GENZYME CORP, 8-K, 1999-06-11

GENZYME CORP
8-K, 1999-06-11
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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

------------

FORM 8-K

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

Date of Report (Date of earliest event reported):

JUNE 11, 1999

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

<TABLE>
<CAPTION>
<S> <C> <C>
MASSACHUSETTS 0-14680 06-1047163
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
</TABLE>

ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code:
(617) 252-7500
<PAGE> 2
ITEM 5. OTHER EVENTS.

Genzyme Corporation has declared a tax-free dividend of approximately 0.17923 of
a share of Genzyme Surgical Products Division Common Stock, which we refer to as
GZSP Stock, for each share of Genzyme General Division Common Stock held as of
the record date, June 14, 1999. We will distribute approximately 14,800,000
shares of GZSP Stock on June 28, 1999 and pay cash for fractional shares at a
rate of $25 per share. In addition, we will reserve approximately 1,132,000
shares of GZSP Stock for future issuance upon conversion of our 5 1/4%
convertible subordinated notes due 2005 and approximately 327 shares for future
issuance in connection with distributions from existing stock accounts under our
directors' deferred compensation plan. GZSP Stock will begin trading on The
Nasdaq National Market(R) under the ticker symbol GZSP on June 28, 1999.

GZSP Stock is intended to reflect the value and tract the performance of our
Genzyme Surgical Products Division. We are creating the Genzyme Surgical
Products Division from our existing surgical products business, which was
previously operated as a business unit of our Genzyme General Division. Upon
formation, Genzyme Surgical Products will also be funded with $150 million in
cash from Genzyme General.

ITEM 7. EXHIBITS.

Number Description
------ -----------

23.1 Consent of Independent Accountants. Filed herewith.

99.1 Combined Financial Statements of Genzyme Surgical
Products. Filed herewith.

99.2 Unaudited, Combined Pro Forma Financial Statements of
Genzyme General. Filed herewith.

99.3 Risk Factors Related to Genzyme Surgical Products Division
Common Stock. Filed herewith.

99.4 Series Designation for the Genzyme Surgical Products
Division Common Stock. Filed as Exhibit 2 to the
Registrant's Registration Statement on Form 8-A filed with
the Commission on June 11, 1999, and incorporated herein by
reference.

99.5 Management and Accounting Policies Governing the
Relationship of Genzyme Divisions. Filed herewith.

<PAGE> 3
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 hereunto duly authorized.

Dated: June 11, 1999 GENZYME CORPORATION

By: /s/ Michael S. Wyzga
----------------------------------
Name: Michael S. Wyzga
Title: Senior Vice President,
Finance and Chief Financial
Officer

2
<PAGE> 4
EXHIBIT INDEX

Number Description
------ -----------

23.1 Consent of Independent Accountants. Filed herewith.

99.1 Combined Financial Statements of Genzyme Surgical
Products. Filed herewith.

99.2 Unaudited, Combined Pro Forma Financial Statements of
Genzyme General. Filed herewith.

99.3 Risk Factors Related to Genzyme Surgical Products Division
Common Stock. Filed herewith.

99.5 Management and Accounting Policies Governing the
Relationship of Genzyme Divisions. Filed herewith.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-8881, 33-15616, 33-26329, 33-29918,
33-35067, 33-37236, 33-41933, 33-55656, 33-68188, 33-58359, 33-60437, 333-10003,
333-33249, 33-30007, 33-68208, 33-58351, 333-33265, 333-10005, 333-33251,
33-22464, 33-29440, 33-51416, 33-68186, 33-58353, 33-58355, 33-60435, 333-33291,
33-21241, 333-42371, 333-64103) and on Form S-3 (File Nos. 33-61853, 333-59513,
333-68629, 33-64901) of Genzyme Corporation of our report dated June 9, 1999 on
our audits of the combined financial statements and financial statement schedule
of Genzyme Surgical Products Division as of December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998, which report is
included in the Current Report on Form 8-K of Genzyme Corporation dated June 11,
1999.

/s/ PricewaterhouseCoopers LLP
--------------------------------
PricewaterhouseCoopers LLP

Boston, Massachusetts
June 11, 1999

<PAGE> 1

GENZYME SURGICAL PRODUCTS

COMBINED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEARS
ENDED MARCH 31, ENDED DECEMBER 31,
--------------------- --------------------------------
1999 1998 1998 1997 1996
--------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Net product sales.................. $ 27,353 $24,227 $103,958 $100,835 $ 50,714

Operating costs and expenses:
Cost of products sold.............. 15,844 14,723 72,274 59,802 32,654
Selling, general and
administrative................... 15,287 13,948 57,297 54,061 28,399
Research and development........... 5,602 3,225 18,618 11,287 7,693
Amortization of intangibles........ 1,417 1,431 5,748 5,647 2,984
Purchase of in-process research and
development...................... -- -- -- -- 24,170
-------- ------- -------- -------- --------
Total operating costs and
expenses.................. 38,150 33,327 153,937 130,797 95,900
-------- ------- -------- -------- --------
Operating loss....................... (10,797) (9,100) (49,979) (29,962) (45,186)

Other income (expenses):
Equity in net income (loss) of
unconsolidated affiliate......... -- (11) (6) (78) 2
Other.............................. 46 (40) 60 236 8
Investment income.................. 7 52 144 98 84
Interest expense................... (1) (19) (75) (34) (58)
-------- ------- -------- -------- --------
Total other income
(expenses)................ 52 (18) 123 222 36
-------- ------- -------- -------- --------
Loss before income taxes............. (10,745) (9,118) (49,856) (29,740) (45,150)
Income tax benefit................... -- -- -- -- 837
-------- ------- -------- -------- --------
Net loss attributable to GZSP
Stock.............................. $(10,745) $(9,118) $(49,856) $(29,740) $(44,313)
======== ======= ======== ======== ========
Per GSP pro forma basic and diluted
common share:
Pro forma net loss:................ $ (0.73) $ (0.62) $ (3.37) $ (2.01) $ (2.99)
======== ======= ======== ======== ========
Pro forma shares outstanding......... 14,800 14,800 14,800 14,800 14,800
======== ======= ======== ======== ========
</TABLE>

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

10
<PAGE> 2

GENZYME SURGICAL PRODUCTS

COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1999 1998 1997
----------- --------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,199 $ -- $ 975
Accounts receivable, net............................... 16,344 15,663 13,689
Inventories............................................ 24,919 22,026 26,177
Prepaid expenses and other current assets.............. 1,347 1,932 463
--------- --------- --------
Total current assets........................... 43,809 39,621 41,304

Property, plant and equipment, net....................... 16,306 16,249 16,548
Intangibles, net......................................... 176,183 177,897 183,156
Other noncurrent assets.................................. 2,687 2,149 1,558
--------- --------- --------
Total assets................................... $ 238,985 $ 235,916 $242,566
========= ========= ========

LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable....................................... $ 5,285 $ 3,925 $ 2,858
Accrued expenses....................................... 5,013 4,682 4,015
Current portion of capital lease obligations........... -- -- 152
--------- --------- --------
Total current liabilities...................... 10,298 8,607 7,025
Noncurrent liabilities:
Other noncurrent liabilities........................... 221 221 572
--------- --------- --------
Total liabilities.............................. 10,519 8,828 7,597

Commitments and contingencies (See Notes)

Division equity:
Parent company investment.............................. 377,908 365,785 323,810
Accumulated deficit.................................... (149,442) (138,697) (88,841)
--------- --------- --------
Total division equity.......................... 228,466 227,088 234,969
--------- --------- --------
Total liabilities and division equity.......... $ 238,985 $ 235,916 $242,566
========= ========= ========
</TABLE>

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

11
<PAGE> 3

GENZYME SURGICAL PRODUCTS

COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEARS
ENDED MARCH 31, ENDED DECEMBER 31,
-------------------- -------------------------------
1999 1998 1998 1997 1996
--------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................... $(10,745) $(9,118) $(49,856) $(29,740) $ (44,313)
Reconciliation of net loss to net cash used
by operating activities:
Depreciation and amortization............. 2,008 2,512 8,008 8,831 3,480
Provisions for bad debts and inventory.... -- 120 526 759 329
Equity in net income (loss) of
unconsolidated affiliate............... -- 11 6 78 (2)
Purchase of in-process research and
development............................ -- -- -- -- 24,170
Other..................................... (36) 40 (60) (236) (8)
Increase (decrease) in cash from
working capital changes:
Accounts receivable.................. (681) (494) (2,140) 3,179 (2,166)
Inventories.......................... (2,893) 209 3,791 2,865 53
Prepaid expenses and other assets.... 585 (569) (1,469) 259 (63)
Accounts payable and accrued
expenses.......................... 1,691 1,811 1,885 (2,123) (7,712)
-------- ------- -------- -------- ---------
Net cash used in operating
activities........................ (10,071) (5,478) (39,309) (16,128) (26,232)

INVESTING ACTIVITIES:
Acquisition of property, plant and
equipment.............................. (660) (306) (1,959) (3,112) (162)
Acquisition, net of acquired cash and
assumed liabilities.................... -- -- -- -- (192,414)
Other..................................... (491) 1,069 (688) (1,039) (49)
-------- ------- -------- -------- ---------
Net cash provided by (used in)
investing activities.............. (1,151) 763 (2,647) (4,151) (192,625)

FINANCING ACTIVITIES:
Payments of debt and leases............... -- (45) (152) (173) (54,819)
Net cash allocated from Genzyme General... 12,421 5,900 41,484 19,003 275,528
Other..................................... -- (351) (351) 242 330
-------- ------- -------- -------- ---------
Net cash provided by financing
activities........................ 12,421 5,504 40,981 19,072 221,039
-------- ------- -------- -------- ---------
Increase (decrease) in cash and cash
equivalents............................... 1,199 789 (975) (1,207) 2,182
Cash and cash equivalents at beginning of
period.................................... -- 975 975 2,182 --
-------- ------- -------- -------- ---------
Cash and cash equivalents at end of
period.................................... $ 1,199 $ 1,764 $ -- $ 975 $ 2,182
======== ======= ======== ======== =========
Supplemental cash flow information:
Cash paid during the period for:
Interest............................... $ -- $ 3 $ 9 $ 29 $ 58
</TABLE>

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

<PAGE> 4

GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Genzyme Surgical Products develops, manufactures and markets surgical
products for three principal business lines: (i) cardiovascular surgery; (ii)
general surgery; and (iii) plastic surgery. GSP is a division of Genzyme and has
a separate series of common stock intended to reflect its value and track its
economic performance. GSP was created from Genzyme's existing surgical products
business, which has operated as a business unit of Genzyme General. GSP consists
primarily of the products and assets acquired upon the acquisition of DSP in
July 1996, Genzyme's portfolio of anti-adhesion products and product candidates,
and Genzyme's research and development programs in gene and cell therapy for
cardiovascular disease. Accordingly, DSP's results of operations are included
from July 1, 1996.

BASIS OF PRESENTATION

The combined financial statements of GSP include the balance sheets,
results of operations and cash flows of Genzyme's surgical products business
which is part of Genzyme's General Division. GSP's financial statements are
prepared using amounts included in the consolidated financial statements of
Genzyme and its subsidiaries ("Genzyme's Consolidated Financial Statements")
included in the 1998 Genzyme 10-K and the quarterly report on Form 10-Q for the
fiscal quarter ended March 31, 1999. Corporate allocations reflected in these
financial statements are determined based upon methods which management believes
to be reasonable and consistent. The financial statements for the three months
ended March 31, 1999 and 1998 are unaudited but include, in management's
opinion, all adjustments (consisting only of normally recurring accruals)
necessary for a fair presentation of the results for the periods presented.

On June 28, 1999, Genzyme will distribute approximately 14.8 million shares
of GZSP Stock to the holders of GENZ Stock of record at the close of business on
June 14, 1999. At the time of the distribution, $150.0 million of cash and
investments will be allocated to GSP.

PRINCIPLES OF COMBINATION

The accompanying combined financial statements of GSP reflect the combined
accounts of all of GSP's businesses. The equity method is used to account for
investments in companies and joint ventures, other than joint ventures which GSP
controls, in which GSP has a substantial ownership interest (20% to 50%), or in
which GSP participates in policy decisions. Accordingly, GSP's share of the
earnings or losses of such entities is included in computation of GSP's net
loss. Investments of less than 20% are reported at fair value. All significant
interdivisional items and transactions have been eliminated in combination.

13
<PAGE> 5
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

FINANCIAL INFORMATION

Genzyme will provide to holders of GZSP Stock separate financial
statements, management's discussion and analysis, descriptions of business and
other relevant information for GSP. Notwithstanding the allocation of assets and
liabilities, including contingent liabilities, between Genzyme General, GSP, GMO
and GTR, for the purposes of preparing their respective financial statements,
Genzyme Corporation continues to hold title to all of the assets and is
responsible for all of the liabilities allocated to each of the divisions.
Holders of GZSP Stock are common stockholders of Genzyme and have no specific
claim against the assets attributed to GSP. Liabilities or contingencies of
Genzyme General, GSP, GMO or GTR could affect the financial condition or results
of operations of the other divisions. Accordingly, the GSP combined financial
statements should be read in connection with Genzyme's Consolidated Financial
Statements.

Genzyme prepares the financial statements of GSP in accordance with
generally accepted accounting principles, the management and accounting policies
of Genzyme and the divisional accounting policies approved by the Genzyme Board.
Except as otherwise provided in the policies set forth below, the management and
accounting policies applicable to the presentation of the financial statements
of GSP may be modified or rescinded at the sole discretion of the Genzyme Board
without approval of the stockholders, subject only to the Genzyme Board's
fiduciary duty to Genzyme's stockholders.

DIVIDEND POLICY

Under the terms of the Charter, dividends that may be paid to the holders
of GZSP Stock will be limited to the lesser of funds of Genzyme legally
available for the payment of dividends and the Available GSP Dividend Amount, as
defined in the Charter. Although there is no requirement to do so, the Genzyme
Board would declare and pay cash dividends on GZSP Stock, if any, based
primarily on earnings, financial condition, cash flow and business requirements
of Genzyme.

Genzyme has never paid any cash dividends on shares of its capital stock.
Genzyme currently intends to retain its earnings to finance future growth and,
therefore, does not anticipate paying any cash dividends on GZSP Stock in the
foreseeable future.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Significant estimates include the collectability of accounts receivable,
valuation of inventory and revenue recognition. Actual results could differ from
those estimates.

