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FILED PURSUANT TO RULE 424b(3)
FILE NO. 333-68627
[GENZYME CORP. LOGO]
18,468 SHARES OF GENZYME GENERAL DIVISION COMMON STOCK
1,800 SHARES OF GENZYME TISSUE REPAIR DIVISION COMMON STOCK
2,018 SHARES OF GENZYME MOLECULAR ONCOLOGY DIVISION COMMON STOCK
Genzyme General Division Common Stock, Genzyme Tissue Repair Common Stock and
Genzyme Molecular Oncology Division Common Stock trade on the Nasdaq National
Market under the symbols "GENZ," "GENZL" and "GZMO." On December 8, the last
sale price reported by the Nasdaq National Market for the Genzyme General
Division Common Stock was $47.3125, the Genzyme Tissue Repair Division Common
Stock was $2.375, and the Genzyme Molecular Oncology Division Common Stock was
$2.75.
We formed Neozyme II in March 1992. In connection with raising money for Neozyme
II's research activities, we issued callable warrants to purchase shares of
Genzyme common stock. As of November 17, 1998, 9,234 of these warrants remain
outstanding. The warrantholders can exercise these outstanding warrants to
purchase a total of 18,468 shares of Genzyme General Division Common Stock,
1,800 shares of Genzyme Tissue Repair Division Common Stock and 2,018 shares of
Genzyme Molecular Oncology Division Common Stock. This prospectus relates to
sales of those shares by Genzyme to exercising warrantholders.
The warrants are exercisable until December 31, 1998. The exercise price is
$44.20 for two shares of Genzyme General Division Common Stock, 0.195 share of
Genzyme Tissue Repair Division Common Stock and 0.2161 share of Genzyme
Molecular Oncology Division Common Stock.
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INVESTING IN SHARES OF GENZYME GENERAL DIVISION COMMON STOCK, GENZYME TISSUE
REPAIR DIVISION COMMON STOCK AND GENZYME MOLECULAR ONCOLOGY DIVISION COMMON
STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY READ AND CONSIDER THE
"RISK FACTORS" BEGINNING ON PAGE 5.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------------------
You should rely only on the information included in this prospectus. We have not
authorized anyone to provide you with different information. You should not
assume that the information in this prospectus is accurate as of any date other
than date below.
-------------------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 11, 1998.
GENZYME CORPORATION - ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139 -
(617) 252-7500
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TABLE OF CONTENTS
<TABLE>
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PAGE PAGE
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<S> <C> <C> <C>
Genzyme Corporation............. 3 Plan of Distribution............ 23
Where You Can Find More Transferability................. 24
Information................... 3 Legal Matters................... 24
Risk Factors.................... 5 Experts......................... 24
Use of Proceeds................. 23
</TABLE>
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GENZYME CORPORATION
Genzyme is a biotechnology company that develops innovative products and
services for significant unmet medical needs. We have three divisions: (1)
Genzyme General Division, which develops and markets therapeutic and surgical
products and diagnostic products and services; (2) Genzyme Tissue Repair
Division, which develops and markets biological products for the treatment of
cartilage damage, severe burns and neurodegenerative diseases; and (3) Genzyme
Molecular Oncology Division, which develops gene-based approaches to cancer
therapy and diagnosis through genomics, gene therapy, a small molecule drug
discovery program and genetic diagnostics. Genzyme has three outstanding series
of common stock, each of which is intended to reflect the value and track the
performance of one of the three divisions: Genzyme General Division Common
Stock, Genzyme Tissue Repair Division Common Stock and Genzyme Molecular
Oncology Division Common Stock. Genzyme General Division Common Stock, Genzyme
Tissue Repair Division Common Stock and Genzyme Molecular Oncology Division
Common Stock are listed on the Nasdaq National Market under the symbols "GENZ,"
"GENZL" and "GZMO."
For purposes of financial presentation, we allocate programs, products, assets
and liabilities among our divisions; however, Genzyme, the corporation,
continues to own all of the assets and is responsible for all of the liabilities
allocated to each of the divisions.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available on the SEC's
Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information by referring to
those documents. The information incorporated by reference is a part of this
prospectus and will automatically be updated and superseded by the information
we later file. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 prior to the sale of all the shares covered
by this prospectus:
1. Annual Report on Form 10-K for the year ended December 31, 1997, as
amended by amendments on Form 10-K/A filed with the SEC on April 27,
1998 and June 30, 1998;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998;
3. Current Reports on Form 8-K dated January 6, 1998, May 19, 1998 and
October 15, 1998;
4. The description of Genzyme General Division Common Stock, Genzyme Tissue
Repair Division Common Stock, Genzyme Molecular Oncology Division Common
Stock, Genzyme General Division Common Stock Purchase Rights, Genzyme
Tissue Repair Division Common Stock Purchase Rights and Genzyme
Molecular Oncology Division Common Stock Purchase Rights contained in
our Registration Statement on Form 8-A filed with the SEC on June 18,
1997;
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5. The audited financial statements of PharmaGenics, Inc. included in
Genzyme's Current Report on Form 8-K filed with the SEC on June 30,
1997; and
6. The unaudited combined pro forma financial statements of Genzyme
Molecular Oncology Division included on pages F-21 through F-24 in
Genzyme's Registration Statement on Form S-3 filed with the SEC on April
28, 1998.
You may request a copy of these filings and future filings, at no cost, by
writing or telephoning us at the following address or number:
Shareholder Services
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
(617) 252-7526
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RISK FACTORS
Ownership of shares of Genzyme common stock involves financial risk. You should
carefully consider the following risk factors as well as the other information
in this prospectus.
It is especially important to keep these risk factors in mind when you read
forward-looking statements. These are statements that relate to future periods
and include statements about our
- product development;
- receipt of regulatory approvals;
- plans for sales and marketing;
- projected cash needs;
- financial results; and
- dividend policy.
Generally, the words "anticipates," "expects," "believes," "intends" and similar
expressions identify these forward-looking statements. Forward-looking
statements involve risks and uncertainties, and our actual results could differ
significantly from the results discussed in the forward-looking statements.
RISKS RELATED TO THE GENERAL DIVISION
You should carefully consider the following factors affecting the business of
the General Division.
DEPENDENCE ON SALES OF PRODUCTS THAT TREAT GAUCHER DISEASE
The General Division generates a majority of its product revenues from sales of
enzyme-replacement products for patients with Gaucher disease. We entered this
market in 1991 with Ceredase(R) enzyme. Because production of Ceredase(R) enzyme
is subject to supply constraints, we developed Cerezyme(R) enzyme, a recombinant
form of the enzyme, which we introduced in 1994. We ceased producing Ceredase(R)
enzyme during 1998, after substantially all the patients previously using
Ceredase(R) enzyme had converted to Cerezyme(R) enzyme.
SALES OF CEREZYME(R) ENZYME AND CEREDASE(R) ENZYME
<TABLE>
<CAPTION>
PERCENTAGE OF
SALES OF GENZYME
CEREZYME(R) ENZYME GENERAL
AND DIVISION'S
PERIOD CEREDASE(R) ENZYME PRODUCT REVENUES
------ ------------------- ----------------
<S> <C> <C>
Year ended
December 31, 1997............. $332.7 million 63%
Nine months ended
September 30, 1998............ $297.6 million 67%
</TABLE>
Because our business is highly dependent on Cerezyme(R) enzyme, a reduction in
revenue from sales of this product would adversely affect our results of
operations. Revenues from Cerezyme(R) enzyme would be negatively impacted if
competitors developed alternative treatments for Gaucher disease and these
alternative products gained commercial acceptance. Certain companies have
initiated efforts to develop competitive products and other companies may do so
in the future.
