age or disease. When there is substantial
bone loss, current methods such as autologous bone grafts, cadaver bone grafts
and electrical stimulation vary in efficacy and side-effects. In the United
States, bone augmentation is used in nearly all of the 170,000 spinal fusion
procedures and in about 15% of the 1.3 million trauma fractures. The most
recent alternatives for repair have been hydroxyapatite or collagen-based porous
bone graft substitutes. However, these grafts are osteoconductive, meaning that
they provide a matrix for bone growth but do not contain growth promoting
agents. Current research is focusing on the development of osteoinductive or
bone growth promoting agents.
Product Description
TGF-Beta 2 has been shown to promote wound healing in animal models of
hard tissue repair. GTR has been approached by a number of companies in the
orthopedic implant market to evaluate the use of TGF-Beta 2 in conjunction with
accelerating the healing process in segmental defect repair and the general use
of implants. GTR is currently collaborating with one orthopedic implant company
to evaluate the use of TGF-Beta 2 coated implants in a canine model for the
repair of an induced segmental defect in the humerus. GTR may grant a license
for use of TGF-Beta 2 for this indication to a third party.
PRODUCTION
GTR has developed and validated a commercial scale, proprietary
chondrocyte processing system as part of the preparations for the market launch
of the CARTICEL(SM) Service. A total of 54 validation studies were conducted as
part of this process. In addition, GTR has developed hundreds of standard
operating procedures to ensure the safety and quality of its CARTICEL(SM)
Service. These procedures incorporate GTR s quality assurance program,
consisting of facility controls, process controls, and final product testing.
Furthermore, each technician undergoes three months of training prior to
handling patient cells. All production and quality control procedures are
intended to ensure traceability of operations.
The capacity of GTR's cell processing facility is determined by the
number of trained employees, the amount of cell culture equipment available, and
the availability of appropriate infrastructure to support operations under GTR's
quality systems approach. GTR's specialized cell processing facility for both
the Epicel(SM) and CARTICEL(SM) Services in Cambridge, Massachusetts currently
has significant excess capacity in terms of available cell culture equipment.
GTR plans to upgrade this facility during the second half of 1995 to accommodate
additional production and infrastructure staff to support higher processing
volumes. GTR estimates that these modifications will cost approximately $2
million and, when completed in 1996, will increase capacity to enable GTR to
provide the CARTICEL(SM) Service to approximately 5,000 patients per year. In
addition, GTR is conducting preliminary engineering studies to
30
<PAGE> 32
build additional processing capacity in one of Genzyme's Framingham,
Massachusetts facilities. GTR is currently evaluating potential processing
facilities in Europe.
GTR's process development efforts are directed toward expanding
autologous chondrocyte culture capacity, streamlining processing, improving
quality at lower production costs, and strengthening GTR s proprietary position.
This work includes improving yields, reducing labor associated with harvesting
chondrocytes from cartilage biopsies, developing methods for extending the
viability of both biopsy specimens and final product cell suspensions, and
identifying cell culture systems that will enable GTR to automate much of the
production process for the CARTICEL(SM) Service.
To ensure the safety and quality of the CARTICEL(SM) and Epicel(SM)
Services, GTR has developed a quality assurance program, facility and
environmental controls, process controls and product stability monitoring. GTR
believes that this quality systems approach will facilitate meeting the new
regulatory requirements expected to be imposed by the FDA. See "Government
Regulation."
GTR expects that the Vianain(R) Debriding Product and TGF-Beta 2 will
be manufactured for GTR by the General Division of Genzyme, with the costs of
such manufacturing being allocated to GTR.
REIMBURSEMENT
Third party payors are increasingly attempting to contain health care
costs by limiting both coverage and the level of reimbursement for new
therapeutic products and services. Accordingly, the successful
commercialization of the CARTICEL(SM) Service is dependent upon the ability of
GTR's hospital and surgery center customers to obtain coverage and reimbursement
for the costs of the CARTICEL(SM) Service and associated surgical procedures
from these third party payors. In order to support the efforts of its
CARTICEL(SM) Service customers to obtain reimbursement, GTR has established a
dedicated unit staffed with professionals experienced with reimbursement and
case management issues. To date, this unit has been successful in obtaining
reimbursement approval for 19 proposed or completed implantation procedures from
a total of 16 third party payors, and is seeking, at various stages of the
administrative process, to obtain reimbursement for the remaining 24 proposed
implantation procedures.
GTR sells the Epicel(SM) Service to burn centers. GTR believes that
the cost of the Epicel(SM) Service is a small portion of the total cost of
treatment for severely burned individuals. In most cases, GTR has been
successful in obtaining insurance coverage for the Epicel(SM) Service from
private insurers, workers compensation programs, and managed care organizations.
Although reimbursement for the Epicel(SM) Service is not currently provided by
most state Medicaid programs, a number of states have approved payment for the
Epicel(SM) Service.
GOVERNMENT REGULATION
Prior to launching the CARTICEL(SM) Service, GTR made a determination
that this service did not fit within any existing FDA regulatory classification.
In the absence of specific regulatory guidance, GTR has voluntarily formulated
its own standards for the processing of autologous chondrocytes in its
specialized facility and has developed policies governing surgeon training,
patient data collection and labeling. GTR believes that its quality systems
program is equivalent to the FDA's current Good Manufacturing Practices ("GMP").
In April 1995, the FDA contacted GTR and asked for more information
regarding the regulatory status of the CARTICEL(SM) Service. In order to
clarify the situation, GTR filed a formal request in May 1995 with the FDA
Commissioner s office to review the situation and determine appropriate
regulatory jurisdiction. The FDA was provided with information regarding GTR s
quality standards and the policies that GTR established for the CARTICEL(SM)
Service, as well as answers to specific technical questions. The FDA responded
to GTR s request for designation in July 1995, confirming in its response GTR's
belief that a formal regulatory framework appropriate to the CARTICEL(SM)
Service had not yet been established. Furthermore, the FDA informed GTR that it
intended to hold a public hearing to explore the public health impact of and
consider appropriate regulatory controls for autologous cell implants. The FDA
also informed GTR that it would not regulate the provision of the CARTICEL(SM)
and Epicel(SM) Services prior to the hearing and development of regulations, and
would allow GTR sufficient time to comply with any new regulations that may be
promulgated. The FDA has subsequently announced that the public hearing will
take place in November 1995 on the subject of autologous cells for structural
and reconstructive purposes as a starting point for the development of new
regulations.
GTR has advocated that appropriate standards for autologous therapies
such as the CARTICEL(SM) and Epicel(SM) Services be instituted. It also has
actively participated in committees with other organizations in the field of
autologous cell production in the
31
<PAGE> 33
United States and Europe to develop industry standards. GTR's experience in
this field has provided it with the opportunity to take an active role in
developing such standards.
A federal criminal statute that prohibits the transfer of any human
organ for valuable consideration for use in human transplantation, but which
permits recovery of reasonable costs associated with such activities, has not
been applied to the CARTICEL(SM) or Epicel(SM) Services. Certain states have
laws requiring the licensure of tissue and organ banks and laws governing the
sale of human organs and the safety and efficacy of drugs, devices and
biologics, including skin, all of which could be interpreted to apply to GTR's
production and distribution of cultured tissue products. Provisions in certain
states' statutes prohibit the receipt of valuable consideration in connection
with the sale of human tissue by a tissue bank but permit licensed tissue banks,
including companies, to recover their reasonable costs associated with such
sales. GTR has received notice from one state's Department of Health requiring
compliance with its tissue bank licensure statute with respect to distribution
of the Epicel(SM) Service. Genzyme is in the process of applying for such a
license.
Federal or state regulation could result in significant expense to
GTR, limit GTR's reimbursement for its services, and otherwise materially
adversely affect GTR's results of operations.
Autologous products are specifically exempt from the European Device
Directive and Pharmaceutical Directive promulgated by the European Union.
Therefore, each European country is free to impose its own regulations on the
marketing of such products. To date, GTR has not encountered any local
registration requirements for market introduction of the CARTICEL(SM) Service.
GTR is currently assessing the regulatory requirements for commercialization of
the CARTICEL(SM) Service in Japan.
GTR is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices and the use and disposal of hazardous or potentially
hazardous substances used in connection with GTR's research work and
manufacturing operations. Although GTR believes that its safety procedures
comply with the standards prescribed by federal, state and local regulations,
the risk of contamination, injury or other accidental harm cannot be completely
eliminated. In the event of such an accident, GTR could be held liable for any
damages that result and any liabilities could exceed GTR's resources.
PATENTS AND PROPRIETARY RIGHTS
GTR pursues a policy of obtaining patent protection both in the United
States and in selected foreign countries for subject matter considered
patentable and important to its business. In addition, a portion of GTR's
proprietary position is based upon patents that GTR has licensed. These license
agreements generally require GTR to pay royalties upon commercialization of
products covered by the licensed technology.
GTR has filed and is preparing several patent applications covering
its work in cartilage repair, but does not yet have any patent protection
covering the CARTICEL(SM) Service. See "Risk Factors - Risks Related to GTR -
Uncertainty Regarding Patents and Proprietary Position." GTR possesses
substantial know-how in the field of autologous cell development generally, and
for the CARTICEL(SM) Service in particular. Such know-how includes the
production of biopsy kits and packaging materials, procedures for quality
control, sterility, segregation and manufacturing, and product delivery, and the
method by which GTR validates assays for future development. GTR believes that
this significant technological know-how places it in a competitively
advantageous position.