14
<PAGE> 6
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

FINANCIAL INSTRUMENTS

Financial instruments that potentially subject GSP to significant
concentrations of credit risk consist principally of accounts receivable. GSP
generally invests its cash investments in investment-grade securities to
mitigate risk.

UNCERTAINTIES

GSP is subject to risks common to companies in the medical device and
biotechnology industries, including (i) GSP's ability to successfully complete
preclinical and clinical development and obtain timely regulatory approval and
adequate patent and other proprietary rights protection of its products, (ii)
the content and timing of decisions made by the FDA and other agencies regarding
the applications and indications for which GSP's products may be approved, (iii)
the ability of GSP to manufacture adequate supplies of its gene and cell therapy
and biomaterials products for development and commercialization activities, (iv)
the accuracy of GSP's estimates of the size and characteristics of markets
addressed and to be addressed by GSP's products, (v) market acceptance of GSP's
products, (vi) GSP's ability to obtain reimbursement for its products from
third-party payers, where appropriate, (vii) the accuracy of GSP's information
concerning the products and resources of competitors and potential competitors,
and (viii) the risk that products and technology developed by competitors will
render GSP's products and technology obsolete.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents, consisting principally of money market funds
purchased with initial maturities of three months or less, are valued at cost
plus accrued interest, which approximates market.

INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out method) or
market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. On disposal, the related
cost and accumulated depreciation or amortization are removed from the accounts
and any resulting gain or loss is included in the results of operations.
Provision for depreciation is generally computed using the straight-line method
over the estimated useful lives of the assets (three to ten years for plant and
equipment, five to seven years for furniture and fixtures, and 20 to 40 years
for buildings). The remaining life and recoverability of equipment is evaluated
periodically based on the appropriate facts and circumstances. Leasehold
improvements are amortized over the lesser of the useful life or the term of the
respective lease.

15
<PAGE> 7
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

INTANGIBLES

Intangible assets consist of goodwill, covenants not to compete, customer
lists, patents, trademarks, trade names and technology rights and are being
amortized using the straight-line method over useful lives of 6 to 40 years.
Management's policy regarding intangible assets is to evaluate the
recoverability of its intangible assets when the facts and circumstances suggest
that these assets may be impaired. Evaluations consider factors including
operating results, business plans, economic projections, strategic plans and
market emphasis. Evaluations also compare expected cumulative, undiscounted
operating incomes or cash flows with net book values of related intangible
assets. Unrealizable intangible asset values are charged to operations if these
evaluations indicate an impairment in value, which is measured as the amount by
which the carrying amount of the asset exceeds the present value of estimated
expected future cash flows using a discount rate commensurate with the risk
involved.

TRANSLATION OF FOREIGN CURRENCIES

The financial statements of Genzyme's foreign subsidiaries are translated
from local currency into U.S. dollars using the current exchange rate at the
balance sheet date for assets and liabilities and the average exchange rate
prevailing during the period for revenues and expenses. The local currency for
all of Genzyme's foreign subsidiaries is considered to be the functional
currency for each entity and, accordingly, translation adjustments for these
subsidiaries are included in division equity.

REVENUE RECOGNITION

Revenues from product sales are recognized when goods are shipped to third
party customers and are net of third party contractual allowances and rebates,
as applicable. Revenues from research and development contracts are recognized
over applicable contractual periods as specified by each contract and as costs
related to the contracts are incurred.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed in the period incurred. Costs
of purchased technology which management believes has not demonstrated
technological feasibility and for which there is no alternative future use are
charged to expense in the period of purchase.

INCOME TAXES

The Company uses the asset and liability method of accounting for income
taxes. The provision for income taxes includes income taxes currently payable
and those deferred because of temporary differences between the financial
statement and tax bases of assets and liabilities (see Note B., "Policies
Governing the Relationship of Genzyme's Divisions" below.)

16
<PAGE> 8
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

NET INCOME (LOSS) PER SHARE

Net income (loss) per share attributable to Genzyme General, GSP, GMO and
GTR, gives effect to the management and accounting policies adopted by the
Genzyme Board and is reported in lieu of consolidated per share data. Genzyme
computes net income (loss) per share for each division by dividing the earnings
attributable to each series of stock by the weighted average number of shares of
that stock outstanding during the period, for basic earnings per share, and by
the weighted average shares of that stock, plus other potentially dilutive
securities outstanding during the applicable period for diluted earnings per
share. Earnings (loss) attributable to GENZ Stock, GZSP Stock, GZMO Stock and
GZTR Stock equals the respective division's net income or loss for the relevant
period determined in accordance with generally accepted accounting principles in
effect at such time, adjusted by the amount of tax benefits allocated to or from
the other divisions pursuant to the management and accounting policies adopted
by the Genzyme Board.

Pro forma net loss per share data is presented for GZSP Stock for all
periods as there are no shares of GZSP Stock outstanding prior to June 28, 1999.
Historical loss per share data is omitted from the statement of operations as
GZSP Stock was not part of the capital structure of Genzyme for the periods
presented. Genzyme will distribute to the holders of GENZ Stock of record at the
close of business on June 14, 1999, approximately 14.8 million shares of GZSP
Stock.

The following table sets forth the computation of pro forma basic and
diluted earnings per share for GSP (in thousands, except per share amounts):

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------- --------------------------------
1999 1998 1998 1997 1996
-------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss.................... $(10,745) $(9,118) $(49,856) $(29,740) $(44,313)
======== ======= ======== ======== ========
Pro forma basic and diluted
shares outstanding........ 14,800 14,800 14,800 14,800 14,800
Pro forma net loss per
common share -- basic and
diluted................... $ (0.73) $ (0.62) $ (3.37) $ (2.01) $ (2.99)
======== ======= ======== ======== ========
</TABLE>

Additionally, stock options and shares issuable upon conversion of
Genzyme's 5 1/4% convertible subordinated notes due June 2005 were not included
in the computation of pro forma diluted earnings per share because they would
have an anti-dilutive effect due to the net loss for those periods.

COMPREHENSIVE INCOME

GSP has adopted SFAS 130, "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components in a set of financial statements. Components of comprehensive income
are net income and all other non-owner changes in equity such as the change in
the cumulative translation adjustment. GSP presents such information in its
statement of operations.

17
<PAGE> 9
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

ACCOUNTING FOR STOCK-BASED COMPENSATION

GSP has elected the disclosure-only alternative permitted under SFAS 123,
"Accounting for Stock-Based Compensation." For the years ended December 31,
1998, 1997 and 1996 no disclosure is presented for GSP as there were no GZSP
Stock options granted under any of Genzyme's stock plans prior to June 28, 1999.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS 133
requires companies to recognize all derivatives as either assets or liabilities,
with the instruments measured at fair value. The accounting for changes in fair
value, gains or losses, depends on the intended use of the derivative and its
resulting designation. The statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Genzyme is evaluating SFAS 133 to
determine its impact on its consolidated financial statements.

SEGMENT INFORMATION

GSP has adopted SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 131 supersedes SFAS 14, "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of GSP's reportable segments. SFAS 131 also
requires disclosures about products and services, geographic areas and major
customers (see Note P., "Segment Reporting" below).

NOTE B. POLICIES GOVERNING THE RELATIONSHIP OF GENZYME'S DIVISIONS

Genzyme allocates certain corporate costs for general and administrative,
research and development and cash management services to the divisions. Genzyme
files a consolidated tax return and allocates income taxes to the divisions in
accordance with the policies described below. With the exception of the policy
regarding Interdivisional Asset Transfers, policies may be further modified or
rescinded by action of the Genzyme Board, or the Genzyme Board may adopt
additional policies, without approval of the stockholders of Genzyme, subject
only to the Genzyme Board's fiduciary duty to the Genzyme stockholders. In
addition, generally accepted accounting principles require that any change in
policy be preferable (in accordance with such principles) to the previous
policy.

REVENUE ALLOCATION

Revenues from the sale or licensing of a division's products and services
to entities external to Genzyme are credited to that division. Products and
services normally sold by a division to entities external to Genzyme that are
used by other divisions within Genzyme

18
<PAGE> 10
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

shall be recorded as interdivisional revenues and interdivisional purchases
subject to the policy regarding other interdivisional transactions.

EXPENSE ALLOCATION

Direct expenses are charged to the division for whose benefit the direct
expenses have been incurred. Expenses other than direct expenses are subject to
the policy regarding other interdivisional transactions.

ASSET ALLOCATION

Assets that are exclusively dedicated to the production of goods and
services of a division shall be allocated to that division. Production assets
that are utilized by more than one division are subject to the policy regarding
other interdivisional transactions.

TAX ALLOCATIONS

GSP is included in the consolidated U.S. Federal income tax return filed by
Genzyme. Genzyme allocates current and deferred taxes to the divisions using the
asset and liability method of accounting for income taxes as if the divisions
were separate taxpayers. Accordingly, the realizability of deferred tax assets
is assessed at the division level. The sum of the amounts calculated for
individual divisions of Genzyme may not equal the consolidated amount under this
approach.

Income taxes are allocated to each division based upon the financial
statement income, taxable income, credits and other amounts properly allocable
to such division under generally accepted accounting principles as if each
division were a separate taxpayer; provided, however, that as of the end of any
fiscal quarter of Genzyme, any projected annual tax benefit attributable to any
division that cannot be utilized by such division to offset or reduce its
current or deferred income tax expense may be allocated to the other divisions
in proportion to their taxable income without any compensating payment or
allocation.

ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS

Upon the acquisition by Genzyme from a third party of any programs,
products or assets (whether by acquisitions of assets or stock, merger,
consolidation or otherwise), the aggregate cost of the acquisition and the
programs, products or assets acquired shall be allocated among the divisions of
Genzyme. In the case of material acquisitions, such allocation shall be made in
a manner determined by the Genzyme Board to be fair and reasonable to each
division and to the holders of the common stock representing each division,
taking into account such matters as the Genzyme Board and its financial
advisors, if any, deem relevant. Any such determination will be final and
binding on the holders of common stock.

19
<PAGE> 11
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS

Upon the sale, transfer, assignment or other disposition by Genzyme of any
program, product or asset not consisting of all or substantially all of the
assets of the division, all proceeds from such disposition shall be allocated to
the division to which the program, product or asset had been allocated among
such divisions based on their respective interests in such program, product or
asset. Such allocations shall be made in a manner determined by the Genzyme
Board to be fair and reasonable to such divisions and to holders of the common
stock representing such divisions, taking into account such matters as the
Genzyme Board and its financial advisors, if any, deem relevant. Any such
determination by the Genzyme Board will be final and binding on the holders of
common stock.

INTERDIVISIONAL ASSET TRANSFERS

The Genzyme Board may at any time and from time to time reallocate any
program, product or other asset from one division to any other division. All
such reallocations shall be done at fair market value, determined by the Genzyme
Board, taking into account, in the case of a program under development, the
commercial potential of such program, the phase of clinical development of such
program, the expenses associated with realizing any income from such program,
the likelihood and timing of any such realization and other matters that the
Genzyme Board and its financial advisors, if any, deem relevant. The
consideration for such reallocation may be paid by one division to another in
cash or other consideration with a value equal to the fair market value of the
assets being reallocated or, in the case of a reallocation of assets from
Genzyme General to GSP, GMO or GTR, the Genzyme Board may elect to account for
such reallocation as an increase in the designated shares representing the
division to which such assets are reallocated in accordance with the provisions
of Genzyme's articles of organization.

The foregoing policies regarding transfers of assets between divisions will
not be changed by the Genzyme Board without the approval of the holders of GZSP
Stock, GZMO Stock and GZTR Stock, each voting as a separate class; provided,
however, that if a policy change affects one or more, but not all of, Genzyme
Surgical Products, Genzyme Molecular Oncology and/or Genzyme Tissue Repair, only
holders of shares representing the affected division(s) will be entitled to vote
on such matter.

OTHER INTERDIVISIONAL TRANSACTIONS

This policy shall cover interdivisional transactions other than asset
transfers, which shall be subject to the policy regarding Interdivisional Asset
Transfers. From time to time, a division may engage in transactions directly
with one or more other divisions or jointly with one or more other divisions and
one or more third parties. Such transactions may include agreements by one
division to provide products and services for use by another division and joint
venture or other collaborative arrangements involving more than one

20
<PAGE> 12
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

division to develop new products and services jointly and with third parties.
Such transactions are subject to the following conditions:

(a) Research and development (including clinical and regulatory support),
distribution, sales, marketing, and general and administrative services
(including allocated space) performed by one division for the benefit
of another division will be charged to the division for which work is
performed on a cost basis. Direct costs shall be allocated in a manner
described above under "Expense Allocation" and such division performing
the work will not recognize revenue as a result of performing such
work. Direct labor and indirect costs shall be allocated in a
reasonable and consistent manner based on the utilization by the
division of the services to which such costs relate.

(b) Manufacturing of goods and performance of services by one division
exclusively for the benefit of another division and not for external
sale shall be charged to the division for which the work is performed
on a cost basis. Direct labor and indirect costs shall be allocated in
a reasonable and consistent manner based on the receipt of benefit by
the division of the goods and services to which such costs relate. The
division performing such work will not recognize revenue as a result of
performing such work.

(c) Other than research and development (including clinical and regulatory
support), manufacturing, distribution, sales, marketing, general and
administrative services (including allocated space), interdivisional
transactions shall be on terms and conditions that would be obtainable
in transactions negotiated at arm's length with unaffiliated third
parties. The division performing such work will not recognize revenue
as a result of performing such work.

(d) Any interdivisional transaction (i) to be performed on terms and
conditions that deviate from the policies set forth in subparagraphs
(a), (b) or (c) above and (ii) that is material to one or more of the
participating divisions will require approval by the Genzyme Board,
which approval shall include a determination by the Genzyme Board that
the transaction is fair and reasonable to each participating division
and to the holders of the common stock representing each such division.

(e) Loans may be made from time to time between divisions. Any such loan of
$1 million or less will mature within 18 months and interest will
accrue at the best borrowing rate available to Genzyme for a loan of
like type and duration. Amounts borrowed in excess of $1 million will
require approval of the Genzyme Board, which approval shall include a
determination by the Genzyme Board that the material terms of such
loan, including the interest rate and maturity date, are fair and
reasonable to each participating division and to holders of the common
stock representing such division.

(f) All material interdivisional transactions shall be reduced to service
contracts and signed by an authorized member of the management team of
affected divisions.