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NO ASSURANCE OF COMMERCIAL SUCCESS OF THE SEPRA PRODUCTS
Our Sepra products, which are intended to inhibit the formation of adhesions
following surgery, may not be commercially successful. In August 1996, the FDA
approved marketing of Seprafilm(R) bioresorbable membrane. Shortly thereafter we
commenced commercial sales of Seprafilm(R) bioresorbable membrane in the U.S. on
behalf of Genzyme Ventures II. Genzyme Ventures II is a joint venture between
Genzyme and Genzyme Development Partners, L.P. The commercial success of
Seprafilm(R) bioresorbable membrane and other Sepra products will depend on many
factors, including:
- regulation by the FDA and other government authorities;
- market acceptance by surgeons and hospital administrators;
- the effectiveness of Genzyme General Division's sales force;
- the effectiveness of Genzyme General Division's production and marketing
capabilities;
- the success of competitive products; and
- the availability of third party reimbursement.
In the third quarter of 1998, the General Division recorded a $10.4 million
charge in order to reflect revised estimates of the net realizable value of the
Sepra products' inventory. In addition, the General Division wrote-off $1.7
million of costs related to equipment used in the production of the Sepra
products.
In January 1998, we announced that we had discontinued development of
Sepracoat(TM) coating solution for the U.S. market after an FDA advisory
committee recommended against approval of the product. We may stop developing
one or more of the other Sepra products if there is insufficient demand or if we
encounter regulatory or development problems.
OPTION TO PURCHASE LIMITED PARTNERSHIP INTERESTS COULD DIMINISH CASH RESOURCES
AND DILUTE RIGHTS OF GENZYME GENERAL DIVISION STOCKHOLDERS
We organized Genzyme Development Partners, a special purpose research and
development entity, in 1989 and transferred to it certain technology and
commercial rights to the Sepra products. We have an option to purchase the
limited partnership interests in the partnership under certain circumstances. If
we do not exercise this option, we will have limited rights to revenues
generated by Genzyme Development Partners. If we exercise this option, we will
have to make substantial cash payments or issue shares of Genzyme General
Division Common Stock, or both. If we make cash payments, our cash resources
would diminish. If we make payments in Genzyme General Division Common Stock,
the rights of holders of Genzyme General Division Common Stock could be diluted
and the market price of that stock may fall.
DEPENDENCE ON STRATEGIC ALLIANCES IN DEVELOPING AND COMMERCIALIZING OUR PRODUCTS
Several of the General Division's strategic initiatives involve alliances with
other biotechnology companies. These include:
- a joint venture with GelTex Pharmaceuticals, Inc. for the
commercialization of RenaGel(R) non-absorbed phosphate binder;
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- an agreement with Knoll Pharmaceutical Company for the marketing of our
Thryogen(R) recombinant thyroid stimulating hormone in the U.S. following
regulatory approval;
- an agreement with Biogen, Inc. for the marketing of AVONEX(R) (Interferon
beta1a), Biogen's treatment for relapsing forms of multiple sclerosis, in
Japan following regulatory approval;
- a joint venture with BioMarin Pharmaceuticals, Inc. for the development
and commercialization of [alpha]-L-iduronidase, BioMarin's product
candidate for the treatment of the lysosomal storage disorder known as
mucopolysaccharidosis I;
- a joint venture with Genzyme Transgenics Corporation for development and
commercialization of transgenic antithrombin III, a human protein that
Genzyme Transgenics produces in the milk of genetically modified animals;
and
- a joint venture with Pharming Group N.V. for the development and
commercialization of human alpha-glucosidase for the treatment of Pompe
disease.
We plan to enter into additional alliances in the future. The success of these
arrangements are largely dependent on the efforts and skill of our partners. We
can not guarantee that any of these alliances will result in the successful
development and/or commercialization of a product.
RISKS RELATED TO GENZYME TISSUE REPAIR DIVISION
You should carefully consider the following factors affecting the business of
the Tissue Repair Division.
UNCERTAINTY OF COMMERCIAL SUCCESS OF THE CARTICEL(TM) SERVICE
The Carticel(TM) service is used to treat knee cartilage damage. This service
involves a proprietary process for growing autologous (a patient's own)
cartilage cells to replace those that are damaged or lost. Revenue from this
service accounted for approximately 62% of the Tissue Repair Division's revenue
during the first nine months of 1998 and 61% of the division's 1997 revenue. The
commercial success of the Carticel(TM) service will depend on many factors
including:
- Positive results from post-marketing studies
As a condition to the FDA's approval of the Carticel(TM) service, we
agreed to conduct two post-marketing studies to confirm its
effectiveness. The first study will compare the long-term clinical
effects of treatment with the Carticel(TM) service to certain other
available treatments. The second study will compare treatment with the
Carticel(TM) service against a placebo implant. If these studies
demonstrate that treatment with the Carticel(TM) service is not superior
to the alternatives studied, the FDA may suspend or withdraw its approval
of the Carticel(TM) service. If we cannot market the Carticel(TM) service
in the U.S., the results of operations of the Tissue Repair Division will
be adversely affected.
- FDA approval of surgical instrumentation
We have developed surgical instruments to improve the Carticel(TM)
treatment procedure. We plan to file for marketing approval with the FDA
and anticipate marketing the instruments in mid-1999. We cannot guarantee
that the FDA will approve these instruments or that the instruments will
improve the Carticel(TM) treatment procedure or gain commercial
acceptance.
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- The availability of third party reimbursement
Since the FDA approved the Carticel(TM) service, we have seen a
substantial increase in the number of third party payers who cover the
service. A large number of third party payers, however, do not cover the
service. We cannot guarantee that any third party payers will continue to
cover the service or that additional third party payers will begin to
provide reimbursement.
Although FDA approval is a crucial factor in insurance plans deciding to
cover new treatments, a number of major insurance plans also base such
decisions on their own or third party evaluations of such treatments. One
independent association that conducts such evaluations is the Blue Cross
Blue Shield Association. The Blue Cross Blue Shield Association has
determined that its Technology Assessment Committee does not believe that
the Carticel(TM) service meets all of its published criteria for new
treatments. We believe that the Carticel(TM) service does in fact meet
all of such criteria and are discussing the evaluation with the Blue
Cross Blue Shield Association. While individual Blue Cross Blue Shield
plans representing more than 50% of Blue Cross Blue Shield policyholders
have provided policy coverage for the Carticel(TM) service without a
favorable evaluation by the Blue Cross Blue Shield Association, many Blue
Cross Blue Shield plans have delayed approving the Carticel(TM) service
for coverage under their policies as a direct result of this unfavorable
ruling. Since these remaining plans represent a significant percentage of
insured lives in the United States, this ruling has delayed our access to
a substantial portion of the market for the Carticel(TM) service.
- The success of competitive products
The process we use to grow a patient's cartilage cells is not patentable,
and we do not yet have significant patent protection covering the other
processes used in providing the Carticel(TM) service. We consequently
cannot prevent a competitor from developing the ability to grow cartilage
cells and from offering a product or service that is similar or superior
to the Carticel(TM) service. If a competitor were to develop such ability
and obtain FDA approval for a competitive product or service, the Tissue
Repair Division's results of operations could be adversely affected. We
are aware of at least two other companies that are growing autologous
cartilage cells for cartilage repair in the European market.