Biotechnology is a rapidly developing field. Many patent applications
have been filed and the scope the courts will give to the claims of patents
issued from such applications and the nature of these claims are unknown. It is
premature to predict what general trend, if any, will emerge as to the breadth
of allowed claims for biotechnology products and related uses. The allowance of
broader claims will increase the incidence and cost of interference proceedings
in the United States and the risk of infringement litigation in the United
States and abroad. A policy of allowing narrower claims, conversely, would
limit the value of GTR's proprietary rights under patents or licenses it holds
or for which it has applied. It is possible that interference proceedings will
occur with respect to GTR's patent applications. It is also likely that subject
matter patented by others will be required by GTR to commercialize at least some
of GTR's products. No assurance can be given that licenses under any such
patent rights of others will be available on acceptable terms, if at all.
GTR's proprietary position in the culturing of epidermal tissues was
originally exclusively licensed from Harvard University and has been augmented
by recently obtained additional patents covering cool storage technology and
packaging of skin grafts produced using the Epicel(SM) Service. GTR has also
exclusively licensed, on a worldwide basis except for Italy, recent patents
covering
32
<PAGE> 34
cryopreservation of such skin grafts. GTR has extended this basic
cryopreservation technology by patenting additional developments and
improvements in the United States.
GTR also possesses know-how relating to the large-scale production of
cultured epidermal grafts, the growth of other types of mammalian cells
including fibroblasts and epithelial cells, and the formulation of various types
of biomaterials, including hyaluronic acid ("HA"), a naturally-occurring
biopolymer, for use in forming dermal matrices. In addition to HA know-how, GTR
has rights to a series of issued United States patents in tissue repair covering
modified forms of HA.
GTR has pending and issued patents in the United States and other
countries covering the enzymatic formulation of the Vianain(R) Debriding Product
and the hydrophilic cream delivery vehicle for the product.
Celtrix has obtained patents and filed patent applications in the
United States and foreign countries on the composition of TGF-Beta 2, its
formulation and its therapeutic applications in wound healing, cancer, immune
therapy and bone therapy. Genzyme allocated the rights under its license with
Celtrix to GTR at the time of GTR s creation in December 1994.
There can be no assurance that patents issued or licensed to GTR will
remain free of challenge by third parties, that GTR may not unintentionally
infringe patents of third parties, or that GTR may not have to alter its product
development methods or procedures to take into account patents issued to others,
causing unexpected costs and delays. There can be no assurance that the pending
applications owned or licensed by GTR will issue in any country or that the
issued patents will provide a material commercial benefit for GTR. See "Risk
Factors - Risks Related to GTR - Uncertainty Regarding Patents and Proprietary
Position."
While GTR seeks a strong patent position, it believes that its
competitive position will also depend on its ability to maintain its trade
secrets and proprietary know-how, to achieve market leadership in key product
areas and to obtain successful clinical results. GTR's employees, advisors and
consultants who have access to GTR proprietary information are required to sign
confidentiality agreements.
COMPETITION
Competition is intense in the development of health care products,
particularly in the development of biotechnology products. Significant
long-term competition may come from major diversified health care and
biotechnology companies and academic research institutions which may have
greater research, development, manufacturing, marketing and financial resources
than GTR. GTR expects its products to compete primarily on the basis of product
efficacy, safety, reliability and price. In addition, GTR believes that the
first biotherapeutic product to reach the market benefits from a competitive
advantage over later entrants in the market. GTR's competitive position will
also depend on its ability to secure regulatory approval for its products,
implement production and marketing plans, obtain patent protection and secure
adequate capital resources.
GTR is aware that three companies, Integra LifeSciences Corp.,
LifeCell Corp., and Advanced Tissue Sciences, Inc., in conjunction with Smith &
Nephew PLC, are engaged in research on cultured cartilage products. GTR
believes that none of these firms is developing autologous cartilage products
and that, while none has progressed to clinical trials, each has applied for or
acquired patents in this field.
GTR is the only commercial provider of cultured skin grafts shown to
provide permanent skin replacement for burn patients in the United States. The
principal competition for skin grafts developed using the Epicel(SM) Service is
conventional skin grafts. However, GTR may face additional competition from
companies using other approaches to cultured skin tissue. Two companies,
Organogenesis, Inc. and Advanced Tissue Sciences, have been granted expedited
FDA review for their skin substitutes, Graftskin and Dermagraft respectively.
Graftskin is tissue composed of donor human epidermal cells, fibroblasts, bovine
collagen and other ingredients. Dermagraft is an artificial mesh with cultured
human fibroblasts which can be used as a dressing until a graft of the patient s
own skin can be used.
Since Dermagraft will still require a skin graft from the patient or
Epicel(SM) to close a full-thickness wound, it will not be competitive with
GTR's Epicel(SM) Service. Integra LifeSciences Corp. has submitted its collagen
based dermal replacement product to the FDA for Pre-Market Approval. LifeCell
Corp. currently has a freeze-dried, enzymatically processed human cadaver dermis
on the market.
The use of growth factors is emerging as a treatment for
partial-thickness or very small full-thickness wounds. A number of companies
are currently conducting or planning to conduct clinical trials with growth
factors, although to date, no recombinant
33
<PAGE> 35
growth factor product has received FDA approval. Potential competitors include
Chiron Corp., in collaboration with the Ethicon division of Johnson & Johnson,
Curative Technologies, Inc., and Scios Novo, Inc. Curative Technologies, Inc.,
also has one product on the market which does not require FDA approval. Such
growth factors may prove to be complementary to, as well as competitive with,
TGF-Beta 2. However, GTR does not believe that growth factors can provide
permanent skin replacement to compete with the Epicel(SM) Service. Additionally,
TGF-Beta 2 will compete with interferon-based immunomodulators produced by
Chiron Corp. and under development by Biogen Inc. for the treatment of multiple
sclerosis.
Vianain(R) Debriding Product will compete primarily with surgical
debridement of necrotic tissue or mechanical debridement using hydrotherapy and
daily dressing changes to remove necrotic tissue and, to a lesser extent, with
currently available enzymatic debridement products. Surgical and mechanical
debridement procedures are painful, labor intensive and remove viable tissue
along with necrotic tissue while the enzymatic debridement products on the
market are slow-acting and of limited efficacy. Currently commercially
available enzymatic debridement products are manufactured by Knoll
Pharmaceuticals, Parke-Davis, Boots-Flinte, Inc., Lederle Laboratories and
Rystan.
RELATIONSHIP WITH GENZYME GENERAL DIVISION
As a division of Genzyme, GTR has access to the resources and
expertise of Genzyme, including those allocated to the General Division. This
collaborative relationship augments GTR's internal capabilities in several areas
including clinical and regulatory development, manufacturing, sales and
marketing, reimbursement, and access to capital markets. The General Division
has developed extensive worldwide capabilities in these areas and GTR believes
that its access to these resources will allow it to more rapidly develop its
products while reducing the risks inherent in product development. This
relationship has allowed GTR to accelerate its commercialization of its
CARTICEL(SM) Service.
The General Division's clinical and regulatory group has successfully
achieved approval of each of its two New Drug Applications within one year of
filing. The group consists of 60 people and is currently monitoring 20 clinical
trial protocols at 118 sites.
The General Division has extensive manufacturing facilities and
process development expertise that will be available to GTR on a cost
reimbursement basis. These facilities include over 575,000 square feet of
manufacturing, research and development and administrative space in the United
States and over 144,000 square feet of facilities in Europe. The General
Division has a wide range of GMP mammalian cell production capabilities and
extensive facilities for the microbial fermentation of proteins and the
production of biomaterials. With its access to these facilities, GTR expects to
be able to avoid some of the capital expense necessary to commercialize its
products under development.
The General Division has worldwide sales and marketing capabilities
and markets the Ceredase (R) and Cerezyme(TM) products directly to physicians,
hospitals and treatment centers in the United States and 37 other countries.
Genzyme has developed a sophisticated reimbursement operation with
experience in case management, resource information, relationships with payor
groups and government reporting requirements. The reimbursement group has
successfully obtained coverage for over 95% of the patients being treated with
Ceredase(R) for Gaucher disease. It has established relationships with
insurance companies and the managed care industry and has an extensive case
management program. Its national reimbursement capability includes
state-by-state resource information and national distributor relationships.
In addition, Genzyme has demonstrated its ability to access capital
markets by raising over $500 million during the past eight years for investment
in its businesses. These financings have included stock offerings, research and
development limited partnerships, special purpose accelerated research and
development corporation financings, a convertible subordinated debt offering and
public offerings in two majority-owned subsidiaries. GTR has ready access to
Genzyme's financing infrastructure.