21
<PAGE> 13
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

ACCESS TO TECHNOLOGY AND KNOW-HOW

Each division of Genzyme shall have unrestricted access to all technology
and know-how of the Company that may be made useful to such division's business,
subject to any obligations or limitations applicable to Genzyme and its
divisions.

NOTE C. OTHER CHARGES

In the third quarter of 1998, GSP recorded $12.1 million of charges
associated with its review of its requirements to support the Sepra Products. As
a result, in the third quarter of 1998, GSP recorded a $10.4 million charge to
cost of products sold to write-down Sepra Products inventory amounts to net
realizable value. In addition, during the third quarter of 1998, GSP wrote-off
certain costs related to equipment used to manufacture the Sepra Products
totaling $1.7 million.

In the fourth quarter of 1997, GSP recorded charges of $5.5 million to cost
of products sold and $1.9 million to SG&A expense primarily related to the
manufacturing and selling of Sepracoat(TM) Coating Solution, which was
discontinued for the U.S. market after an advisory panel of the FDA recommended
against granting market approval of this product in 1997. This product is sold
outside the United States.

NOTE D. ACQUISITION

The Company allocates all acquisitions to either Genzyme General, GSP, GMO
or GTR depending on the nature of the acquired business.

On July 1, 1996, Genzyme acquired DSP and allocated it to GSP. The purchase
price of $252.2 million consisted of cash of approximately $192.0 million,
acquisition costs of approximately $4.6 million and debt obligations of DSP of
approximately $55.6 million. The acquisition was accounted for as a purchase.
The excess of the purchase price over the fair market value of the net tangible
assets acquired include an allocation of approximately $130.8 million to
goodwill, $45.9 million to tradenames and $15.3 million to patents. The goodwill
and tradenames are amortized over 40 years and patents are amortized over their
useful lives of 6 to 17 years.

The purchase price was allocated to the assets and liabilities of DSP based
on their estimated respective fair values on the date of acquisition. Completed
technology that had reached technological feasibility was valued using a risk
adjusted cash flow model under which future cash flows were discounted, taking
into account risks related to existing and future markets and assessments of the
life expectancy of the completed technology. In-process technology that had not
reached technological feasibility and that has no alternative future use was
valued using the same method. Expected future cash flows associated with
in-process technology were discounted considering risks and uncertainties
related to the viability of and to the potential changes in future target
markets and to the completion of the products expected to be ultimately marketed
by Genzyme. The amount allocated to in-process technology of $24.2 million was
charged to operations in July 1996 upon completion of the acquisition.

22
<PAGE> 14
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

NOTE E. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

Off-balance-sheet financial instruments create various degrees and types of
risk to Genzyme, including credit, interest rate and liquidity risk.

In the normal course of business, Genzyme enters into interest rate swap
contracts to hedge interest rate risk related to its variable rate notes
payable. Interest rate swaps generally involve the exchange of fixed and
variable interest payments between two parties based on a common notional
principal amount and maturity date. The notional amount of interest rate
contracts is the amount upon which interest and other payments under the
contract are based. The primary risks associated with interest rate swaps are
the exposure to movements in interest rates and the ability of counterparties to
meet the terms of the contract. For the periods presented, no debt or interest
rate swaps have been allocated to GSP.

NOTE F. ACCOUNTS RECEIVABLE AND INTANGIBLE ASSETS

GSP's trade receivables primarily represent amounts due from healthcare
service providers. GSP performs ongoing credit evaluations of its customers and
generally does not require collateral. Accounts receivable are stated at fair
value after reflecting the allowance for doubtful accounts of $0.4 million and
$0.5 million at December 31, 1998 and 1997, respectively.

Net intangible assets for GSP as of December 31, 1998 and 1997 includes
$122.4 million and $125.6 million, respectively, of goodwill due to the DSP
acquisition.

As of December 31, 1998 and 1997, accumulated amortization of intangible
assets was $13.9 million and $8.6 million, respectively.

NOTE G. INVENTORIES

Inventories consist of the following (amounts in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------
1999 1998 1997
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials....................... $12,308 $11,567 $ 9,024
Work-in-process..................... 2,017 1,734 1,394
Finished products................... 10,594 8,725 15,759
------- ------- -------
Total..................... $24,919 $22,026 $26,177
======= ======= =======
</TABLE>

23
<PAGE> 15
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

NOTE H. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31 includes the following
(amounts in thousands):

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Plant and equipment............................ $ 8,934 $ 8,419
Land and buildings............................. 8,261 8,170
Leasehold improvements......................... 434 387
Furniture and fixtures......................... 3,944 3,021
Construction-in-progress....................... 614 231
------- -------
22,187 20,228
Less accumulated depreciation................ (5,938) (3,680)
------- -------
Property, plant and equipment, net........... $16,249 $16,548
======= =======
</TABLE>

Depreciation expense was $2.5 million, $2.7 million and $1.3 million in
1998, 1997 and 1996, respectively.

NOTE I. ACCRUED EXPENSES

Accrued expenses at December 31 includes the following (amounts in
thousands):

<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Compensation................................... $1,555 $1,963
Professional fees.............................. 291 307
Royalties...................................... 523 414
Other.......................................... 2,313 1,331
------ ------
$4,682 $4,015
====== ======
</TABLE>

NOTE J. LONG-TERM DEBT AND LEASES

Although the Company retains responsibility for the repayment of all
long-term debt obligations, such debt is allocated to either Genzyme General,
GSP, GMO or GTR for reporting purposes based on the intended use of the funds
borrowed under each instrument.

REVOLVING CREDIT FACILITY

Genzyme has a $225 million revolving credit facility with a syndicate of
commercial banks. Loans bear interest at LIBOR plus an applicable margin
pursuant to the terms and conditions defined in the credit agreement. Amounts
drawn under this facility may be allocated to Genzyme General, GSP, GMO or GTR.
As of December 31, 1998 and March 31, 1999, Genzyme had $100.0 million of debt
outstanding under the revolving credit facility, $82.0 million of which was
allocated to Genzyme General and $18.0 million of which was allocated to GTR.

24
<PAGE> 16
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

The notes have certain covenants which require Genzyme to, among other
things, maintain certain levels of earnings and liquidity ratios. If Genzyme
defaults on the covenants, the revolving credit facility is payable on demand.
The stock of Genzyme Securities Corporation, a Massachusetts securities
corporation, is pledged as collateral for this facility. As of December 31,
1998, the interest rate on amounts outstanding under the revolving credit
facility was approximately 5.75%. Genzyme pays a commitment fee ranging from
0.15% to 0.375% on the unused portion of the revolving credit facility.

OPERATING LEASES

Total rent expense under operating leases was $0.2 million, $0.2 million
and $0.1 million in 1998, 1997 and 1996, respectively. GSP leases facilities and
personal property under certain operating leases in excess of one year.

Future minimum payments due under operating leases (amounts in thousands):

<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
1999........................................ $ 234
2000........................................ 241
2001........................................ 249
2002........................................ 256
2003........................................ 264
Thereafter.................................. 3,255
------
Total minimum payments............ $4,499
======
</TABLE>

NOTE K. DIVISION EQUITY

The following presents the division equity of GSP for the periods presented
(amounts in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period.................... $234,969 $239,040 $ 175
Net loss.......................................... (49,856) (29,740) (44,313)
Allocation from Genzyme General................... 41,975 25,669 283,178
-------- -------- --------
Balance at end of period.......................... $227,088 $234,969 $239,040
======== ======== ========
</TABLE>

There are 60,000,000 shares of GZSP Stock authorized as of June 1999. Of
the authorized shares, 16,000,000 GZSP Designated Shares will be created. On
June 28, 1999, Genzyme will issue approximately 14,800,000 shares of GZSP Stock
to Genzyme General stockholders of record as of the close of business on June
14, 1999 in a dividend distribution of approximately 0.17923 share of GZSP Stock
for each share of GENZ Stock owned. Cash in lieu of fractional shares will be
paid at $25.00 per share.

25
<PAGE> 17
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

PREFERRED STOCK

Shares of preferred stock may be issued from time to time in one or more
series. The Genzyme Board may determine, in whole or in part, the preferences,
voting powers, qualifications, and special or relative rights or privileges of
any such series before the issuance of any such shares of that series. The
Genzyme Board shall determine the number of shares constituting each series of
preferred stock and each series shall have a distinguishing designation.

GZSP DESIGNATED SHARES

Pursuant to the Charter, GZSP Designated Shares are authorized shares of
GZSP Stock which are not issued and outstanding, but which the Genzyme Board may
from time to time issue, sell or otherwise distribute without allocating the
proceeds or other benefits of such issuance, sale or distribution to GSP. GZSP
Designated Shares are not eligible to receive dividends and cannot be voted by
Genzyme. GZSP Designated Shares are created in certain circumstances when cash
or other assets are transferred from Genzyme General to GSP. The number of GZSP
Designated Shares will be decreased by: the number of shares of GZSP Stock
issued by Genzyme, the proceeds of which are allocated to Genzyme General; the
number of shares of GZSP Stock issued as a dividend to holders of GENZ Stock;
and the number of shares of GZSP Stock issued upon the conversion of convertible
securities, the proceeds of which are attributed to Genzyme General.
Approximately 1,131,000 GZSP Designated Shares will be reserved for issuance
upon conversion of Genzyme's 5 1/4% convertible subordinated notes due June
2005. In addition, the number of GZSP Designated Shares can be increased as a
result of certain interdivision transactions.

If, as of June 30 of each year starting June 30, 2000, the number of GZSP
Designated Shares on such date (not including those reserved for issuance with
respect to Genzyme General convertible securities as a result of anti-dilution
adjustments required by the terms of such instruments by the Genzyme Board)
exceeds 10% of the number of shares of GZSP Stock then issued and outstanding,
then substantially all GZSP Designated Shares will be distributed to holders of
record of GENZ Stock, subject to reservation of a number of such shares equal to
the sum of (a) the number of GZSP Designated Shares reserved for issuance upon
the exercise or conversion of Genzyme General convertible securities and (b) the
number of GZSP Designated Shares reserved by the Genzyme Board as of such date
for sale not later than six months after such date, the proceeds of which sale
will be allocated to Genzyme General.

DIRECTORS' DEFERRED COMPENSATION PLAN

Genzyme's Directors' Deferred Compensation Plan allows each member of the
Genzyme Board who is not also an officer or employee of Genzyme to defer receipt
of all or a portion of the cash compensation payable to him or her as a director
of Genzyme and receive either cash or stock in the future. Compensation may be
deferred until the termination of services as a director or, subject to certain
restrictions, such other date as may be specified by the director. All of the
current directors of Genzyme, other than those

26
<PAGE> 18
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

directors who are also officers or employees of Genzyme, are eligible to
participate in the plan and as of December 31, 1998, one of the directors has
elected to participate in the plan. Genzyme has reserved 50,000 shares of GENZ
Stock, 50,000 shares of GZSP Stock, 50,000 shares of GZMO Stock and 100,000
shares of GZTR Stock to cover distributions of shares credited to stock accounts
under the Directors' Deferred Compensation Plan (subject in each case to
adjustments for stock splits, stock dividends, and certain transactions
affecting Genzyme's capital stock). As of March 31, 1999 and December 31, 1998,
no shares of GENZ Stock, GZSP Stock, GZMO Stock and GZTR Stock credited to stock
accounts under the Directors' Deferred Compensation Plan have been distributed
to participants.

SHARES RESERVED FOR ISSUANCE UNDER THE EQUITY PLANS, DIRECTORS' STOCK OPTION
PLAN AND EMPLOYEE STOCK PURCHASE PLAN

At March 31, 1999, approximately 14,915,000 shares of GENZ Stock, 1,100,000
shares of GZSP Stock, 3,637,000 shares of GZMO Stock and 5,699,000 shares of
GZTR Stock were reserved for issuance under the Company's 1990 Equity Incentive
Plan, as amended, 1997 Equity Plan, as amended, 1998 Director Stock Option Plan,
as amended, 1999 Employee Stock Purchase Plan, and upon the exercise of
outstanding warrants.

STOCK OPTIONS

Pursuant to the 1990 Equity Incentive Plan, as amended, and the 1997 Equity
Plan, options may be granted to purchase an aggregate of 23,800,000 shares of
GENZ Stock, 500,000 shares of GZSP Stock, 3,500,000 shares of GZMO Stock and
5,300,000 shares of GZTR Stock. The plans allow the granting of stock options at
not less than fair market value at date of grant, and stock appreciation rights,
performance shares, restricted stock and stock units to employees and
consultants of the Company, each with a maximum term of ten years. In addition,
Genzyme has a 1998 Director Stock Option Plan pursuant to which nonstatutory
stock options up to a maximum of 340,000 shares of GENZ Stock, 100,000 shares of
GZSP Stock, 140,000 shares of GZMO Stock and 200,000 shares of GZTR Stock are
automatically granted at fair market value to members of the Genzyme Board upon
their election or reelection as directors. For each year of a director's term of
office, he or she receives (a) an option to purchase 4,000 shares of each of
GENZ Stock and (b) options to purchase shares of GZSP Stock, GZMO Stock and GZTR
Stock. All options expire ten years after the initial grant date and vest over
four years. There have been no GZSP stock options granted under these plans.

STOCK RIGHTS

Pursuant to the Company's Restated Rights Agreement, each outstanding share
of GZSP Stock also represents one preferred stock purchase right (a "GZSP Stock
Right"). Each GZSP Stock Right, when it become exercisable, will entitle the
registered holder to purchase from Genzyme one one-hundredth of a share of
Series D Junior Participating Preferred Stock at a purchase price of $150.00,
subject to adjustment.

27
<PAGE> 19
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

NOTE L. RESEARCH AND DEVELOPMENT AGREEMENTS

The Company allocates all research and development agreements with
unconsolidated affiliates to Genzyme General GSP, GMO or GTR based on the
business to which the research relates.

Genzyme Development Corporation II, a wholly-owned subsidiary of Genzyme
and which has been allocated to GSP, is the General Partner of GDP, a Delaware
limited partnership which was formed in September 1989 to develop, produce and
derive income from the sale of the Sepra Products.

The Company has an option (the "GDP Purchase Option") to purchase all of
the outstanding partnership interests in GDP for a payment of approximately
$26.0 million in cash, GENZ Stock or a combination thereof determined at
Genzyme's sole discretion, plus future royalty payments. The GDP Purchase Option
is exercisable during the 90-day period commencing on August 31, 2000, but such
commencement date will be accelerated to the last day of the first month in
which GDP has received distributions from GVII (described below) in an aggregate
amount of at least $5.5 million. Genzyme elected without obligation to fund the
research and development activities of GDP using Genzyme General cash and spent
approximately $8.4 million, $7.3 million and $6.0 million on GDP's programs in
1998, 1997 and 1996, respectively. The Company has agreed to fund GDP's research
and development programs and general and administrative expenses through 1999
but, as General Partner, believes that additional funds will be required to
complete the development, clinical testing and commercialization of GDP's
products.

