GENZYME CORP, 10-Q, 1996-11-14

GENZYME CORP
10-Q, 1996-11-14
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

FORM 10-Q
---------

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1996
------------------

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
------------------ --------------

Commission file number 0-14680
-------

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

Massachusetts 06-1047163
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

One Kendall Square, Cambridge, Massachusetts 02139
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<TABLE>

The number of shares outstanding of each of the issuer's classes of common stock
as of October 31, 1996:
<CAPTION>

Class Outstanding at October 31, 1996:
----- --------------------------------

<S> <C>
General Division Common Stock,
$0.01 par value ("General Division Stock") 71,854,772

Tissue Repair Division Common Stock,
$0.01 par value ("TR Stock") 12,916,657

</TABLE>

Total number of pages in document - 44
Exhibit Index located on page - 42

<PAGE> 2

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 1996

NOTE REGARDING FORWARD-LOOKING STATEMENTS:

This Report on Form 10-Q for Genzyme Corporation (the "Company") contains
forward-looking statements concerning, among other things, the Company's
expected future revenues, operations and expenditures, estimates of the
potential markets for the Company's products and services, assessments of
competitors and potential competitors, projected timetables for the preclinical
and clinical development, regulatory approval and market introduction of the
Company's products and services and estimates of the capacity of manufacturing
and other facilities to support such products and services. All such
forward-looking statements are necessarily only estimates of future results and
the actual results achieved by the Company may differ materially from these
projections due to a number of factors, including (i) the Company's ability to
successfully complete preclinical and clinical development and obtain timely
regulatory approval and patent and other proprietary rights protection of its
products and services, (ii) decisions, and the timing of decisions, made by the
U.S. Food and Drug Administration and other agencies regarding the indications
for which the Company's products may be approved, (iii) the accuracy of the
Company's estimates of the size and characteristics of markets to be addressed
by the Company's products and services, (iv) market acceptance of the Company's
products and services, (v) the Company's ability to obtain reimbursement for its
products from third-party payers, where appropriate, and (vi) the accuracy of
the Company's information concerning the products and resources of competitors
and potential competitors. See also "Factors Affecting Future Operating Results"
under Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company's Annual Report as amended on Form 10-K/A
for the year ended December 31, 1995.

-2-

<PAGE> 3

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 1996

<TABLE>
TABLE OF CONTENTS
<CAPTION>

PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>

ITEM 1. Unaudited Condensed Financial Statements

GENZYME CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1996 and 1995 .................................................................. 4

Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 .......... 6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 .................................................................. 7

Notes to Unaudited Condensed Consolidated Financial Statements ................................ 8

Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 13

GENZYME GENERAL DIVISION

Condensed Combined Statements of Operations for the Three and Nine Months Ended
September 30, 1996 and 1995 .................................................................. 19

Condensed Combined Balance Sheets as of September 30, 1996 and December 31, 1995 .............. 21

Condensed Combined Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 .................................................................. 22

Notes to Unaudited Condensed Combined Financial Statements .................................... 23

Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 27

GENZYME TISSUE REPAIR DIVISION

Condensed Combined Statements of Operations for the Three and Nine Months Ended
September 30, 1996 and 1995 .................................................................. 32

Condensed Combined Balance Sheets as of September 30, 1996 and December 31, 1995 .............. 33

Condensed Combined Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 .................................................................. 34

Notes to Unaudited Condensed Combined Financial Statements .................................... 35

Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................................... 37

ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................................... 39

PART II. OTHER INFORMATION

ITEM 4. Submission of Matters to a Vote of Security Holders....................................... 39

ITEM 6. Exhibits and Reports on Form 8-K ......................................................... 39

Signatures ......................................................................................... 41

</TABLE>

-3-

<PAGE> 4

GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<S> <C> <C> <C> <C>
Revenues:
Net product sales .............................. $117,673 $77,049 $301,575 $219,374
Net service .................................... 18,510 12,631 51,539 39,173
Revenues from research and development contracts 6,700 6,239 18,901 19,166
-------- ------- -------- --------
142,883 95,919 372,015 277,713

Operating costs and expenses:
Cost of products sold .......................... 47,911 27,569 110,399 82,938
Cost of services sold .......................... 15,060 8,926 40,593 26,308
Selling, general and administrative ............ 42,542 26,417 118,575 75,881
Research and development (including research and
development related to contracts) ............. 21,238 17,205 57,493 50,931
Amortization of intangibles .................... 3,121 1,132 5,657 3,561
Purchase of in-process research and development 24,170 -- 24,170 --
Other .......................................... -- -- 1,465 --
-------- ------- -------- --------
154,042 81,249 358,352 239,619
-------- ------- -------- --------

Operating income (loss) ........................... (11,159) 14,670 13,663 38,094

Other income and (expenses)
Minority interest in net loss of subsidiaries .. -- 742 -- 1,608
Equity in net income (loss) of unconsolidated
affiliate ..................................... (543) 535 (2,601) (1,207)
Gain on investments ............................ 1,013 -- 2,724 --
Investment income .............................. 3,637 1,566 12,740 4,628
Interest expense ............................... (3,187) (512) (3,582) (732)
-------- ------- -------- --------
920 2,331 9,281 4,297
-------- ------- -------- --------

Income (loss) before income taxes ................. (10,239) 17,001 22,944 42,391
Provision for income taxes ........................ (5,601) (6,291) (18,708) (15,685)
-------- ------- -------- --------

Net income (loss) ................................. $(15,840) $10,710 $ 4,236 $ 26,706
======== ======= ======== ========

</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.

-4-
<PAGE> 5

GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)

<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
- -------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----

<S> <C> <C> <C> <C>
ATTRIBUTABLE TO GENZYME GENERAL DIVISION:
Net income (loss) .......................................... $(9,881) 13,877 21,635 35,180

Allocated tax benefit generated by the Tissue Repair Division
Net income (loss) attributable to Genzyme General Division
Stock ..................................................... 3,973 2,215 11,775 5,877
------- ------- -------- --------
$(5,908) $16,092 $ 33,410 $ 41,057
======= ======= ======== ========
Income (loss) per General Division common and common
equivalent share:
Net income (loss) .......................................... $ (0.09) $ 0.27 $ 0.46 $ 0.71
======= ======= ======== ========

Average shares outstanding ................................. 69,440 60,558 73,024 57,632
======= ======= ======== ========

Income (loss) per General Division Common Share assuming
full dilution:
Net income (loss) ......................................... $ (0.09) $ 0.24 $ 0.45 $ 0.65
======= ======= ======== ========

Average fully diluted shares outstanding .................. 69,440 65,792 74,146 63,342
======= ======= ======== ========

ATTRIBUTABLE TO GENZYME TISSUE REPAIR DIVISION:

Net loss .................................................... $(9,932) $(5,382) $(29,174) $(14,351)
======= ======= ======== ========

Per common share:
Net loss .................................................. $ (0.78) $ (0.59) $ (2.33) $ (1.62)
======= ======= ======== ========

Average shares outstanding ................................ 12,711 9,171 12,511 8,871
======= ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.

-5-
<PAGE> 6

GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS) SEPTEMBER 30, DECEMBER 31,
- ----------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS

Current Assets:
Cash and cash equivalents ............................... $ 141,522 $144,372
Short-term investments .................................. 82,941 112,303
Accounts receivable, less allowance for doubtful accounts 116,072 88,959
Inventories ............................................. 112,664 53,042
Prepaid expenses and other current assets ............... 17,028 12,531
Deferred tax assets - current ........................... 7,729 7,729
---------- --------
Total current assets .................................. 477,956 418,936

Property, plant and equipment, net ........................ 384,088 329,423

Other Assets:
Long-term investments ................................... 48,396 69,561
Note receivable - related party ......................... -- 262
Intangibles, net of accumulated amortization ............ 261,426 29,934
Deferred tax assets - noncurrent ........................ 26,370 23,645
Other noncurrent assets ................................. 31,001 33,440
---------- --------
367,193 156,842
---------- --------
$1,229,237 $905,201
========== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable ........................................ $ 22,159 $ 21,980
Accrued expenses ........................................ 81,380 39,418
Short-term borrowings ................................... 15,000 --
Income taxes payable .................................... 13,621 1,316
Deferred revenue ........................................ 3,203 1,367
Current portion of long-term debt and
capital lease obligations .............................. 817 2,445
---------- --------
Total current liabilities ............................. 136,180 66,526

Noncurrent Liabilities:
Long-term debt and capital lease obligations ............ 224,256 124,473
Other noncurrent liabilities ............................ 923 8,995
---------- --------
225,179 133,468

Stockholders' Equity:
General Division Stock, $.01 par value .................. 350 312
TR Stock, $.01 par value ................................ 126 121
Treasury Stock - at cost ................................ (881) (882)
Additional paid-in capital .............................. 886,476 724,342
Accumulated deficit ..................................... (12,922) (17,158)
Other equity adjustments ................................ (5,271) (1,528)
---------- --------
867,878 705,207
---------- --------
$1,229,237 $905,201
========== ========

</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.

-6-

<PAGE> 7

GENZYME CORPORATION AND SUBSIDIARIES
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>

(DOLLARS IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .................................................. $ 4,236 $ 26,706
Reconciliation of net income to net
cash from operating activities:
Depreciation and amortization ............................ 20,783 16,840
Provision for bad debts .................................. 5,925 3,453
(Gain)/loss on sale of investments ....................... (973) 110
Loss on disposal of fixed assets ......................... 41 --
Non-cash acquisition expense ............................. 209 --
Non-cash compensation credit ............................. (26) --
Accrued interest/amortization on bonds ................... 310 731
Minority interest in net loss of subsidiaries ............ -- (1,608)
Equity in net loss of unconsolidated affiliate ........... 2,601 1,208
Non-cash charge for in-process technology ................ 24,170 --
Non-cash gain on investment in unconsolidated subsidiary . (1,013) --
Other .................................................... (266) 1,285
Decrease in cash from working capital:
Accounts receivable ................................... (15,087) (8,075)
Inventories ........................................... (30,643) (8,842)
Prepaid expenses and other current assets ............. (3,209) (1,126)
Accounts payable, accrued expenses and deferred revenue 25,108 (7,911)
--------- --------
Net cash from operating activities .................... 32,166 22,771

INVESTING ACTIVITIES:
Investment in unconsolidated affiliate ...................... (5,276) (4,000)
Loans to related parties .................................... -- (1,857)
Acquisition of DSP, net of acquired cash .................... (194,497) --
Purchases of investments .................................... (79,457) (21,571)
Sales and maturities of investments ......................... 132,685 50,029
Property, plant and equipment ............................... (47,787) (36,013)
Other noncurrent assets ..................................... (16,288) (563)
--------- --------
Net cash from investing activities .................... (210,620) (13,975)

FINANCING ACTIVITIES:
Issuance of common stock .................................... 21,816 68,132
Issuance of common stock by subsidiary ...................... 2,268 479
Short-term borrowings under bank credit agreement ........... 238,000 --
Issuance of debt ............................................ -- 77
Payments of debt and capital lease obligations .............. (87,692) (41,295)
--------- --------
Net cash from financing activities .................... 174,392 27,393

Effect of exchange rate changes on cash ........................ 1,212 (1,148)
--------- --------
Decrease in cash and cash equivalents .......................... (2,850) 35,041
Cash and cash equivalents, beginning of period ................. 144,372 63,542
--------- --------
Cash and cash equivalents, end of period ....................... $ 141,522 $ 98,583
========= ========
Supplemental Cash Flow Information:
Cash paid during the period for:

Interest .................................................. $ 4,447 $ 5,874
Income taxes .............................................. 11,260 19,260

Supplemental Disclosure of Non-Cash Transactions:
Additional investment in unconsolidated affiliate -- Note 6
</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.

-7-
<PAGE> 8

GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation:
---------------------

These unaudited, condensed, consolidated financial statements should
be read in conjunction with the Company's Annual Report as amended on Form
10-K/A for the fiscal year ended December 31, 1995 and the financial
statements and footnotes included therein. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission
rules and regulations. Certain items in the 1995 financial statements have
been reclassified to conform with the 1996 presentation.

The financial statements for the three and nine months ended September
30, 1996 and 1995 are unaudited but include, in the Company's opinion, all
adjustments (consisting only of normally recurring accruals) necessary for
a fair presentation of the results for the periods presented.

2. Accounting Policies:
-------------------

The accounting policies underlying the quarterly financial statements
are those set forth in Note A of the financial statements included in the
Company's Annual Report as amended on Form 10-K/A for the year ended
December 31, 1995.

3. Investments:
-----------

As of September 30, 1996, the Company's investment portfolio,
consisting primarily of debt securities classified as available for sale,
was adjusted to its market value. As a result, gross unrealized holding
gains of approximately $2.2 million and gross unrealized holding losses
totaling approximately $0.9 million were recorded in Stockholders' equity.