Genzyme is committed to allocate from the assets of the General
Division not less than $30 million to fund the operations of GTR at the rate of
$10 million by June 1996, an additional $10 million by June 1997 and a third $10
million by June 1998 (the "Funding Commitment"). Such allocations will increase
the number of TR Designated Shares at the rate of one share for each $10 so
allocated. TR Designated Shares are shares of TR Stock that may be issued by
Genzyme without allocating the proceeds to GTR. The Funding Commitment will be
reduced by a percentage of the gross proceeds received by GTR through the sale
of shares of TR Stock to purchasers other than Genzyme and certain related
parties. The Funding Commitment will be suspended in its entirety during any
fiscal quarter in which the cash balance of the General Division (consisting of
cash, cash equivalents and marketable debt instruments) is less than $60
million, will be reduced on a pro rata basis during any fiscal quarter in which
such cash balance is
34
<PAGE> 36
between $60 million and $90 million and will be reinstated when the General
Division's cash balance again exceeds $90 million. The General Division's cash
balance at June 30, 1995 was $86.4 million. The Funding Commitment expires in
December 2001. To the extent that the Funding Commitment is reduced, Genzyme
still has an option to allocate, also at $10 per TR Designated Share, the amount
by which the Funding Commitment is reduced (the "Purchase Option"). For
example, if the Funding Commitment were reduced by $3.0 million before June 1996
as a result of GTR selling shares of TR Stock to the public, then Genzyme's
obligation under the Funding Commitment would be reduced to $7.0 million by June
1996 (the $10 million Funding Commitment reduced by the amount raised by GTR in
the public offering), and Genzyme would have an option to allocate, at $10 per
TR Designated Share, up to $3.0 million to GTR by such date. Consequently, a
maximum of 3,000,000 TR Designated Shares may be issued in connection with the
Funding Commitment or exercise of the Purchase Option.
If the __________ shares of TR Stock offered hereby (assuming no
exercise of the underwriters' over-allotment option) are sold in this offering
at a price per share of $______, the closing price of the TR Stock on August
___, 1995, the Funding Commitment will be reduced by $______, with the earliest
funding obligations being reduced first.
35
<PAGE> 37
MANAGEMENT
MANAGEMENT OF GENZYME
The current officers and directors of Genzyme are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- ------
<S> <C> <C>
Henri A. Termeer 49 Chairman of the Board, President and Chief Executive Officer
Geoffrey F. Cox, Ph.D. 51 Senior Vice President, Operations
David D. Fleming 47 Senior Vice President; President, Diagnostics Division
John V. Heffernan 56 Senior Vice President, Human Resources
Elliott D. Hillback, Jr. 51 Senior Vice President; President and CEO of IG Laboratories, Inc.
Mark A. Hofer 42 Senior Vice President and General Counsel
David J. McLachlan 56 Senior Vice President, Finance and Chief Financial Officer
Gregory D. Phelps 46 Senior Vice President; President, Tissue Repair Division
James R. Rasmussen, Ph.D. 48 Senior Vice President, Research
Alan E. Smith, Ph.D. 49 Senior Vice President, Research
Evan M. Lebson 52 Vice President, Treasurer
John M. McPherson, Ph.D. 46 Vice President, Protein Development; Vice President, Research and
Development, Tissue Repair Division
Richard A. Moscicki, M.D. 43 Vice President, Clinical, Medical and Regulatory Affairs
G. Jan van Heek 46 Vice President; President, Therapeutics Division
Constantine E. Anagnostopoulos, Ph.D. 72 Director
Douglas A. Berthiaume 46 Director
Henry E. Blair 51 Director
Robert J. Carpenter 50 Director
Charles L. Cooney 50 Director
Henry R. Lewis 69 Director
</TABLE>
Each officer's term of office extends until the meeting of the Board
of Directors following the next annual meeting of stockholders and until a
successor is elected and qualified or until his or her earlier resignation or
removal.
MR. TERMEER has served as President and a Director of the Company
since October 1983, as Chief Executive Officer since December 1985 and as
Chairman of the Board since May 1988. For ten years prior to joining the
Company, Mr. Termeer worked for Baxter Travenol Laboratories, Inc., a
manufacturer of human health care products. Mr. Termeer is Chairman of the
Board of Directors of IG Laboratories, Inc. ("IG Labs"), Genzyme Transgenics
Corporation ("GTC") and Neozyme II Corporation ("Neozyme II"). Mr. Termeer is
also a director of Abiomed, Inc. and AutoImmune Inc. and is a trustee of
Hambrecht & Quist Healthcare Investors and Hambrecht & Quist Life Sciences
Investors.
DR. COX joined the Company in June 1984 and has served as Senior Vice
President, Operations of the Company since May 1988. Dr. Cox also is
responsible for the Company's pharmaceutical division. For 11 years prior to
joining the Company, Dr. Cox worked for the manufacturing division of British
Fermentation Products, Ltd., a division of Gist-Brocades N.V.
MR. FLEMING joined the Company in April 1984. He has been President
of the Company's diagnostics division since January 1989 and a Senior Vice
President of the Company since August 1989. For 11 years prior to joining the
Company, he worked for Baxter Travenol Laboratories, Inc. Mr. Fleming is also
a director of IG Labs.
MR. HEFFERNAN joined the Company as Vice President, Human Resources in
October 1989 and has served as Senior Vice President, Human Resources since May
1992. Prior to joining the Company, he served for more than five years as
Vice President, Human Resources Corporate Staff of GTE Corporation, a
diversified communications and electronics company.
MR. HILLBACK has served as Senior Vice President since July 1990.
Since July 1991, he has served as President and Chief Executive Officer of IG
Labs and, since January 1991, as a director of IG Labs. For one year before
joining the Company, he was President and Chief Executive Officer of Cellcor
Therapies, Inc., a biotechnology company. Prior to that, Mr. Hillback was
36
<PAGE> 38
employed for six years in the human health care products business of The BOC
Group, Inc., most recently as President of its Glasrock Home Health Care
subsidiary. For eleven years prior to joining The BOC Group, Inc., he served in
varying capacities at Baxter Travenol Laboratories, Inc. Mr. Hillback is also a
director of IVF America, Inc., an in vitro fertilization services company in
which IG Labs holds a minority interest.
MR. HOFER joined the Company in August 1989 as Vice President and
General Counsel and has served as Senior Vice President and General Counsel
since May 1992. Prior to joining the Company, he served as Chief Patent Counsel
for Integrated Genetics, Inc. from July 1987 until its acquisition by the
Company in August 1989. From March 1981 until July 1987, he served as Patent
Counsel for Johnson & Johnson specializing in biotechnology.
MR. MCLACHLAN joined the Company in December 1989 and has served as
Senior Vice President, Finance and Chief Financial Officer since that time.
Prior to joining the Company, he served for more than five years as Vice
President of Finance for Adams-Russell Electronics Inc., a defense electronics
manufacturer, and Adams-Russell Co., Inc., a cable television company. Mr.
McLachlan also serves as a director and Chief Financial Officer of IG Labs and
as a director of HearX, Ltd., a company providing products and services to the
hearing impaired.
MR. PHELPS joined the Company as Senior Vice President in November
1991. Since December 16, 1994, he has also served as President of GTR. Prior
to joining the Company, Mr. Phelps served as President and Chief Executive
Officer of Viagene, Inc. from October 1988 to June 1990 and of ZymoGenetics,
Inc. from May 1986 to August 1988, and held various positions at Baxter Travenol
Laboratories, Inc. from 1975 to 1986. Mr. Phelps is also a director of Neozyme
II.
DR. RASMUSSEN joined the Company in June 1984 and served as Senior
Vice President, Research since August 1989. Prior to joining the Company, he
was an Assistant Professor of Chemistry at Cornell University.
DR. SMITH joined the Company in August 1989 as Senior Vice President,
Research. Prior to joining the Company, he served as Vice President-Scientific
Director of Integrated Genetics, Inc. from November 1984 until its acquisition
by the Company in August 1989. From October 1980 to October 1984, Dr. Smith was
head of the Biochemistry Division of the National Institute for Medical
Research, Mill Hill, London, England. Dr. Smith also serves as a director of
GTC.
MR. LEBSON joined the Company in August 1989 as Executive Assistant to
the President and served as Vice President, Financial Operations from April 1990
to August 1991 and as Vice President and Treasurer since then. Prior to joining
the Company, he served as Treasurer and Chief Financial Officer of Integrated
Genetics, Inc. from 1983 until its acquisition by the Company in August 1989.
Mr. Lebson is also Vice President and Treasurer of GTC.
DR. MCPHERSON joined the Company in August 1989 and has served as Vice
President, Therapeutic Protein Development from August 1989 to the present, and
was named an officer in that position in May 1993. Since December 16, 1994, he
has also served as Vice President, Research and Development of the Company's
Tissue Repair Division. Prior to joining the Company, he was, since April 1988,
Director, Protein Chemistry of Integrated Genetics, Inc.
DR. MOSCICKI joined the Company in March 1992 as Medical Director,
became Vice President, Medical Affairs in early 1993 and was named Vice
President, Clinical, Medical and Regulatory Affairs in December 1993. Since
1979, he has also been a physician staff member at the Massachusetts General
Hospital and a faculty member at the Harvard Medical School.
MR. VAN HEEK joined the Company in September 1991 as General Manager
of its wholly-owned subsidiary, Genzyme, B.V., and became a Genzyme Vice
President and the President of Genzyme Therapeutics Division in December 1993.
Prior to joining the Company, he was, since 1988, Vice President/General Manager
of the Fenwal Division of Baxter Healthcare Corporation. Mr. van Heek also has
served as President and Treasurer of Neozyme II since March 1992.
DR. ANAGNOSTOPOULOS is Managing General Partner of Gateway Associates,
which is the general partner of Gateway Venture Partners III, L.P., a venture
capital partnership. From January 1986 to April 1987, Dr. Anagnostopoulos was a
consultant to Monsanto Company, a producer of pharmaceuticals, chemicals,
plastics and textiles, and to Alafi Capital, a venture capital firm. From 1982
through 1985, he served as Corporate Vice President of Monsanto Company.