The Company and GDP formed GVII in September 1989 for the purpose of
manufacturing and marketing the Sepra Products in the United States and Canada
for use in human clinical trials or human surgical procedures. GDP has
contributed its technology and $1.7 million to GVII and GSP has contributed its
agreement to manufacture and market the Sepra Products, to make non-interest
bearing loans to GVII in the amount of any working capital deficiency, and to
make capital contributions to the extent deemed necessary by the two venturers
in connection with the business of GVII. GVII began to engage in active business
after receipt of FDA marketing approval for Seprafilm(R) Bioresobable Membrane
in August 1996. For the years ended December 31, 1998, 1997 and 1996, GVII
incurred net losses of $4.8 million, $2.3 million and $2.5 million,
respectively, primarily attributable to costs associated with the introduction
of the Sepra Products to the healthcare marketplace. The results of operations
and financial position of GVII are consolidated into GSP's financial statements.

NOTE M. COMMITMENTS AND CONTINGENCIES

From time to time Genzyme has been subject to legal proceedings and claims
arising in connection with its business. At March 31, 1999 and December 31,
1998, there were no asserted claims against Genzyme which, in the opinion of
management, if adversely decided would have a material adverse effect on GSP's
financial position and results of operations.

28
<PAGE> 20
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

NOTE N. INCOME TAXES

The following summarizes GSP's benefit from income taxes (amounts in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes:
Current................................. $ -- $ -- $ --
Deferred................................ -- -- (751)
State income taxes:
Current................................. -- -- --
Deferred................................ -- -- (86)
-------- -------- --------
Total income tax benefit.................. $ -- $ -- $ (837)
======== ======== ========
</TABLE>

The differences between the effective tax rates and the U.S. federal
statutory tax rates were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
U.S. federal income tax statutory rate.... (35.0%) (35.0%) (35.0%)
State income taxes, net of federal
benefit................................. (3.1%) (3.0%) (5.2%)
Nondeductible amortization................ 2.3% 4.0% 2.9%
Deductions subject to deferred tax
valuation allowance..................... 35.8% 34.0% 35.4%
-------- -------- --------
Effective tax rate........................ 0.0% 0.0% (1.9%)
======== ======== ========
</TABLE>

At December 31 the components of net deferred tax assets were as follows
(amounts in thousands):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 48,701 $ 29,626
Unrealized capital losses............................ 1,317 1,317
Reserves and other................................... 4,908 3,755
-------- --------
Gross deferred tax asset............................. 54,926 34,698
Valuation allowance.................................. (45,896) (26,324)
-------- --------
Net deferred tax assets.............................. $ 9,030 $ 8,374
======== ========
Deferred tax liabilities:
Intangible amortization.............................. $ (6,712) $ (6,012)
Depreciable assets................................... (2,318) (2,362)
-------- --------
Net deferred tax liabilities......................... $ (9,030) $ (8,374)
======== ========
</TABLE>

Due to uncertainty surrounding the realization of certain favorable tax
attributes, GSP placed a valuation allowance of $45.9 million and $26.3 million
for December 31, 1998 and 1997, respectively, against otherwise recognizable
deferred tax assets. At the time GSP

29
<PAGE> 21
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

recognizes these tax assets in accordance with generally accepted accounting
principles, the resulting deferred tax benefits will be reflected in the tax
provision for GSP. However, the benefit of these deferred tax assets has been
previously allocated to Genzyme General in accordance with the management and
accounting policies, and has been reflected as a reduction of GSP net income to
determine net income attributable to GZSP Stock.

NOTE O. BENEFIT PLANS

Genzyme has a domestic employee savings plan under Section 401(k) of the
Internal Revenue Code of 1986, as amended, covering substantially all employees
of the Company with the exception of employees of GSP who have a separate
retirement savings plan. The plan allows employees to make contributions up to a
specified percentage of their compensation, a portion of which are matched by
the Company. GSP contributed $0.8 million, $0.8 million and $0.6 million to the
401(k) Plan in 1998, 1997 and 1996, respectively.

The Company has defined-benefit pension plans covering substantially all
the employees of GSP and certain of Genzyme's foreign subsidiaries. There was no
defined-benefit pension expense recorded for GSP for the years ended December
31, 1998, 1997 and 1996, respectively. Pension costs are funded as accrued.
Actuarial and other disclosures regarding the plans are not presented because
the defined-benefit pension plans are not material.

NOTE P. SEGMENT REPORTING

GSP has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," replacing the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of GSP's reportable
segments. SFAS No. 131 also requires disclosures about products and services,
geographic areas and major customers.

GSP has two reportable segments: the Cardiovascular Surgery product line,
which includes chest drainage systems, instruments and closures which are used
primarily in coronary artery bypass, valve replacement and other cardiothoracic
procedures; and the General Surgery product line, which is focused on surgical
instruments and Seprafilm(R) Bioresorbable Membrane which is used to prevent
adhesions in abdominal or pelvic surgery.

30
<PAGE> 22
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

Information concerning the operations in these reportable segments is as
follows (dollars in thousands):

<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Cardiovascular Surgery........ $19,387 $17,892 $ 74,544 $ 74,727 $39,556
General Surgery............... 5,897 4,713 20,249 19,625 7,073
Other......................... 2,213 1,880 10,045 7,905 4,477
Eliminations/Adjustments...... (144) (258) (880) (1,422) (392)
------- ------- -------- -------- -------
Total......................... $27,353 $24,227 $103,958 $100,835 $50,714
======= ======= ======== ======== =======
GROSS PROFIT
Cardiovascular Surgery........ $ 8,570 $ 7,403 $ 29,596 $ 33,494 $14,189
General Surgery............... 1,878 877 (490) 4,772 1,678
Other......................... 1,061 1,224 2,578 2,767 2,193
------- ------- -------- -------- -------
Total......................... $11,509 $ 9,504 $ 31,684 $ 41,033 $18,060
======= ======= ======== ======== =======
</TABLE>

The amounts in other consist primarily of amounts related to the Plastic
Surgery product line.

There are no transactions between reportable segments. The amounts in
revenues -- eliminations/adjustments consist of discounts given by GSP to
customers. These discounts are not reported by product line. GSP does not
break-out assets by product line and therefore they are not disclosed. In 1996,
GSP's revenue includes DSP from July 1, 1996 (date of acquisition of DSP) to
December 31, 1996.

In 1998, gross profit for General Surgery includes a $10.4 million charge
to write-down Sepra Products inventory amounts to net realizable value. In 1997,
gross profit for Cardiovascular and General Surgery include charges of $0.4
million and $5.1 million, respectively, related primarily to the manufacturing
of Sepracoat(TM) Coating Solution, which was discontinued for the U.S. market
after an advisory panel of the FDA recommended against granting market approval
of this product in 1997. This product is sold outside of the United States.

31
<PAGE> 23
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

Certain information by geographic area follows (dollars in thousands):

<TABLE>
<CAPTION>
REVENUES
--------
<S> <C>
1998
United States.................................... $ 74,072
Germany.......................................... 17,400
Other............................................ 12,486
--------
Total....................................... $103,958
========

1997
United States.................................... $ 71,898
Germany.......................................... 16,839
Other............................................ 12,098
--------
Total....................................... $100,835
========

1996
United States.................................... $ 37,741
Germany.......................................... 9,160
Other............................................ 3,813
--------
Total....................................... $ 50,714
========
</TABLE>

All long-lived assets are in the United States.

GSP markets its products directly to physicians and hospitals. GSP also
markets its products through distributors and had the following sales as a
percentage of total revenue to two unaffiliated distributors:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Distributor A......................... 18% 20% 23%
Distributor B......................... 8% 11% 12%
</TABLE>

32
<PAGE> 24
GENZYME SURGICAL PRODUCTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 IS UNAUDITED)

NOTE Q. QUARTERLY RESULTS (UNAUDITED)

Summarized quarterly financial data (amounts in thousands, except per share
data) for the years ended December 31, 1998 and 1997 are displayed in the
following table.

<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998
Net sales................................. $24,227 $27,201 $24,904 $27,626
Gross profit (loss)..................... 9,504 11,942 (919) 11,157
Net loss (1,2).......................... (9,118) (9,886) (21,519) (9,333)
Pro forma loss per share:
Pro forma basic and diluted.......... $ (0.62) $ (0.67) $ (1.45) $ (0.63)
1997
Net sales................................. $26,916 $26,735 $23,163 $24,021
Gross profit............................ 13,986 13,171 10,069 3,807
Net loss (1,2).......................... (1,282) (2,794) (7,339) (18,325)
Pro forma loss per share:
Pro forma basic and diluted.......... $ (0.09) $ (0.19) $ (0.50) $ (1.24)
</TABLE>

- ---------------
(1) Includes pre-tax charges in the third quarter of 1998 of $12.1 million
resulting from certain other charges (see Note C., "Other Charges" above).

(2) Includes pre-tax charges in the fourth quarter of 1997 of $7.4 million
related to certain other charges recorded in December 1997 (see Note C.,
"Other Charges" above).

33
<PAGE> 25

GENZYME SURGICAL PRODUCTS
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Period Expenses Accounts Deductions Period
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year-ended December 31, 1998:
Allowance for doubtful accounts $ 476,000 $ 166,000 $ 0 $ 277,000 $ 365,000
Inventory reserve $ 3,700,000 $10,758,000 $ 0 $ 2,331,000 $12,127,000

Year-ended December 31, 1997:
Allowance for doubtful accounts $ 917,000 $ 275,000 $ 0 $ 716,000 $ 476,000
Inventory reserve $ 3,854,000 $ 484,000 $ 0 $ 638,000 $ 3,700,000

Year-ended December 31, 1996:
Allowance for doubtful accounts $ 0 $ 0 $ 1,026,000(1) $ 109,000 $ 917,000
Inventory reserve $ 0 $ 329,000 $ 3,525,000(1) $ 0 $ 3,854,000

(1) Reserve acquired in acquisition.

</TABLE>

34
<PAGE> 26

GENZYME SURGICAL PRODUCTS

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Genzyme Corporation:

In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and of cash flows present fairly, in all
material respects, the financial position of Genzyme Surgical Products (as
described in Note A) at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related combined financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As more fully described in Note A to these financial statements, Genzyme
Surgical Products is a division of Genzyme Corporation; accordingly, the
combined financial statements of Genzyme Surgical Products should be read in
conjunction with the audited consolidated financial statements of Genzyme
Corporation and Subsidiaries.

/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
PricewaterhouseCoopers LLP

Boston, Massachusetts
June 9, 1999

<PAGE> 1

Exhibit 99.2

UNAUDITED, COMBINED PRO FORMA FINANCIAL STATEMENTS OF
GENZYME GENERAL

INTRODUCTION:

On June 28, 1999, Genzyme General Division ("Genzyme General") will
transfer $150.0 million of cash and investments (the "Transfer") to Genzyme
Surgical Products Division ("GSP") and Genzyme will distribute (the
"Distribution") approximately 14.8 million shares of Genzyme Surgical Products
Division Common Stock ("GZSP Stock") to the holders of Genzyme General Division
Common Stock ("GENZ Stock"). These unaudited, combined pro forma financial
statements and the related notes are presented to give effect to the Transfer
and the Distribution (as described in Note 1). Pro forma statements of
operations have been presented for Genzyme General assuming that the
Distribution occurred as of January 1, 1998. A pro forma balance sheet has been
presented for Genzyme General assuming that the Transfer and the Distribution
occurred as of March 31, 1999. Pro forma financial statements for Genzyme,
Genzyme Molecular Oncology Division ("GMO") and Genzyme Tissue Repair Division
("GTR") have not been included because the Transfer will have no effect on the
historical financial condition or results of operations of either Genzyme, GTR
or GMO.

<PAGE> 2

GENZYME GENERAL

UNAUDITED, COMBINED PRO FORMA STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
FOR THE FOR THE
QUARTER ENDED PRO FORMA QUARTER ENDED
3/31/99 ADJUSTMENTS 2(A) 3/31/99
------------- ---------------- -------------
<S> <C> <C> <C>
Total revenues........................................ $178,119 $(27,353) $150,766

Operating costs and expenses:
Cost of products and services sold.................. 52,566 (15,844) 36,722
Selling, general and administrative................. 51,012 (15,287) 35,725
Research and development............................ 26,667 (5,602) 21,065
Amortization of intangibles......................... 3,503 (1,417) 2,086
-------- -------- --------
Total operating costs and expenses.......... 133,748 (38,150) 95,598
-------- -------- --------
Operating income...................................... 44,371 10,797 55,168

Other income (expenses):
Equity in net loss of unconsolidated affiliates..... (7,710) (46) (7,756)
Gain on affiliate sale of stock..................... 606 -- 606
Minority interest................................... 866 -- 866
Gain on sale of investment in equity securities..... 1,963 -- 1,963
Investment income................................... 7,930 (7) 7,923
Interest expense.................................... (5,050) 1 (5,049)
-------- -------- --------
Total other income (expenses)............... (1,395) (52) (1,447)
-------- -------- --------
Income before income taxes............................ 42,976 10,745 53,721
Provision for income taxes............................ (16,391) (3,825) (20,216)
-------- -------- --------
Net income............................................ 26,585 6,920 33,505
Tax benefit allocated from Genzyme Tissue Repair...... 3,962 -- 3,962
Tax benefit allocated from Genzyme Molecular
Oncology............................................ 1,934 -- 1,934
Tax benefit allocated from Genzyme Surgical
Products............................................ -- 3,825 3,825
-------- -------- --------
Net income attributable to GENZ Stock................. $ 32,481 $ 10,745 $ 43,226
======== ======== ========
Per Genzyme General common share:
Net income per Genzyme General common
share -- basic:..................................... $ 0.40 $ 0.13 $ 0.53
======== ======== ========
Weighted average shares outstanding................... 81,958 -- 81,958
======== ======== ========
Net income per Genzyme General common and common
equivalent share -- diluted:........................ $ 0.38 $ 0.11 $ 0.49
======== ======== ========
Adjusted weighted average shares outstanding.......... 85,632 6,959 92,591
======== ======== ========
</TABLE>