Additionally, several pharmaceutical and biotechnology companies are
developing alternative treatments for knee cartilage damage. One or more
of these companies may develop products or services superior to the
Carticel(TM) service.
- Market acceptance by orthopedic surgeons
We are marketing the Carticel(TM) service to orthopedic surgeons. We
cannot guarantee that we will train enough surgeons who incorporate the
service into their practice to make the service commercially successful.
SIGNIFICANT TISSUE REPAIR DIVISION OPERATING LOSSES AND CASH REQUIREMENTS MAY
REDUCE FLEXIBILITY IN OPERATIONS
We expect the Tissue Repair Division to have significant operating losses at
least through 1999 as the division continues to introduce the Carticel(TM)
service and conduct research and development and clinical programs. We cannot
guarantee that the Tissue Repair Division's operations will ever be profitable.
We anticipate that the Tissue Repair Division's current cash resources, together
with amounts available under a line of credit from the General Division and cash
generated from sales of the Carticel(TM) service and Epicel(TM) skin grafts, a
skin replacement product for patients with severe burns, will be sufficient to
fund its operations until 2000. However, the
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Tissue Repair Division may need more cash than currently planned because of
numerous factors, including:
- fluctuations in its revenues;
- the availability of third party reimbursement;
- the results of research and development and clinical testing;
- the development of competitive products and services;
- effectiveness of cost-containment measures;
- regulation by the FDA and other government authorities;
- commitments to fund joint ventures or strategic collaborations; and
- acquisition activity.
The Tissue Repair Division may also require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that the division
will be able to obtain any additional financing or find it on favorable terms.
If the Tissue Repair Division has insufficient funds or is unable to raise
additional funds, it may have to delay, reduce or eliminate certain of its
programs. The Tissue Repair Division also may have to give rights to third
parties to commercialize technologies or products that it would otherwise
commercialize itself.
FLUCTUATION IN QUARTERLY RESULTS MAY AFFECT OPERATIONS
We expect that revenue from the sale of the Carticel(TM) service will fluctuate
based on our success penetrating the market, the availability of competitive
procedures and the availability of third party reimbursement. We cannot predict
the timing or magnitude of such fluctuations. Furthermore, we expect that
revenue from the Carticel(TM) service will be lower in the summer months because
fewer operations are typically performed during those months.
We also expect that revenues from the sale of Epicel(TM) skin grafts will
continue to fluctuate from quarter to quarter. This fluctuation is a result of
several unpredictable factors, including the number and survival rate of burn
patients who are treated with the Epicel(TM) skin grafts.
Since the Tissue Repair Division must maintain extensive tissue culture
facilities and a trained staff for both the Carticel(TM) service and
Epicel(TM)skin grafts, a significant portion of its costs are fixed and,
therefore, fluctuations in demand can have an adverse effect on its results of
operations.
UNCERTAINTY REGARDING SUCCESS OF THE NEUROCELL(TM) PRODUCTS
We have formed a joint venture with Diacrin, Inc. to develop and commercialize
NeuroCell(TM)-PD for Parkinson's disease and NeuroCell(TM)-HD for Huntington's
disease and have allocated these programs to the Tissue Repair Division. Both
Parkinson's disease and Huntington's disease result from damage to brain cells.
NeuroCell(TM)-PD and NeuroCell(TM)-HD rely upon transplantation of cells from
fetal pig brains to regenerate damaged brain tissue. The ultimate success of the
NeuroCell(TM) products is subject to several risks, including:
- Risks Related to Disease Transmission
Human therapeutic products based on the transplantation of cells obtained
from animals -- "xenotransplantation" -- represent a novel therapeutic
approach. There have not been extensive clinical tests of products based
on xenotransplantation, and
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there is a risk that viruses or other animal pathogens will be
unintentionally transmitted to human patients who are treated with these
products.
The FDA has issued draft regulatory guidelines to reduce the risk that
infectious agents will contaminate xenotransplanted products. Although we
believe that the processes the joint venture uses to produce the
NeuroCell(TM) products would comply with the guidelines as presently
drafted, the FDA may substantially revise these guidelines before issuing
them in final form. We cannot guarantee that the FDA will in fact issue
final guidelines or that the processes the joint venture uses to produce
the NeuroCell(TM) products will comply with any guidelines that the FDA
does issue.
No therapeutic product based on xenotransplantation has been approved for
marketing by the FDA, and we cannot guarantee that the FDA or regulatory
authorities in other countries will approve any products developed by the
joint venture. We cannot guarantee that the medical community or third
party payers will accept products based on xenotransplantation, including
those developed by the joint venture.
- Safety and Effectiveness Not Yet Established
Because of favorable NeuroCell(TM)-PD Phase I clinical trial results, the
FDA approved the protocol for an advanced trial for NeuroCell(TM)-PD. This
clinical trial is a 36-patient, 18-month study designed to show the
product's safety and effectiveness. The FDA is also reviewing the
protocols for two additional advanced trials for NeuroCell(TM)-PD which
the joint venture expects to begin by the end of 1998. We anticipate that
these three clinical trials will form the basis for seeking FDA marketing
approval of NeuroCell(TM)-PD. We cannot guarantee that the FDA will
approve the protocols for these two additional trials or that they will do
so in a timely fashion. We also cannot guarantee that these trials will
produce positive results. Negative results from any of these clinical
trials may jeopardize the joint venture's ability to get FDA approval for
NeuroCell(TM)-PD. If the joint venture cannot market NeuroCell(TM)-PD in
the U.S., the value of the Tissue Repair Division's interest in the joint
venture will be significantly reduced.
In Phase I clinical trials involving NeuroCell(TM)-HD, patients did not
show statistically significant clinical improvement 12 months following
surgery. We cannot guarantee that future clinical trials will demonstrate
that NeuroCell(TM)-HD is effective in treating Huntington's disease.
The joint venture's success also depends upon the successful development
of xenotransplantation technology. This technology currently has limited
clinical applications and we cannot guarantee that it will result in the
development of any therapeutic products. If the xenotransplantation
technology does not result in the development of therapeutic products, the
joint venture may have to dramatically change the scope and direction of
its product development activities.
RELIANCE ON AGREEMENTS WITH KEY COLLABORATORS
The Carticel(TM) service was developed based on the work of a group of Swedish
physicians. The two leaders of that group have signed consulting agreements with
us and are advising us on the commercialization and further development the
Carticel(TM) service. Under the terms of these consulting agreements, each
physician:
- cannot perform consulting services for others in the field of cartilage
and bone repair without our consent;
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- cannot conduct any business activity which is competitive with products
or services of the Tissue Repair Division during the term of the
agreement (currently through 1998) and for a period of one year after
termination of the agreement;
- cannot disclose proprietary and confidential information of the Tissue
Repair Division; and
- assigns to the Tissue Repair Division all rights to inventions resulting
from the work each physician performs as a consultant, with royalties
payable to the inventing physician.
We cannot guarantee that the two physicians will honor their obligations under
the consulting agreements or that we will be able to renew such agreements
beyond 1998. In addition, individuals who are familiar with the know-how
underlying the Carticel(TM) service through their association with these
physicians may disclose such information to our competitors. Either event could
have an adverse effect on the Tissue Repair Division's results of operations.