MR. BERTHIAUME is a director, President, and Chief Executive Officer
of Waters Corporation, a high technology manufacturer of products used for
analysis and purification, formerly a division of Millipore Corporation. From
May 1991 to August 1994, he
37
<PAGE> 39
was President of the Waters Division of Millipore Corporation and from 1988 to
1991, he was Chief Financial Officer of Millipore Corporation.
MR. BLAIR is a consultant to several companies, including Genzyme.
Prior to January 1990, Mr. Blair was Senior Vice President, Scientific Affairs
of Genzyme. Before joining Genzyme in 1981, he was Associate Director of the
New England Enzyme Center at Tufts University School of Medicine. Mr. Blair is
also a director of Genzyme Transgenics Corporation, Dynagen, Inc. and Celtrix
Pharmaceuticals, Inc.
MR. CARPENTER is Chairman of the Board of GelTex Pharmaceuticals,
Inc., a privately held pharmaceutical development company which he co-founded in
November 1991 and where he served as President and Chief Executive Officer until
May 1993. Mr. Carpenter was Chairman of the Board, President, and Chief
Executive Officer of Integrated Genetics, Inc., a biotechnology company that
merged with Genzyme in 1989, and Chairman of the Board of BioSurface from
December 1992 until its acquisition by Genzyme in December 1994. Following the
merger and until 1991, Mr. Carpenter was Executive Vice President of Genzyme,
and Chief Executive Officer and Chairman of the Board of IG Labs. Mr. Carpenter
is presently a director of Apex BioSciences, Inc., Neozyme II Corporation and IG
Labs.
DR. COONEY is a Professor of Chemical and Biochemical Engineering and
Co-Director of the Program on the Pharmaceutical Industry at Massachusetts
Institute of Technology. Dr. Cooney joined the MIT faculty as an Assistant
Professor in 1970 and became a Professor in 1982. Dr. Cooney is also a
principal of BioInformation Associates, Inc., a consulting company.
MR. LEWIS is a consultant to several companies and Chairman of the
Board of Delphax Systems, a manufacturer of high speed non-impact printers, and
a member of the Board of Protein Engineering Corporation, a pharmaceutical
discovery and development company. From 1986 to February 1991, Mr. Lewis was
the Vice Chairman of the Board of Dennison Manufacturing Company, a manufacturer
and distributor of products for the stationery, technical paper, and industrial
and retail systems markets. From 1982 to 1986, Mr. Lewis was a Senior Vice
President of Dennison.
SENIOR MANAGEMENT OF GTR
The senior management of GTR consists of the following individuals:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- ------
<S> <C> <C>
Gregory D. Phelps 46 President
John M. McPherson, Ph.D. 46 Vice President, Research and Development
Timothy R. Surgenor 35 Executive Vice President
John McCambridge 46 Senior Vice President, Sales and Marketing
</TABLE>
MR. SURGENOR joined the Company in December 1994 when the Company
acquired BioSurface. Mr. Surgenor joined BioSurface in May 1987 and served as
Executive Vice President from November 1992 until December 1994. He served as
Vice President, Finance, and Treasurer of BioSurface from 1990 to 1993.
MR. MCCAMBRIDGE served as Senior Vice President, Sales and Marketing
of BioSurface from December 1987 until joining the Company in December 1994.
From 1985 until December 1987, he served in various marketing capacities at
Empire Blue Cross Blue Shield, an insurance company, most recently as Vice
President, Experience Related Groups.
See "Management of Genzyme" for biographical information for Mr. Phelps
and Dr. McPherson.
DESCRIPTION OF GENZYME CAPITAL STOCK
The following descriptions are qualified in their entirety by
reference to the Articles of Organization of Genzyme Corporation.
38
<PAGE> 40
GENERAL
Genzyme is authorized to issue 150 million shares of capital stock,
consisting of 100 million shares of General Division Stock, 40 million shares of
TR Stock and 10 million shares of Preferred Stock. Each class of common stock
has the voting powers, qualifications and rights described below.
DIVIDENDS
Genzyme's Articles of Organization provide that dividends on the
General Division Stock may be declared and paid only out of the lesser of (a)
funds of Genzyme legally available therefor and (b) the Available General
Dividend Amount, as defined below, and that dividends on the TR Stock may be
paid out of the lesser of (a) funds of Genzyme legally available therefor and
(b) the Available Tissue Repair Dividend Amount, as defined below. Under the
Massachusetts Business Corporations Law (the "MBCL"), the payment of dividends
is permitted if the corporation is not insolvent, the dividend payment does not
render the corporation insolvent, and the dividend payment does not violate the
corporation's Articles of Organization. Subject to such limitations, the Board
may, in its sole discretion, declare and pay dividends exclusively on either
class of common stock, or both, in equal or unequal amounts, notwithstanding the
amounts available for the payment of dividends on each class, the respective
voting and liquidation rights of each class, the amounts of prior dividends
declared on each class or any other factor. Genzyme has never paid a cash
dividend on any class of its capital stock and currently intends to retain all
earnings for use in its business.
As stated above, in addition to the statutory limitations under the
MBCL, dividends on the General Division Stock and TR Stock would be limited to
an amount not in excess of the Available General Dividend Amount or the
Available Tissue Repair Dividend Amount, respectively. The "available dividend
amount" for each of the General Division Stock and the TR Stock is defined to
mean generally the greater of (A) the excess of (1) the greater of (a) the fair
value of the net assets allocated to the Division represented by such class of
common stock and (b) an amount equal to stockholders' equity allocated to such
Division as of June 30, 1994, increased or decreased, as appropriate, to
reflect, after June 30, 1994, (i) the net income or loss of such Division, (ii)
any dividends or other distributions (including by reclassification or exchange)
declared or paid with respect to, or repurchases or issuances of, any shares of
capital stock attributed to such Division, but excluding dividends or other
distributions paid in shares of capital stock attributed to such Division to the
holders thereof, and (iii) any other adjustments to the stockholders' equity of
such Division made in accordance with generally accepted accounting principles,
over (2) the aggregate par value of all outstanding shares of capital stock
attributed to such Division or (B) the amount legally available for the payment
of dividends determined in accordance with the MBCL applied as if such Division
were a separate corporation.
EXCHANGE OF TR STOCK
Genzyme's Articles of Organization do not provide for either mandatory
or optional exchange or redemption of the General Division Stock, but do provide
that TR Stock may be exchanged for any combination of cash and/or General
Division Stock upon the terms described below. Genzyme cannot predict the
impact on the market prices for the General Division Stock and TR Stock due to
its ability to effect such exchanges.
OPTIONAL EXCHANGE. At any time after the later of (A) December 31, 1995 or (B)
the date on which equity investments in TR Stock by third party investors or the
allocation of cash or cash equivalents from the General Division to GTR, or any
combination of such equity investments and allocations, equals an aggregate of
at least $10 million, the Board may determine to exchange all outstanding shares
of TR Stock for any combination of cash and/or General Division Stock having a
Fair Market Value equal to 130% of the Fair Market Value of TR Stock as
determined by the trading prices during a specified period prior to the first
public announcement by Genzyme of such exchange.
The foregoing provision allows Genzyme the flexibility to redeem all
outstanding shares of TR Stock and leave outstanding one class of common stock
that would represent the residual equity interest in all of Genzyme's
businesses. Subject to the limitations described above, the optional exchange
could be exercised at any future time if the Board determined that, under the
facts and circumstances then existing, an equity structure consisting of two
classes of common stock was no longer in the best interests of all of Genzyme's
stockholders (including holders of General Division Stock and holders of TR
Stock). Such exchange may be consummated, however, at a time that is
disadvantageous to the holders of either General Division Stock or the holders
of TR Stock. See "Risk Factors - Risks Related to Two Classes of Common Stock -
No Rights or Additional Duties With Respect to the Divisions; Potential
Conflicts."
39
<PAGE> 41
MANDATORY EXCHANGE. In the event of the Disposition, in one transaction or a
series of related transactions, by Genzyme of all or substantially all of the
properties and assets allocated to GTR (other than in connection with the
Disposition by Genzyme of all or substantially all of its properties and assets
in one transaction or a series of related transactions) to any person, entity or
group (other than (A) any entity in which Genzyme, directly or indirectly, owns
all of the equity interest or (B) certain entities formed in connection with
obtaining financing for the programs or products of GTR), Genzyme is required,
on or prior to the first business day following the 90th day following the
consummation of such Disposition, to exchange each outstanding share of TR Stock
for any combination of cash and/or General Division Stock having a Fair Market
Value equal to 130% of the Fair Market Value of TR Stock as determined by the
trading prices during a specified period prior to the first public announcement
by Genzyme of such disposition. Consequently, holders of TR Stock may receive a
greater or lesser premium for their shares than any premium paid by a third
party buyer of the assets of GTR. In addition, any such exchange for shares of
General Division Stock could be made at a time when TR Stock may be considered
to be undervalued and the General Division Stock is considered to be overvalued.
