<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
-------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from --------- to ---------
Commission file number 0-14680
----------------------
GENZYME CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 06-1047163
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification No.)
ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS 02139
- -------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(617) 252-7500
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X No
--- ---
The number of shares outstanding of each of the issuer's series of common stock
as of April 30, 2000:
Genzyme General Division Common Stock 84,804,000
("GENZ Stock")
13,625,593
Genzyme Molecular Oncology Division Common Stock
("GZMO Stock")
14,902,895
Genzyme Surgical Products Division Common Stock
("GZSP Stock")
Genzyme Tissue Repair Division Common Stock 28,658,735
("GZTR Stock")
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 2000
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This report on Form 10-Q contains forward-looking statements, including
statements regarding our:
- planned creation of a new division and a new publicly traded
stock;
- the planned acquisition of Biomatrix, Inc.;
- the expected allocation of the new series of stock and composition
of the merger consideration;
- expected future revenues, operations and expenditures; and
- projected cash needs.
These statements are based upon the current assumptions of our management and
are only expectations of future results. These statements are subject to risks
and uncertainties, and our actual results may differ significantly from those
that are described in this report on Form 10-Q. These risks and uncertainties
include:
- our ability to successfully complete preclinical and clinical
development of our products and services;
- our ability to manufacture sufficient amounts of our products for
development and commercialization activities;
- our ability to obtain and maintain adequate patent and other
proprietary rights protection of our products and services;
- the content and timing of decisions made by the FDA and other
regulatory agencies;
- the accuracy of our estimates of the size and characteristics of the
markets to be addressed by our products and services;
- market acceptance of our products and services;
- our ability to obtain reimbursement for our products and services from
third-party payors;
- our ability to establish and maintain licenses, strategic
collaborations and distribution arrangements;
- the continued funding of our joint ventures;
- the accuracy of our information regarding the products and resources
of our competitors and potential competitors;
<PAGE>
- the likelihood that the regulatory and other approvals required to
create a new division and to complete the Biomatrix acquisition will
be obtained and the closing conditions for the merger will be
satisfied.
- conditions in financial markets relevant to the proposed merger and
recapitalization; and
- the operational integration of the other risks generally
associated with mergers and recapitalizations.
For a further description of these risks and other uncertainties, we
encourage you to carefully read Exhibit 99.2, "Factors Affecting Future
Operating Results," to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
NOTE REGARDING REFERENCES TO GENZYME DIVISIONS
Throughout this Form 10-K, the words "we," "us," "our" and "Genzyme"
refer to Genzyme Corporation and all of its operating divisions taken as a
whole, and "our board of directors" refers to the board of directors of Genzyme
Corporation. In addition, we refer to our four operating divisions as follows:
- - Genzyme General Division = "Genzyme General;"
- - Genzyme Molecular Oncology Division = "Genzyme Molecular
Oncology;"
- - Genzyme Surgical Products Division = "Genzyme Surgical Products;" and
- - Genzyme Tissue Repair Division = "Genzyme Tissue Repair."
We currently have four designated series of common stock. Each of
these series is intended to reflect the value and track the performance of
one of our divisions. We refer to each series of common stock by their Nasdaq
trading symbols:
- Genzyme General Division Common Stock = "GENZ Stock;"
- Genzyme Molecular Oncology Division Common Stock = "GZMO Stock;"
- Genzyme Surgical Products Division Common Stock = "GZSP Stock;" and
- Genzyme Tissue Repair Division Common Stock = "GZTR Stock."
NOTE REGARDING INCORPORATION BY REFERENCE
The Securities and Exchange Commission ("SEC") allows us to disclose
important information to you by referring you to other documents we have filed
with the SEC. The information that we refer you to is "incorporated by
reference" into this report on Form 10-Q. Please read that information.
NOTE REGARDING TRADEMARKS
GENZYME-Registered Trademark-, CEREZYME-Registered Trademark-,
CEREDASE-Registered Trademark-, THYROGEN-Registered Trademark-, SEPRA
FILM-Registered Trademark-, and CARTICEL-Registered Trademark- are registered
trademarks of Genzyme. SAGE-TM-, AND EPICEL-TM- are trademarks of Genzyme.
GENZYME-Registered Trademark- is a service mark of Genzyme,
RENAGEL-Registered Trademark- is a registered trademark of GelTex
Pharmaceuticals, INC. NEUROCELL-TM--PD is a trademark of Diacrin, INC.
ALDURAZYME-TM- is a trademark of BioMarin/Genzyme LLC.
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
ITEM 1. Financial Statements
GENZYME GENERAL
Unaudited, Combined Statements of Operations for the Three Months Ended March 31, 2000 and 1999........
Unaudited, Combined Balance Sheets as of March 31, 2000 and December 31, 1999..........................
Unaudited, Combined Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999........
Notes to Unaudited, Combined Financial Statements......................................................
GENZYME MOLECULAR ONCOLOGY
Unaudited, Combined Statements of Operations for the Three Months Ended March 31, 2000 and 1999........
Unaudited, Combined Balance Sheets as of March 31, 2000 and December 31, 1999..........................
Unaudited, Combined Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999........
Notes to Unaudited, Combined Financial Statements......................................................
GENZYME SURGICAL PRODUCTS
Unaudited, Combined Statements of Operations for the Three Months Ended March 31, 2000 and 1999........
Unaudited, Combined Balance Sheets as of March 31, 2000 and December 31, 1999..........................
Unaudited, Combined Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999........
Notes to Unaudited, Combined Financial Statements......................................................
GENZYME TISSUE REPAIR
Unaudited, Combined Statements of Operations for the Three Months Ended March 31, 2000 and 1999........