The Tissue Repair Division has entered into a sponsored research agreement with
the University of Gotenburg in Sweden and certain physicians, including the two
physicians discussed above. The purpose of the agreement is to conduct
additional research on the Carticel(TM) service. The agreement prohibits each
member of the research team from disclosing any information relating to us or
our business that they acquire in connection with their work under the
agreement. The agreement also states that all inventions that the members
conceive or reduce to practice during the course of the research program will be
our property, with royalties payable to the inventing member. We cannot
guarantee that these members will honor their obligations under the sponsored
research agreement.
POTENTIAL DILUTION OF TISSUE REPAIR DIVISION STOCKHOLDERS
The issuance or distribution of additional shares of Genzyme Tissue Repair
Division Common Stock could adversely affect the market price of such stock
and/or result in substantial dilution to holders of such stock.
Our board of directors has reserved 8,033,707 shares of Genzyme Tissue Repair
Division Common Stock for issuance upon conversion of amounts payable under a
convertible note with a floating conversion price. On November 3, 1998, $12.4
million of principal on this note was outstanding. The actual number of shares
of Genzyme Tissue Repair Division Common Stock issued upon conversion of this
note will depend on the market price prior to conversion.
In addition, in May 1998, we established a long-term financing plan for the
continuing development of the product portfolio and research and development
programs of the Tissue Repair Division. As part of this plan, our board of
directors increased an existing line of credit available to the Tissue Repair
Division from the General Division from $13 million to $50 million. Under the
terms of this line of credit, the Tissue Repair Division may draw down funds as
needed each fiscal quarter in exchange for designated shares of Genzyme Tissue
Repair Division Common Stock. The rate of exchange will be determined as
follows:
Rate of exchange = Amount drawn under the line of credit
------------------------------------------
Average market value of one share of
Genzyme Tissue Repair Division Common
Stock during the 20 trading days prior to
the date the amount is drawn under the
line of credit
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Designated shares represent authorized shares that are not issued or outstanding
but that our board of directors can sell for the sole benefit of the General
Division or distribute as a stock dividend to the holders of Genzyme General
Division Common Stock. Under the terms of our management and accounting
policies, we will sell or distribute substantially all of the designated shares
of Genzyme Tissue Repair Division Common Stock if, as of May 31 of each year,
the number of such designated shares is greater than 10% of the number of
outstanding shares of Genzyme Tissue Repair Division Common Stock. We cannot
predict the effect that these sales or distributions may have on the market
price of Genzyme Tissue Repair Division Common Stock.
LACK OF SIGNIFICANT PATENT PROTECTION FOR THE CARTICEL(TM) SERVICE AND INABILITY
TO PREVENT DEVELOPMENT OF COMPETITIVE PRODUCTS AND SERVICES
The process we use to grow a patient's cartilage cells is not patentable, and we
do not yet have significant patent protection covering the other processes used
in providing the Carticel(TM) service. We consequently cannot prevent a
competitor from developing the ability to grow cartilage cells and from offering
a product or service that is similar or superior to the Carticel(TM) service. If
a competitor were to develop such ability and obtain FDA approval for a
competitive product or service, the Tissue Repair Division's results of
operations would be adversely affected. We are aware of at least two other
companies that are growing autologous cartilage cells for cartilage repair in
the European market. Additionally, several pharmaceutical and biotechnology
companies are developing alternative treatments for knee cartilage damage. One
or more of these companies may develop products or services superior to the
Carticel(TM) service.
RISKS RELATED TO GENZYME MOLECULAR ONCOLOGY DIVISION
You should carefully consider the following factors affecting the business of
the Molecular Oncology Division.
LACK OF SIGNIFICANT REVENUE AND UNCERTAINTIES INHERENT IN THE DEVELOPMENT OF
BIOTECHNOLOGY PRODUCTS
We do not expect the Molecular Oncology Division's products and services to
generate significant revenue for several years. SAGE(TM) services represent the
only product or service which is not at an early stage of development. To date,
SAGE(TM) services have generated only modest revenue, and we are aware of
several companies that provide genomic services that compete with SAGE(TM)
services. Prior to commercializing any other products and services, the
Molecular Oncology Division will need to conduct substantial research and
development, undertake preclinical and clinical testing and pursue regulatory
approvals. We cannot guarantee that these efforts will be successful. Clinical
trials, for example, may not support the safety or effectiveness of a particular
product or service. Currently, the Molecular Oncology Division's gene therapy
products for melanoma are its only therapeutic products in clinical development.
We may encounter problems in these or other clinical trials that lead to a delay
or suspension of the trials. In addition, gene therapy represents a new approach
to cancer treatment, and we will need to overcome many technical obstacles in
developing gene therapy products. To date, the FDA has not approved the sale of
any gene therapy products.
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SIGNIFICANT MOLECULAR ONCOLOGY DIVISION OPERATING LOSSES AND
CASH REQUIREMENTS MAY REDUCE FLEXIBILITY IN OPERATIONS
We expect the Molecular Oncology Division to have significant operating losses
for the next several years. The Molecular Oncology Division plans to spend
substantial amounts of money on, among other things:
- commercialization of SAGE(TM) services;
- research and development;
- preclinical and clinical testing; and
- pursuing regulatory approvals.
We cannot guarantee that the efforts underlying these expenditures will be
successful or that the Molecular Oncology Division's operations will ever be
profitable. It may be years before the division generates any revenue from sales
of products or services other than SAGE(TM) services.
We anticipate that the Molecular Oncology Division's current cash resources,
together with amounts available under a line of credit from the General Division
and revenues generated from SAGE(TM) services, license agreements and committed
research funding from collaborators, will be sufficient to fund its operations
through 2000. However, the Molecular Oncology Division's cash needs may differ
from those planned because of many factors, including:
- the results of research and development and clinical testing;
- the achievement of milestones under existing strategic alliances;
- the ability to establish and maintain additional strategic alliances and
licensing arrangements;
- the enforcement of patent and other intellectual property rights;
- the development of competitive products and services; and
- the ability to satisfy regulatory requirements of the FDA and other
government authorities.
The Molecular Oncology Division may require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that the division
will be able to obtain any additional financing or find it on favorable terms.
If the Molecular Oncology Division has insufficient funds or is unable to raise
additional funds, it may delay, reduce or eliminate certain of its programs. The
Molecular Oncology Division may also have to give rights to third parties to
attempt to commercialize technologies or products that it would otherwise
commercialize itself.
UNCERTAINTY REGARDING THE MOLECULAR ONCOLOGY PATENT POSITION
Third party patent rights and pending patent applications filed by third
parties, if issued, may cover some of the therapeutic products the Molecular
Oncology Division is developing or testing. As a result, the division may be
required to obtain licenses from the holders of these patents in order to test,
use or market certain products and services. We cannot guarantee that these
licenses will be available on acceptable terms.
Several patents have recently issued that may affect the Molecular Oncology
Division's business. The first is a U.S. patent issued to an academic
institution that claims to cover the use of any recombinant viral vector in gene
therapy, including adenoviral vectors. Based on public statements by the
academic institution, the Molecular Oncology Division understands that the
institution intends to make non-exclusive licenses under this patent
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<PAGE> 14
widely available. The second is a group of U.S. and European patents recently
issued to a third party relating to the collection and analysis of gene
expression data from chemically exposed mammalian, plant and yeast cells. The
third party has invited us to negotiate for a license for these patents. The
third is a U.S. patent recently issued to a third party relating to methods for
introducing DNA sequences encoding gene products into mammals systemically using
lipid carriers. The Molecular Oncology Division is in the process of evaluating
the scope and validity of each of these patents to determine whether obtaining
licenses to these patents is necessary.