CERTAIN OTHER EXCHANGE TERMS. "Fair Market Value" as of any date means the
average of the daily closing prices as reported by the Nasdaq National Market
(or the appropriate exchange on which such shares are then traded) for the 20
consecutive days commencing on the 30th trading day prior to such date. In the
event such closing prices are unavailable, Fair Market Value will be determined
by the Board. Genzyme's Articles of Organization contain the definitions of
"Disposition" and "Substantially all of the properties and assets of GTR," as
well as certain provisions with regard to required notices of exchanges of TR
Stock, treatment of fractional shares, rights to dividends, surrender and
exchange of stock certificates, payment of issue and transfer taxes and the
treatment of Convertible Securities.
VOTING RIGHTS
Genzyme's Articles of Organization provide that holders of shares of
General Division Stock and TR Stock vote together as a single class on all
matters as to which common stockholders generally are entitled to vote. On all
such matters, each share of General Division Stock has one vote, and through
December 31, 1996 each share of TR Stock has .29 votes. Holders of outstanding
General Division Stock and TR Stock currently have approximately 91% and 9%,
respectively, of the total voting power of Genzyme. Upon the completion of this
offering, such percentages will change to __% and __%, respectively. On January
1, 1997 and on January 1 every two years thereafter, the number of votes to
which each share of TR Stock is entitled would be adjusted to equal the ratio of
the Fair Market Value of one share of TR Stock to the Fair Market Value of one
share of General Division Stock as of such date. The voting rights of TR Stock
will also be appropriately adjusted so as to avoid dilution in the aggregate
voting rights of either class in the event the outstanding shares of either
class are subdivided (by stock split, reclassification or otherwise) or combined
(by reverse stock split, reclassification or otherwise), or in the event of the
issuance of shares of either class as a dividend or a distribution to holders of
shares of that class. If shares of only one class of common stock are
outstanding, or if shares of any class of common stock are entitled to vote
separately as a class, each share of that class would have one vote.
The relative voting rights of General Division Stock and TR Stock are
adjusted from time to time as described above so that a holder's voting rights
may more closely reflect the market value of such holder's equity investment in
Genzyme. Adjustments in the relative voting rights of General Division Stock
and TR Stock may influence an investor interested in acquiring and maintaining a
fixed percentage of Genzyme's voting power to acquire such percentage of both
classes of common stock, and will limit the ability of investors in one class to
acquire for the same consideration relatively greater or lesser voting power per
share than investors in the other class. To the extent the relative market
values of General Division Stock and TR Stock change prior to the first
scheduled adjustment or in between any scheduled adjustments, however, an
investor in one class of common stock may acquire relatively more or less voting
power for the same consideration when compared with investors in the other class
of common stock.
In addition to matters on which the holders of the General Division
Stock and the TR Stock vote together as a single class of stock, Genzyme's
Articles of Organization require the approval by the holders of the affected
class of common stock at a meeting at which a quorum is present and the votes
cast in favor of the proposal exceed those cast against to:
(1) allow any proceeds from the disposition of the properties
or assets allocated to either Division to be used in the business of
the other Division without fair compensation;
(2) allow any properties or assets allocated to either
Division to be used in the business of the other Division or for the
declaration or payment of any dividend or distribution on any class of
common stock not attributed to such Division without fair
compensation;
40
<PAGE> 42
(3) issue shares of either class of common stock without
allocating the proceeds of such issuance to the Division represented
by such class of common stock (provided, however, that Genzyme may
without such approval issue General Designated Shares and TR
Designated Shares);
(4) change the rights or preferences of any class of common
stock so as to affect the class adversely; or
(5) effect any merger or business combination involving
Genzyme as a result of which (a) the holders of all classes of common
stock of Genzyme shall no longer own, directly or indirectly, at least
fifty percent (50%) of the voting power of the surviving corporation
and (b) the holders of all classes of common stock of Genzyme do not
receive the same form of consideration, distributed among such holders
in proportion to the market capitalization of each class of common
stock as of the date of the first public announcement of such merger
or business combination.
In addition to the voting rights provided in Genzyme's Articles of
Organization, the approval of the holders of a majority of the outstanding
shares of each class of common stock, voting separately as a class, is required
under the current MBCL to approve any amendment to the Articles of Organization
that would alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely. The MBCL does not
currently provide for any other separate voting rights for a class of common
stock. Consequently, because most matters brought to a stockholder vote will
only require the approval of a majority of all of Genzyme's outstanding capital
stock entitled to vote on such matters (including both classes of common stock)
voting together as a single class and because the holders of General Division
Stock currently have more than the number of votes required to approve any such
matter, such holders would be in a position to control the outcome of the vote
on such a matter. See "Risk Factors - Risks Related to Two Classes of Common
Stock - No Additional Separate Voting Rights."
LIQUIDATION RIGHTS
Genzyme's Articles of Organization provide that holders of outstanding
shares of General Division Stock and TR Stock will receive the assets, if any,
remaining for distribution to common stockholders on a per share basis in
proportion to the respective per share liquidation units of each class and such
holders will have no direct claim against any particular assets of Genzyme or
any of its subsidiaries. Each share of General Division Stock will have one
liquidation unit and each share of TR Stock will have .29 liquidation units
(equal to the number of votes to which each share of TR Stock was entitled on
December 16, 1994). The liquidation units of TR Stock will be appropriately
adjusted so as to avoid dilution in the aggregate liquidation rights of either
class in the event the outstanding shares of either class are subdivided (by
stock split, reclassification or otherwise) or combined (by reverse stock split,
reclassification or otherwise), or in the event of the issuance of shares of
either class as a dividend or a distribution to holders of shares of that class,
but will not otherwise be adjusted.
A merger or business combination involving Genzyme or a sale of all or
substantially all of the assets of Genzyme will not be treated as a liquidation.
However, Genzyme may not, without approval by the holders of the affected class
of Common Stock at a meeting at which a quorum is present and the votes cast in
favor of the action exceed those cast against, effect any merger or business
combination involving Genzyme as a result of which (a) the holders of all
classes of common stock of Genzyme shall no longer own, directly or indirectly,
at least fifty percent of the voting power of the surviving corporation, and (b)
the holders of all classes of common stock of Genzyme do not receive the same
form of consideration, distributed among such holders in proportion to the
market capitalization of each class of common stock as of the date of the first
public announcement of such merger or business combination.
TR DESIGNATED SHARES AND GENERAL DESIGNATED SHARES
Prior to the formation of GTR in December 1994, the Board determined
that the initial pro forma equity interest in GTR would be represented by 10
million shares of TR Stock. This number of shares of TR Stock was established
based on the desired initial trading range of TR Stock, prevailing market
conditions, financial and operating information of GTR and the price-earnings
ratios, market prices of securities and certain financial and operating
information of companies engaged in activities similar to those of GTR. Five
million shares of TR Stock, representing 50% of the initial pro forma equity
interest in GTR, were issued to holders of BioSurface Common Stock in connection
with Genzyme's acquisition of BioSurface. The other 50% of the initial pro
forma equity interest in GTR was represented by five million "TR Designated
Shares." TR Designated Shares are authorized shares of TR Stock which are not
issued and outstanding, but which the Board may from time to time issue, sell or
otherwise distribute without allocating the proceeds or other benefits of such
issuance, sale or distribution to GTR. Genzyme issued approximately 3,300,000
of such TR Designated Shares as a stock dividend to holders of General Division
Stock of record on December 16, 1994, the date of the acquisition of BioSurface.
The remaining initial TR Designated Shares were reserved for issuance upon the
exercise of General
41
<PAGE> 43
Division stock options and warrants and the conversion of convertible notes
outstanding on December 16, 1994. As of August 1, 1995, there were 1,290,465 TR
Designated Shares, 1,280,616 of which were reserved for issuance upon the
exercise or conversion of outstanding stock options, warrants and notes that are
exercisable or convertible into General Division Stock. The shares of TR Stock
that are issuable with respect to the TR Designated Shares are not outstanding
shares of TR Stock, are not eligible to receive dividends, and cannot be voted
by Genzyme.
The number of TR Designated Shares is subject to adjustment. The number
will be (A) adjusted as appropriate to reflect subdivisions (by stock split or
otherwise) and combinations (by reverse stock split or otherwise) of TR Stock
and dividends or distributions of shares of TR Stock to holders of TR Stock and
other reclassifications of TR Stock, (B) decreased by (1) the number of shares
of TR Stock issued by Genzyme, the proceeds of which are allocated to the
General Division, (2) the number of shares of TR Stock issued upon the exercise
or conversion of options, warrants and other securities attributed to the
General Division, and (3) the number of any shares of TR Stock issued by Genzyme
as a dividend or distribution or by reclassification, exchange or otherwise to
holders of General Division Stock (including the 3,300,000 shares of TR Stock
distributed to holders of General Division Stock in December 1994 as described
above), and (C) increased by (1) the number of any outstanding shares of TR
Stock repurchased by Genzyme, the consideration for which was allocated to the
General Division, (2) one for each $10.00 reallocated from the General Division
to GTR from time to time in satisfaction of the Funding Commitment or the
Purchase Option of the General Division, up to a maximum $30 million, and (3)
the number equal to the fair value (as determined by the Board) of assets or
properties allocated to the General Division that are reallocated to GTR (other
than reallocations that represent sales at fair value between such Divisions or
reallocations described in the foregoing clause (C)(2)) divided by the Fair
Market Value of one share of TR Stock as of the date of the reallocation;
Genzyme is prohibited by the Articles of Organization from taking any action
which would have the effect of reducing the number of TR Designated Shares to a
number which is less than zero.