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

2
<PAGE> 3

GENZYME GENERAL

UNAUDITED, COMBINED PRO FORMA STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL FOR THE
FOR THE YEAR
YEAR ENDED PRO FORMA ENDED
12/31/98 ADJUSTMENTS 2(A) 12/31/98
---------- ---------------- ---------
<S> <C> <C> <C>
Total revenues............................................ $673,277 $(103,958) $569,319

Operating costs and expenses:
Cost of products and services sold...................... 245,316 (72,274) 173,042
Selling, general and administrative..................... 183,469 (57,297) 126,172
Research and development................................ 91,757 (18,618) 73,139
Amortization of intangibles............................. 13,358 (5,748) 7,610
-------- --------- --------
Total operating costs and expenses.............. 533,900 (153,937) 379,963
-------- --------- --------
Operating income.......................................... 139,377 49,979 189,356

Other income (expenses):
Equity in net loss of unconsolidated affiliates......... (19,685) (54) (19,739)
Gain on affiliate sale of stock......................... 2,369 -- 2,369
Minority interest....................................... 4,285 -- 4,285
Gain on sale of product line............................ 31,202 -- 31,202
Gain on sale of investments............................. 3,391 -- 3,391
Charge for impaired investments......................... (3,397) -- (3,397)
Investment income....................................... 23,097 (144) 22,953
Interest expense........................................ (17,069) 75 (16,994)
-------- --------- --------
Total other income (expenses)................... 24,193 (123) 24,070
-------- --------- --------
Income before income taxes................................ 163,570 49,856 213,426
Provision for income taxes................................ (62,438) (17,936) (80,374)
-------- --------- --------
Net income................................................ 101,132 31,920 133,052
Tax benefit allocated from Genzyme Tissue Repair.......... 16,394 -- 16,394
Tax benefit allocated from Genzyme Molecular Oncology..... 3,527 -- 3,527
Tax benefit allocated from Genzyme Surgical Products...... -- 17,936 17,936
-------- --------- --------
Net income attributable to GENZ Stock..................... $121,053 $ 49,856 $170,909
======== ========= ========
Per Genzyme General common share:
Net income per Genzyme General common share -- basic:..... $ 1.53 $ 0.63 $ 2.16
======== ========= ========
Weighted average shares outstanding....................... 79,063 -- 79,063
======== ========= ========
Net income per Genzyme General common and common
equivalent share -- diluted:............................ $ 1.48 $ 0.58 $ 2.06
======== ========= ========
Adjusted weighted average shares outstanding.............. 81,734 4,088 85,822
======== ========= ========
</TABLE>

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

3
<PAGE> 4

GENZYME GENERAL

UNAUDITED, COMBINED PRO FORMA BALANCE SHEET
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
GENZYME GENZYME
GENERAL PRO FORMA GENERAL
3/31/99 ADJUSTMENTS 2(B) 3/31/99
---------- ---------------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 61,668 $ (1,199) $ 60,469
Short-term investments................................ 247,668 (150,000) 97,668
Accounts receivable, net.............................. 156,461 (16,344) 140,117
Inventories........................................... 107,910 (24,919) 82,991
Prepaid expenses and other current assets............. 31,108 (1,347) 29,761
Due from Genzyme Tissue Repair........................ 3,994 -- 3,994
Due from Genzyme Molecular Oncology................... 4,526 -- 4,526
Deferred tax assets -- current........................ 39,690 -- 39,690
---------- --------- ----------
Total current assets.......................... 653,025 (193,809) 459,216

Property, plant and equipment, net...................... 374,294 (16,306) 357,988

Long-term investments................................... 300,985 -- 300,985
Intangibles, net........................................ 259,934 (176,183) 83,751
Deferred tax assets -- noncurrent....................... 28,245 -- 28,245
Investments in equity securities........................ 39,305 -- 39,305
Other noncurrent assets................................. 33,197 (2,687) 30,510
---------- --------- ----------
Total assets.................................. $1,688,985 $(388,985) $1,300,000
========== ========= ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable...................................... $ 21,513 $ (5,285) $ 16,228
Accrued expenses...................................... 76,664 (5,013) 71,651
Income taxes payable.................................. 20,974 12 20,986
Deferred revenue...................................... 1,618 -- 1,618
Current portion of long-term debt and capital lease
obligations........................................ 83,158 -- 83,158
---------- --------- ----------
Total current liabilities..................... 203,927 (10,286) 193,641

Noncurrent liabilities:
Long-term debt and capital lease obligations............ 3,070 -- 3,070
Convertible subordinated notes and debentures........... 271,813 -- 271,813
Other................................................... 8,072 (221) 7,851
---------- --------- ----------
Total liabilities............................. 486,882 (10,507) 476,375

Division equity......................................... 1,202,103 (378,478) 823,625
---------- --------- ----------

Total liabilities and division equity......... $1,688,985 $(388,985) $1,300,000
========== ========= ==========
</TABLE>

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

4
<PAGE> 5

GENZYME GENERAL

NOTES TO UNAUDITED, COMBINED PRO FORMA FINANCIAL STATEMENTS

(1) CREATION OF GSP AND DISTRIBUTION OF GZSP STOCK:

GSP was created from Genzyme's existing surgical products business, which
previously operated as a business unit of Genzyme General. It primarily
consists of the products and assets of Genzyme acquired upon the purchase of
DSP in 1996, Genzyme's portfolio of Sepra Products, and Genzyme's research
and development programs in gene and cell therapy for cardiovascular
disease. On June 28, 1999 (the "Distribution Date"), Genzyme will distribute
to the holders of GENZ Stock of record at the close of business on June 14,
1999, approximately 14.8 million shares of GZSP Stock. Also on June 28,
1999, Genzyme General will allocate $150.0 million of cash and investments
to GSP. Subsequent to the Distribution, Genzyme General's financial
statements will be restated to eliminate the assets and liabilities and
revenue and expenses attributable to GSP. These pro forma financial
statements reflect such eliminations.

(2) PRO FORMA ADJUSTMENTS RELATED TO THE CREATION OF GSP AND DISTRIBUTION OF
GZSP STOCK:

(A) The pro forma adjustments to the Genzyme General Combined Statements of
Operations for the three months ended March 31, 1999 and for the year
ended December 31, 1998, reflect the elimination of revenues and
expenses attributable to GSP's operations for those periods. In
addition, Genzyme General's income tax provision has been adjusted to
reflect the impact of eliminating GSP's losses. The tax benefit
attributable to GSP has been reallocated to Genzyme General in
accordance with Genzyme's tax allocation policy.

(B) The pro forma adjustments to the Genzyme General Combined Balance Sheet
at March 31, 1999 reflect the elimination of assets, liabilities and
division equity attributable to GSP as of March 31, 1999. In addition,
the short-term investments have been adjusted to reflect the transfer
of $150.0 million to GSP.

<PAGE> 1
Exhibit 99.3

RISK FACTORS RELATING TO GENZYME SURGICAL PRODUCTS
DIVISION COMMON STOCK

The following are risk factors associated with owning shares of Genzyme
Surgical Products Division Common Stock, which we refer to as GZSP Stock.

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:

- product development activities and projected expenditures;

- receipt of regulatory approvals;

- plans for sales and marketing;

- estimated market size and shares;

- projected cash needs;

- financial results; and

- dividend policy.

Generally, the words "anticipates," "expects," "believes," "intends," "could,"
"may" and similar expressions identify forward-looking statements.
Forward-looking statements involve risks and uncertainties, and our actual
results could differ significantly from results discussed in the forward-looking
statements.

Throughout these risk factors, "we," us," "our," and "Genzyme" refer to
Genzyme Corporation and all of its business divisions collectively, and "our
board of directors" or "our board" refers to the board of directors of Genzyme.

A. RISKS RELATED TO GENZYME TRACKING STOCK

GZSP Stock is one of four series of our tracking stock. The following are
risks related to owning shares of our tracking stock.

FINANCIAL IMPACT ON ONE OF OUR DIVISIONS COULD ADVERSELY AFFECT OUR OTHER
DIVISIONS.

Neither Genzyme Surgical Products nor our other divisions are separate
legal entities. Holders of GZSP Stock, together with holders of our other series
of tracking stock, are stockholders of a single company and face all of the
risks of an investment in Genzyme and all of our businesses, assets and
liabilities.

For purposes of financial presentation, we allocate programs, products,
assets and liabilities among our four divisions. However, Genzyme continues to
own all of the assets and is responsible for all of the liabilities allocated to
each of the divisions. A holder of GZSP Stock, for example, would not have any
specific rights to the assets allocated to Genzyme Surgical Products in our
financial statements. Furthermore, if we are unable to satisfy one division's
liabilities out of the assets we allocate to that division, we may be required
to satisfy those liabilities with assets we have allocated to another division.
You should read both our consolidated financial statements and the financial
statements of Genzyme Surgical Products included in the reports that we have
filed with the Securities and Exchange Commission (the "SEC").

<PAGE> 2

OUR BOARD OF DIRECTORS MAY TAKE ACTIONS THAT, WHILE IN THE BEST INTERESTS OF
GENZYME AS A WHOLE, HAVE AN UNEQUAL AND ADVERSE EFFECT ON ONE OR MORE SERIES OF
OUR STOCK.

There may be times when the interests of holders of each series of our
common stock diverge or appear to diverge. Massachusetts law does not define a
board of directors' duties 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 the board
reasonably believes to be in the best interests of the corporation. Under
Massachusetts law, if a disinterested and adequately informed board of directors
determines in good faith that an action would be in the corporation's best
interests, taking into account both the interests of holders of each series of
common stock as well as the alternatives reasonably available, then the board of
directors should be able to successfully defend against any stockholder claim
that such action could have an unequal effect on different series of common
stock. In March 1999, the Delaware Court of Chancery reached a similar
conclusion in two separate cases and dismissed, in each case, all stockholder
claims that the board of directors had violated its fiduciary duties under
Delaware law by approving actions that had a disparate impact on holders of
different classes of tracking stock. The court concluded in each case that even
where the decision of the board of directors affected holders of separate
classes of tracking stock differently, stockholders must allege facts sufficient
to indicate that a board of directors' approval was not based on the good faith
belief that such actions were in the corporation's best interests. While
Delaware case law is not binding on a Massachusetts court, we believe that a
Massachusetts court would be influenced by these decisions in addressing similar
issues. However, a Massachusetts court hearing such a case may apply principles
of Massachusetts law other than those described above or develop new principles
of Massachusetts law to decide such a case.

MEMBERS OF OUR BOARD OF DIRECTORS MAY FAVOR ONE SERIES OF STOCK OVER ANOTHER IF
THEY OWN A DISPROPORTIONATE AMOUNT OF THAT SERIES.

A member of our board may own a disproportionate amount of stock in a
particular series or the value of his or her stockholdings may be different from
the value of his or her stockholdings in another series. This disparate stock
ownership may cause the board member to favor one series of stock over another.
Nevertheless, we believe that a member of our board could properly discharge his
or her fiduciary responsibilities even if his or her interests in shares of
different series were disproportionate or of unequal values. Our board members
may from time to time create committees to review matters that raise conflict-
of-interest issues. Any such committee would report to the full board on these
matters.

HOLDERS OF OUR TRACKING STOCK HAVE LIMITED DECISION-MAKING POWER DUE TO THE
STOCKS' LIMITED SEPARATE VOTING RIGHTS.

Holders of each series of our common stock vote together as a single class
on all matters requiring common stockholder approval, including the election of
directors. Holders of a series of common stock do not have the right to vote on
matters separately from another series except in limited circumstances, which
are provided for under Massachusetts law, our articles of organization and 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 approval only of the holders

2
<PAGE> 3
of that series. Instead, they would have to obtain approval from all common
stockholders. The holders of Genzyme General Division Common Stock (which we
refer to as GENZ Stock) hold a large majority of the stockholders' voting power.
Consequently, on matters requiring common stockholder approval, the holders of
GENZ Stock are likely to decide the outcome.

INVESTORS MAY BE REQUIRED TO EXCHANGE THEIR SHARES OF GZSP STOCK, GZMO
STOCK OR GZTR STOCK FOR CASH OR SHARES OF GENZ STOCK BELOW WHAT A THIRD
PARTY MIGHT PAY.

Our board of directors may at any time, in its sole discretion, decide to
exchange shares of GZSP Stock, Genzyme Molecular Oncology Division Common Stock
(which we refer to as GZMO Stock) or Genzyme Tissue Repair Division Common Stock
(which we refer to as GZTR Stock) for any combination of cash and shares of GENZ
Stock at a 30% premium over a series' then current market value. In addition, if
we transfer or sell to a third party all or substantially all of the assets of
Genzyme Surgical Products, Genzyme Molecular Oncology or Genzyme Tissue Repair,
we must exchange the shares of that division's tracking stock as follows:

<TABLE>
<CAPTION>
THE AMOUNT OF CASH AND/OR
IF WE ARE TRANSFERRING OR GENZ STOCK GIVEN IN
SELLING ASSETS OF . . . THEN, WE MUST EXCHANGE . . . EXCHANGE WOULD EQUAL . . .
- ------------------------- ---------------------------- --------------------------
<S> <C> <C>
Genzyme Surgical each share of GZSP Stock for The market value of the
Products cash and/or shares of GENZ GZSP Stock being exchanged.
Stock.

Genzyme Molecular each share of GZMO Stock for a 30% premium over the
Oncology cash and/or shares of GENZ market value of the GZMO
Stock. Stock being exchanged.

Genzyme Tissue Repair each share of GZTR Stock for a 30% premium over the
cash and/or shares of GENZ market value of the GZTR
Stock. Stock being exchanged.
</TABLE>

Consequently, holders of GZSP Stock, GZMO Stock and GZTR Stock may receive
an amount for their shares that is greater or less than the premium that a third
party buyer of the division's assets would pay. Our board's discretion to cause
such an exchange is described in our articles of organization. Furthermore, our
board may exchange shares of GZSP Stock into GENZ Stock in the event of certain
adverse tax developments, as discussed in the immediately following risk factor.

WE MAY EXCHANGE GENZ STOCK FOR GZSP STOCK IF A RECENT CLINTON
ADMINISTRATION PROPOSAL IMPOSING A CORPORATE LEVEL TAX ON THE ISSUANCE OF
TRACKING STOCK IS ADOPTED.