The Molecular Oncology Division has a right of first negotiation to exclusively
license the rights to inventions made by the National Cancer Institute relating
to its use of adenoviral vectors for the tumor antigens MART-1 and gp100. In
addition, the Molecular Oncology Division may negotiate for pre-existing rights
to MART-1 and gp100 held by National Cancer Institute. The Molecular Oncology
Division is aware of a U.S. patent issued to a third party which appears to
cover the MART-1 gene. The Molecular Oncology Division is continuing to evaluate
this patent and is in discussions with the patent holder regarding a
non-exclusive license to the MART-1 gene. The Molecular Oncology Division is
also aware of two published Patent Cooperation Treaty applications by two
different third party applicants which appear to cover the gp100 gene.
Accordingly, we cannot guarantee that the National Cancer Institute will
ultimately obtain the patent rights to gp100. The Molecular Oncology Division
may need to obtain licenses from both the National Cancer Institute and others
in order to commercialize immunotherapy products based on MART-1 and gp100.
We have been assigned the rights to "SPHERE," a novel combinatorial peptide
screening technology, from the inventor. A third party has notified us, however,
that it believes that the inventor did not have the authority to assign the
SPHERE technology to us. We are currently investigating this matter.
We cannot guarantee that the patents issued or licensed to us will remain free
from challenge by third parties. If the Molecular Oncology Division becomes
involved in litigation to defend itself in patent suits brought by third parties
or if it initiates such suits, it could consume a substantial portion of the
Molecular Oncology Division's resources. Any legal action against the Molecular
Oncology Division or its strategic partners claiming damages or seeking to stop
commercial activities relating to the affected products and processes could
subject the Molecular Oncology Division to potential liability for damages.
These actions may also require the Molecular Oncology Division or its strategic
partner to obtain a license in order to continue to manufacture or market the
affected products and services. We cannot guarantee that the Molecular Oncology
Division or its strategic partner would prevail in any legal action. If the
Molecular Oncology Division is required to obtain a license, we cannot guarantee
that one would be made available or made available on acceptable terms.
The Molecular Oncology Division also relies upon trade secrets, proprietary
know-how and continuing technological innovation to remain competitive. We
cannot guarantee that other parties will not independently develop such know-how
or otherwise obtain access to the Molecular Oncology Division's technology.
While the Molecular Oncology Division's employees, consultants and corporate
partners with access to proprietary information are generally required to enter
into confidentiality agreements, we cannot guarantee that these agreements will
be honored. In addition, some of the Molecular Oncology Division's consultants
have developed portions of the Molecular Oncology Division's proprietary
technology at universities or in governmental laboratories. These universities
or govern-
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<PAGE> 15
mental authorities may claim rights to the intellectual property arising out of
the research performed at the university or governmental laboratory.
RELIANCE ON COLLABORATORS AND UNCERTAINTY OF REVENUE FROM COLLABORATIONS
The Molecular Oncology Division's strategy to develop and commercialize certain
of its products and services includes entering into various arrangements with
both academic collaborators and corporate partners and licensees. The Molecular
Oncology Division depends on the success of these parties in performing
research, preclinical and clinical testing and marketing. These arrangements may
require the Molecular Oncology Division to transfer certain important rights to
such corporate partners and licensees. While the Molecular Oncology Division
believes its collaborators and licensees will want to perform their contractual
responsibilities, in some cases the amount and timing of resources that they
devote to their collaborations with the division, and the ability to terminate
the collaboration, will be controlled by the collaborators. As a result, the
Molecular Oncology Division cannot guarantee that it will receive revenues or
profits from these arrangements, that any of its strategic alliances will
continue or not terminate early, or that it will be able to enter into future
collaborations.
RISKS RELATED TO GENZYME
You should carefully consider the following factors which impact all of our
divisions.
UNCERTAINTY REGARDING SUCCESS OF CLINICAL TRIALS AND OTHER RISKS
IN PRODUCT DEVELOPMENT
Several of our development-stage products, including those intended to address
lysosomal storage disorders, are currently in, or will require, clinical trials
to test their safety and effectiveness. We may encounter problems in these
clinical trials that cause us to delay or suspend development of such products.
In addition, we cannot guarantee that such clinical testing, if completed, will
show these products to be safe and effective.
Product development involves a high degree of uncertainty. We cannot guarantee
that we will successfully develop any particular product or that the FDA will
approve any of the products that we are developing.
INTENSE COMPETITION FROM OTHER PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES COULD
HURT OUR PERFORMANCE
The human health care products and services industry is extremely competitive.
Major pharmaceutical companies and other biotechnology companies compete with
us. Some of these competitors have superior research and development, marketing
and production capabilities. Some competitors also have greater financial
resources than we have. We incur significant costs developing and marketing new
products without any guarantee that they will be commercially successful. Our
future success will depend on our ability to effectively develop and market our
products against those of our competitors.
RAPID TECHNOLOGICAL CHANGE COULD MAKE OUR PRODUCTS OR SERVICES OBSOLETE
The field of biotechnology is characterized by significant and rapid
technological change. Although we attempt to expand our technological
capabilities in order to remain competitive, research and discoveries by others
may make our products or services obsolete.
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UNCERTAINTY REGARDING THIRD PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT
INITIATIVES MAY IMPACT OUR REVENUE
A majority of our revenue comes from payments by third party payers, including
government health administration authorities and private health insurers. Third
party payers may not reimburse patients for newly approved health care products.
More and more third party payers are attempting to contain health care costs by:
- challenging the prices charged for health care products and services;
- limiting both coverage and the amount of reimbursement for new
therapeutic products;
- denying or limiting coverage for products that are approved by the FDA
but are considered experimental or investigational by third party payers;
and
- refusing in some cases to provide coverage when an approved product is
used for disease indications in a way that has not received FDA marketing
approval.
Government and other third party payers may provide no or inadequate insurance
coverage and reimbursement for our products and services.
In addition, Congress has occasionally discussed implementing broad-based
measures to contain health care costs. While Congress has not enacted any
legislation specifically designed to contain health care costs, it is possible
that Congress will revisit the issue. We cannot predict what effect any actual
legislation would have on our business.
UNCERTAINTY REGARDING OUR ABILITY TO SATISFY REGULATORY REQUIREMENTS
Our ability to successfully satisfy regulatory requirements will significantly
determine our future success. We cannot guarantee that any required regulatory
approvals will be granted or that they will be granted on a timely basis. The
production and sale of health care products and provision of health care
services are highly regulated. In particular, the FDA and comparable agencies in
foreign countries must approve human therapeutic and diagnostic products before
they are marketed. This approval process can involve lengthy and detailed
laboratory and clinical testing, sampling activities and other costly and time-
consuming procedures. This regulation may delay the time at which a product or
service can first be sold, limit how a product or service may be used or
adversely impact third-party reimbursement.
Certain of our products, including Cerezyme(R) enzyme, have been designated as
orphan drugs under the Orphan Drug Act, which provides incentives to
manufacturers to develop and market drugs for rare diseases. The Orphan Drug Act
generally entitles the first organization that receives FDA marketing approval
for an orphan drug to a seven-year exclusive marketing period in the United
States for that product. Our exclusive marketing period for Cerezyme(R) enzyme
expires in 2001. Congress has periodically introduced legislation that would
amend the Orphan Drug Act by shortening the period of automatic market
exclusivity and granting certain market rights to simultaneous developers of a
drug. We cannot predict the effect that any amendments ultimately adopted by
Congress would have on us.