Genzyme's Articles of Organization also contain provisions for General
Designated Shares. Currently, there are no General Designated Shares. However,
General Designated Shares may be created if, for example, the Board determines
that programs or other assets reallocated from GTR to the General Division will
be accounted for as an increase in General Designated Shares rather than as a
transfer of cash or other assets of the General Division having a fair value
equal to GTR assets reallocated. Notwithstanding the foregoing, by agreement
with BioSurface, Genzyme adopted a policy that no Key TR Program (as defined in
"Management and Accounting Policies Covering the Relationship of Genzyme
Divisions - Inter-Division Asset Transfers") may be transferred out of GTR
without a class vote of the holders of TR Stock except in certain limited
circumstances, and no reallocation of other programs or assets of GTR may be
accounted for as an increase in General Designated Shares without a class vote
of the holders of TR Stock. Genzyme has also agreed that this policy will not be
changed without a class vote of the holders of TR Stock. Consequently, any
decision by the Board to account for a reallocation of any programs or assets of
GTR as an increase in General Designated Shares would require a class vote of
the holders of TR Stock.
The number of General Designated Shares will be subject to adjustment
in a manner substantially similar to adjustments to the number of TR Designated
Shares.
Whenever additional shares of any class of common stock are issued and
sold by Genzyme, Genzyme will identify (i) the number of such shares issued and
sold for the account of the Division to which they relate, the proceeds of which
will be allocated to and reflected in the financial statements of such Division
and (ii) the number of such shares issued and sold from the TR Designated Shares
or the General Designated Shares, which shall reduce the number of TR Designated
Shares or General Designated Shares, as the case may be, and the proceeds of
which may be used for any proper corporate purpose. In the event Genzyme
repurchases outstanding shares of any class of common stock, it will identify
the number of shares that are repurchased for consideration that was allocated
to the General Division and the number of shares that are repurchased for
consideration that was allocated to GTR and the number of TR Designated Shares
or General Designated Shares may increase accordingly.
"ANTI-TAKEOVER" PROVISIONS
CONTRACTUAL MEASURES. The Articles of Organization and By-Laws of Genzyme
contain provisions that could discourage potential takeover attempts and prevent
stockholders from changing the Genzyme's management, including authorization of
the Board to issue shares of preferred stock in series, enlarge the size of the
Board and fill any vacancies on the Board, and restrictions on the ability of
stockholders to call a special meeting of stockholders, bring business before an
annual meeting and nominate candidates for election as directors. Genzyme also
has agreements with certain officers containing change of control provisions.
In addition, Genzyme has a stockholder rights plan. Under this plan,
each outstanding share of General Division Stock and TR Stock also represents a
right that, under certain circumstances, may trade separately from the General
Division Stock and TR
42
<PAGE> 44
Stock, respectively. The rights, which are not currently exercisable, under
certain circumstances will permit their holders (other than an acquiror) to
purchase at a favorable price large amounts of General Division Stock, TR Stock
or securities of a successor to Genzyme with the result that an acquiror's
interest in Genzyme would be substantially diluted. The description and terms of
the rights are set forth in an Amended and Restated Rights Agreement between
Genzyme and American Stock Transfer and Trust Company as Rights Agent.
BUSINESS COMBINATION STATUTE. Massachusetts' "Business Combination" statute
provides that, if a person acquires 5% or more of the stock of a Massachusetts
corporation without the approval of its board of directors (an "interested
stockholder"), he may not engage in certain transactions with the corporation
for a period of three years. There are certain exceptions to this prohibition;
for example, if the board of directors approves the acquisition of stock or the
transaction prior to the time that the person became an interested stockholder,
or if the interested stockholder acquires 90% of the voting stock of the
corporation (excluding voting stock owned by directors who are also officers and
certain employee stock plans) in one transaction, or if the transaction is
approved by the board of directors and by the affirmative vote of two-thirds of
the outstanding voting stock which is not owned by the interested stockholder,
the prohibition does not apply.
Genzyme is subject to the Massachusetts Business Combination statute
unless it elects not to be governed by the statute in its Articles of
Organization or By-laws. Genzyme has not made such election and does not
currently intend to make such an election.
CONTROL SHARE ACQUISITION STATUTE. The Massachusetts Control Share Acquisition
statute provides that a person (hereinafter, the "acquiror") who makes a bona
fide offer to acquire, or acquires, shares of stock of a corporation that when
combined with shares already owned, would increase the acquiror's ownership to
at least 20%, 33 1/3%, or a majority of the voting stock of the corporation,
must obtain the approval of a majority in interest of the shares held by all
stockholders, excluding shares held by the acquiror and the officers and inside
directors of the corporation, in order to vote the shares acquired. The statute
does not require the acquiror to consummate the purchase before the stockholder
vote is taken.
The Control Share Acquisition statute permits a Massachusetts
corporation to elect not to be governed by these provisions by including such an
election in its articles of organization or by-laws. The Genzyme By-Laws contain
a provision pursuant to which Genzyme elected not to be governed by the
Massachusetts Control Share Acquisition statute. However, if at a future date
the Board determines that it is in the best interests of Genzyme and its
stockholders that Genzyme be governed by the statute, Genzyme's By-Laws may be
amended to permit it to be governed by such statute. Any such amendment,
however, would apply only to acquisitions crossing the thresholds which occur
after the effective date of such amendment.
MANAGEMENT AND ACCOUNTING POLICIES GOVERNING
THE RELATIONSHIP OF GENZYME DIVISIONS
Genzyme has adopted the following policies to govern the management of
GTR and its relationship to the General Division. Except as otherwise stated
below, the policies may be modified or rescinded in the sole discretion of the
Board without approval of Genzyme stockholders, subject only to the Board's
fiduciary duty to Genzyme's stockholders. The Board may also adopt additional
policies depending upon the circumstances. Any determination of the Board to
modify or rescind such policies, or to adopt additional policies, including any
such decision that would have disparate impacts upon holders of the two classes
of common stock, would be governed by the principles of Massachusetts law
discussed under "Risk Factors - No Rights or Additional Duties with Respect to
the Divisions; Potential Conflicts." In addition, generally accepted accounting
principles require that any change in policy be preferable (in accordance with
such principles) to the previous policy.
PURPOSE OF GTR. The purpose of GTR is to create a business with a comprehensive
approach to the field of tissue repair by developing and commercializing a
portfolio of novel products for the treatment and prevention of serious tissue
injury (excluding hyaluronic acid products developed on behalf of Genzyme
Development Partners, L.P.). In addition to the programs initially assigned to
GTR, it is expected that the GTR portfolio will expand through the addition of
complementary products and programs developed either internally or externally,
including acquiring or in-licensing from outside of Genzyme. Other than the
method of financing, GTR is operated and managed similarly to other Genzyme
Divisions.
REVENUE ALLOCATION. Revenues from the sale of a Division's products are credited
to that Division. The cost of research done by one Division for the benefit of
another Division is charged to the Division for which the work is done in the
manner described in the following paragraph. The Division performing the
research does not recognize revenue as a result of such research.
43
<PAGE> 45
EXPENSE ALLOCATION. All direct expenses are charged to the Division for the
benefit of which they are incurred. Corporate and general and administrative
expenses and other shared services or other indirect costs are allocated to each
Division in a reasonable and consistent manner based on utilization by the
Division of the services to which such costs relate. To the extent borrowings
are deemed to occur between Divisions, inter-division accounts will be
established with interest imputed at the rate then available to Genzyme for
short-term borrowings.
TAX ALLOCATIONS. Income taxes are allocated to each Division based upon the
financial statement income, taxable income, credits and other amounts properly
allocable to such Division under generally accepted accounting principles as if
each Division were a separate taxpayer; provided, however, that as of the end of
any fiscal quarter of Genzyme, any projected tax benefit attributable to any
Division that cannot be utilized by such Division to offset or reduce its
current or deferred income tax expense may be allocated to any other Division
without any compensating payment or allocation.
ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS. Upon the acquisition by Genzyme
from a third party of any additional programs, products or assets (whether by
acquisition of assets or stock, merger, consolidation or otherwise), the
aggregate cost of the acquisition and the programs, products or assets acquired
will be allocated among the Divisions to which such programs, products or assets
are assigned. Such assignment and allocation will be made by the Board taking
into account such matters as the Board and its financial advisors, if any, deem
relevant. Any such determination by the Board will be final and binding on all
holders of all classes of common stock.
DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS. Upon any sale, transfer, assignment
or other disposition by Genzyme of any product, program or asset not consisting
of all or substantially all of the assets of a Division, all proceeds from such
disposition will be allocated to the Division to which the program, product or
asset had been allocated, and such proceeds will be used for the benefit of such
Division. If a program, product or asset is allocated to more than one Division,
the proceeds of the disposition will be allocated among such Divisions based on
their respective interests in such program, product or asset. Such allocation
will be made by the Board taking into account such matters that the Board and
its financial advisors, if any, deem relevant. Any such determination by the
Board will be final and binding on all holders of all classes of common stock.