As of September 30, 1996, the carrying values of the Company's
investments in Aronex, Inc., Celtrix Pharmaceuticals, Inc. and IntegraMed
America, Inc. (formerly "IVF America, Inc."), included in Other noncurrent
assets in the unaudited, condensed, consolidated balance sheets, were
adjusted to their respective market values. Gross unrealized holding losses
of approximately $0.7 million were recorded in Stockholders' equity.

<TABLE>

4. Inventories:
-----------

<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------

<S> <C> <C>
Raw Materials ............ $ 24,952,000 $12,634,000
Work-in-process .......... 39,913,000 14,821,000
Finished products ........ 47,799,000 25,587,000
------------ -----------
$112,664,000 $53,042,000
============ ===========

</TABLE>

5. Provision for Income Taxes:
--------------------------

The tax provision for the three and nine months ended September 30,
1996 varies from the U.S. statutory tax rate because of the provision for
state income taxes, the Company's share of losses of subsidiaries which
generate no current tax benefit, tax credits, taxes on foreign earnings,
non-deductible in-process research and development acquired with Deknatel
Snowden Pencer, Inc. ("DSP"), and non-taxable gains on investment holdings
of Genzyme Transgenics Corporation ("GTC"). The effective tax rate,
exclusive of the effects of non-taxable gains on GTC investment holdings
and non-deductible charge for in-process research and development recorded
in the third quarter was 43.4% and 40.5%, respectively, for the three and
nine months ended September 30, 1996.

-8-

<PAGE> 9

GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Additional Investments in Unconsolidated Affiliate:
--------------------------------------------------

In March 1996, GTC entered into a Convertible Debt and Development
Funding Agreement with Genzyme under which Genzyme agreed to provide a
revolving line of credit in the amount of $10 million and has agreed to
fund development costs of the Antithrombin III ("AT-III") program through
March 31, 1997. The line of credit carries a rate of 7% and is convertible
into GTC's common stock at the average market price for the twenty day
period ending two days before the conversion at (i) GTC's option only to
the extent necessary to maintain GTC's tangible net worth at the end of
each quarter at a level between $4.0 million and $4.2 million or (ii) by
the Company at any time for up to the full amount outstanding. Pursuant to
the terms of this agreement, GTC borrowed $2.8 million in March 1996 and
$1.5 million in the second quarter of 1996 from the Company. GTC converted
$150,000 of this debt into 26,244 shares of GTC common stock on March 31,
1996 and converted $1.5 million of this debt plus accrued interest into
193,321 shares of GTC common stock in June 1996. In June, the Company
offset $1.2 million of this debt against an invoice owed to GTC for
services provided by GTC related to the AT-III program. GTC repaid the
remaining $1.4 million of the debt and accrued interest of approximately
$48,000 in August 1996.

GTC completed a public offering of common stock of 3,000,000 shares to
the public in August 1996. GTC's public offering increased the book value
of the Company's investment in GTC and a gain of approximately $1 million
was recognized as a gain on investments in the third quarter of 1996. The
Company purchased 900,000 shares in the offering for $3.6 million. The
offering decreased the Company's equity interest in GTC to 42% and a gain
of

7. Allocation by the General Division to GTR for TR Designated Shares:
------------------------------------------------------------------

Pursuant to its option to allocate to up to $30 million to Genzyme
Tissue Repair Division ("GTR") at $10 per TR Designated Share, the Company
allocated $10 million of cash to GTR in June 1996 and 1,000,000 TR
Designated Shares were reserved for distribution at the Company's
discretion for the benefit of the Genzyme General Division (the "General
Division").

8. Acquisition of Genetrix, Inc.:
-----------------------------

On May 1, 1996, the Company acquired Genetrix Inc., a privately held
genetic testing laboratory based in Phoenix, Arizona, in a tax-free
exchange of General Division Stock. In the aggregate, approximately
1,380,000 shares of General Division Stock valued at approximately $36.5
million were issued. The acquisition was accounted for as a purchase. The
excess of the purchase price over the fair market value of the net assets
acquired, approximately $35.0 million, was allocated to Goodwill to be
amortized over 15 years. The acquisition of Genetrix was not material to be
consolidated financial statements and pro forma information is not
provided.

9. Long-Term Debt:
--------------

In March 1996, holders of the Company's 6 3/4% convertible
subordinated notes in the principal amount of $100 million converted such
notes into General Division Stock and TR Stock. Holders of the notes
received 18.913 shares of General Division Stock and 2.553 shares of TR
Stock in conversion of each $1,000 note. As a result of the conversion, the
holders forfeited interest which would have been payable by the Company on
April 1, 1996. The carrying amount of the debt, net of unamortized
discount, plus accrued interest of approximately $2.9 million was credited
to additional paid-in capital.

10. Short-Term Borrowing Arrangements:
---------------------------------

In November 1996, the Company intends to re-finance its $215 million
line of credit with a $225 million revolving credit facility with a
syndicate of banks. The facility provides for interest at the prime rate or
LIBOR plus a margin. Prior to June 28, 1996 the line of credit was $15
million. The existing and the planned facilities may be used by either the
General Division or GTR. As of September 30, 1996 GTR borrowings under the
credit facility were $15.0 million. The funds were used as temporary
financing for the acquisition of certain land and buildings in Framingham,
Massachusetts that were purchased for $6.8 million in cash in January 1996
as part of the planned expansion of manufacturing capacity for the
CARTICEL[Service mark] Service programs.

-9-

<PAGE> 10

GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. Short-Term Borrowing Arrangements (continued):
---------------------------------------------

In August 1996, the Board of Directors approved the transfer of certain of
GTR's Framingham real estate (land, buildings and leasehold improvements),
which had been purchased in January 1996, to the General Division for cash
of $5.2 million, which approximated the fair market value of the property
as determined by the Board of Directors. This also approximated the
property cost.

GTR makes periodic borrowings under the line of credit for working capital
purposes and repays the borrowing as funds permit within the subsequent
quarter. GTR line of credit borrowings were $8.0 million at March 31, 1996,
1996, $15.0 at June 30, 1996 and $15.0 at September 30, 1996.

11. Acquisition of Deknatel Snowden Pencer, Inc.:
--------------------------------------------

On July 1, 1996, Genzyme completed the acquisition of DSP, a privately held
surgical products company, for approximately $251 million. The purchase
price consisted of cash of approximately $190 million. Genzyme also assumed
and subsequently repaid debt of DSP of approximately $54.8 million, and
Genzyme paid acquisition costs of approximately $6 million. Funds for the
acquisition, the repayment of the debt and the payment of the acquisition
costs were provided by borrowings of $200 million under a revolving credit
facility from Fleet National Bank, with interest payable at LIBOR plus 5/8%
(6.16% at July 1, 1996) and approximately $51 million was provided from
cash balances.

The purchase price was allocated based on the fair values of assets
acquired and liabilities assumed determined by an independent valuation.
The allocation was $14 million to working capital items, $18 million to
property and equipment, $61 million to intangible assets and $134 million
to goodwill. In-process research and development acquired of $24 million
was charged to operating expenses in the third quarter of 1996. Goodwill is
being amortized over 40 years

<TABLE>

The following presents pro forma information about the acquisition of DSP
as if the acquisitions occurred on January 1, 1995 (in millions of dollars,
except per share data):

<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Net revenues........................... $426.1 $357.1
Net income............................. 1.5 23.6
General Division Earnings (loss)
per share:
Primary.................... 0.36 0.66
Fully diluted.............. 0.35 0.60
</TABLE>

12. General Division Stock 2-for-1 Stock Split:
------------------------------------------

In June 1996, the Board of Directors declared a 2-for-1 stock split of
shares of General Division Stock to be effected by means of a 100% stock
dividend payable on July 25, 1996 to stockholders of record on July 11,
1996, subject to increasing the authorized shares of General Division Stock
from 100,000,000 to 200,000,000 shares (the "Amendment"). The Amendment was
approved by holders of a majority in interest of the outstanding General
Division Stock and TR Stock, voting together as a single class, at a
special meeting of the stockholders held on July 24, 1996. On July 25,
1996, a total of 34,669,435 shares of General Division Stock were
distributed to stockholders in connection with the dividend. All share and
per share amounts have been re-stated to reflect this split.

13. Other Long-Term Liabilities:
---------------------------

In July 1996, the Company made a final payment of approximately $7.6
million for a company acquired in 1994.

14. Seprafilm:
---------

In August 1996 the Company received FDA approval to market Seprafilm
(Registered Trademark) bioresorbable membrane for use in abdominal surgery.

-10-

<PAGE> 11

GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

15. Subsequent Events:
-----------------

Genzyme's Joint Venture with Diacrin, Inc. ("Diacrin"):
------------------------------------------------------

Acquisition of Neozyme II Corporation ("Neozyme II"):
-----------------------------------------------------

On October 28, 1996, Genzyme, through a wholly-owned subsidiary,
completed its tender offer for the outstanding Units of Neozyme II for $45
per Unit in cash. 2,385,686 Units, or 98.8 percent, were tendered and
accepted for payment. Each Neozyme II Unit consists of one share of
Callable Common Stock and one Callable Warrant to purchase two shares of
General Division Stock and 0.135 share of TR Stock.

The tender offer was made pursuant to an agreement entered into by
Genzyme and Neozyme II announced on September 23 1996. The agreement
provides that Genzyme will acquire all of the remaining shares of Callable
Common Stock through a merger of Neozyme II into the Genzyme subsidiary
that acquired the tendered Units. As a result of the merger, holders of
Units who did not tender their Units will receive $29 in cash for each
share of Callable Common Stock. The Callable Warrants included in the
untendered Units will become exercisable on the effective date of the
merger. The exercise price of the Callable Warrants will be equal to the
average closing price of two shares of General Division Stock and 0.135
share of TR Stock for the twenty trading days prior to the effective date
of the merger. The warrants will expire on December 31, 1998.

Funds for the tender offer were provided, and funds for the merger
will be provided, as follows: $80 million from borrowings under the
Compnay's revolving credit facility with Fleet National Bank and the
balance from the General Division's cash balances. It is anticipated that
the aggregate purchase price of $108,675,000 of the Neozyme II acquisition
(consisting of $28.2 million of cash, $80 million of short-term borrowings,
and $0.5 million of equity for the value of the Callable Warrants) plus
estimated acquisition costs of $1 million will be allocated $14,117,000 to
the estimated fair market value of the net assets acquired and $95,558,000
as a charge for in-process technology.

The purchase price was allocated to the assets and liabilities of
Neozyme II based on their estimated fair values. The final purchase price
and allocation of purchase price may vary from the value presented above.

Reseach and development revenues from Neozyme II were $5.9 million and
$5.5 million during the third quarter of 1996 and 1995 and were $16.5
million and $17.2 million during the nine months ended September 30, 1996
and 1995. The Company expects that revenues from research and development
contracts will decrease in the fourth quarter due to the acquisition of
Neozyme II.

Cerezyme Manufacturing
----------------------

In October 1996 the Company received FDA approval to manufacture Cerezyme
(Registered Trademark) enzyme in the Company's new mammalian cell culture
manufacturing plant.

-11-
<PAGE> 12

GENZYME CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996

The following discussion is a summary of the key factors management considers
necessary in reviewing the Company's results of operations, liquidity and
capital resources. Forward-looking statements contained in the following
discussion are expectations only and there can be no assurance that actual
results will not materially differ from these expectations. This discussion
should be read in conjunction with the financial statements and related notes of
the Company. See also "Factors Affecting Future Operating Results" under Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Genzyme's Annual Report on Form 10-K for the year ended
December 31, 1995.

RESULTS OF OPERATIONS

REVENUE

Total revenues for the three and nine months ended September 30, 1996 were
$142.9 million and $372.0 million, increases of 49% and 34% over the
corresponding periods in 1995. Product and service revenues were $136.2 million
for the three months ended September 30, 1996, an increase of 52% over the same
period in 1995. Product and service revenues were $353.1 million for the nine
months ended September 30, 1996, an increase of 37% over the same period in
1995.

Product revenues for the three months ended September 30, 1996 increased 53% to
$117.7 million from $77.0 million for the corresponding period in 1995, and
product revenues for the nine months ended September 30, 1996 increased 37% to
$301.6 million from $219.4 million for the corresponding period in 1995.

Sales of Therapeutic, Diagnostic Product and Pharmaceutical products increased
24%, 11% and 6% during the third quarter of 1996 and 21%, 16% and 96% during the
nine months ended September 30, 1996 as compared to the comparable periods in
1995. The increase in sales of Therapeutic products resulted primarily from
increased shipments of Ceredase[Registered Trademark] enzyme and
Cerezyme[Registered Trademark] enzyme. The Company's results of operations are
highly dependent on these products. Ceredase[Registered Trademark] enzyme and
Cerezyme[Registered Trademark] enzyme sales were 59% and 64% of product sales
during the third quarter and during the nine months ended September 30, 1996 and
were 72% and 72% of product sales during each of the comparable periods in 1995.
The increase in Diagnostic Product sales resulted from growth in each of its
businesses, most notably in the Cardiovascular Direct LDL[Registered Trademark]
test sales. The substantial increase in Pharmaceutical sales resulted primarily
from sales of Melatonin which commenced in the third quarter of 1995 and
Cosmetic Grade HA Powder which were classified as Therapeutics revenue until the
fourth quarter of 1995. Melatonin products sales have declined from past levels
but the Company believes this decline has ceased.