SIGNIFICANT FUTURE CAPITAL NEEDS MAY REDUCE FLEXIBILITY IN OPERATIONS
As of September 30, 1998, we had approximately $555.1 million in cash, cash
equivalents and short and long-term investments (excluding investments in equity
securities).
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Although we currently have substantial cash resources, we intend to use
substantial portions for:
- paying strategic collaborators and funding joint venture obligations;
- product development and marketing;
- expansion of our facilities; and
- marketing the Carticel(TM) service and the Sepra products.
We will further reduce our cash reserves to pay principal and interest on the
following debt:
- As of September 30, 1998, we owed approximately $100 million under a $225
million revolving credit facility with a group of commercial banks. Of
this outstanding amount, we allocated $82 million to the General Division
and $18 million to the Tissue Repair Division. Amounts borrowed under
this revolving credit facility bear interest at a floating rate based
upon an applicable margin above the London InterBank Offered Rate. We
must repay all borrowings under this facility on November 15, 1999.
- In February 1997 we issued a $13 million convertible note. This
convertible note bears interest at an annual rate of 5% and matures on
February 27, 2000, but the holder of this convertible note may exchange
principal, and under certain circumstances interest, on the note for
shares of Genzyme Tissue Repair Division Common Stock. As of December 1,
1998, $12.4 million of principal on this convertible note was
outstanding.
- In August 1998 we issued $21.2 million in convertible debentures. These
convertible debentures bear interest at an annual rate of 5% and mature
on August 29, 2003, but the holders of these convertible debentures may
exchange principal, and under certain circumstances interest, on the
convertible debentures for shares of Genzyme General Division Common
Stock.
- In May 1998, we issued $250 million in convertible notes. These
convertible notes bear interest at an annual rate of 5 1/4% and mature on
June 1, 2005, but the holders of these notes may exchange principal on
the notes for shares of Genzyme General Division Common Stock and shares
of Genzyme Molecular Oncology Division Common Stock.
On November 2, 1998, we announced that the FDA granted marketing approval for
RenaGel(R) Capsules for the reduction of serum phosphorus in patients with end
stage renal disease. We have formed a joint venture with GelTex Pharmaceuticals,
Inc. to commercialize RenaGel(R) Capsules. Under the terms of the joint venture,
Genzyme paid GelTex Pharmaceuticals, Inc. $15 million in connection with the
receipt of FDA approval of RenaGel(R) Capsules and will pay an additional $10
million on the first anniversary of that approval. This program has been
allocated to the General Division.
To satisfy these and other commitments, we may have to obtain additional
financing. We cannot guarantee that we will be able to obtain any additional
financing or obtain it on favorable terms.
RISKS INHERENT IN INTERNATIONAL OPERATIONS
We have direct investments in a number of subsidiaries in foreign countries
(primarily in Europe and Japan). Fluctuations in the value of foreign currencies
affect the dollar value of our net investment in these foreign subsidiaries. As
of December 31, 1997, we have reduced General Division stockholders' equity by
$12.4 million to reflect foreign currency
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translation adjustments. Reduction in the dollar value of our foreign holdings
reduces the dollar returns we can expect to realize upon any sales of our
foreign investments. We do not currently hedge net foreign investments. If our
board of directors approves hedging of net foreign investments in the future, we
cannot guarantee it will be successful.
Our foreign operations accounted for 36% of consolidated sales in 1997. These
operations accounted for 35% of consolidated sales in 1996 and 1995. For
financial statement purposes, we translate operating results of foreign
subsidiaries into dollars at average monthly exchange rates. Reported revenues,
therefore, may be depressed or inflated by exchange rate trends.
Exchange rates also determine the dollar value of transactions denominated in
foreign currencies and the number of dollars we receive upon repatriation of
amounts earned in foreign currencies.
Currently, our largest foreign currency exposures are in Dutch guilders, British
pounds, French francs, German marks, Spanish pesetas, Italian lira and Japanese
yen.
POSSIBLE ADVERSE EFFECT OF THE EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union will
establish fixed conversion rates between their existing currencies and a new
common currency called the "euro." This represents an initial step in a process
expected to culminate in the replacement of the existing currencies with the
euro. The conversion to the euro will have operational and legal implications
for some of our international business activities. We have begun evaluating
these implications, but we have yet to estimate the potential impact on our
financial condition or operating results. Our preliminary judgment, however, is
that the nature of our business and customers makes a material impact unlikely.
UNCERTAINTY REGARDING YEAR 2000 COMPLIANCE
Many currently installed computer systems, software products and equipment with
embedded chips or processors are programmed to accept only two digit entries in
the date code field. These date code fields will need to accept four digit
entries to distinguish 21st century dates from 20th century dates. As a result,
our software and computer systems may need to be upgraded or replaced in order
to comply with "Year 2000" requirements. We have implemented a Year 2000
compliance program to identify and minimize exposure to Year 2000 problems,
which includes an assessment of our internal readiness as well as the readiness
of third parties that are critical to our business. We may incur significant
costs in identifying, resolving and mitigating Year 2000 compliance issues. In
addition, we cannot guarantee that our Year 2000 issues will be fully identified
and resolved by the end of 1999. The failure to identify and resolve these
issues could result in interruptions in, or failures of, certain normal business
activities or operations that may have an adverse effect on our business,
results of operations and financial condition. The failure of third parties that
are significant to our business to be Year 2000 compliant could also have an
adverse effect on our business, results of operations and financial condition.
POTENTIAL PRODUCT LIABILITY CLAIMS AND LIMITATIONS OF INSURANCE
Individuals who use our products or services may bring product liability claims
against us. While we have taken, and continue to take, what we believe are
appropriate precautions, we cannot guarantee that we will avoid significant
liability exposure. We have only limited amounts of product liability insurance,
and we cannot guarantee that this insurance will provide sufficient coverage
against any product liability claims. If we attempt to obtain additional
insurance in the future, we may not be able to do so on acceptable terms, and
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any additional insurance we do obtain may not provide adequate coverage against
any asserted claims.
UNCERTAINTY REGARDING PATENTS AND THE PROTECTION OF OUR PROPRIETARY TECHNOLOGY
Our success largely depends on our ability to market technologically competitive
products. We can prevent unauthorized third parties from using proprietary
rights relating to our products and services only if these rights are covered by
patents or are kept confidential as trade secrets.
We have rights to numerous patents and patent applications worldwide.
Nonetheless, we cannot guarantee that the patents that we currently have or will
obtain in the future will effectively protect our technology. The U.S. Patent
and Trademark Office has not established a consistent policy regarding the
breadth of claims that it will allow in biotechnology patents. If it allows
broad claims, the number and cost of patent interference proceedings in the U.S.
and the risk of infringement litigation may increase. If it allows narrow
claims, the risk of infringement may decrease, but the value of our rights under
our patents, licenses and patent applications may also decrease.
Patent litigation is widespread in the biotechnology industry, and it is not
possible to predict how any patent litigation will affect us. We attempt to
monitor the patent filings of our competitors in an effort to guide the design
and development of our products to avoid infringement. Notwithstanding these
efforts, however, third parties may challenge the patents that have been issued
or licensed to us. In addition, patents issued to third parties may cover our
products and services as ultimately developed. We may need to acquire licenses
to these patents or challenge the validity of these patents.