INTER-DIVISION ASSET TRANSFERS. The Board may at any time and from time to time
reallocate any program, product or other asset from one Division to any other
Division. All such reallocations will be done at fair market value, determined
by the Board, taking into account, in the case of a program under development,
the commercial potential of such program, the phase of clinical development of
such program, the expenses associated with realizing any income from such
program, the likelihood and timing of any such realization and other matters
that the Board and its financial advisors deem relevant. The consideration for
such reallocation may be paid by one Division to another in cash or, in lieu of
cash or other consideration, the Board may elect to account for a reallocation
of assets from GTR to the General Division as an increase in the General
Designated Shares (shares of General Division Stock that Genzyme may issue
without allocating any consideration to the General Division) and a reallocation
of assets from the General Division to GTR as either an increase in the TR
Designated Shares (shares of TR Stock that Genzyme may issue without allocating
any consideration to GTR) or a reduction in the General Designated Shares, if
any, except that a reallocation of assets from GTR to the General Division may
not be accounted for as an increase in General Designated Shares without a class
vote of the holders of TR Stock.
Notwithstanding the foregoing, no Key TR Program, as defined below, may
be transferred out of GTR without a class vote of the holders of TR Stock unless
the Board determines that such Key TR Program has application outside of the
field of tissue repair (in which case it may be transferred out only for the
non-tissue repair applications). A "Key TR Program" is any of the following: (i)
Vianain(R) Debriding Product for debridement of necrotic or damaged tissue; (ii)
TGF-Beta 2 for all indications licensed from Celtrix Pharmaceuticals, Inc. as of
December 16, 1994; (iii) Epicel(SM) cultured epithelial cell autografts for
tissue replacement or repair; (iv) Acticel(SM) cultured epithelial cell
allografts for tissue replacement or repair; (v) CARTICEL(SM) Autologous
Chondrocyte Service; and (vi) any additional tissue repair program or product
being developed from time to time in GTR which (a) constituted 20% or more of
the research and development budget of GTR in any of three most recently
completed fiscal years or (b) has had a cumulative investment of $8 million or
more in research and development expenses by GTR.
The foregoing policies regarding transfers of assets between Divisions
may not be changed by the Board without a class vote of the holders of TR Stock.
ACCESS TO TECHNOLOGY AND KNOW-HOW. GTR and the General Division each have free
access to all technology and know-how of Genzyme that may be useful in such
Division's business, subject to any obligations or limitations applicable to
Genzyme.
44
<PAGE> 46
DISPOSITION OF TR DESIGNATED SHARES. The TR Designated Shares may be (i) issued
upon the exercise of outstanding stock options and warrants and the conversion
of outstanding convertible notes allocated to the General Division, (ii) subject
to the restrictions set forth in the following paragraph, sold for any valid
business purpose, or (iii) distributed as a dividend to the holders of shares of
General Division Stock, all as determined from time to time by the Board in its
sole discretion. Genzyme distributed approximately 3.3 million of the initial
5.0 million TR Designated Shares as a stock dividend to holders of General
Division Stock of record on December 16, 1994, and reserved the remaining 1.7
million initial TR Designated Shares for issuance upon the exercise or
conversion of General Division options, warrants and convertible notes
outstanding as of December 16, 1994. To the extent that any such remaining
initial TR Designated Shares are not used for such purposes, the Board may issue
them for any other valid business purposes without crediting any proceeds to
GTR.
ISSUANCE OF ADDITIONAL SHARES OF ANY CLASS OF COMMON STOCK. If additional shares
of any class of common stock are issued and sold by Genzyme, Genzyme will
identify (i) the number of such shares issued and sold for the account of the
Division to which they relate, the proceeds of which will be allocated to and
reflected in the financial statements of such Division and (ii) the number of
such shares issued and sold that will reduce the number of Designated Shares
from such Division and the proceeds of which may be used for any valid business
purpose. Notwithstanding the foregoing, Genzyme will not sell any shares of TR
Stock without allocating the proceeds to GTR (except upon exercise or conversion
of General Division options, warrants or convertible notes outstanding as of
December 16, 1994) unless (i) the Board determines that GTR has cash sufficient
to fund its operations for at least the next 12 months or (ii) shares of TR
Stock concurrently being sold for the account of GTR will produce proceeds
sufficient to fund GTR's cash needs for the next 12 months.
RESERVATION OF SHARES OF TR STOCK. Genzyme has reserved approximately 2,000,000
shares of TR Stock for issuance to Genzyme employees pursuant to grants made
after December 16, 1994 under one or more employee incentive plans.
OPEN MARKET PURCHASES OF SHARES OF ANY CLASS. Genzyme may make open market
purchases of any class of its common stock in accordance with applicable
securities law requirements; provided, however, that such purchases of TR Stock
may not be made if as an immediate result thereof the number of TR Designated
Shares would represent more than 60% of the sum of the number of TR Designated
Shares plus the number of outstanding shares of TR Stock. Such restriction is
intended to prevent Genzyme from using open market purchases to effect a
redemption of TR Stock without paying the 30% premium that would be required for
a complete redemption of all sales of TR Stock. See "Description of Genzyme
Capital Stock- Exchange of TR Stock." In addition, within 90 days of any open
market purchase of any class of common stock, Genzyme may not exchange shares of
such class for cash or shares of any other class of common stock.
CLASS VOTING. In addition to any stockholder approval required by Massachusetts
law, whenever the approval of the holders of a class of common stock is required
to take any action pursuant to these policies or Genzyme's Articles of
Organization, such requirement will be satisfied if a meeting of the holders of
such class is held at which a quorum is present and the votes cast in favor of
the proposed action exceed the votes cast against.
NON-COMPETE. Genzyme will not develop products outside of GTR that compete or
would compete in the market with products being developed or sold by GTR.
UNDERWRITING
Under the terms and subject to the conditions contained in an
Underwriting Agreement dated _______________, 1995 (the "Underwriting
Agreement"), the Underwriters named below (the "Underwriters"), for whom CS
First Boston Corporation, Cowen & Company and PaineWebber Incorporated are
acting as representatives (the "Representatives"), have severally but not
jointly agreed to purchase from the Company the following respective numbers of
shares of TR Stock:
Number of
Underwriter Shares
----------- ------
CS First Boston Corporation . . . . . . . . . . . . . . .
Cowen & Company . . . . . . . . . . . . . . . . . . . . .
PaineWebber Incorporated . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
45
<PAGE> 47
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of TR Stock offered
hereby (other than those shares covered by the over-allotment option described
below) if any are purchased. The Underwriting Agreement provides that, in the
event of a default by an Underwriter, in certain circumstances the purchase
commitments of non-defaulting Underwriters may be increased or the Underwriting
Agreement may be terminated.
The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to purchase
up to ____________ additional shares at the initial public offering price less
the underwriting discounts and commissions, all as set forth on the cover page
of this Prospectus. Such option may be exercised only to cover over-allotments
in the sale of the shares of TR Stock. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of TR Stock
as it was obligated to purchase pursuant to the Underwriting Agreement.
The Company has been advised by the Representatives that the
Underwriters propose to offer the shares of TR Stock to the public initially at
the public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers at such price less a concession
of $ ____ per share, and the Underwriters and such dealers may allow a discount
of $ _____ per share on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.
In connection with this offering, CS First Boston Corporation and
certain of the Underwriters and selling group members (if any) and their
respective affiliates may engage in passive market making transactions on the
Nasdaq National Market in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934 during a period before commencement of offers or sales of
the shares of TR Stock offered hereby. The passive market making transactions
must comply with the applicable volume and price limits and be identified as
such.
The Company has agreed that it will not offer, sell, contract to sell,
announce its intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933 (the "Securities Act") relating to,
any shares of TR Stock or securities convertible into or exchangeable or
exercisable for any shares of TR Stock, other than pursuant to employee benefit
plans and upon the exercise or conversion of outstanding warrants and
convertible notes, without the prior written consent of CS First Boston
Corporation for a period of ___ days after the date of this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriters may be required to make in respect thereof.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the TR Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of TR Stock are effected. Accordingly, any resale of the TR Stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the TR Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of TR Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such TR Stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All
46
<PAGE> 48
or a substantial portion of the assets of the issuer and such persons may be
located outside of Canada and, as a result, it may not be possible to satisfy a
judgment against the issuer or such persons in Canada or to enforce a judgment
obtained in Canadian courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of TR Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any TR
Stock acquired by such purchaser pursuant to this offering. Such report must be
in the form attached to British Columbia Securities Commission Blanket Order BOR
#88/5, a copy of which may be obtained from the Company. Only one such report
must be filed in respect of the TR Stock acquired on the same date and under the
same prospectus exemption.