On July 1, 1996 the Company acquired DSP for $251 million in a transaction
accounted for as a purchase. DSP manufactures and markets surgical instruments
and other products domestically and in Europe through a direct sales force. Had
the acquisition of DSP occurred January 1, 1996 product sales for the nine
months ended September 30, 1996 would have been $54.1 million higher.

Service revenues for the three months ended September 30, 1996 increased 47% to
$18.5 million from $12.6 million for the corresponding period in 1995 and
service revenues for the nine months ended September 30, 1996 increased 32% to
$51.5 million from $39.2 million for the corresponding period in 1995. The
increases were due to higher unit volume in part from the Genetrix acquisition
completed May 1, 1996 and pricing changes. The Genetrix business is being
completely integrated with Genzymes Genetics' service business. Service revenue
for the three months ended September 30, 1996 included $1.1 million sales of
Epicel [Trademark] skin grafts as compared to $1.3 million in the corresponding
period in 1995, and $0.7 million sales of CARTICEL [Service mark] cartilage
repair service as compared to $0.1 million sales in the corresponding period in
1995. CARTICEL [Service mark] service commenced in the first quarter of 1995.
Epicel service was $3.2 million in the first nine months of 1996, compared to
$3.6 million in the same period of 1995.

International sales represented approximately 36% and 38% of product sales in
the third quarter and first nine months of 1996 compared with approximately 41%
and 41% of third quarter and first nine months of 1995 product sales. The
increases occurred due to increased international sales of Ceredase[Registered
Trademark] enzyme and Cerezyme[Registered Trademark] enzyme.

-13-
<PAGE> 13

Revenues from research and development contracts for the three and nine months
ended September 30, 1996 were $6.7 million and $18.9 million, as compared to
$6.2 million and $19.2 million for the corresponding periods in 1995. The
fluctuations were due primarily to Neozyme II revenues from the external
contract expenses incurred by the Company on behalf of the Neozyme II
development programs. The Company expects that revenues from research and
development contracts will decrease in the fourth quarter due to the
acquisition of Neozyme II. See "Subsequent Events."

MARGINS AND OPERATING EXPENSES

Total gross margins for the quarters ended September 30, 1996 and 1995 were 54%
and 59%, respectively, and total gross margins for the nine months ended
September 30, 1996 and 1995 were 57% and 58%, respectively. The Company provides
a broad range of health care products and services, resulting in a range of
gross margins depending on the particular market conditions of each product or
service. Product margins for the quarters ended September 30, 1996 and 1995 were
59% and 64%, respectively. Product margins for the nine months ended September
30, 1996 and 1995 were 63% and 62%, respectively. Year-to-date 1996 margins
increased due primarily to the high volume of Melatonin sales in 1996, improved
Therapeutics margins, offset by the effects of the DSP acquisition. The DSP
acquisition caused a one-time increase in inventories related to purchase
accounting (fair market valuation) and subsequent gross margin reduction of $5.6
million when the inventories were sold in the third quarter. This reduced third
quarter 1996 margins as compared to the third quarter of 1995. Excluding the
effects of the DSP acquisition, gross margins were 58% and 59% for the three and
nine months ended September 30, 1996.

Service margins were 19% and 29% for the three months ended September 30, 1996
and 1995, respectively, and 21% and 33% for the nine months ended September 30,
1996 and 1995. Service margins declined during the three and nine months ended
September 30, 1996 due to the effect of the Genetrix acquisition and increased
GTR spending for the expansion of manufacturing capacity. The Company expects
margins will improve as laboratory facilities consolidate in the Genzyme
Genetics business.

Selling, general and administrative expenses for the three months ended
September 30, 1996 were $42.5 million, an increase of 61% over the same period
in 1995 and for the nine months ended September 30, 1996 were $118.6 million, an
increase of 56% over the same period in 1995. The increases were due to the
effects of the DSP acquisition, to increased expenses and staffing to support
revenue growth and increased staffing in anticipation of the launch of Surgical
Products in the European and domestic markets.

Research and development expenses for the three and nine months ended September
30, 1996 were $21.2 and $57.5 million, increases of 23% and 13%, respectively
over the same periods in 1995 due to increased spending on internal programs.

Amortization of intangibles was $3.1 million and $5.7 million for the three and
nine months ended September 30, 1996 compared to $1.1 million and $3.6 million
for the same periods in 1995. Amortization of intangibles increased during the
three and nine months ended September 30,1996 due to the Genetrix and DSP
acquisitions.

In the third quarter of 1996 the Company acquired, and charged to operating
expenses, in-process research and development of $24.2 million in connection
with the DSP acquisition.

OTHER INCOME AND EXPENSES
The minority interest in the net loss of subsidiaries during the three and nine
months ended 1995 related to the Company's 73% owned subsidiary IG Laboratories
Inc., which was fully acquired in October 1995.

The Company's equity in the net loss of unconsolidated affiliates relates mostly
to the investment in GTC. GTC completed a public offering of common stock of
3,000,000 shares to the public in

-14-
<PAGE> 14

August 1996. The Company purchased 900,000 shares in the offering for $3.6
million. The offering decreased the Company's equity interest in GTC to 42%. GTC
had revenues of $12.5 and $8.8 million and a net loss of $1.2 million and net
income of $1.1 million during the third quarter of 1996 and 1995 and had
revenues of $34.2 million and $22.3 million and net losses of $5.3 million and
$2.9 million during the nine months ended September 30, 1996 and 1995. GTC's
public offering increased the book value of the Company's investment in GTC and
a gain of approximately $1.0 million was recognized as gain on investments in
the third quarter of 1996.

Investment income for the three and nine months ended September 30, 1996
increased to $3.6 million and $12.7 million from $1.6 and $4.6 million for the
same periods in 1995, due primarily to higher average cash and investment
balances which resulted from the General Division and GTR public offerings in
October 1995 and September 1995, respectively, the exercise of stock options and
warrants and cash generated from operations.

Interest expense for the three and nine months ended September 30, 1996 was $3.2
million and $3.6 million, net of capitalized interest on construction in
progress of $0.1 million and $2.4 million. Interest expense for the three and
nine months ended September 30, 1995 was $0.5 million and $0.7 million, net of
capitalized interest on construction in progress of $2.1 million and $6.9
million. Interest increased during the third quarter of 1996 due to
approximately $3.0 million interest on borrowings of $200.0 million used to
finance the DSP acquisition. See Liquidity and Capital Resources for a
description of the notes. The convertible subordinated note redemption described
below offset this increase in interest expense by $0.4 million in the first nine
months of 1996 compared to the same period in 1995.

In March 1996, holders of the Company's 6 3/4% convertible subordinated notes in
the principal amount of $100 million converted such notes into General Division
and TR Stock. Holders of the notes received 18.913 shares of General Division
Stock and 2.553 shares of TR Stock in conversion of each $1,000 note. As a
result of the conversion, the holders forfeited interest which would have been
payable by the Company on April 1, 1996. The carrying amount of the debt, net of
unamortized discount, plus accrued interest of approximately $2.9 million was
credited to additional paid-in capital.

The tax provision for the three and nine months ended September 30, 1996 varies
from the U.S. statutory tax rate because of the provision for state income
taxes, Genzyme's share of losses of subsidiaries which generate no current tax
benefit, tax credits, taxes on foreign earnings, non-deductible in-process
research and development acquired with DSP, and non-taxable gains on GTC
investment holdings. The effective tax rate, exclusive of the effects of
non-taxable gains on GTC investment holdings and non-deductible charge for
in-process research and development recorded in the third quarter was 43.4% and
40.5% for the three and nine months ended September 30, 1996, slight increases
over the corresponding periods in 1995.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1996, the Company had cash, cash equivalents and investments
in marketable securities totaling $272.9 million, a decrease of $53.4 million
from December 31, 1995. The Company used $251 million in cash to acquire DSP, as
described below. In the first nine months of 1996, the Company spent $48
million on increased manufacturing capacity and invested an additional $5
million in an unconsolidated affiliate. These expenditures were financed by
operations, $32 million, and by the issuance of common stock through exercises
of stock options and warrants, $24 million and the issuable of debt, $200
million, less debt repayments of $88 million.

As of September 30, 1996, the Company had accounts receivable of $116.1 million,
an increase of $27.1 million from December 31, 1995, due to increased sales of
Ceredase[Registered Trademark] enzyme and Cerezyme[Registered Trademark] enzyme,
Melatonin and from receivables of $15.0 million acquired with DSP. Inventories
increased $59.6 million to $112.7 million as of September 30, 1996 as compared
to December 31, 1995. The increase was due primarily to inventories of $24
million acquired with DSP and to higher inventories levels to support of
increased business operations in Therapeutics and Surgical Products business
lines.

In November 1995, the Company intends to re-finance its $215 million line of
credit with a $225 million revolving credit facility with a syndicate of banks.
The facility provides for interest at the prime rate or LIBOR plus a margin. The
existing and the planned facilities may be used by either the General Division
or GTR. Prior to June 28, 1996 the line of credit was $15 million. As of
September 30, 1996 GTR borrowings under the credit facility were $15.0 million.
The funds were used as temporary financing for the acquisition of certain land
and buildings in Framingham, Massachusetts (the "Acquisition") that were
purchased for $6.8 million in cash in January 1996 as part of the planned
expansion of manufacturing capacity for the CARTICEL[Service mark] Service
programs. In August 1996, the Board of Directors of Genzyme Corporation approved
the transfer of certain of GTR's Framingham real estate (land, buildings and
leasehold improvements) to the General Division for cash of $5.2 million which
approximated the fair market value of the property as determined by the Board of
Directors. This also approximated the property cost.

-15-

<PAGE> 15
In March 1996, GTC entered into a Convertible Debt and Development Funding
Agreement with Genzyme under which Genzyme agreed to provide a revolving line of
credit in the amount of $10 million and has agreed to fund development costs of
the Antithrombin III ("AT-III") program through March 31, 1997. The line of
credit carries a rate of 7% and is convertible into GTC's common stock at the
average market price for the twenty day period ending two days before the
conversion (i) at GTC's option only to the extent necessary to maintain GTC's
tangible net worth at the end of each quarter at a level between $4.0 million
and $4.2 million or (ii) by the Company at any time for up to the full amount
outstanding. Pursuant to the terms of this agreement, GTC borrowed $2.8 million
in March 1996 and $1.5 million in the second quarter of 1996 from the Company.
GTC converted $150,000 of this debt into 26,244 shares of GTC Common Stock on
March 31, 1996 and converted $1.5 million of this debt plus accrued interest
into 193,321 shares of GTC stock in June 1996. In June, the General Division
offset $1.2 million of this debt against an invoice owed to GTC by for services
provided by GTC related to the AT-III program. GTC repaid the remaining $1.4
million of the debt and accrued interest of approximately $48,000 in August
1996.

On July 1, 1996, the Company Genzyme Division acquired DSP, a privately held
surgical products company, for approximately $251 million. The purchase price
consisted of cash of approximately $190 million. Genzyme also assumed and
subsequently repaid debt of DSP of approximately $57 million, and Genzyme paid
acquisition costs of approximately $6 million. Funds for the acquisition, the
repayment of the debt and the payment of the acquisition costs were provided by
borrowings of $200 million under a revolving credit facility from Fleet National
Bank, with interest payable at LIBOR plus 5/8% (6.16% at July 1, 1996) and
approximately $51 million was provided from Genzyme Company cash balances.

The purchase price was allocated based on the fair values of assets acquired and
liabilities assumed determined by an independent valuation. The allocation was
$14 million to working capital items, $18 to property and equipment, $61 to
intangible assets and $134 million to goodwill. In-process research and
development acquired of $24 million has changed to operations in the third
quarter of 1996. Goodwill is being amortized
over 40 years.

-16-

<PAGE> 16

Genzyme plans to use DSP's sales force to accelerate the introduction its
Seprafilm[Registered Trademark] bioresorbable membrane to the U.S. surgical
market as described further below.

On August 13, 1996, the FDA granted approval to market Seprafilm[trademark] for
use in any open abdominal or pelvic surgery. On behalf of the Joint Venture
formed between Genzyme and Genzyme Development Partners, L.P. (the
"Partnership"), Genzyme officially launched Seprafilm[trademark] in the United
States in October using the 70-person DSP sales force. Under the terms of
agreements between the Partnership and Genzyme, the Joint Venture will
manufacture and market Seprafilm[trademark] in North America under contract
with Genzyme. Genzyme and the Partnership expect to conclude negotiations
during the fourth quarter to establish definitive terms for the Joint Venture,
including the allocation between the parties of profits and losses from the
Joint Venture.