We may not be able to license any patent rights on acceptable terms or
successfully challenge such patents. The need to do so will depend on the scope
and validity of these patents and ultimately on the final design or formulation
of the products and services that we develop.
We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. Third parties may independently
develop such know-how or otherwise obtain access to our technology. While our
employees, consultants and corporate partners with access to proprietary
information are generally required to enter into confidentiality agreements,
these agreements may not be honored. In addition, certain of our consultants
have developed portions of our proprietary technology at universities or in
governmental laboratories. These universities or governmental authorities may
claim rights to intellectual property arising out of the university or
government-based research that these consultants conducted.
VOLATILITY OF PRICES COULD RESULT IN LOSS OF SIGNIFICANT AMOUNT OF INVESTMENT;
ABSENCE OF DIVIDENDS
The market prices for our securities have been volatile. This volatility could
lead to the loss of a significant amount of your investment. Factors that could
significantly impact the market price of Genzyme General Division Common Stock,
Genzyme Tissue Repair Division Common Stock and Genzyme Molecular Oncology
Division Common Stock include:
- announcements of technological innovations or new commercial products by
us or our competitors;
- governmental regulatory initiatives;
- patent or proprietary rights developments;
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- public concern as to the safety or other implications of biotechnology
products; and
- general market conditions.
We have never paid any cash dividends on any series of our common stock and we
do not plan to do so in the foreseeable future.
On November 16, 1998, Genzyme Molecular Oncology Division Common Stock began
trading on the Nasdaq National Market.
POSSIBLE ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS
Our stockholders may be deprived of the opportunity to receive a premium for
their shares because of certain provisions of Massachusetts law and our charter,
bylaws and stockholder rights plan. These provisions may delay or prevent a
change in control of Genzyme or a change in our management. Tracking stock may
also deprive our stockholders of the opportunity to realize such a premium
because, in order to obtain control of a particular division, an acquiror would
have to obtain control of Genzyme. In addition, our board of directors may issue
shares of undesignated common and preferred stock from time to time in one or
more series. This could discourage attempts to takeover Genzyme.
RISKS RELATED TO GENZYME TRACKING STOCK
We currently have three series of common stock outstanding which are intended to
reflect the value and track the performance of our three operating divisions.
You should consider carefully the following risk factors relating to our
tracking stock.
STOCKHOLDERS OF ONE COMPANY; FINANCIAL IMPACTS ON ONE DIVISION COULD AFFECT THE
OTHER DIVISIONS
We have three divisions: Genzyme General Division, Genzyme Tissue Repair
Division and Genzyme Molecular Oncology Division. For purposes of financial
presentation, we allocate programs, products, assets and liabilities among our
divisions; however, Genzyme, the corporation, continues to own all of the assets
and is responsible for all of the liabilities allocated to each of the
divisions. A General Division stockholder, for example, would not have any
specific rights to the assets of the corporation allocated to the General
Division in Genzyme's financial statements. Additionally, any one division's
liabilities could affect the other divisions' financial condition. You should
read Genzyme's consolidated financial statements and the financial statements of
each division. The section of this document entitled "WHERE YOU CAN FIND MORE
INFORMATION" shows you where you can find these financial statements.
NO RIGHTS OR ADDITIONAL DUTIES WITH RESPECT TO THE DIVISIONS; POTENTIAL
CONFLICTS OF INTEREST
There may be times when the interests of holders of each series of Genzyme
common stock diverge or appear to diverge. We do not know how Massachusetts law
would define the duties of a board of directors in such a situation. However,
based on the advice of counsel, we believe that a Massachusetts court would
conclude that a board of directors owes an equal duty to all stockholders
regardless of class or series and does not have separate or additional duties to
any group of stockholders. That duty is the fiduciary duty to act in good faith
and in a manner it reasonably believes to be in the best interests of the
corporation. Under Massachusetts law, if a disinterested and adequately informed
board of directors were to determine in good faith that an action would be in
the best interests of the corporation, taking into account the interests of the
holders of each series of common stock and the alternatives reasonably
available, then the board of directors should be able to successfully defend any
claim by a stockholder that such action could have an unequal
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effect on different series of common stock. However, a Massachusetts court
hearing a case involving such a claim may decide to apply principles of
Massachusetts law other than those described above, or may develop new
principles of Massachusetts law, to decide such a case.
A member of our board of directors could have or appear to have a potential
conflict of interest if he or she were to own a disproportionate amount of stock
in a particular series or the value of his or her stockholdings in a particular
series were different from the value of his or her stockholdings in another
series and he or she had to decide among corporate actions that impacted each
series of common stock differently. Nevertheless, we believe that a director
would be able to discharge his or her fiduciary responsibilities even if his or
her interests in shares of such series were disproportionate or had unequal
values. The members of our board of directors may from time to time create one
or more committees to review matters that raise conflict issues. Such a
committee would report to the full board on these matters.
NO ADDITIONAL SEPARATE VOTING RIGHTS LIMITS DECISION-MAKING POWER OF TISSUE
REPAIR DIVISION AND MOLECULAR ONCOLOGY DIVISION STOCKHOLDERS
Holders of each series of Genzyme common stock vote together as a single class
on all matters that require common stockholder approval, including the election
of directors. Holders of each series of common stock do not have the right to
vote on matters separately except in certain limited circumstances provided
under Massachusetts law, our charter or the management and accounting policies
adopted by our board of directors. Therefore, stockholders of one series of
common stock generally could not make a proposal that would require the approval
of just the holders of that series. Instead, they would have to get approval for
the proposal from all common stockholders.
On all matters that require common stockholder approval, each share of Genzyme
General Division Common Stock has one vote and, until December 31, 1998, each
share of Genzyme Tissue Repair Division Common Stock has .33 vote and each share
of Genzyme Molecular Oncology Division Common Stock has .25 vote. On January 1,
1999 and on January 1 every two years thereafter, the number of votes to which
each share of Genzyme Tissue Repair Division Common Stock and each share of
Genzyme Molecular Oncology Division Common Stock is entitled will be adjusted as
follows:
<TABLE>
<S> <C> <C>
# of votes for one = market value of one share of Genzyme Tissue Repair Division Common Stock
share of Genzyme market value of one share of Genzyme General Division Common Stock
Tissue Repair
Division Common Stock
# of votes for one = market value of one share of Genzyme Molecular Oncology Division Common Stock
share of Genzyme market value of one share of Genzyme General Division Common Stock
Molecular Oncology
Division Common Stock
</TABLE>
We calculate market value using a 20 trading day average beginning on the 30(th)
trading day prior to the determination date. Based on the number of votes per
share and the number of shares of each series outstanding on October 31, 1998,
and giving effect to a
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distribution of approximately 8.7 million shares of Genzyme Molecular Oncology
Division Common Stock on November 16, 1998, voting power of each series is
divided as follows:
- --------------------------------------------------------------------------------
APPROXIMATE PERCENTAGE OF
SERIES TOTAL VOTING POWER
------ -------------------------
Genzyme General Division Common
Stock........................ 89.0%
Genzyme Tissue Repair Division
Common Stock................. 7.5%
Genzyme Molecular Oncology
Division Common Stock........ 3.5%
- --------------------------------------------------------------------------------
On matters which require common stockholder approval, the holders of Genzyme
General Division Common Stock are likely to decide the outcome.