LEGAL OPINIONS
The validity of the TR Stock offered hereby will be passed upon for the
Company by Palmer & Dodge, Boston, Massachusetts. Peter Wirth, a partner of
Palmer & Dodge, is Clerk of the Company. Certain legal matters will be passed
upon for the Underwriters by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule
of Genzyme Corporation, the combined financial statements of Genzyme General
Division and the combined financial statements of Genzyme Tissue Repair Division
as of December 31, 1993 and 1994 and for each of the three years in the period
ended December 31, 1994 included in Genzyme's Annual Report on Form 10- K, as
amended by Amendment No. 1 thereto on Form 10-K/A, that have been incorporated
by reference in this registration statement, have been incorporated herein in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The financial statements and financial statement schedules of
BioSurface Technology, Inc. as of December 31, 1992 and 1993 and for each of the
three years in the period ended December 31, 1993 appearing at pages III-19 to
III-42 of Annex III to the Company's Registration Statement on Form S-4 (File
No. 33-83346) that have been incorporated by reference into this Prospectus have
been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
47
<PAGE> 49
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
---------------
TABLE OF CONTENTS
Page
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Price Range of TR Stock and Dividend Policy . . . . . . . . . . . . . . . 14
Genzyme Tissue Repair Division Selected Financial Data . . . . . . . . . 15
GTR Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 16
Additional Financial Data . . . . . . . . . . . . . . . . . . . . . . . . 19
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Description of Genzyme Capital Stock . . . . . . . . . . . . . . . . . . 38
Management and Accounting Policies Governing the Relationship of
Genzyme Divisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Notice to Canadian Residents . . . . . . . . . . . . . . . . . . . . . . 46
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
GENZYME
________________ Shares
Tissue Repair Division
Common Stock
($.01 par value)
PROSPECTUS
CS First Boston
Cowen & Company
PaineWebber Incorporated
48
<PAGE> 50
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be borne by the Company in connection with this
offering are as follows:
SEC registration fee . . . . . . . . . . $ 13,384
NASD filing fee . . . . . . . . . . . . $ 4,382
Blue Sky fees and expenses . . . . . . . $ *
Printing and engraving expenses . . . $ *
Accounting fees and expenses . . . . . . $ *
Legal fees and expenses . . . . . . . . $ *
Transfer Agent and Registrar fees . . . $ *
Miscellaneous expenses . . . . . . . . . $ *
---------
Total . . . . . . . . . . . . . . . $ *
=========
* To be completed by amendment.
All of the above figures, except the SEC registration fee, are
estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of chapter 156B of the Massachusetts Business Corporation
Law grants Genzyme the power to indemnify any director, officer, employee or
agent to whatever extent permitted by Genzyme's Articles of Organization,
By-Laws or a vote adopted by the holders of a majority of the shares entitled to
vote thereon, unless the proposed indemnitee has been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that his or
her actions were in the best interests of the corporation or, to the extent that
the matter for which indemnification is sought relates to service with respect
to an employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan. Such indemnification may include
payment by Genzyme of expenses incurred in defending a civil or criminal action
or proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he or she shall be adjudicated to be not entitled to indemnification under
the statute.
Article VI of Genzyme's By-Laws provides that Genzyme shall, to the
extent legally permissible, indemnify each person who may serve or who has
served at any time as a director or officer of the corporation or of any of its
subsidiaries, or who at the request of the corporation may serve or at any time
has served as a director, officer or trustee of, or in a similar capacity with,
another organization or an employee benefit plan, against all expenses and
liabilities (including counsel fees, judgments, fines, excise taxes, penalties
and amounts payable in settlements) reasonably incurred by or imposed upon such
person in connection with any threatened, pending or completed action, suit or
other proceeding, whether civil, criminal, administrative or investigative, in
which he or she may become involved by reason of his or her serving or having
served in such capacity (other than a proceeding voluntarily initiated by such
person unless he or she is successful on the merits, the proceeding was
authorized by the corporation or the proceeding seeks a declaratory judgment
regarding his or her own conduct). Such indemnification shall include payment by
Genzyme of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he or she shall be adjudicated to be not entitled to indemnification under
Article VI, which undertaking may be accepted without regard to the financial
ability of such person to make repayment.
II-1
<PAGE> 51
The indemnification provided for in Article VI is a contract right
inuring to the benefit of the directors, officers and others entitled to
indemnification. In addition, the indemnification is expressly not exclusive of
any other rights to which such director, officer or other person may be entitled
by contract or otherwise under law, and inures to the benefit of the heirs,
executors and administrators of such a person.
Genzyme also has in place agreements with certain officers and
directors which affirm Genzyme's obligation to indemnify them to the fullest
extent permitted by law and contain various procedural and other provisions
which expand the protection afforded by Genzyme's By-Laws.
Section 13(b)(1 1/2) of chapter 156B of the Massachusetts Business
Corporation Law provides that a corporation may, in its articles of
organization, eliminate a director's personal liability to the corporation and
its stockholders for monetary damages for breaches of fiduciary duty, except in
circumstances involving (i) a breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unauthorized distributions and loans to insiders and (iv) transactions from
which the director derived an improper personal benefit. Section VI.C.5. of
Genzyme's Articles of Organization provides that no director shall be personally
liable to the corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, except to the extent that such
exculpation is not permitted under the Massachusetts Business Corporation Law as
in effect when such liability is determined.
ITEM 16. EXHIBITS
1 Underwriting Agreement dated as of _____________, 1995 between Genzyme
and CS First Boston Corporation. To be filed by amendment.
4.1 Articles of Organization, as amended, of Genzyme. Filed as Exhibit 3.1
to Genzyme's Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference.
4.2 By-laws of Genzyme. Filed as Exhibit 3.2 to Genzyme's Form 8-K dated
December 31, 1991, and incorporated herein by reference.
4.3 Amended and Restated Rights Agreement dated as of October 13, 1994
between Genzyme and American Stock Transfer and Trust Company. Filed as
Exhibit 4 to Genzyme's Form 8-K dated December 29, 1994, and
incorporated herein by reference.
5 Opinion of Palmer & Dodge. To be filed by amendment.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants to Genzyme
Corporation. Filed herewith.
23.2 Consent of Price Waterhouse LLP, independent accountants to BioSurface
Technology, Inc. Filed herewith.
23.3 Consent of Palmer & Dodge (contained in Exhibit 5). To be filed by
amendment.
24.1 Power of Attorney (included in the signature pages hereto).
24.2 Certified Copy of Board Resolution authorizing signatures pursuant to
Power of Attorney. To be filed by amendment.
II-2
<PAGE> 52
ITEM 17. UNDERTAKINGS
(a) The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in this Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) (1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 53
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, on August
16, 1995.
GENZYME CORPORATION
By: /s/ Henri A. Termeer
---------------------------
Henri A. Termeer, President
POWER OF ATTORNEY
We, the undersigned officers and directors of Genzyme Corporation,
hereby severally constitute and appoint Henri A. Termeer, David J. McLachlan,
Mark A. Hofer, Evan M. Lebson and Peter Wirth, and each of them singly, our true
and lawful attorneys, with full power to them in any and all capacitates, to
sign any amendments to this Registration Statement on Form S-3 (including
Pre-and Post-Effective Amendments), and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Henri A. Termeer Director and Principal August 16, 1995
--------------------------------------
Henri A. Termeer Executive Officer
/s/ David J. McLachlan Principal Financial and August 16, 1995
--------------------------------------
David J. McLachlan Accounting Officer
/s/ Constantine E. Anagnostopoulos Director August 16, 1995
--------------------------------------
Constantine E. Anagnostopoulos
/s/ Douglas A. Berthiaume Director August 16, 1995
--------------------------------------
Douglas A. Berthiaume
/s/ Henry E. Blair Director August 16, 1995
--------------------------------------
Henry E. Blair
/s/ Robert J. Carpenter Director August 16, 1995
--------------------------------------
Robert J. Carpenter
/s/ Charles L. Cooney Director August 16, 1995
--------------------------------------
Charles L. Cooney
/s/ Henry R. Lewis Director August 16, 1995
--------------------------------------
Henry R. Lewis
</TABLE>
II-4
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<S> <C> <C>
1 Underwriting Agreement dated as of _______________, 1995 between
Genzyme and CS First Boston Corporation. To be filed by amendment.
4.1 Articles of Organization, as amended, of Genzyme. Filed as Exhibit
3.1 to Genzyme's Form 10-K for the year ended December 31, 1994,
and incorporated herein by reference.
4.2 By-laws of Genzyme. Filed as Exhibit 3.2 to Genzyme's Form 8-K
dated December 31, 1991, and incorporated herein by reference.
4.3 Amended and Restated Rights Agreement dated as of October 13, 1994
between Genzyme and American Stock Transfer and Trust Company.
Filed as Exhibit 4 to Genzyme's Form 8-K dated December 29, 1994,
and incorporated herein by reference.
5 Opinion of Palmer & Dodge. To be filed by amendment.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants to
Genzyme Corporation. Filed herewith. 56
23.2 Consent of Price Waterhouse LLP, independent accountants to
BioSurface Technology, Inc. Filed herewith. 57
23.3 Consent of Palmer & Dodge (contained in Exhibit 5). To be filed by
amendment.
24.1 Power of Attorney (included in the signature pages hereto).
24.2 Certified Copy of Board Resolution authorizing signatures pursuant
to Power of Attorney. To be filed by amendment.
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
Genzyme Corporation on Form S-3 of our reports dated March 1, 1995 on our audits
of the consolidated financial statements and financial statement schedule of
Genzyme Corporation, the combined financial statements of Genzyme General
Division and the combined financial statements of Genzyme Tissue Repair Division
as of December 31, 1993 and 1994 and for each of the three years in the period
ended December 31, 1994, which reports are included in Genzyme Corporation's
1994 Annual Report on Form 10-K, as amended by Amendment No. 1 thereto on Form
10-K/A.
We also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 16, 1995
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Genzyme
Corporation of our report dated February 8, 1994, except as to Note 11, which is
as of July 25, 1994 relating to the financial statements of BioSurface
Technology, Inc. as of December 31, 1992 and 1993 and for each of the three
years in the period ended December 31, 1993, appearing on page III-20 of Annex
III to the Prospectus/Joint Proxy Statement included in Genzyme Corporation's
Registration Statement on Form S-4 (No. 33-83346). We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 14, 1995