Also during the third quarter, Genzyme received the Approval of Conformity
Certificate (the "CE Mark") for Sepracoat[trademark] coating solution in
accordance with the European Medical Devices Directive. The CE Mark indicates
that the product meets quality standards necessary for selling in the 18
countries included in the European Economic Area. Under the CE Mark,
Sepracoat[trademark] can be applied at the beginning of and throughout
abdominal, pelvic and thoracic surgical procedures. Genzyme is preparing for the
market introduction of Sepracoat[trademark] in Europe during the fourth quarter.

Data from the pivotal study evaluating HAL-S[trademark] made available during
the third quarter showed some improvement in the rehabilitation rate of
patients. In light of the relatively modest improvement and the small potential
market size, however, no formal decision has been made concerning whether to
continue the development of HAL-S[trademark].

The Company expects that its available cash, investments and cash flow from
research contracts and product and service sales will be sufficient to finance
its planned operations and capital requirements for at least the next two years.
Although the Company currently has substantial cash resources, it has committed
to utilize a portion of its resources for certain purposes, such as completing
its commitment to develop manufacturing capacity sufficient to meet the
requirements for commercialization of the Partnership's products, the market
introduction of the Surgical Products, making certain payments to third parties
in connection with strategic collaborations. Genzyme's commitment to allocate up
to $30 million from the Company to fund the operations of GTR was substantially
eliminated when GTR sold new TR Stock to the public in September 1995; however,
Genzyme retained the right to make voluntary allocations of up to $30 million
from the Company to the GTR. In June 1996, the Board of Directors voted to
allocate $10 million of cash from the General Division to GTR in exchange for an
increase in the TR Designated Shares of 1,000,000 shares which shares have been
reserved for issuance at the discretion of the Board of Directors. Subsequent
to this allocation of $10 million in cash from the General Division to GTR,
Genzyme retains the right, exercisable in the discretion of the Board of
Directors, to make additional allocations of up to $20 million from the General
Division to GTR. In addition, working capital and other capital requirements may
change because of unanticipated changes in business conditions, and such other
considerations as expansion of operations, results of research and development
activities, competitive and technological developments, the timing and costs of
obtaining required regulatory approvals for new products and future acquisitions
of technology and/or product rights. As a result, the Company may have to obtain
additional financing. There can be no assurance that such financing will be
available on acceptable terms.

SUBSEQUENT EVENTS

On October 1, 1996, Diacrin/Genzyme LLC was established as a joint venture
between Genzyme and Diacrin to develop and commercialize products and processes
for use in the treatment of Parkinson's Disease and Huntington's Disease in
humans using porcine fetal cells. Under the terms of the joint venture
agreement, the Company will provide 80% of the next $50 million in funding for
products to be developed by the joint venture. After that, all costs will be
shared equally between the Company and Diacrin. Profits from the joint venture
will be shared equally by the two parties.

In order to provide initial funding for the joint venture, the Genzyme
Board of Directors has approved the allocation of up to $20 million in cash from
the General Division to GTR in exchange for an increase in the number of TR
Designated Shares at a rate determined by dividing the amount of cash so
allocated by the average of the daily closing prices of one share of TR Stock
for the 20 consecutive trading days commencing on the 30th trading day prior to
the date of allocation. The Company intends to make monthly allocations of cash
from the General Division to GTR under the $20 million interdivisional equity
line of credit in an amount corresponding to the funding commitment of GTR under
the joint venture agreement for such month.

On October 24, 1996, the Company announced that it had received approval
from the FDA to manufacture Cerezyme[Registered Trademark] enzyme in the
Company's large-scale mammalian cell culture plant located in Boston,
Massachusetts. Genzyme is completing validation reports for the manufacturing
process used in the plant for submission to the FDA and expects to commence
distribution of Cerezyme[Registered Trademark] produced at the plant to a
limited number of customers in the United States by the end of 1996.

On October 28, 1996, Genzyme, through a wholly-owned subsidiary, completed
its tender offer for the outstanding Units of Neozyme II for $45 per Unit in
cash. 2,385,686 Units, or 98.8 percent, were tendered and accepted for payment.
Each Neozyme II Unit consists of one share of Callable Common Stock and one
Callable Warrant to purchase two shares of Genzyme General Division Common Stock
("General Division Stock") and 0.135 share of Genzyme Tissue Repair Common Stock
("TR Stock").

The tender offer was made pursuant to an agreement entered into by Genzyme
and Neozyme II on September 23, 1996. The agreement provides that Genzyme will
acquire all of the remaining shares of Callable Common Stock through a merger of
Neozyme II into the Genzyme subsidiary that acquired the tendered Units. As a
result of the merger, holders of Units who did not tender their Units will
receive $29 in cash for each share of Callable Common Stock. The Callable
Warrants included in the untendered Units will become exercisable on the
effective date of the merger. The exercise price of the Callable Warrants will
be equal to the average closing price of two shares of General Division Stock
and 0.135 share of TR Stock for the twenty trading days prior to the effective
date of the merger. The warrants will expire on December 31, 1998.

Funds for the tender offer were provided, and funds for the merger will be
provided, as follows: $80 million from borrowings under the Company's revolving
credit facility with Fleet National Bank and the balance from the General
Division's cash balances.

-17-
<PAGE> 17
It is anticipated that the aggregate purchase price of $108,675,000 of the
Neozyme II Acquisition (consisting of $28.2 million of cash, $80 million of
short-term borrowings, and $0.5 million of equity for the value of the Callable
Warrants) plus estimated acquisition costs of $1million will be allocated
$14,117,000 to the estimated fair market value of the net assets acquired and
$95,558,000 as a charge for in-process technology.

The purchase price was allocated to the assets and liabilities of Neozyme
II based on their estimated fair values. The final purchase price and allocation
of purchase price may vary from the value presented above.

-18-

<PAGE> 18

GENZYME GENERAL DIVISION
<TABLE>
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)

THREE MONTHS ENDED NINE MONTHS ENDED
(DOLLARS IN THOUSANDS) SEPTEMBER 30, SEPTEMBER 30,
- -----------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net product sales ........................................ $117,673 $77,049 $301,575 $219,374
Net service sales ........................................ 16,649 11,196 46,317 35,461
Revenues from research and development contracts ......... 6,700 6,239 18,901 19,166
-------- ------- -------- --------
141,022 94,484 366,793 274,001
Operating costs and expenses:

Cost of products sold .................................... 47,911 27,569 110,399 82,938
Cost of services sold .................................... 12,544 7,576 32,195 23,353
Selling, general and administrative ...................... 35,904 23,324 98,961 68,495
Research and development (including research and
development related to contracts) ....................... 18,303 14,675 49,854 42,472
Amortization of intangibles .............................. 3,121 1,132 5,657 3,561
Purchase of in-process research and development .......... 24,170 -- 24,170 --
Other .................................................... -- -- 1,465 --
-------- ------- -------- --------
141,953 74,276 322,701 220,819
-------- ------- -------- --------

Operating income (loss) ..................................... (931) 20,208 44,092 53,182

Other income and (expenses)

Minority interest in net loss of subsidiaries ............ -- 742 -- 1,608
Equity in net income (loss) of unconsolidated affiliate .. (543) 535 (2,601) (1,207)
Gain on investments ...................................... 1,013 -- 2,724 --
Investment income ........................................ 3,341 1,410 11,485 3,891
Interest expense ......................................... (3,187) (512) (3,582) (732)
-------- ------- -------- --------
624 2,175 8,026 3,560
-------- ------- -------- --------

Income (loss) before income taxes ........................... (307) 22,383 52,118 56,742
Provision for income taxes .................................. (9,574) (8,506) (30,483) (21,562)
-------- ------- -------- --------

Net income (loss) ........................................... (9,881) 13,877 21,635 35,180

Allocated tax benefit generated by the Tissue Repair Division 3,973 2,215 11,775 5,877
-------- ------- -------- --------

Net income (loss) attributable to Genzyme General Division
Stock ..................................................... $ (5,908) $16,092 $ 33,410 $ 41,057
======== ======= ======== ========

</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.

-19-

<PAGE> 19

GENZYME GENERAL DIVISION
<TABLE>
CONDENSED COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<CAPTION>

THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
- -------------------------------------------------------------------------------------------------
1996 1995 1996 1995
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) attributable to Genzyme General
Division Stock ......................................... $(5,908) $16,092 $33,410 $41,057
======= ======= ======= =======

Income (loss) per General Division common and common
equivalent share:
Net income (loss) .................................... $ (0.09) $ 0.27 $ 0.46 $ 0.71
======= ======= ======= =======

Average shares outstanding ........................... 69,440 60,558 73,024 57,632
======= ======= ======= =======

Income (loss) per General Division Common Share assuming
full dilution:
Net income (loss) .................................... $ (0.09) $ 0.24 $ 0.45 $ 0.65
======= ======= ======= =======

Average fully diluted shares outstanding ............. 69,440 65,792 74,146 63,342
======= ======= ======= =======

</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.

-20-

<PAGE> 20

GENZYME GENERAL DIVISION
<TABLE>
COMBINED BALANCE SHEETS
(UNAUDITED)
<CAPTION>

(DOLLARS IN THOUSANDS), SEPTEMBER 30, DECEMBER 31,
- ---------------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS

Current Assets:
Cash and cash equivalents ..................................... $ 116,881 $103,631
Short-term investments ........................................ 80,910 105,471
Accounts receivable, less allowance for doubtful accounts ..... 114,263 87,121
Inventories ................................................... 110,975 52,281
Prepaid expenses and other current assets ..................... 16,683 12,345
Due from Genzyme Tissue Repair Division ....................... 3,569 2,034
Deferred tax assets - current ................................. 7,729 7,729
---------- --------
Total current assets ........................................ 451,010 370,612

Property, plant and equipment, net .............................. 362,792 327,461

Other Assets:
Long-term investments ......................................... 48,396 69,561
Note receivable - affiliate ................................... -- 262
Intangibles, net of accumulated amortization .................. 261,426 29,934
Deferred tax assets - noncurrent .............................. 26,370 23,645
Other noncurrent assets ....................................... 30,877 33,111
---------- --------
367,069 156,513
---------- --------
$1,180,871 $854,586
========== ========

LIABILITIES AND DIVISION EQUITY

Current Liabilities:
Accounts payable .............................................. $ 20,852 $ 19,548
Accrued expenses .............................................. 79,038 38,069
Income taxes payable .......................................... 13,621 1,316
Deferred revenue .............................................. 3,203 1,367
Current portion of long-term debt and capital lease obligations 817 2,276
---------- --------
Total current liabilities ................................... 117,531 62,576

Noncurrent Liabilities:
Long-term debt and capital lease obligations .................. 224,256 124,473
Other noncurrent liabilities .................................. 208 8,256
---------- --------
224,464 132,729

Division equity ................................................. 838,876 659,281
---------- --------
$1,180,871 $854,586
========== ========

</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.

-21-

<PAGE> 21

GENZYME GENERAL DIVISION
<TABLE>
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>

(DOLLARS IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .................................................. $ 33,410 $ 41,057
Reconciliation of net income to net
cash from operating activities:
Depreciation and amortization ............................ 20,262 16,210
Provision for bad debts .................................. 5,752 3,453
(Gain)/loss on sale of investments ....................... (973) 110
Loss on disposal of fixed assets ......................... 41 32
Accrued interest/amortization on bonds ................... 259 841
Non-cash acquisition cost expense ........................ 209 --
Minority interest in net loss of subsidiaries ............ -- (1,608)
Equity in net loss of unconsolidated affiliate ........... 2,601 1,208
Other .................................................... (266) 1,253
Non-cash charge for in-process technology ................ 24,170 --
Non-cash gain on investment on unconsolidated subsidiary . (1,013) --
Decrease in cash from working capital:
Accounts receivable ................................... (14,944) (8,163)
Inventories ........................................... (29,715) (8,688)
Prepaid expenses and other current assets ............. (3,050) (1,245)
Accounts payable, accrued expenses and deferred revenue 25,240 (7,260)
Due from Genzyme Tissue Repair Division ............... (1,535) (374)
--------- --------
Net cash from operating activities .................... 60,448 36,826

INVESTING ACTIVITIES:
Cash allocated to Genzyme Tissue Repair Division ............ (10,000) --
Investment in unconsolidated affiliate ...................... (5,276) (4,000)
Loans to affiliate .......................................... -- (1,857)
Acquisition of DSP, net of acquired cash .................... (194,497) --
Purchases of investments .................................... (74,453) (10,614)
Sales and maturities of investments ......................... 122,923 39,035
Property, plant and equipment ............................... (27,931) (35,754)
Other noncurrent assets ..................................... (16,469) (563)
--------- --------
Net cash from investing activities .................... (205,703) (13,753)
--------- --------

FINANCING ACTIVITIES:
Issuance of General Division Common Stock ................... 21,816 24,944
Issuance of common stock by subsidiary ...................... -- 479
Short-term borrowings under bank credit agreement ........... 200,000 --
Issuance of debt ............................................ -- 77
Payments of debt and capital lease obligations .............. (64,523) (41,069)
--------- --------
Net cash from financing activities .................... 157,293 (15,519)

Effect of exchange rate changes on cash ........................ 1,212 (1,148)
--------- --------
Decrease in cash and cash equivalents .......................... 13,250 6,406
Cash and cash equivalents, beginning of period ................. 103,631 46,549
--------- --------
Cash and cash equivalents, end of period ....................... $ 116,881 $ 52,955
========= ========

Supplemental Cash Flow Information:
Cash paid during the period for:
Interest .................................................. $ 4,331 $ 5,846
Income taxes .............................................. 11,260 19,260

Supplemental Disclosure of Non-Cash Transactions:
Additional investment in unconsolidated affiliate -- Note 6

</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.