EXCHANGE OF TISSUE REPAIR DIVISION COMMON STOCK AND MOLECULAR ONCOLOGY DIVISION
COMMON STOCK AT A FIXED OR PREDETERMINED PREMIUM MAY LIMIT RETURN ON INVESTMENT
Our board of directors can, in its sole discretion, decide to exchange shares of
Genzyme Tissue Repair Division Common Stock or Genzyme Molecular Oncology
Division Common Stock for any combination of cash and shares of Genzyme General
Division Common Stock at a 30% premium over the then current market value of
such series of common stock. In addition, if we transfer or sell all or
substantially all of the assets of the Tissue Repair Division or the Molecular
Oncology Division, we must exchange the shares of Genzyme Tissue Repair Division
Common Stock or Genzyme Molecular Oncology Division Common Stock, as the case
may be, for cash and/or shares of Genzyme General Division Common Stock at a 30%
premium over the market value of such series of common stock. Consequently,
holders of Genzyme Tissue Repair Division Common Stock and Genzyme Molecular
Oncology Division Common Stock may receive a premium for their shares that is
greater or less than the premium that would be paid by a third party buyer of
all or substantially all of the assets of the Tissue Repair Division or the
Molecular Oncology Division. Our board's discretion to cause such an exchange is
described in our charter, which is an exhibit to the registration statement.
NO ADJUSTMENT TO LIQUIDATION UNITS FOR CHANGES IN RELATIVE VALUES OF DIFFERENT
SERIES OF STOCK
If we dissolve, liquidate or wind up our affairs (other than as part of a
merger, business combination or sale of substantially all of our assets), our
stockholders will receive any remaining assets according to the percentage of
total liquidation units that they hold. Each share of Genzyme General Division
Common Stock has 100 liquidation units, each share of Genzyme Tissue Repair
Division Common Stock has 58 liquidation units and each share of Genzyme
Molecular Oncology Division Common Stock has 25 liquidation units. The
liquidation units will not be adjusted to reflect changes in the relative market
value or performance of each of the divisions.
MANAGEMENT AND ACCOUNTING POLICIES SUBJECT TO CHANGE
Our board of directors has adopted management and accounting policies for
preparing Genzyme's financial statements, allocating corporate expenses, assets
and liabilities and other accounting matters, reallocating assets between
divisions and other matters. Our
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board of directors may modify or rescind these policies or adopt new ones
without the approval of our stockholders. The board's discretion to make changes
is only limited by the policies themselves and the board's fiduciary duty to all
stockholders. You can review the full text of these policies, which have been
filed as Exhibit 99.1 to our Annual Report on Form 10-K for the year ended
December 31, 1997.
POSSIBLE COMPETITION AMONG THE DIVISIONS
Our board of directors has adopted a policy regarding competition among our
divisions. This non-compete policy requires that we develop certain products and
services within the Tissue Repair Division or the Molecular Oncology Division or
through joint ventures involving those divisions. This policy, however, does not
cover the entire field of tissue repair or cancer treatment. In other words, the
General Division or Molecular Oncology Division may develop certain tissue
repair products or services and the General Division or Tissue Repair Division
may develop certain cancer treatment services. We encourage you to review the
full text of this policy, which is included in Exhibit 99.1 to our Annual Report
on Form 10-K for the year ended December 31, 1997.
REALLOCATION OF OPERATING LOSSES MAY CAUSE LOWER EARNINGS AND GREATER TAX BURDEN
FOR CERTAIN DIVISIONS
Our board of directors has adopted a policy which provides that if any division
of Genzyme is unable to use its operating losses or other projected tax benefits
to reduce its current or deferred income tax expense, we may reallocate such
losses or benefits to another division on a quarterly basis for financial
reporting purposes. Although the actual payment of taxes is a liability of the
corporation, separate financial statements are prepared for each division and we
allocate any losses that a division cannot use among the profitable divisions
rather than carry them forward to reduce the future tax liability of the
division generating the losses. This will result in a division with losses (such
as the Tissue Repair Division and Molecular Oncology Division currently) being
charged a greater portion of the total corporate tax liability and reporting
lower earnings after taxes in the future than would be the case if that division
had retained its losses or other benefits in the form of a net operating loss
carryforward. We encourage you to review the full text of this policy, which is
included in Exhibit 99.1 to our Annual Report on Form 10-K for the year ended
December 31, 1997.
USE OF PROCEEDS
If all of the warrants outstanding on November 17, 1998 are exercised, the net
proceeds we will receive would be approximately $408,143. We currently have no
specific plans for use of these net proceeds. We anticipate, however, that any
net proceeds will be used for general corporate purposes, including to fund
working capital needs. Until so applied, any net proceeds will be invested in
short-term, interest-bearing securities or deposit accounts.
PLAN OF DISTRIBUTION
The warrants are exercisable until December 31, 1998. We will issue the shares
of Genzyme General Division Common Stock, Genzyme Tissue Repair Division Common
Stock and Genzyme Molecular Oncology Division Common Stock covered by this
prospectus directly to holders of the warrants upon their exercise. After
December 31, 1998, the warrants will terminate.
Currently, the exercise price is $44.20 for two shares of Genzyme General
Division Common Stock, 0.195 share of Genzyme Tissue Repair Division Common
Stock and
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0.2161 share of Genzyme Molecular Oncology Division Common Stock. The exercise
price and the number of shares of Genzyme General Division Common Stock, Genzyme
Tissue Repair Division Common Stock and Genzyme Molecular Oncology Division
Common Stock issuable upon exercise of each warrant will be appropriately
adjusted in the event of stock splits, stock dividends, stock combinations or
certain rights offerings involving Genzyme common stock. We will issue cash to
exercising warrantholders instead of issuing fractional shares.
If a warrant is exercised in part, we will issue to the exercising holder a new
warrant covering the remaining shares.
We will pay all documentary, stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares issued upon exercise of the warrants.
We will also pay most other expenses related to the issuance of the shares.
TRANSFERABILITY
The shares of Genzyme General Division Common Stock, Genzyme Tissue Repair
Division Common Stock and Genzyme Molecular Oncology Division Common Stock
issued upon exercise of the warrants will be freely transferable in the hands of
persons other than affiliates of Genzyme.
LEGAL MATTERS
Palmer & Dodge LLP, Boston, Massachusetts, counsel to Genzyme, is giving Genzyme
an opinion on the validity of the shares offered by this prospectus.
EXPERTS
The consolidated balance sheets of Genzyme as of December 31, 1996 and 1997 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997 included
in Genzyme's Annual Report on Form 10-K for the year ended December 31, 1997, as
amended, and the related financial statement schedule appearing therein,
incorporated by reference into this prospectus, have been incorporated herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The combined balance sheets of Genzyme General Division and Genzyme Tissue
Repair Division as of December 31, 1996 and 1997, and the related combined
statements of operations and cash flow for each group for each of the three
years in the period ended December 31, 1997 included in Genzyme's Annual Report
on Form 10-K for the year ended December 31, 1997, as amended, and the related
financial statement schedules appearing therein, have also been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The combined balance sheets of Genzyme Molecular Oncology Division as of
December 31, 1996 and 1997, and the related combined statements of operations
and cash flows for each of the three years in the period ended December 31, 1997
included in Genzyme's Annual Report on Form 10-K for the year ended December 31,
1997, as amended, have also been incorporated herein in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
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The balance sheets of PharmaGenics, Inc. as of December 31, 1995 and 1996, and
the related statements of operations and cash flows for each of the three years
in the period ended December 31, 1997 included in Genzyme's Current Report on
Form 8-K dated June 30, 1997, have also been incorporated herein in reliance on
the report of Arthur Andersen LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
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