A recent tax proposal by the Clinton Administration would impose a
corporate level tax on issuances of tracking stock. If the proposal is enacted
into law or effected through Treasury Regulations, we could be taxed on an
amount up to the gain realized in future financings in which we sell tracking
stock, including the GZSP Stock. Also, any use of our tracking stock to acquire
other companies could be taxed. We also may be taxed if we distribute to
stockholders "designated" shares of tracking stock, which are shares designated
by the tracked division as issuable at our board's option for Genzyme General's
benefit. These or similarly adverse tax consequences could cause us to eliminate
tracking stock from our capital structure. We cannot predict, however, whether
Congress will enact, or the Treasury Department will issue regulations
effecting, this or a similar proposal.

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<PAGE> 4

The GZSP Stock's terms provide that in the event of adverse tax
developments, we may exchange shares of GZSP Stock for shares of GENZ Stock
without any premium to the holders. Upon the exchange, a former holder of GZSP
Stock would no longer hold a security intended to reflect the value and track
the performance of assets and programs that were allocated to Genzyme Surgical
Products immediately prior to the exchange. Instead, he, she or it would hold a
security intended to reflect the value and track the performance of the assets
and programs allocated to Genzyme General, including the assets and programs
previously allocated to Genzyme Surgical Products.

THE LIQUIDATION UNITS FOR EACH SERIES OF COMMON STOCK ARE NOT ADJUSTED TO
REFLECT CHANGES IN THE SERIES' MARKET VALUE.

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. The number of liquidation units per
share for each series of our common stock is as follows:

- each share of GZSP Stock has 61 liquidation units;

- each share of GENZ Stock has 100 liquidation units;

- each share of GZMO Stock has 25 liquidation units; and

- each share of GZTR Stock has 58 liquidation units.

Although liquidation units are adjusted to prevent dilution in the event of
certain subdivisions, combinations or distributions of common stock, they are
not adjusted to reflect changes in the relative market value or performance of
the divisions. Therefore, at the time of a dissolution, liquidation or winding
up, the relative liquidation units attributable to each series of common stock
may not correspond to the value of the underlying assets of that division.

OUR BOARD OF DIRECTORS MAY CHANGE ITS MANAGEMENT AND ACCOUNTING POLICIES TO THE
DETRIMENT OF ONE SERIES OF COMMON STOCK WITHOUT STOCKHOLDER APPROVAL.

Our board of directors has adopted management and accounting policies that
are used to govern our business and to prepare our financial statements. These
policies cover the allocation of our corporate expenses, assets and liabilities
and other accounting matters, and the reallocation of assets between divisions
and other matters. Our board may generally modify or rescind these policies or
adopt new ones without stockholder approval. Any revised policies could have
different effects on each series of our common stock and could be detrimental to
one series as compared to another. Our board's discretion to make changes is
limited only by the policies themselves and the board's fiduciary duty to all of
our stockholders. We encourage you to review the full text of these policies.

OUR OTHER DIVISIONS MAY DEVELOP PRODUCTS IN THE FIELD OF BIOSURGERY OR SURGICAL
PRODUCTS THAT WILL NOT BE ALLOCATED TO GENZYME SURGICAL PRODUCTS AND MAY COMPETE
WITH ITS PRODUCTS.

Our board of directors has adopted a policy that no division engage in
another division's principal business other than through joint ventures or other
collaborative arrangements with more than one division and third parties. This
non-compete policy, however, does not cover the entire field of biosurgery or
surgical products. Therefore,

<PAGE> 5

Genzyme General, Genzyme Molecular Oncology and Genzyme Tissue Repair may
develop biosurgery or surgical products that will not be allocated to Genzyme
Surgical Products and that may compete with Genzyme Surgical Products' products.
For example, both Genzyme Surgical Products and the Pharmaceuticals business
unit of Genzyme General are investigating the use of certain biomaterials for
drug delivery purposes, and both may compete in this field. In addition, the
Therapeutics business unit of Genzyme General is developing recombinant human
antithrombin III for use in coronary artery bypass graft surgery under a joint
venture with Genzyme Transgenics Corporation. We encourage you to review the
full text of our non-compete policy.

THE USE OF OPERATING LOSSES TO LOWER THE TAX LIABILITY OF OUR PROFITABLE
DIVISIONS WILL CAUSE LOWER FUTURE EARNINGS AND FULL TAX BURDEN FOR THE DIVISIONS
GENERATING THESE OPERATING LOSSES.

Genzyme Corporation, rather than its divisions, is liable for taxes. Under
our management and accounting policies, for financial reporting purposes we
generally allocate taxes among our divisions as if they were separate taxpayers.
However, our board of directors has adopted a policy that provides that if any
of our divisions is unable to use its operating losses or other projected annual
tax benefits to reduce its current or deferred income tax expense, we may
reallocate such losses or benefits to our profitable divisions on a quarterly
basis for financial reporting purposes. This will result in a division with
current losses (such as Genzyme Surgical Products, Genzyme Molecular Oncology
and Genzyme Tissue Repair) reporting lower earnings available to its common
stockholders in the future than would be the case if that division had retained
its historical losses or other benefits in the form of a net operating loss
carryforward. We encourage you to review the full text of this policy.

WE CANNOT PREDICT HOW THE DISTRIBUTION OF THE GZSP STOCK WILL AFFECT THE MARKET
PRICE OF GENZ STOCK.

In March 1999, we issued a press release informing the investment community
that we intended to create a separate Surgical Products division with its own
series of tracking stock out of Genzyme General's existing surgical products
business. While this press release may have influenced the market prices of our
common stock, we cannot predict what further effect, if any, the upcoming
distribution of the GZSP Stock will have on the market price of the GENZ Stock
or of our other series of common stock.

5
<PAGE> 6

B. RISKS RELATED TO GENZYME SURGICAL PRODUCTS

The following risks and uncertainties may adversely affect the business of
Genzyme Surgical Products.

GENZYME SURGICAL PRODUCTS ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.

Genzyme Surgical Products expects to have significant operating losses for
the next several years. It plans to spend substantial amounts of money on, among
other things:

- conducting research and development activities;

- pursuing regulatory approvals;

- conducting commercialization activities; and

- providing surgeon education and training.

We cannot guarantee that the efforts underlying these expenditures will be
successful or that Genzyme Surgical Products' operations will ever be
profitable. It may be years before the division generates any revenue from sales
of products currently under development.

We anticipate that Genzyme Surgical Products' current cash resources,
together with revenues generated from its products and distribution agreements,
will be sufficient to fund its operations through 2001. However, its cash needs
may differ from those planned because of many factors, including:

- the ability to become profitable;

- the results of research and development efforts;

- the ability to establish strategic alliances and licensing arrangements
for research and development programs;

- the achievement of milestones under strategic alliances;

- the ability to establish and maintain additional distribution
arrangements;

- the enforcement of patent and other intellectual property rights;

- market acceptance of novel approaches and therapies;

- the development of competitive products; and

- the ability to satisfy regulatory requirements of the FDA and other
government authorities.

Genzyme Surgical Products may require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that it will be
able to obtain additional financing on favorable terms, if at all. If the
division has insufficient funds or is unable to raise additional funds, it may
delay, reduce or eliminate certain of its programs. It may also have to give
rights to third parties to attempt to commercialize technologies or products
that it would otherwise commercialize itself.

6
<PAGE> 7

BECAUSE THE DEVELOPMENT OF GENZYME SURGICAL PRODUCTS' THERAPEUTIC PRODUCTS WILL
INVOLVE A LENGTHY AND COMPLEX PROCESS, IT IS UNCERTAIN WHETHER THE DIVISION WILL
BE ABLE TO DEVELOP ANY MARKETABLE THERAPEUTIC PRODUCTS.

Prior to commercializing any of its therapeutic products, Genzyme Surgical
Products will need to:

- conduct substantial research and development;

- undertake pre-clinical and clinical testing; and

- pursue regulatory approvals.

We cannot guarantee that these efforts will be successful. Many of the
division's biomaterials, gene therapy and cell therapy products are currently in
pre-clinical development. If any of these products advance into clinical trials,
the trials may not support the safety or effectiveness of such products. Genzyme
Surgical Products may encounter problems in clinical trials that lead it to
delay or suspend the trials. Gene and cell therapies may cause serious side
effects that may preclude regulatory approval. To date, the FDA has not approved
the sale of any gene therapy products.

ANY MARKETABLE THERAPEUTIC PRODUCTS THAT THE DIVISION DEVELOPS MAY NOT BE
COMMERCIALLY SUCCESSFUL.

The commercial success of any marketable therapeutic product that Genzyme
Surgical Products develops 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 Surgical Products' sales force;

- the effectiveness of Genzyme Surgical Products' production and marketing
capabilities;

- the success of competitive products; and

- the availability of third party reimbursement.

For example, although the division continues to market Sepracoat(TM)
Coating Solution in Europe, in January 1998, it announced that it had
discontinued development of the product for abdominal surgery in the United
States after an FDA advisory committee recommended against approval of the
product. The division may stop developing other product candidates if there is
insufficient demand or if it encounters regulatory or development problems.

IF GENZYME SURGICAL PRODUCTS EXERCISES AN OPTION TO PURCHASE CERTAIN LIMITED
PARTNERSHIP INTERESTS, ITS CASH RESOURCES MAY DIMINISH AND THE RIGHTS OF ITS
STOCKHOLDERS MAY BE DILUTED.

In 1989, we organized Genzyme Development Partners, L.P., a special purpose
research and development entity, transferring to it certain technology and
commercial rights to the Sepra family of products. We have an option to purchase
the limited partnership interests in the partnership under certain circumstances
for approximately $26 million plus continuing royalties based on certain sales
of the Sepra products. We have allocated the purchase option to Genzyme Surgical
Products. The option's exercise price is payable in cash, shares of GENZ Stock
valued at a 5% discount to their then fair market

7
<PAGE> 8

value, or a combination of the two, as determined by Genzyme Surgical Products
when it exercises the option.

If Genzyme Surgical Products exercises this option, it will have to make
substantial cash payments or compensate Genzyme General with shares of GZSP
Stock for the GENZ Stock used, or both. If the division makes cash payments, its
cash resources would diminish. If it makes the payment in whole or in part in
shares of GENZ Stock, then our board of directors would need to approve the
issuance of GENZ Stock in return for Genzyme General receiving a number of GZSP
designated shares with a fair market value equal to the fair market value of the
shares of GENZ Stock. Those GZSP designated shares would be shares of GZSP Stock
that our board would have the option to issue from time to time with all
proceeds allocable to Genzyme General. Beginning on June 30, 2000, and on every
June 30th thereafter, we will have to distribute substantially all the GZSP
designated shares if the number of those shares exceeds the sum of 10% of the
GZSP Stock then outstanding plus all shares of GZSP Stock then issuable under
options, warrants or other securities either convertible into or exchangeable
for GZSP Stock.

We cannot guarantee that our board would authorize the issuance of shares
of GENZ Stock for payment of the option exercise price and the creation of any
GZSP designated shares. If our board did create and subsequently distribute or
otherwise dispose of any GZSP designated shares, this would substantially dilute
the rights of the holders of GZSP Stock and could significantly affect the
market price of GZSP Stock.

If Genzyme Surgical Products does not exercise the option, the partnership
would have the right to sell or otherwise transfer to a third party a license to
background technology that we granted to it. Such a sale or transfer may
terminate our joint venture with the partnership to manufacture and sell the
Sepra products in the United States and Canada. In addition, failure to exercise
the option would cause the joint venture to become terminable upon 90 days'
prior notice by either Genzyme or Genzyme Development Partners.

GENZYME SURGICAL PRODUCTS IS DEVOTING SIGNIFICANT RESOURCES TO DEVELOPING NOVEL
ALTERNATIVE PRODUCTS AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL.

Genzyme Surgical Products is devoting a significant amount of money to
developing products that will represent alternatives to traditional surgical
procedures or treatments. These products will likely require several years of
aggressive and costly marketing before they might become widely accepted by the
surgical community. Genzyme Surgical Products is developing products that are
designed to enable surgeons to perform minimally invasive cardiovascular
surgery. The medical conditions that can be treated with minimally invasive
cardiovascular surgery are currently being treated with widely accepted surgical
procedures such as coronary artery bypass grafting and catheter-based
treatments, including balloon angioplasty, atherectomy and coronary stenting. To
date, minimally invasive cardiovascular surgery has been performed on a limited
basis and its further

8
<PAGE> 9

adoption by the surgical community will partly depend upon Genzyme Surgical
Products' ability to educate cardiothoracic surgeons about its effectiveness and
to facilitate the training of cardiothoracic surgeons in minimally invasive
cardiovascular surgery techniques.

Similarly, until recently surgeons have not used products designed to
reduce the incidence and extent of postoperative adhesions. Since 1996, when
Seprafilm(R) Bioresorbable Membrane was introduced, market acceptance of
anti-adhesion products has been slow. To increase sales of the Sepra family of
products, the division has had to educate surgeons and hospital administrators
about the problems of, and costs associated with, adhesions and the benefit of
preventing adhesions. It has also had to train surgeons on the proper handling
and use of these products.

Gene and cell therapies also represent new approaches to the treatment of
cardiovascular disease, and Genzyme Surgical Products will need to overcome many
technical obstacles in developing products based upon gene and cell therapies.

We cannot guarantee that Genzyme Surgical Products' efforts in educating
and training the surgical community will result in the widespread adoption of
minimally invasive cardiovascular surgery, anti-adhesion products and gene and
cell therapies or that surgeons adopting these procedures and products will use
the division's products.

GENZYME SURGICAL PRODUCTS MAY FAIL TO ADEQUATELY PROTECT ITS PROPRIETARY
TECHNOLOGY WHICH WOULD ENABLE COMPETITORS TO TAKE ADVANTAGE OF ITS RESEARCH AND
DEVELOPMENT EFFORTS.

Genzyme Surgical Products' long-term success largely depends on its ability
to market technologically competitive products. It can prevent unauthorized
third parties from using proprietary rights relating to its products and
services only if these rights are covered by patents or are kept confidential as
trade secrets.

We cannot guarantee that the division's proprietary technology is
adequately protected against unauthorized use by third parties. Third party
patent rights and pending patent applications filed by third parties, if issued,
may cover some of the products the 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, if
at all.

We cannot guarantee that the patents issued or licensed to Genzyme and
attributed to Genzyme Surgical Products will remain free from challenge by third
parties. If we become involved in litigation to defend ourselves in patent suits
brought by third parties involving the intellectual property used by Genzyme
Surgical Products or if we initiate such suits, it could consume a substantial
portion of that division's resources. Any legal action against us or the
division's strategic partners claiming damages or seeking to stop commercial
activities relating to the division's products and processes could subject us
and therefore the division to potential liability for damages.