-22-

<PAGE> 22

GENZYME GENERAL DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS

1. Basis of Presentation:
---------------------

These unaudited, condensed, combined financial statements should be
read in conjunction with the Company's Annual Report as amended on Form
10-K/A for the fiscal year ended December 31, 1995 and the financial
statements and footnotes for Genzyme General Division included therein.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations.

The financial statements for the three and nine months ended September 30,
1996 and 1995 are unaudited but include, in the Division's opinion, all
adjustments (consisting only of normally recurring accruals) necessary for
a fair presentation of the results for the periods presented.

2. Accounting Policies:
-------------------

The accounting policies underlying the quarterly financial statements
are those set forth in Note A of the General Division's financial
statements included in the Company's Annual Report as amended on Form
10-K/A for the year ended December 31, 1995.

3. Investments:
-----------

As of September 30, 1996, the General Division's investment portfolio,
consisting primarily of debt securities classified as available for sale,
was adjusted to its market value. As a result, gross unrealized holding
gains of approximately $22 million and gross unrealized holding losses
totaling approximately $0.9 million were recorded in Division equity.

As of September 30, 1996, the carrying values of the General
Division's investments in Aronex, Inc., Celtrix Pharmaceuticals, Inc. and
Integramed America, Inc. (formerly "IVF America, Inc."), included in Other
noncurrent assets in the unaudited, condensed, combined balance sheets,
were adjusted to their respective market values. Gross unrealized holding
losses of approximately $0.7 million were recorded in Division equity.

<TABLE>
4. Inventories:
-----------
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Raw materials............ $ 24,760,000 $12,527,000
Work-in-process.......... 38,416,000 14,167,000
Finished products........ 47,799,000 25,587,000
------------ -----------
$110,975,000 $52,281,000
============ ===========
</TABLE>

5. Provision for Income Taxes:
--------------------------

The tax provision for the three and nine months ended September 30,
1996 varies from the U.S. statutory tax rate because of the provision for
state income taxes, the General Division's share of losses of subsidiaries
which generate no current tax benefit, tax credits, taxes on foreign
earnings, non-deductible in-process research and development acquired with
DSP, and non-taxable gains on GTC investment holdings. The effective tax
rate, exclusive of the effects of non-taxable gains on GTC investment
holdings and non-deductible in-process research and development was 41.9%
and 40.1% for the three and nine months ended September 30, 1996, slight
increases over the corresponding periods in 1995. The allocated tax benefit
generated by GTR of $4.0 million and $2.2 million in the third quarter of
1996 and 1995 and $11.8 million and $5.9 million in the first nine months
of 1996 and 1995, further reduced the General Division's tax rate.

6. Additional Investments in Unconsolidated Affiliate:
--------------------------------------------------

In March 1996, GTC entered into a Convertible Debt and Development
Funding Agreement with Genzyme under which Genzyme agreed to provide a
revolving line of credit in the amount of $10 million and has agreed to
fund development costs of the Antithrombin III ("AT-III") program through
March 31, 1997. Under the agreement, GTC granted to the Company
co-marketing rights to AT-III in all territories other than Asia subject to
negotiation and execution of a development and supply agreement between the
parties prior to March 31, 1997. The line of credit carries a rate of 7%
and is convertible into GTC's common stock at the average market price for
the twenty day period ending two days before the conversion at (i) GTC's
option to maintain GTC's tangible net worth at the end of each quarter at a
level between $4.0 million and $4.2 million or (ii) by the Company at any
time for up to the full amount outstanding. Pursuant to the terms of this
agreement, GTC borrowed $2.8 million in March 1996 and $1.5 million in the
second quarter of 1996 from the Company. GTC converted $150,000 of this
debt into 26,244 shares of GTC Common Stock on March 31, 1996 and converted
$1.5 million of this debt plus accrued interest into 193,321 shares of GTC
stock in June 1996. In June, the General Division offset $1.2 million of
this debt against an invoice owed to GTC for services provided by GTC
related to the AT-III program. GTC repaid the remaining $1.4 million of the
debt and accrued interest of approximately $48,000 in August 1996.

GTC completed a public offering of common stock of 3,000,000 shares to
the public in August 1996. GTC's public offering increased the book value
of the Company's investment in GTC and a gain of approximately $1 million
was recognized as a gain on investments in the third quarter of 1996. The
Company purchased 900,000 shares for $3.6 million. The offering decreased
the Company's equity interest in GTC to 42%.

-23-

<PAGE> 23

GENZYME GENERAL DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS

7. Allocation by the General Division to GTR for TR Designated Shares:
------------------------------------------------------------------

Pursuant to its option to allocate to up to $30 million to GTR at $10
per TR Designated Share, the General Division allocated $10 million of cash
to GTR which was recorded as an increase to Division equity in September
1996 and 1,000,000 TR Designated Shares were reserved for distribution at
the Company's discretion for the benefit of the General Division.

8. Acquisition of Genetrix, Inc.:
-----------------------------

On May 1, 1996, the General Division acquired Genetrix Inc., a
privately held genetic testing laboratory based in Phoenix, Arizona, in a
tax-free exchange of General Division Stock. In the aggregate,
approximately 1,380,000 shares of General Division Stock valued at
approximately $36.5 million were issued. The acquisition was accounted for
as a purchase. The excess of the purchase price over the fair market value
of the net assets acquired, approximately $35 million, was allocated
to Goodwill to be amortized over 15 years.

9. Long-Term Debt:
--------------

In March 1996, holders of the General Division's 6 3/4% convertible
subordinated notes in the principal amount of $100 million converted such
notes into General Division Stock and TR Stock. Holders of the notes
received 18.913 shares of General Division Stock and 2.553 shares of TR
Stock in conversion of each $1,000 note. As a result of the conversion, the
holders forfeited interest which would have been payable by the General
Division on April 1, 1996. The carrying amount of the debt, net of
unamortized discount, plus accrued interest of approximately $2.9 million
was credited to Division equity.

10. Short-Term Borrowing Arrangements:
---------------------------------

In November 1996, the General Division intends to re-finance its $215
million line of credit with a $225 million revolving credit facility with a
syndicate of banks. The facility provides for interest at the prime rate or
LIBOR plus a margin. On June 28, 1996, the line of credit was increased to
$215 million. Prior to June 28, 1996 the line of credit was $15 million.
The existing and planning facilities may be used by either the General or
Tissue Repair Division. As of September 30, 1996 GTR borrowing under the
credit facilities were $15 million. The funds were used as temporary
financing for the acquisition of certain land and building in Framingham,
Massachusetts that were purchased for $6.8 million in cash in January 1996
as part of the planned expansion of manufacturing capacity for the
CARTICEL[Service mark] Service programs. In August 1996, the Board of
Directors of Genzyme Corporation approved the transfer of certain of GTR's
Framingham real estate (land, buildings and leasehold improvements), which
had been purchased in January 1996, to the General Division for cash of
$5.2 million which approximated the fair market value of the property as
determined by the Board of Directors. This also approximated the property
cost.

GTR makes periodic borrowings under the line of credit for working
capital purposes and repays the borrowing as funds permit within the
subsequent quarter. GTR line of credit borrowings were $8.0 million at
March 31, 1996, $15.0 at June 30, 1996 and $15.0 at September 30, 1996.

-24-
<PAGE> 24

GENZYME GENERAL DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS

11. Acquisition of Deknatel Snowden Pencer, Inc. ("DSP"):
----------------------------------------------------

On July 1, 1996, the General Division completed the acquisition of
DSP, a privately held surgical products company, for approximately $251
million. The purchase price consisted of cash of approximately $190
million. The General Division also assumed and subsequently repaid debt of
DSP of approximately $54.8 million, and the General Division paid
acquisition costs of approximately $6 million. Funds for the acquisition,
the repayment of the debt and the payment of the acquisition costs were
provided by borrowings of $200 million under a revolving credit facility
from Fleet National Bank, with interest payable at LIBOR plus 5/8%
(6.16% at July 1, 1996) and approximately $51 million was provided from
General Division cash balances.

The purchase price was allocated based on the fair values of assets
acquired and liabilities assumed determined by an independent valuation.
The allocation was $14 million to working capital items, $18 million to
property and equipment, $61 million to intangible assets and $134 million
to goodwill. In-process research and development acquired of $24 million
has changed to operations in the third quarter of 1996. Goodwill is being
amortized over 40 years.

<TABLE>

The following presents pro forma information about the acquisition of
DSP as if the acquisitions occurred on January 1, 1995 (in millions of
dollars, except per share information):

<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Net revenues...................... $420.9 $353.4
Net income........................ 18.9 32.1
Earnings (loss) per share:

Primary........................... 0.36 0.66
Fully diluted..................... 0.35 0.60
</TABLE>

12. General Division Stock 2-for-1 Stock Split:
------------------------------------------

13. Other Long-Term Liabilities:
---------------------------

In July 1996, the General Division made a final payment of
approximately $7.6 million for a company acquired in 1994.

14. Seprafilm
---------

In August 1996 the Company received FDA approval to market Seprafilm
(Registered Trademark) bioresorbable membrane for use in abdominal
surgery.

-25-

<PAGE> 25

GENZYME GENERAL DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS

15. Subsequent Events:
-----------------

Acquisition of Neozyme II:
--------------------------

On October 28, 1996, Genzyme, through a wholly-owned subsidiary,
completed its tender offer for the outstanding Units of Neozyme II for $45
per Unit in cash and 2,385,686 Units, or 98.8 percent, were tendered and
accepted for payment. Each Neozyme II Unit consists of one share of
Callable Common Stock and one Callable Warrant to purchase two shares of
General Division Stock and 0.135 share of TR Stock.

The tender offer was made pursuant to an agreement entered into by
Genzyme and Neozyme II on September 23 1996. The agreement provided that
Genzyme acquire all of the remaining shares of Callable Common Stock
through a merger of Neozyme II into the Genzyme subsidiary that acquired
the tendered Units. As a result of the merger, holders of Units who did not
tender their Units receive $29 in cash for each share of Callable Common
Stock. The Callable Warrants included in the untendered Units become
exercisable on the effective date of the merger. The exercise price of the
Callable Warrants will be equal to the average closing price of two shares
of General Division Stock and 0.135 share of TR Stock for the twenty
trading days prior to the effective date of the merger. The warrants will
expire on December 31, 1998.

Funds for the tender offer were provided, and funds for the merger
will be provided, as follows: $80 million from borrowings under the
Compnay's revolving credit facility with Fleet National Bank and the
balance from the General Division's cash balances. It is anticipated that
the aggregate purchase price of $108,675,000 of the Neozyme II Acquisition
(consisting of $28.2 million of cash, $80 million of short-term borrowings,
and $0.5 million of equity for the value of the Callable Warrants) plus
estimated acquisition costs of $1million will be allocated $14,117,000 to
the estimated fair market value of the net assets acquired and $95,558,000
as a charge for in-process technology.

Research and development revenues from Neozyme II were $5.9 million
and $5.5 million during third quarter of 1996 and 1995 and were $16.5
million and $17.2 million during the nine months ended September 30, 1996
and 1995. Research and development revenues will decrease in future period
due to the acquisition of Neozyme II.

Cerezyme Manufacturing
----------------------

In October 1996 the Company received FDA approval to manufacture
Cerezyme (Registered Trademark) in the Company's new mammalian cell culture
manufacturing plant.

-26-

<PAGE> 26

GENZYME GENERAL DIVISION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996

The following discussion is a summary of the key factors management considers
necessary in reviewing the General Division's results of operations, liquidity
and capital resources. Forward-looking statements contained in the following
discussion are expectations only and there can be no assurance that actual
results will not materially differ from these expectations. This discussion
should be read in conjunction with the financial statements and related notes of
the General Division. See also "Factors Affecting Future Operating Results"
under Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Genzyme's Annual Report on Form 10-K for the year
ended December 31, 1995.

RESULTS OF OPERATIONS

REVENUE
Total revenues for the three and nine months ended September 30, 1996 were
$141.0 million and $366.8 million, increases of 49% and 34% over the
corresponding periods in 1995. Product and service revenues were $134.3 million
and $347.9 million, increases of 52% and 37% over the same periods in 1995.