Congress recently imposed restrictions on the ability of medical device
manufacturers to enforce certain patent claims relating to surgical and medical
methods against medical practitioners. These restrictions may prevent us from
adequately protecting the division's proprietary procedures against unauthorized
use by medical practitioners.

The 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 division's technology. While Genzyme Surgical Products'
employees, consultants and corporate

9
<PAGE> 10

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 division's consultants have developed
portions of the division's proprietary technology at universities or in
governmental laboratories. These universities or governmental authorities may
claim rights to the intellectual property arising out of the research performed
at the university or governmental laboratory.

REGULATION BY GOVERNMENT AGENCIES IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON
THE DEVELOPMENT OF GENZYME SURGICAL PRODUCTS' THERAPEUTIC PRODUCTS.

Genzyme Surgical Products' ability to successfully satisfy regulatory
requirements will significantly determine its 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.

COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT
GENZYME SURGICAL PRODUCTS' PERFORMANCE.

The human health care products and services industry is extremely
competitive. Major medical device and technology companies compete or may
compete with Genzyme Surgical Products. These include such companies as:

- Atrium Medical Corporation and Sherwood-Davis & Geck, a division of Tyco
International, Ltd. in the cardiovascular chest drainage and fluid
management market;

- The Ethicon division of Johnson & Johnson Ltd. and U.S. Surgical
Corporation, a division of Tyco in the cardiovascular closure market;

- CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical, Guidant
Corporation, Baxter Healthcare Corporation and Ethicon in the minimally
invasive cardiovascular surgery market;

- Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc. and
Gliatech, Inc. in the anti-adhesion market; and

- Karl Storz Endoscopy America, Inc., Scanlan International, Inc., Pilling
Weck Surgical Instruments and the Codman division of Johnson & Johnson
Ltd. in the reusable instruments market.

These competitors may have superior research and development, marketing and
production capabilities. Some competitors also may have greater financial
resources than Genzyme Surgical Products. The division is likely to incur
significant costs developing and marketing new products without any guarantee
that they will be commercially successful. The future success of the division
will depend on its ability to effectively develop and market its products
against those of its competitors.

The trend toward consolidation in the surgical devices industry may
adversely affect the division's ability to successfully market its products to
some significant purchasers. The

10
<PAGE> 11

current trend among hospitals and other significant consumers of surgical
devices is to combine into larger purchasing groups to increase their purchasing
power and thus reduce their purchase price for surgical devices. Partly in
response to this development, surgical device manufacturers have been
consolidating to be able to offer a more comprehensive product line to these
larger purchasing groups. In order to successfully market its products to larger
purchasing groups, Genzyme Surgical Products may have to expand its product
lines or enter into joint marketing or distribution agreements with other
manufacturers of surgical devices. We cannot guarantee that the division will be
able to employ either of these initiatives or that, when employed, these
initiatives will increase the marketability of its products.

RAPID TECHNOLOGICAL CHANGE COULD MAKE THE DIVISION'S PRODUCTS OBSOLETE.

The fields of biotechnology, biosurgery and surgical instrumentation are
characterized by significant and rapid technological change. Although Genzyme
Surgical Products attempts to expand its technological capabilities in order to
remain competitive, research, discoveries and innovations by others may make its
products obsolete.

GENZYME SURGICAL PRODUCTS MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM
COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A
FAILURE TO ENTER INTO FUTURE COLLABORATIONS.

Genzyme Surgical Products' strategy to develop and commercialize certain of
its products, in particular its gene and cell therapies for the treatment of
cardiovascular disease, includes entering into various arrangements with both
academic collaborators and corporate partners and licensees. The division may
depend on the success of these parties in performing research, pre-clinical and
clinical testing and marketing. These arrangements may require the division to
transfer certain important rights to these collaborators and licensees. While we
believe that the division's 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
and licensees. As a result, we cannot guarantee that the division 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.

YOU MAY HAVE DIFFICULTY SELLING GZSP STOCK IF AN ACTIVE PUBLIC MARKET DOES NOT
DEVELOP.

Prior to this distribution of GZSP Stock, there has been no public market
for GZSP Stock. An active public market for this stock may not develop or be
sustained after this distribution. Without active trading in GZSP Stock, you may
be unable to sell any shares of this stock and thus liquidate any portion of
your GZSP Stock holdings.

BECAUSE THE MARKET PRICE OF GZSP STOCK IS LIKELY TO BE VOLATILE, YOU MAY LOSE A
SIGNIFICANT AMOUNT OF THE VALUE OF YOUR GZSP STOCK.

We have determined the initial value of GZSP Stock through consultations
with our financial advisors. This initial value is not necessarily indicative of
the market price at which GZSP Stock will trade after this distribution. Some of
our large institutional stockholders may be forced immediately to sell some or
all of the shares of GZSP Stock they receive in the distribution if their
investment guidelines restrict their investing in entities with Genzyme Surgical
Products' market capitalization. In addition, a significant

11
<PAGE> 12

portion of other holders of GENZ Stock may, for various reasons, choose not to
retain the GZSP Stock they receive. Significant selling would depress the GZSP
Stock's market price. The market price for GZSP Stock likely will also vary
widely as a result of several factors, including:

- announcements of technological innovations or new commercial products by
Genzyme Surgical Products or by its competitors;

- governmental regulatory initiatives;

- patent or proprietary rights developments;

- public concern as to the safety or other implications of biotechnology
products;

- adoption of legislation relating to tracking stock; and

- general market conditions.

This volatility could lead to the loss of a significant amount of the value
of GZSP Stock.

FUTURE SALES OR DISTRIBUTIONS OF GZSP DESIGNATED SHARES MAY DILUTE YOUR
OWNERSHIP OF GZSP STOCK SIGNIFICANTLY.

Our management and accounting policies require us to sell or distribute any
GZSP designated shares that may be created subject to certain limitations.
Proceeds from a sale or distribution will not be allocated to Genzyme Surgical
Products and the issuance and sale may substantially dilute your ownership of
GZSP Stock. In addition, we may sell additional shares of GZSP Stock in
the future to finance the operations of the division.

C. RISKS RELATED TO GENZYME, INCLUDING THE OTHER GENZYME DIVISIONS

Holders of GZSP Stock are stockholders of Genzyme. Liabilities or
contingencies of the divisions of Genzyme other than Genzyme Surgical Products
that affect Genzyme's resources or financial condition could affect the
financial condition or results of operations of Genzyme Surgical Products.
Therefore, you should review the following risks as well as the risks and
uncertainties described under the heading "Management's Discussion and Analysis
of Genzyme Corporation and Subsidiaries' Financial Condition and Results of
Operations -- Factors Affecting Future Operating Results" included on pages 41
through 44 of Exhibit 13.1 of Genzyme's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.

A REDUCTION IN REVENUES FROM SALES OF PRODUCTS WHICH TREAT GAUCHER DISEASE WOULD
AVERSELY AFFECT OUR BUSINESS.

Genzyme, through Genzyme General, generates a majority of its product
revenues from sales of enzyme-replacement products for patients with Gaucher
disease. Genzyme General entered this market in 1991 with Ceredase(R) enzyme.
Because production of Ceredase(R) enzyme was subject to supply constraints, the
division developed Cerezyme(R) enzyme, a recombinant form of the enzyme. Genzyme
General stopped producing Ceredase(R) enzyme, except for small quantities,
during 1998, after substantially all the patients previously using Ceredase(R)
enzyme had converted to Cerezyme(R) enzyme. Sales of

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<PAGE> 13

Cerezyme(R) enzyme and Ceredase(R) enzyme totaled $411.1 million for the year
ended December 31, 1998, representing approximately 67% of our product revenues
for that year.

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.

WE MAY REQUIRE SIGNIFICANT ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE ON
FAVORABLE TERMS, IF AT ALL.

As of March 31, 1999, we had approximately $629.2 million in cash, cash
equivalents and short- and long-term investments (excluding investments in
equity securities).

Although we currently have substantial cash resources and positive cash
flow, we intend to use substantial portions for:

- product development and marketing;

- expanding facilities; and

- working capital as Genzyme grows.

We will further reduce available cash reserves to pay principal and
interest on the following debt:

- As of March 31, 1999, we owed approximately $100 million under a $225
million revolving credit facility with a group of commercial banks. Of
this outstanding amount, we have allocated $82 million to Genzyme General
and $18 million to Genzyme Tissue Repair. 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. We intend to
renew this credit line, although we cannot guarantee that we will be able
to do so on the same or as favorable terms, if at all.

- In February 1997, we issued a $13 million convertible note, the entire
principal amount of which is allocated to Genzyme Tissue Repair. This
convertible note bears interest at an annual rate of 5% and matures on
February 27, 2000, but the holders of these convertible notes may
exchange principal, and under some circumstances interest, on the note
for shares of GZTR Stock. As of May 31, 1999, $7.93 million of principal
on this convertible note was outstanding.

- In August 1998, we issued $21.2 million in convertible debentures, the
entire principal amount of which is allocated to Genzyme General. 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 some circumstances interest, on the
convertible debentures for shares of GENZ Stock.

- In May 1998, we issued $250 million in convertible notes, the entire
principal amount of which is allocated to Genzyme General. 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 GENZ Stock, shares of GZMO Stock and, after this
distribution, shares of GZSP Stock.

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<PAGE> 14

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, extend any existing financing arrangement or obtain either on
favorable terms.

SEVERAL ANTI-TAKEOVER PROVISIONS MAY DEPRIVE OUR STOCKHOLDERS OF THE OPPORTUNITY
TO RECEIVE A PREMIUM FOR THEIR SHARES UPON A CHANGE IN CONTROL.

Certain provisions of Massachusetts law and our articles of organization,
bylaws and stockholder rights plan could delay or prevent a change in control of
Genzyme or a change in Genzyme's management.

Our tracking stock structure may also deprive our stockholders of the
opportunity to receive a premium for their shares upon a change in control
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, in
its sole discretion, (1) exchange shares of GZSP Stock, GZMO Stock or GZTR Stock
for GENZ Stock at a 30% premium over the market value of the respective shares
being so exchanged and (2) issue shares of undesignated common and preferred
stock from time to time in one or more series. Either of these board actions
could increase the cost of an acquisition of Genzyme and thus discourage a take
over attempt.

<PAGE> 1

Exhibit 99.5

MANAGEMENT AND ACCOUNTING POLICIES GOVERNING
THE RELATIONSHIP OF GENZYME DIVISIONS

The board of directors of Genzyme Corporation (the "Genzyme Board" or "our
board") has adopted the following policies to govern the management of Genzyme
Surgical Products, Genzyme General, Genzyme Molecular Oncology and Genzyme
Tissue Repair, and the relationships between each division. Except as otherwise
provided in the policies, our board may modify or rescind the policies, or adopt
additional policies, in its sole discretion without approval of the
stockholders, subject only to our board's fiduciary duty to our stockholders.

1. PURPOSE OF GENZYME SURGICAL PRODUCTS, GENZYME GENERAL, GENZYME
MOLECULAR ONCOLOGY AND GENZYME TISSUE REPAIR. The purpose of Genzyme Surgical
Products is to create a business with a comprehensive approach to and portfolio
of devices, biomaterials, biotherapeutics and other products for the field of
biosurgery. The purpose of Genzyme General is to develop and market therapeutic
products and diagnostic services and products. The purpose of Genzyme Molecular
Oncology is to create a focused, integrated oncology business that will develop
and commercialize novel therapeutic and diagnostic products and services based
upon molecular tools and genomic information. The purpose of Genzyme Tissue
Repair is to create a business with a comprehensive approach to the field of
tissue repair by developing and commercializing a portfolio of novel products
for the treatment and prevention of serious tissue injury (excluding products
developed on behalf of GDP). In addition to the programs initially assigned to
each of Genzyme Surgical Products, Genzyme Molecular Oncology and Genzyme Tissue
Repair, it is expected that the product and service portfolio of each division
will expand through the addition of complementary programs, products and
services developed either within or outside of the division, including acquiring
or in-licensing programs, products and services from outside of Genzyme. Each of
Genzyme Surgical Products, Genzyme Molecular Oncology and Genzyme Tissue Repair
will be operated and managed similarly to Genzyme General except as provided
herein.

2. REVENUE ALLOCATION. Revenues from the sale or licensing of a
division's products and services to entities external to Genzyme Corporation
shall be credited to that division. Products and services normally sold by a
division to entities external to Genzyme Corporation that are used by other
divisions within Genzyme Corporation shall be recorded as interdivisional
revenues and interdivisional purchases subject to the policy regarding Other
Interdivisional Transactions.

3. EXPENSE ALLOCATION. Direct Expenses shall be charged to the division
for whose benefit the Direct Expenses have been incurred. Expenses other than
Direct Expenses shall be subject to the policy regarding Other Interdivisional
Transactions.

4. ASSET ALLOCATION. Assets that are exclusively dedicated to the
production of goods and services of a division shall be allocated to that
division. Production assets that are utilized by more than one division shall be
subject to the policy regarding Other Interdivisional Transactions.

5. TAX ALLOCATIONS. Income taxes shall be allocated to each division
based upon the financial statement income, taxable income, credits and other
amounts properly allocable to such division under generally accepted accounting
principles as if each division were a separate taxpayer; provided, however, that
as of the end of any fiscal quarter of Genzyme, any projected annual tax benefit
attributable to any division that cannot be

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utilized by such division to offset or reduce its current or deferred income tax
expense may be allocated to the other divisions in proportion to their taxable
income without any compensating payment or allocation

6. ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS. Upon the acquisition by
Genzyme from a third party of any programs, products or assets (whether by
acquisitions of assets or stock, merger, consolidation or otherwise), the
aggregate cost of the acquisition and the programs, products or assets acquired
shall be allocated among the divisions of Genzyme. In the case of material
acquisitions, such allocation shall be made in a manner determined by the
Genzyme Board to be fair and reasonable to each division and to the holders of
the common stock representing each division, taking into account such matters as
the Genzyme Board and its financial advisors, if any, deem relevant. Any such
determination will be final and binding on the holders of common stock.

7. DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS. Upon the sale, transfer,
assignment or other disposition by Genzyme of any program, product or asset not
consisting of all or substantially all of the assets of the division, all
proceeds from such disposition shall be allocated to the division to which the
program, product or asset had been allocated among such divisions based on their
respective interests in such program, product or asset. Such allocations shall
be made in a manner determined by the Genzyme Board to be fair and reasonable to
such divisions and to holders of the common stock representing such divisions,
taking into account such matters as the Genzyme Board and its financial
advisors, if any, deem relevant. Any such determination by the Genzyme Board
will be final and binding on the holders of common stock.

8. INTERDIVISIONAL ASSET TRANSFERS. The Genzyme Board may at any time and
from time to time reallocate any program, product or other asset from one
division to any other division. All such reallocations shall be done at fair
market value, determined by the Genzyme Board, taking into account, in the case
of a program under development, the commercial potential of such program, the
phase of clinical development of such program, the expenses associated with
realizing any income from such program, the likelihood and timing of any such
realization and other matters that the Genzyme Board and its financial advisors,
if any, deem relevant. The consideration for such reallocation may be paid by
one division to another in cash or other consideration with a value equal to the
fair market value of the assets being reallocated or, in the case of a
reallocation of assets from Genzyme General to Genzyme Surgical Products,
Genzyme Molecular Oncology or Genzyme Tissue Repair, the Genzyme Board may elect
to account for such reallocation as an increase in the Designated Shares
representing the division to which such assets are reallocated in accordance
with the provisions of Genzyme's articles of organization.

Notwithstanding the foregoing, no Key GMO Program or Key GTR Program, as
defined below, may be transferred out of Genzyme Molecular Oncology or Genzyme
Tissue Repair, respectively, without a class vote of the holders of the common
stock representing the division from which such Key GMO Program or Key GTR
Program is to be removed unless the Genzyme Board determines that (i) in the
case of a Key GMO Program, such Key GMO Program has application outside of the
field of oncology (in which case it may be transferred out only for the
non-oncology applications; provided, however that the SAGE Service (as herein
defined) may not be transferred out of Genzyme Molecular Oncology for any
application without the approval of the holders of the GZMO Stock voting as a
separate class) and (ii) in the case of a Key GTR Program, such Key GTR Program
has application outside of the field of tissue repair (in which case it may be
transferred out only for the non-tissue repair applications).

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A "Key GMO Program" is any of the following: (i) use of the Serial Analysis
of Gene Expression ("SAGE(TM)") technology licensed from The Johns Hopkins
University School of Medicine for third parties ("SAGE Service"); (ii) the
clinical program developing adenovirus vectors containing the tumor antigens
Ad-MART 1 or Ad-gp100 for the treatment of melanoma; (iii) the "suicide" gene
therapy research program developing adenovirus and lipid vectors containing
genes to enhance chemotherapy for oncology indications; (iv) the research
program developing adenovirus and lipid vectors containing tumor suppressor
genes for oncology indications; (v) the research program developing adenovirus
and lipid vectors containing genes to regulate the immune system for oncology
indications, including heat shock proteins; (vi) the research program developing
antibody-based gene therapy for the treatment of tumors; and (vii) any
additional program, product or service being developed from time to time in
Genzyme Molecular Oncology which (a) constituted 20% or more of the research and
development budget of Genzyme Molecular Oncology in any one of the three most
recently completed fiscal years or (b) has had a cumulative investment of $8
million or more in research and development expenses by Genzyme Molecular
Oncology.

A "Key GTR Program" is any of the following: (i) Vianain(R) for debridement
of necrotic or damaged tissue; (ii) TGF-SS(2) for all indications licensed from
Celtrix as of December 16, 1994; (iii) Epicel(TM) cultured epithelial cell
autografts for tissue replacement or repair; (iv) Acticel(TM) cultured
epithelial cell allografts for tissue replacement or repair; (v) Carticel(R)
Autologous Cultured Chondrocyte Service; and (vi) any additional tissue repair
program or product being developed from time to time in Genzyme Tissue Repair
which (a) constituted 20% or more of the research and development budget of
Genzyme Tissue Repair in any one of the three most recently completed fiscal
years or (b) has had a cumulative investment of $8 million or more in research
and development expenses by Genzyme Tissue Repair.

The foregoing policies regarding transfers of assets between divisions will
not be changed by the Genzyme Board without the approval of the holders of the
GZSP Stock, the GZMO Stock and the GZTR Stock, each voting as a separate class;
provided, however, that if a policy change affects one or more, but not all of,
Genzyme Surgical Products, Genzyme Molecular Oncology and/or Genzyme Tissue
Repair, only holders of shares representing the affected division(s) will be
entitled to vote on such matter.

9. OTHER INTERDIVISIONAL TRANSACTIONS. This policy shall cover
interdivisional transactions other than asset transfers, which shall be subject
to the policy regarding Interdivisional Asset Transfers. From time to time, a
division may engage in transactions directly with one or more other divisions or
jointly with one or more other divisions and one or more third parties. Such
transactions may include agreements by one division to provide products and
services for use by another division and joint venture or other collaborative
arrangements involving more than one division to develop new products and
services jointly and with third parties. Such transactions shall be subject to
the following conditions:

(a) Research and development (including clinical and regulatory support),
distribution, sales, marketing, and general and administrative services
(including allocated space) performed by one division for the benefit of another
division will be charged to the division for which work is performed on a cost
basis. Direct costs shall be allocated in a manner described above under
"Expense Allocation" and such division performing the work will not recognize
revenue as a result of performing such work. Direct labor and indirect costs

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shall be allocated in a reasonable and consistent manner based on the
utilization by the division of the services to which such costs relate.

(b) Manufacturing of goods and performance of services by one division
exclusively for the benefit of another division and not for external sale shall
be charged to the division for which the work is performed on a cost basis.
Manufacturing costs shall include an interest charge on the gross fixed assets
employed in such manufacturing process. Gross fixed assets in this case shall be
determined at the beginning of each fiscal year for the facility used. The
interest rate in this case shall be the short term borrowing rate of Genzyme
Corporation at the beginning of each fiscal year. Direct labor and indirect
costs shall be allocated in a reasonable and consistent manner based on the
receipt of benefit by the division of the goods and services to which such costs
relate. The division performing such work will not recognize revenue as a result
of performing such work.

(c) Other than Research and development (including clinical and regulatory
support), manufacturing, distribution, sales, marketing, general and
administrative services (including allocated space), interdivisional
transactions shall be on terms and conditions that would be obtainable in
transactions negotiated at arm's length with unaffiliated third parties. The
division performing such work will not recognize revenue as a result of
performing such work.

(d) Any interdivisional transaction (i) to be performed on terms and
conditions that deviate from the policies set forth in subparagraphs (a), (b) or
(c) above and (ii) that is material to one or more of the participating
divisions will require approval by the Genzyme Board, which approval shall
include a determination by the Genzyme Board that the transaction is fair and
reasonable to each participating division and to the holders of the common stock
representing each such division.

(e) Loans may be made from time to time between divisions. Any such loan of
$1 million or less will mature within 18 months and interest will accrue at the
best borrowing rate available to Genzyme for a loan of like type and duration.
Amounts borrowed in excess of $1 million will require approval of the Genzyme
Board, which approval shall include a determination by the Genzyme Board that
the material terms of such loan, including the interest rate and maturity date,
are fair and reasonable to each participating division and to holders of the
common stock representing such division.

(f) All material interdivisional transactions shall be reduced to service
contracts and signed by an authorized member of the management team of affected
divisions.

10. ACCESS TO TECHNOLOGY AND KNOW-HOW. Each division of Genzyme
Corporation shall have unrestricted access to all technology and know-how of the
Corporation that may be made useful to such division's business, subject to any
obligations or limitations applicable to Genzyme and its divisions.

11. DISPOSITION OF GZSP, GZMO AND GZTR DESIGNATED SHARES.

(a) The GZSP Designated Shares, the GZMO Designated Shares and the GZTR
Designated Shares may be (i) issued upon the exercise or conversion of
outstanding stock options, warrants or convertible securities allocated to
Genzyme General, (ii) subject to the restrictions set forth in Paragraph 13,
sold for any valid business purpose, or

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(iii) distributed as a dividend to the holders of shares of GENZ Stock, all as
determined from time to time by the Genzyme Board in its sole discretion.

(b) If, as of June 30 of each year starting on June 30, 2000 the number of
GZSP Designated Shares on such date exceeds the sum of (i) ten percent (10%) of
the number of shares of GZSP Stock then issued and outstanding and (ii) the
number of shares of GZSP Stock issuable on such date with respect to stock
options, stock purchase rights, warrants or other securities convertible into or
exercisable for shares of GZSP Stock outstanding on such date, substantially all
GZSP Designated Shares will be distributed to holders of record of GENZ Stock,
subject to reservation of a number of such shares equal to the sum of (x) the
number of GZSP Designated Shares reserved for issuance with respect to stock
options, stock purchase rights, warrants or other securities convertible into or
exercisable for shares of GENZ Stock outstanding on such date ("GENZ Convertible
Securities") as a result of anti-dilution adjustments required by the terms of
such instruments or approved by the Genzyme Board and (y) the number of GZSP
Designated Shares reserved by the Genzyme Board as of such date for sale not
later than six months after such date, the proceeds of which sale will be
allocated to Genzyme General.

(c) If, as of November 30 of each year, the number of GZMO Designated
Shares on such date exceeds the sum of (i) ten percent (10%) of the number of
shares of GZMO Stock then issued and outstanding and (ii) the number of shares
of GZMO Stock issuable on such date with respect to stock options, stock
purchase rights, warrants or other securities convertible into or exercisable
for shares of GZMO Stock outstanding on such date, substantially all GZMO
Designated Shares will be distributed to holders of record of GENZ Stock,
subject to reservation of a number of such shares equal to the sum of (x) the
number of GZMO Designated Shares reserved for issuance upon the exercise or
conversion of GENZ Convertible Securities as a result of anti-dilution
adjustments required by the terms of such instruments or approved by the Genzyme
Board and (y) the number of GZMO Designated Shares reserved by the Genzyme Board
as of such date for sale not later than six months after such date, the proceeds
of which sale will be allocated to Genzyme General.

(d) If, as of May 31 of each year, the number of GZTR Designated Shares on
such date exceeds the sum of (i) ten percent (10%) of the number of shares of
GZTR Stock then issued and outstanding and (ii) the number of shares of GZTR
Stock issuable on such date with respect to stock options, stock purchase
rights, warrants or other securities convertible into or exercisable for shares
of GZTR Stock outstanding on such date, substantially all GZTR Designated Shares
will be distributed to holders of record of GENZ Stock (a "Distribution"),
subject to reservation of a number of such shares equal to the sum of (x) the
number of GZTR Designated Shares reserved for issuance upon the exercise or
conversion of GENZ Convertible Securities as a result of anti-dilution
adjustments required by the terms of such instruments or approved by the Genzyme
Board and (y) the number of GZTR Designated Shares reserved by the Genzyme Board
as of such date for sale not later than six months after such date, the proceeds
of which sale will be allocated to Genzyme General.

12. ISSUANCE AND SALE OF ADDITIONAL SHARES OF COMMON STOCK. When
additional shares of common stock are issued and sold by Genzyme, Genzyme will
identify (i) the number of such shares issued and sold for the account of the
division to which they relate, the proceeds of which will be allocated to and
reflected in the financial statements of such division and (ii) the number of
such shares issued and sold that shall reduce the number of Designated Shares of
such division. Notwithstanding the foregoing, Genzyme will not

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sell any GZSP Designated Shares, GZMO Designated Shares or GZTR Designated
Shares (except upon exercise or conversion of options, warrants or convertible
securities issued by Genzyme General that were adjusted as a result of a
dividend of GZSP, GZMO or GZTR Stock paid to holders of GENZ Stock) unless (i)
the Genzyme Board determines that Genzyme Surgical Products, Genzyme Molecular
Oncology or Genzyme Tissue Repair, as the case may be, has cash sufficient to
fund its operations for at least the next 12 months or (ii) shares of GZSP
Stock, GZMO Stock or GZTR Stock, as the case may be, are concurrently being sold
for the account of Genzyme Surgical Products, Genzyme Molecular Oncology or
Genzyme Tissue Repair, respectively, in an amount that will produce proceeds
sufficient to fund such division's cash needs for the next 12 months.

13. OPEN MARKET PURCHASES OF SHARES OF COMMON STOCK. Genzyme may make
open market purchases of its common stock in accordance with applicable
securities law requirements; provided, however, that in no event shall any such
purchases be made if as an immediate result thereof the number of Designated
Shares representing a division will exceed 60% of the number of shares of such
division outstanding plus such number of Designated Shares. Notwithstanding the
foregoing, within 90 days of any open market purchase of the common stock
representing any division, Genzyme may not exercise the right provided under its
articles of organization to exchange shares representing such division for cash
and/or shares of GENZ Stock.

14. CLASS VOTING. In addition to any stockholder approval required by
Massachusetts law, whenever the approval of the holders of the common stock
representing a division is required to take any action pursuant to these
policies or Genzyme's articles of organization, such requirement shall be
satisfied if a meeting of the holders of the common stock representing such
division is held at which a quorum is present and the votes cast in favor of the
proposed action exceed the votes cast against.

15. NON-COMPETE. Genzyme Surgical Products, Genzyme General, Genzyme
Molecular Oncology and Genzyme Tissue Repair shall not engage to any material
extent in each other's principal businesses other than through joint ventures or
other collaborative arrangements involving more than one division to develop new
products and services jointly and with third parties, which transactions shall
be subject to the conditions set forth in Paragraph 8. The divisions may compete
in a business which is not a principal business of another division. The Genzyme
Board may determine in its good faith business judgment whether any particular
activities of one division involve a material engagement in the principle
businesses of another division.

16. CORPORATE OPPORTUNITIES. The Genzyme Board will review any matter
which involves the allocation of a corporate opportunity to any of the
divisions, or in part to one division and in part to another division. In
accordance with Massachusetts law, the Genzyme Board will make its determination
with regard to the allocation of any such opportunity and the benefit of any
such opportunity in accordance with its good faith business judgment of the best
interests of Genzyme and all of its stockholders as a whole. Among the factors
that the Genzyme Board may consider in making this allocation are (i) whether a
particular corporate opportunity is principally related to the business of
Genzyme Surgical Products, Genzyme General, Genzyme Molecular Oncology or
Genzyme Tissue Repair; (ii) whether one division, because of its managerial or
operational expertise, will be better positioned to undertake the corporate
opportunity; (iii) whether one division, because of its financial resources,
will be better positioned to undertake the corporate opportunity; and (iv)
existing contractual agreements and restrictions.