Sales of Therapeutic, Diagnostic Product and Pharmaceutical products increased
24%, 11% and 6% during the third quarter of 1996 and 21%, 16% and 96% during the
nine months ended September 30, 1996 as compared to the comparable periods in
1995. The increase in sales of Therapeutic products resulted primarily from
increased shipments of Ceredase[Registered Trademark] enzyme and
Cerezyme[Registered Trademark] enzyme. The General Division's results of
operations are highly dependent on these products. Ceredase[Registered
Trademark] enzyme and Cerezyme[Registered Trademark] enzyme sales were 59% and
64% of product sales during the third quarter and during the nine months ended
September 30, 1996 and were 72% and 72% of product sales during each the
comparable periods in 1995. The increase in Diagnostic Product sales resulted
from growth in each of its businesses, most notably in the Cardiovascular Direct
LDL[Registered Trademark] test sales. The substantial increase in Pharmaceutical
sales resulted primarily from sales of Melatonin which commenced in the third
quarter of 1995 and Cosmetic Grade HA Powder which were classified as
Therapeutics revenue until the fourth quarter of 1995. Melatonin products sales
have declined but the General Division believes this decline has ceased.

On July 1, 1996 the General Division acquired DSP for $251 million in a
transaction accounted for as a purchase. DSP manufactures and markets surgical
instruments and other products domestically and in Europe through a direct sales
force. Had the acquisition of DSP occurred January 1, 1996 product sales for the
nine months ended September 30, 1996 would have been $54.1 million higher.

Service revenues for the three months ended September 30, 1996 increased 49% to
$16.6 million from $11.2 million for the corresponding period in 1995 and
service revenues for the nine months ended September 30 1996 increased 31% to
$46.3 million from $35.5 million for the corresponding period in 1995. The
increases were due to higher unit volume in part from the Genetrix acquisition
completed May 1, 1996 and pricing changes.

Revenues from research and development contracts for the three and nine months
ended September 30, 1996 were $6.7 million and $18.9 million, as compared to
$6.2 million and $19.2 million for the corresponding periods in 1995. The
fluctuations were due primarily to Neozyme II revenues from the external
contract expenses incurred by the General Division on behalf of the Neozyme II
development programs. The Company expects that revenues from research and
development contracts will decrease in the fourth quarter due to the
acquisition of Neozyme II. See "Subsequent Events."

-27
<PAGE> 27

MARGINS AND OPERATING EXPENSES

Total gross margins for the quarters ended September 30, 1996 and 1995 were 55%
and 60%, respectively, and total gross margins for the nine months ended
September 30, 1996 and 1995 were 59% and 58%, respectively. The General Division
provides a broad range of health care products and services, resulting in a
range of gross margins depending on the particular market conditions of each
product or service. Product margins for the quarters ended September 30, 1996
and 1995 were 59% and 64%, respectively. Product margins for the nine months
ended September 30, 1996 and 1995 were 63% and 62%, respectively. Year-to-date
1996 margins increased due primarily to the high volume of Melatonin sales in
1996, improved Therapeutics margins, offset by the effects of the DSP
acquisition. The DSP acquisition caused a one-time increase in inventories
related to purchase accounting (fair market valuation) and subsequent gross
margin reduction of $5.7 million when the inventories were sold in the third
quarter. This reduced third quarter 1996 margins as compared to the third
quarter of 1995. Excluding the effects of the DSP acquisition, gross margins
were 59% and 61% for the three and nine months ended September 30, 1996.

Service margins were 25% and 32% for the three months ended September 30, 1996
and 1995, respectively and 30% and 34% for the nine months ended September 30,
1996 and 1995. Service margins declined during the three and nine months ended
September 30, 1996 due to the effect of the Genetrix acquisition. The General
Division expects margins will improve as laboratory facilities consolidate
in the Genzyme Genetics business.

Selling, general and administrative expenses for the three months ended
September 30, 1996 were $35.9 million, an increase of 54% over the same period
in 1995 and for the nine months ended September 30, 1996 were $99.0 million, an
increase of 44% over the same period in 1995. The increases were due to the
effects of the DSP acquisition, to increased expenses and staffing to support
revenue growth and increased staffing in anticipation of the launch of Surgical
Products in the European and domestic markets.

Research and development expenses for the three and nine months ended September
30, 1996 were $18.3 and $49.9 million, increases of 25% and 17%, respectively
over the same periods in 1995 due to increased spending on internal programs.

In the third quarter of 1996, the General Division acquired, and charged to
operating expenses, in-process research and development of $24.2 million in
connection with the DSP acquisition.

OTHER INCOME AND EXPENSES

The minority interest in the net loss of subsidiaries during the three and nine
months ended 1995 related to the General Divisions 73% owned subsidiary IG
Laboratories, Inc., which was fully acquired in October 1995.

The General Division's equity in the net loss of unconsolidated affiliates
relates mostly to the investment in GTC. GTC completed a public offering of
common stock of 3,000,000 shares to the public in August 1996. The General
Division purchased 900,000 shares in the offering for $3.6 million. The offering
decreased the General Division's equity interest in GTC to 42%. GTC had revenues
of $12.5 and $8.8 million and a net loss of $1.2 million and net income $1.1
million during the third quarter of 1996 and 1995 and had revenues of $34.2
million and $22.3 million and net losses of $5.3 million and $2.9 million during
the nine months ended September 30, 1996 and 1995. GTC's public offering
increased the book value of the General Division's investment in GTC and a gain
of approximately $1.0 million was recognized as gain on investments in the third
quarter of 1996.

Investment income for the three and nine months ended September 30, 1996
increased to $3.3 million and $11.5 million from $1.4 and $3.9 million for the
same periods in 1995, due primarily to higher average cash and investment
balances which

-28-

<PAGE> 28

resulted from the General Division's public offering in October 1995, the
exercise of stock options and warrants and cash generated from operations.

Interest expense for the three and nine months ended September 30, 1996 was $3.2
million and $3.6 million, net of capitalized interest on construction in
progress of $0.0 million and $2.2 million. Interest expense for the three and
nine months ended September 30, 1995 was $0.5 million and $0.7 million, net of
capitalized interest on construction in progress of $2.1 million and $6.9
million. Interest increased during the third quarter of 1996 due to
approximately $3.0 million interest on borrowings of $200.0 million used to
finance the DSP acquisition. See Liquidity and Capital Resources for a
description of the notes. The convertible subordinated note redemption described
below offset this increase in interest expense by $0.4 million in the first nine
months of 1996 compared to the same period in 1995.

In March 1996, holders of the General Division's 6 3/4% convertible subordinated
notes in the principal amount of $100 million converted such notes into General
Division and TR Stock. Holders of the notes received 18.913 shares of General
Division Stock and 2.553 shares of TR Stock in conversion of each $1,000 note.
As a result of the conversion, the holders forfeited interest which would have
been payable by the General Division on April 1, 1996. The carrying amount of
the debt, net of unamortized discount, plus accrued interest of approximately
$2.9 million was credited to Division equity.

The tax provision for the three and nine months ended September 30, 1996 varies
from the U.S. statutory tax rate because of the provision for state income
taxes, the General Division's share of losses of subsidiaries which generate no
current tax benefit, tax credits, taxes on foreign earnings, non-deductible
in-process research and development acquired with DSP, and non-taxable gains on
GTC investment holdings. The effective tax rate, exclusive of the effects of
non-taxable gains on GTC investment holdings and non-deductible in-process
research and development was 41.9% and 40.5% for the three and nine months ended
September 30, 1996, slight increases over the corresponding periods in 1995. The
allocated tax benefit generated by GTR of $4.0 million and $2.2 million in the
third quarter of 1996 and 1995 and $11.8 million and $5.9 million in the first
nine months of 1996 and 1995, further reduced the General Division's tax rate.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1996, the General Division had cash, cash equivalents and
investments in marketable securities totaling $246.2 million, a decrease of
$32.5 million from December 31, 1995. The General Division used $251 million in
cash to acquire DSP, as described below. In the first nine months of 1996, the
General Division spent $28 million on increased manufacturing capacity and
invested an additional $5 million in an unconsolidated affiliate. These
expenditures were financed by operations, $60 million, and by the issuance of
common stock through exercises of stock options and warrants, $21 million the
issuance of debt $200 million, less repayment of debt $65 millions.

As of September 30, 1996, the General Division had accounts receivable of $114.3
million, an increase of $27.1 million from December 31, 1995, due to increased
sales of Ceredase[Registered Trademark] enzyme and Cerezyme[Registered
Trademark] enzyme, Melatonin and from receivables of $15.0 million acquired with
DSP. Inventories increased $58.7 million to $111 million as of September 30,
1996 as compared to December 31, 1995. The increase was due primarily to
inventories of $24 million acquired with DSP and to higher inventory levels to
support of increased business operations in Therapeutics and Surgical Products
business lines.

In November 1995, the General Division intends to re-finance its $215 million
line of credit with a $225 million revolving credit facility with a syndicate of
banks. The facility provides for interest at the prime rate or LIBOR plus a
margin.

In March 1996, GTC entered into a Convertible Debt and Development Funding
Agreement with the General Division under which the General Division agreed to
provide a revolving line of credit in the amount of $10 million and has agreed
to fund development costs of the Antithrombin III ("AT-III") program through
March 31, 1997. The line of credit carries a rate of 7% and is convertible into
GTC's common stock at the average market price for the twenty day period ending
two days before the conversion at (i) GTC's option only to the extent necessary
to maintain GTC's tangible net worth at the end of each quarter at a level
between $4.0 million and $4.2 million or (ii) by the General Division at any
time for up to the full amount outstanding. Pursuant to the terms of this
agreement, GTC borrowed $2.8 million in March 1996 and $1.5 million in the
second quarter of 1996 from the General Division. GTC

-29-

<PAGE> 29

converted $150,000 of this debt into 26,244 shares of GTC Common Stock on March
31, 1996 and converted $1.5 million of this debt plus accrued interest into
193,321 shares of GTC stock.

On July 1, 1996, the General Division acquired DSP, a privately held surgical
products company, for approximately $251 million. The purchase price consisted
of cash of approximately $190 million. Genzyme also assumed and subsequently
repaid debt of DSP of approximately $57 million, and Genzyme paid acquisition
costs of approximately $6 million. Funds for the acquisition, the repayment of
the debt and the payment of the acquisition costs were provided by borrowings of
$200 million under a revolving credit facility from Fleet National Bank, with
interest payable at LIBOR plus 5/8% (6.16% at July 1, 1996) and approximately
$51 million was provided from Genzyme General Division cash balances.

The purchase price was allocated based on the fair values of assets acquired and
liabilities assumed determined by an independent valuation. The allocation was
$14 million to working capital items, $18 million to property and equipment, $61
million to intangible assets and $134 million to goodwill. In-process research
and development acquired of $24 million has changed to operations in the third
quarter of 1996. Goodwill is being amortized over 40 years.

The General Division plans to use DSP's sales force to accelerate the
introduction of its Seprafilm[Registered Trademark] bioresorbable membrane to
the U.S. surgical market as described further below.

On August 13, 1996, the FDA granted approval to market Seprafilm[trademark] for
use in any open abdominal or pelvic surgery. On behalf of the Joint Venture,
Genzyme officially launched Seprafilm[trademark] in the United States in October
using the 70-person DSP sales force. Under the terms of agreements between the
Partnership and Genzyme, the Joint Venture will manufacture and market
Seprafilm[trademark] in North America under contract with Genzyme. Genzyme and
the Partnership expect to conclude negotiations during the fourth quarter to
establish definitive terms for the Joint Venture, including the allocation
between the parties of profits and losses from the Joint Venture.

Also during the third quarter, Genzyme received the CE Mark for
Sepracoat[trademark] coating solution in accordance with the European Medical
Devices Directive. The CE Mark indicates that the product meets quality
standards necessary for selling in the 18 countries included in the European
Economic Area. Under the CE Mark, Sepracoat[trademark] can be applied at the
beginning of and throughout abdominal, pelvic and thoracic surgical procedures.
Genzyme is preparing for the market introduction of Sepracoat[trademark] in
Europe during the fourth quarter.

In August 1996, the Board of Directors of Genzyme Corporation approved the
transfer of certain of GTR's Framingham real estate to the General Division for
the fair market value, which approximated cost, of the property.

-30-

<PAGE> 30

The General Division expects that its available cash, investments and cash flow
from research contracts and product and service sales will be sufficient to
finance its planned operations and capital requirements for at least the next
two years. Although the General Division currently has substantial cash
resources, it has committed to utilize a portion of its resources for certain
purposes, such as completing its commitment to develop manufacturing capacity
sufficient to meet the requirements for commercialization of the Partnership's
products, the market introduction of the Surgical Products, making certain
payments to third parties in connection with strategic collaborations. Genzyme's
commitment to allocate up to $30 million from the General Division to fund the
operations of GTR was substantially eliminated when GTR sold new TR Stock to the
public in September 1995; however, Genzyme retained the right to make voluntary
allocations of up to $30 million from the General Division to the GTR. In June
1996, the Board of Directors voted to allocate $10 million of cash from the
General Division to GTR in exchange for an increase in the TR Designated Shares
of 1,000,000 shares which shares have been reserved for issuance at the
discretion of the Board of Directors. Subsequent to this allocation of $10
million in cash from the General Division to GTR, Genzyme retains the right,
exercisable in the discretion of the Board of Directors, to make additional
allocations of up to $20 million for the General Division to GTR. In addition,
working capital and other capital requirements may change because of
unanticipated changes in business conditions, and such other considerations as
expansion of operations, results of research and development activities,
competitive and technological developments, the timing and costs of obtaining
required regulatory approvals for new products and future acquisitions of
technology and/or product rights. As a result, the General Division may have to
obtain additional financing. There can be no assurance that such financing will
be available on acceptable terms.

SUBSEQUENT EVENTS

Acquisition of Neozyme II Corporation ("Neozyme II"):
-----------------------------------------------------

On October 24, 1996, the Company announced that it had received
approval from the FDA to manufacture Cerezyme[Registered Trademark]
enzyme in the Company's large-scale mammalian cell culture plant located
in Boston, Massachusetts. Genzyme is completing validation reports for
the manufacturing process used in the plant for submission to the FDA and
expects to commence distribution of Cerezyme[Registered Trademark]
produced at the plant to a limited number of customers in the United
States by the end of 1996.

Funds for the tender offer were provided, and funds for the merger
will be provided, as follows: $80 million from borrowings under the
Compnay's revolving credit facility with Fleet National Bank and the
balance from the General Division's cash balances. It is anticipated that
the aggregate purchase price of $108,675,000 of the Neozyme II Acquisition
(consisting of $28.2 million of cash, $80 million of short-term borrowings,
and $0.5 million of equity for the value of the Callable Warrants) plus
estimated acquisition costs of $1 million will be allocated $14,117,000 to
the estimated fair market value of the net assets acquired and $95,558,000
as a charge for in-process technology.

Research and development revenues from Neozyme II were $5.9 million
and $5.5 million during the third quarter of 1996 and 1995 and were $16.5
million and $17.2 million during the nine months ended September 30, 1996
and 1995. Research and development revenues will decrease in future period
due to the acquisition of Neozyme II.

-31-
<PAGE> 31

GENZYME TISSUE REPAIR DIVISION
<TABLE>

CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)

<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net service sales .................... $ 1,861 $ 1,435 $ 5,222 $ 3,712

Operating costs and expenses:
Cost of services sold ............... 2,516 1,350 8,398 2,955
Selling, general and administrative . 6,638 3,093 19,614 7,386
Research and development ............ 2,935 2,530 7,639 8,459
-------- ------- -------- --------
12,089 6,973 35,651 18,800
-------- ------- -------- --------

Operating loss ......................... (10,228) (5,538) $(30,429) (15,088)

Investment income ...................... 296 156 1,255 737
-------- ------- -------- --------

Net loss ............................... $ (9,932) $(5,382) $(29,174) $(14,351)
======== ======= ======== ========

Per Tissue Repair Division Common share:
Net loss ............................ $ (0.78) $ (0.59) $ (2.33) $ (1.62)
======== ======= ======== ========

Average shares outstanding .......... 12,711 9,171 12,511 8,871
======== ======= ======== ========

</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.

-32-

<PAGE> 32

GENZYME TISSUE REPAIR DIVISION
<TABLE>
COMBINED BALANCE SHEETS
(UNAUDITED)
<CAPTION>

(DOLLARS IN THOUSANDS) SEPTEMBER 30, DECEMBER 31,
- ---------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS

Current Assets:
Cash and cash equivalents ............................... $24,641 $40,741
Short-term investments .................................. 2,031 6,832
Accounts receivable, less allowance for doubtful accounts 1,809 1,838
Inventories ............................................. 1,689 761
Prepaid expenses and other current assets ............... 345 186
------- -------
Total current assets .................................. 30,515 50,358

Property, plant and equipment, net ........................ 21,296 1,962

Other Assets:
Other noncurrent assets ................................. 124 329
------- -------
124 329
------- -------
$51,935 $52,649
======= =======

LIABILITIES AND DIVISION EQUITY

Current Liabilities:
Accounts payable ........................................ $ 1,307 $ 2,432
Accrued expenses ........................................ 2,342 1,349
Payable to Genzyme General Division ..................... 3,569 2,034
Short-term borrowings ................................... 15,000 --
Current portion of capital lease obligations ............ -- 169
------- -------
Total current liabilities ............................. 22,218 5,984

Noncurrent Liabilities:
Other noncurrent liabilities ............................ 715 739
------- -------
715 739

Division equity ........................................... 29,002 45,926
------- -------
$51,935 $52,649
======= =======

</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.

-33-
<PAGE> 33

GENZYME TISSUE REPAIR DIVISION
<TABLE>
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>

(DOLLARS IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .................................................... $(29,174) $(14,351)
Reconciliation of net loss to net cash used by
operating activities:
Depreciation and amortization ............................ 521 630
Provision for bad debts .................................. 173 --
Non-cash compensation credit ............................. (26) --
Accrued interest/amortization on bonds ................... 51 (110)
Increase (decrease) in cash from working capital:
Accounts receivable ................................... (143) 88
Inventories ........................................... (928) (154)
Prepaid expenses and other current assets ............. (159) 119
Accounts payable, accrued expenses and deferred revenue (132) (651)
Due to Genzyme General Division ....................... 1,535 374
-------- --------
Net cash used by operating activities ................. (28,282) (14,055)

INVESTING ACTIVITIES:
Purchases of investments .................................... (5,004) (10,957)
Sales and maturities of investments ......................... 9,762 10,994
Purchase of property, plant and equipment ................... (25,070) (259)
Proceeds from sale of property, plant & equipment ........... 5,214 --
Other noncurrent assets ..................................... 205 --
-------- --------
Net cash used by investing activities ................. (14,893) (222)

FINANCING ACTIVITIES:
Proceeds from issuance of TR Stock ........................... 2,268 43,138
Short-term borrowings under bank credit agreement ............ 38,000 --
Payments of debt and capital lease obligations ............... (23,169) (211)
Cash allocated from Genzyme General Division ................. 10,000 --
Other ........................................................ (24) (15)
-------- --------
Net cash provided by financing activities ............. 27,075 42,912
-------- --------

Increase (decrease) in cash and cash equivalents ... ........... (16,100) 28,635
Cash and cash equivalents, beginning of period ................. 40,741 16,993
-------- --------
Cash and cash equivalents, end of period ....................... $ 26,641 $ 45,628
======== ========

Supplemental Cash Flow Information:
Cash paid during the period for interest .................... $ 116 $ 33

</TABLE>

The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.

-34-
<PAGE> 34

GENZYME TISSUE REPAIR DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS

1. Basis of Presentation:
---------------------

These unaudited, condensed, combined financial statements should be
read in conjunction with the Company's Annual Report as amended on Form
10-K/A for the fiscal year ended December 31, 1995 and the financial
statements and footnotes for Genzyme Tissue Repair Division ("GTR")
included therein. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
the Securities and Exchange Commission rules and regulations.

The financial statements for the three and nine months ended September
30, 1996 and 1995 are unaudited but include, in GTR's opinion, all
adjustments (consisting only of normally recurring accruals) necessary for
a fair presentation of the results for the periods presented.

2. Accounting Policies:
-------------------

The accounting policies underlying the quarterly financial statements
are those set forth in Note A of GTR's financial statements included in the
Company's Annual Report as amended on Form 10-K/A for the year ended
December 31, 1995.

3. Investments:
-----------

As of September 30, 1996, GTR's investment portfolio, consisting
primarily of debt securities classified as available for sale, was adjusted
to its market value. As a result, gross unrealized holding losses totaling
approximately $9,000 were recorded in Division equity.

<TABLE>
4. Inventories:
-----------
<CAPTION>

September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Raw Materials.......... $ 192,000 $107,000
Work-in-process........ 1,497,000 654,000
---------- --------
$1,689,000 $761,000
========== ========
</TABLE>

5. Allocation by the General Division to GTR for TR Designated Shares:
------------------------------------------------------------------

Pursuant to its option to allocate to up to $30 million to GTR at $10
per TR Designated Share, the General Division allocated $10 million of cash
to GTR, which was recorded as an increase to Division equity, in June 1996
and 1,000,000 TR Designated Shares were reserved for distribution at the
Company's discretion for the benefit of the General Division.

6. Short-Term Borrowing Arrangements:
---------------------------------

In November 1996, the Company intends to re-finance its $215 million
line of credit with a $225 million revolving credit facility with a
syndicate of banks. The facility provides for interest at the prime rate or
LIBOR plus a margin. Prior to June 28, 1996 the line of credit was $15
million. The existing and the planned facilities may be used by either the
General or Tissue Repair Division. As of September 30, 1996 GTR borrowings
under the credit facility were $15.0 million. The funds were used as
temporary financing for the acquisition of certain land and buildings in
Framingham, Massachusetts that were purchased for $6.8 million in cash in
January 1996 as part of the planned expansion of manufacturing capacity for
the CARTICEL[Service mark] Service programs.

GTR makes periodic borrowings under the line of credit for working
capital purposes and repays the borrowing as funds permit within the
subsequent quarter. GTR line of credit borrowings were $8.0 million at
March 31, 1996, $15.0 at June 30, 1996 and $15.0 at September 30, 1996.

-35-

<PAGE> 35

GENZYME TISSUE REPAIR DIVISION
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS

7. Transfer of Real Estate to the General Division:
--------------------------------------------

In August 1996, GTR transferred certain real estate in Framingham,
Massachusetts to the General Division for fair market value which
approximated cost of the property.

8. Subsequent Event:
----------------

GTR's Joint Venture with Diacrin, Inc. ("Diacrin"):
---------------------------------------------------

On October 1, 1996, Diacrin/Genzyme LLC was established as a joint
venture between GTR and Diacrin to develop and commercialize products
and processes for use in the treatment of Parkinson's Disease and
Huntington's Disease in humans using porcine fetal cells.

-36-

<PAGE> 36

GENZYME TISSUE REPAIR DIVISION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996

The following discussion is a summary of the key factors management considers
necessary in reviewing the Company's results of operations, liquidity and
capital resources. Forward-looking statements contained in the following
discussion are expectations only and there can be no assurance that actual
results will not materially differ from these expectations. This discussion
should be read in conjunction with the financial statements and related notes of
GTR. See also "Factors Affecting Future Operating Results" under Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Genzyme's Annual Report as amended on Form 10-K/A for the year
ended December 31, 1995.

RESULTS OF OPERATIONS

REVENUE
Service revenues for the three months ended September 30, 1996 increased 30% to
$1.9 million compared to $1.4 million for the same period ended in 1995. Service
revenues for the nine months ended September 30, 1996 increased 41% to $5.2
million compared to $3.7 million for the same period ended in 1995. Service
revenue for the three months ended September 30, 1996 included $1.1 million
sales of Epicel [Trademark] skin grafts as compared to $1.3 million in the
corresponding period in 1995, and $0.7 million sales of CARTICEL [Service mark]
cartilage repair service as compared to $0.1 million sales in the corresponding
period in 1995. CARTICEL [Service mark] service commenced in the first quarter
of 1995. Epicel service was $3.2 million in the first nine months of 1996,
compared to $3.6 million in the same period of 1995.

MARGINS AND OPERATING EXPENSES
Gross margins for the three and nine months ended September 30, 1996 declined
$0.7 million and $3.9 million, respectively, as compared to the corresponding
periods in 1995 due to increased spending for the expansion of manufacturing
capacity.

Selling, general and administrative expenses for the three months ended
September 30, 1996 were $6.6 million, an increase of $3.5 million compared to
the same period ended in 1995. Selling, general and administrative expenses for
the nine months ended September 30, 1996 were $19.6 million, an increase of
$12.2 million compared to the same period ended in 1995. Increases in selling,
general and administrative costs during the quarters and nine months ended
September 30, 1996 and 1995 are due to increased surgeon training costs,
additional staffing related to the CARTICEL[Service mark] Service, and increased
CARTICEL[Service mark] marketing costs.

Research and development expenses were $2.9 million in the third quarter of
1996, a $0.4 million increase compared to the same period ended in 1995.
Research and development expenses were $7.6 million in the first nine months of
1996, a $0.9 million decrease compared to the same period ended in 1995.
Research and development expenses are generally decreasing as the
CARTICEL[Service mark] Service gains market acceptance.

LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, GTR had cash, cash equivalents and investments in
marketable securities totaling $26.7 million, a decrease of $20.9 million from
December 31, 1995. The decrease was due to GTR's net loss from operations,
working capital requirements and capital spending, net of cash from the issuance
of common stock through exercises of stock options and warrants of $1.5 million.
As of September 30, 1996 and December 31, 1995, GTR had accounts receivable of
$1.8 million. Inventories increased $0.9 million, to $1.7 million as of
September 30, 1996 as compared to December 31, 1995 due primarily to an increase
in the number of in-process biopsies.

In August 1996, the Board of Directors of Genzyme Corporation approved the
transfer of certain of GTR's Framingham real estate (land, buildings and
leasehold improvements) to the General Division in exchange for cash in the
amount of $5.2 million, which approximated the fair market value of the
property, which approximated the property's cost.

-37-

<PAGE> 37
In November 1996, the Company intends to re-finance its $215 million line of
credit with a $225 million revolving credit facility with a syndicate of banks.
The facility provides for interest at the prime rate or LIBOR plus a margin.
Prior to June 28, 1996 the line of credit was $15 million. The existing and the
planned facilities may be used by either the General or Tissue Repair Division.
As of September 30, 1996 GTR borrowings under the credit facility were $15.0
million. The funds were used as temporary financing for the acquisition of
certain land and buildings in Framingham, Massachusetts that were purchased for
$6.8 million in cash in January 1996 as part of the planned expansion of
manufacturing capacity for the CARTICEL[Service mark] Service programs.

GTR makes periodic borrowings under the line of credit for working capital
purposes and repays the borrowing as funds permit within the subsequent
quarter. GTR line of credit borrowings were $8.0 million at March 31, 1996,
$15.0 million at June 30, 1996 and $15.0 at September 30, 1996.

GTR expects that its available cash and investments along with credit available
from Genzyme will be sufficient to finance its planned operations and capital
requirements for at least one year. Significant additional funds will be
required to complete the commercialization and clinical testing of GTR's
products and services. There can be no assurance that such funds will be
available on attractive terms, if at all.

SUBSEQUENT EVENTS

On October 1, 1996, Diacrin/Genzyme LLC was established as a joint venture
between Genzyme and Diacrin to develop and commercialize products and processes
for use in the treatment of Parkinson's Disease or Huntington's Disease in
humans using porcine fetal cells. Under the terms of the joint venture
agreement, GTR will provide 80% of the next $50 million in funding for products
to be developed by the joint venture. After that, all costs will be shared
equally between GTR and Diacrin. Profits from the joint venture will be shared
equally by the two parties.

In order to provide initial funding for the joint venture, the Genzyme Board of
Directors has approved the allocation of up to $20 million in cash from the
General Division to GTR in exchange for an increase in the number of TR
Designated Shares at a rate determined by dividing the amount of cash so
allocated by the average of the daily closing prices of one share of TR Stock
for the 20 consecutive trading days commencing on the 30th trading day prior to
the date of allocation. The Company intends to make monthly allocations of cash
from the General Division to GTR under the $20 million interdivisional equity
line of credit in an amount corresponding to the funding commitment of GTR
under the joint venture agreement for such month.

-38-

<PAGE> 38

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 1996

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for Genzyme, the General Division and the
GTR on the pages listed in the Index on Page 2 of this report.

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

<TABLE>

The Company held a special meeting of stockholders on July 24, 1996. The
following represents the results of the voting on a proposal submitted to a
vote of stockholders at such meeting to approve an amendment to the Company's
Articles of Organization to increase the number of authorized shares of General
Division Stock from 100,000,000 to 200,000,000.

<CAPTION>
Number of Number of Number of Votes Number of
Votes for Votes Against Abstaining Broker Non-Votes
---------- ------------- ---------- ----------------
<S> <C> <C> <C>
27,138,271 1,048,162 102,932 0

</TABLE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

2.1 Merger agreement dated as of May 24, 1996, among Genzyme
Corporation, DSP Acquistion Corporation and Deknatel Snowden
Pencer, Inc. Filed as Exhibit 2.1 to Genzyme's Registration
Statement on Form S-3 (File No. 333-05979), dated June 24,
1996 and incorporated herein by reference. Pursuant to Items
602 (b) (2) of Resgulation S-K, the schedules to the
Amendment and Plan of Merger are omitted. A list of such
schedules appears in the table of contents to the Merger
Agreement. The Registrant hereby undertakes to furnish
supplementally a copy of any omitted schedule to the
Commission upon request.

2.2 Purchase Agreement dated as of September 20, 1996 by and
among Genzyme Corporation, Neozyme II Acquisition Corp. and
Neozyme II Corporation. Filed as Exhibit A to Amendment
No. 2 to the Schedule 13D filed by Genzyme Corporation

-39-

<PAGE> 39

(Commission File No. 0-14680) on September 24, 1996 and
incorporated herein by reference.

4.1 Credit Agreement dated as of June 28, 1995 between Genzyme
Corporation and Fleet National Bank. Filed as Exhibit 4.1
to Genzyme's Corporation Current Report on Form 8-K dated
July 1, 1996 (Commission File No. 0-14680) and incorporated
herein by reference.

4.2 Revolving Credit Note in the principal amount of $215
million dated as of June 28, 1995 payable to Fleet National
Bank. Filed as Exhibit 4.2 to Genzyme Corporation's Current
Report on Form 8-K dated July 1, 1996 (Commission File No.
0-14680) and incorporated herein by reference.

10.1 Collaboration Agreement dated as of October 1, 1996 among
Diacrin, Inc., Genzyme Corporation and Diacrin/Genzyme
LLC. Filed as Exhibit 10.18 to Diacrin, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (Commission File No. 0-20139) and
incorporated herein by reference. Confidential treated has
been requested for deleted portions of this exhibit.

10.2 Operating Agreement dated as of October 1, 1996 between
Genzyme Corporation and Diacrin, Inc. Filed as Exhibit
10.19 to Diacrin, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 (Commission File
No. 0-20139) and incorporated herein by reference.
Confidential treated has been requested for deleted
portions of this exhibit.

11 Computation of weighted average shares used in computing
earnings per share amounts. Filed herewith.

27 Financial Data Schedules for Genzyme, General Division and
Genzyme Tissue Repair Division (for EDGAR filing purposes
only). Filed herewith.

(b) Reports on Form 8-K

The Company filed a Current Report on Form 8-K dated July 1, 1996
reporting under Item 2 the acquisition of Deknatel, Snowden and
Pencer, Inc. ("DSP"). The report also incorporated by reference
under Item 7 historical financial statements of DSP as of
September 30, 1995 and 1994 and March 24, 1996 (unaudited) and
for the years ended September 30, 1994 and 1995 and the six
months ended March 26, 1995 and March 24, 1996 (unaudited) and
pro forma financial statements of Genzyme Corporation and Genzyme
General Division as of March 31, 1996 and for the three months
ended March 31, 1996 and for the year ended December 31, 1995
presented assuming that the acquisition of DSP occurred as of
January 1, 1995.

-40-

<PAGE> 40

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 1996

SIGNATURES
----------

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

GENZYME CORPORATION

DATE: November 14, 1996 By: /s/David J. McLachlan
----------------------
David J. McLachlan
Duly Authorized Officer and
Chief Financial Officer

-41-

<PAGE> 41

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 1995
<TABLE>

EXHIBIT INDEX
<CAPTION>

Exhibit
No. Description Page No.
- ------- ----------- --------
<S> <C> <C>
2.1 Merger agreement dated as of May 24, 1996, among Genzyme
Corporation, DSP Acquistion Corporation and Deknatel Snowde
Pencer, Inc. Filed as Exhibit 2.1 to Genzyme's Registration
Statement on Form S-3 (File No. 333-05979), dated June 24,
1996 and incorporated herein by reference. Pursuant to Items
602 (b) (2) of Resgulation S-K, the schedules to the
Amendment and Plan of Merger are omitted. A list of such
schedules appears in the table of contents to the Merger
Agreement. The Registrant hereby undertakes to furnish
supplementally a copy of any omitted schedule to the
Commission upon request.

2.2 Purchase Agreement dated as of September 20, 1996 by and
among Genzyme Corporation, Neozyme II Acquisition Corp. and
Neozyme II Corporation. Filed as Exhibit A to Amendment No. 2
to the Schedule 13D filed by Genzyme Corporation (Commission
File No. 0-14680) on September 24, 1996 and incorporated herein
by reference.

10.1 Collaboration Agreement dated as of October 1, 1996 by and among
Diacrin, Inc., Genzyme Corporation and Diacrin/Genzyme LLC.
Filed as Exhibit 10.18 to Diacrin, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996
(Commission File No. 0-20139) and incorporated herein by
reference. Confidential treated has been requested for
deleted portions of this exhibit.

10.2 Operating Agreement dated as of October 1, 1996 between Genzyme
Corporation and Diacrin, Inc. Filed as Exhibit 10.19 to Diacrin,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 (Commission File No. 0-20139) and incorporated
herein by reference. Confidential treated has been requested for
deleted portions of this exhibit.

11 Computation of weighted average shares used in computing
earnings per share amounts. Filed herewith.

27 Financial Data Schedules for Genzyme, General Division and
Genzyme Tissue Repair Division (for EDGAR filing purposes
only). Filed herewith.

</TABLE>

-42-

<PAGE> 1

Exhibit 11
<TABLE>

GENZYME CORPORPATION AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF WEIGHTED AVERAGE SHARES
USED IN COMPUTING INCOME PER SHARE AMOUNTS
(UNAUDITED, IN THOUSANDS)

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
FULLY FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED

<S> <C> <C> <C> <C> <C> <C> <C> <C>
APPLICABLE TO GENERAL DIVISION STOCK
Weighted average common shares 69,440 69,440 54,468 55,212 67,555 67,555 53,586 55,142
Exercise of common stock warrants, treasury
stock method n/a n/a 2,595 2,907 2,291 2,431 1,607 1,741
Exercise of common stock options, treasury
stock method n/a n/a 3,495 3,890 3,178 3,270 2,439 2,676
Conversion of 6 3/4% Convertible Subordinated
Notes - - - 3,783 - 890 0 3,783
------ ------ ------ ------ ------ ------ ------ ------

Weighted average shares outstanding 69,440 69,440 60,558 65,792 73,024 74,146 57,632 63,342
====== ====== ====== ====== ====== ====== ====== ======

APPLICABLE TO TR STOCK
Weighted average common shares 12,711 n/a 9,171 n/a 12,511 n/a 8,871 n/a
Exercise of common stock warrants, treasury
stock method n/a n/a n/a n/a n/a n/a n/a n/a
Exercise of common stock options, treasury
stock method n/a n/a n/a n/a n/a n/a n/a n/a
Conversion of 6 3/4% Convertible Subordinated
Notes n/a n/a n/a n/a n/a n/a n/a n/a
------ ------ ------ ------ ------ ------ ------ ------

Weighted average shares outstanding 12,711 n/a 9,171 n/a 12,511 n/a 8,871 n/a
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

n/a - not applicable, anti-dilutive due to net loss for the period.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTIANS SUMMARY FINANCIAL INFORAMTION EXTRACTED FROM (A) THE
CONSOLIDATED FINANCIAL STATEMENTS OF GENZYME CORPORATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 141,522
<SECURITIES> 82,941
<RECEIVABLES> 0
<ALLOWANCES> 9,662
<INVENTORY> 112,644
<CURRENT-ASSETS> 477,956
<PP&E> 431,482
<DEPRECIATION> 47,394
<TOTAL-ASSETS> 1,229,237
<CURRENT-LIABILITIES> 136,180
<BONDS> 225,179
<COMMON> 476
0
0
<OTHER-SE> 867,402
<TOTAL-LIABILITY-AND-EQUITY> 1,229,237
<SALES> 301,575
<TOTAL-REVENUES> 372,015
<CGS> 110,399
<TOTAL-COSTS> 150,992
<OTHER-EXPENSES> 207,360
<LOSS-PROVISION> 4,012
<INTEREST-EXPENSE> 3,582
<INCOME-PRETAX> 22,944
<INCOME-TAX> 18,708
<INCOME-CONTINUING> 4,236
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,236
<EPS-PRIMARY> 0.46<F1>
<EPS-DILUTED> 0.45<F1>
<FN>
<F1>THE EPS-PRIMARY AND EPS-FULLY DILUTED FIGURES REPORTED ON THIS SCHEDULE RELATE
ONLY TO GENZYME CORPORATION'S GENERAL DIVISION. GENZYME COPROATION REPORTS
EARNINGS BASED ON TWO TYPES OF TRACKING STOCK - GENERAL DIVISION COMMON STOCK
AND TISSUE REPAIR DIVISION COMMON STOCK, THEREFORE CONSOLIDATED EARNINGS PER
SHARE IS NOT APPLICABLE. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, GENZYME
GENERAL DIVISION HAD NET INCOME OF $33,410K OR EPS-PRIMARY OF $0.46 AND
EPS-DILUTED OF $0.45. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 THE TISSUE
REPAIR DIVISION HAD A NET LOSS OF $29,174K OR EPS-PRIMARY OF $(2.33).
</FN>

</TABLE>