Unaudited, Combined Balance Sheets as of March 31, 2000 and December 31, 1999..........................
Unaudited, Combined Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999........
Notes to Unaudited, Combined Financial Statements......................................................
GENZYME CORPORATION AND SUBSIDIARIES
Unaudited, Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999...
Unaudited, Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999......................
Unaudited, Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999....
Notes to Unaudited, Consolidated Financial Statements..................................................
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk...................................
Part II. Other Information
ITEM 6. Exhibits and Reports on Form 8-K ............................................................
Signatures..................................................................................................
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENZYME GENERAL
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2000 1999
------ ------
(UNAUDITED, AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues:
Net product sales ........................................................... $ 155,339 $ 136,349
Net service sales ........................................................... 15,120 13,892
Revenue from research and development contracts:
Related parties ........................................................ 131 480
Other .................................................................. 36 45
--------- ---------
Total revenues ....................................................... 170,626 150,766
Operating costs and expenses:
Cost of products sold ........................................................ 32,220 27,967
Cost of services sold ........................................................ 8,828 8,755
Selling, general and administrative .......................................... 38,222 35,725
Research and development (including research and development related
to contracts) ............................................................. 23,243 21,065
Amortization of intangibles .................................................. 1,968 2,086
Charge for purchase of in-process research and development ................... 19,500 --
--------- ---------
Total operating costs and expenses ...................................... 123,981 95,598
--------- ---------
Operating income ................................................................. 46,645 55,168
Other income (expenses):
Equity in net loss of unconsolidated affiliates .............................. (8,133) (7,756)
Gain on affiliate sale of stock .............................................. 20,270 606
Gain on sale of investments in equity securities ............................. -- 1,963
Minority interest ............................................................ 856 866
Gain on sale of assets ....................................................... 35 --
Other ........................................................................ (56) --
Investment income ............................................................ 8,087 7,923
Interest expense ............................................................. (3,551) (5,049)
--------- ---------
Total other income (expenses) ........................................... 17,508 (1,447)
--------- ---------
Income before income taxes ....................................................... 64,153 53,721
Provision for income taxes ....................................................... (18,844) (20,216)
--------- ---------
Net income ....................................................................... 45,309 33,505
Tax benefit allocated from Genzyme Molecular Oncology ............................ 1,096 1,934
Tax benefit allocated from Genzyme Surgical Products ............................. 3,420 3,825
Tax benefit allocated from Genzyme Tissue Repair ................................. 1,812 3,962
--------- ---------
Net income attributable to GENZ Stock ............................................ $ 51,637 $ 43,226
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME GENERAL
COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
---- ----
(UNAUDITED, AMOUNTS IN
THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net income attributable to GENZ Stock ............................................... $ 51,637 $ 43,226
========= =========
Per GENZ common share:
Net income per GENZ common share-basic .............................................. $ 0.61 $ 0.53
========= =========
Weighted average shares outstanding ................................................. 84,502 81,958
========= =========
Net income per GENZ common and common
equivalent share-diluted ....................................................... $ 0.57 $ 0.49
========= =========
Adjusted weighted average shares outstanding ........................................ 94,726 92,591
========= =========
Net income .......................................................................... $ 45,309 $ 33,505
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustments ....................................... (10,223) (8,826)
Unrealized gains (losses) on securities:
Unrealized gains (losses) arising during the period ....................... 78,759 (2,319)
Reclassification adjustment for losses included in net income ............. -- (1,214)
--------- ---------
Unrealized gains (losses) on securities, net ......................... 78,759 (3,533)
--------- ---------
Other comprehensive income (loss)............................................... 68,536 (12,359)
--------- ---------
Comprehensive income ................................................................ $ 113,845 $ 21,146
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME GENERAL
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED, AMOUNTS
IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 77,209 $ 94,523
Short-term investments ......................................................... 187,651 214,240
Accounts receivable, net ....................................................... 138,084 141,949
Inventories .................................................................... 79,475 84,384
Prepaid expenses and other current assets ...................................... 23,359 17,632
Due from Genzyme Molecular Oncology ............................................ 2,459 3,793
Due from Genzyme Surgical Products ............................................. 5,017 6,406
Due from Genzyme Tissue Repair ................................................. 1,243 683
Deferred tax assets-current .................................................... 40,780 41,195
---------- ----------
Total current assets ........................................................ 555,277 604,805
Property, plant and equipment, net ................................................. 365,921 362,548
Long-term investments .............................................................. 295,770 205,142
Intangibles, net ................................................................... 73,160 75,370
Deferred tax assets-noncurrent ..................................................... 16,032 19,844
Investments in equity securities ................................................... 174,431 94,719
Other noncurrent assets ............................................................ 50,384 37,155
---------- ----------
Total assets ................................................................ $1,530,975 $1,399,583
========== ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable ............................................................... $ 16,035 $ 23,229
Accrued expenses ............................................................... 66,264 62,514
Income taxes payable ........................................................... 35,567 27,946
Deferred revenue ............................................................... 4,132 3,475
Current portion of long-term debt and capital lease obligations ................ 539 80
---------- ----------
Total current liabilities ................................................... 122,537 117,244
Noncurrent liabilities:
Capital lease obligations ..................................................... 103 --
Convertible notes and debentures .............................................. 272,885 272,622
Other noncurrent liabilities .................................................. 2,110 2,103
---------- ----------
Total liabilities ........................................................... 397,635 391,969
Division equity .................................................................... 1,133,340 1,007,614
---------- ----------
Total liabilities and division equity ....................................... $1,530,975 $1,399,583
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME GENERAL
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2000 1999
---- ----
(UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................................... $ 45,309 $ 33,505
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization ......................................... 11,896 12,156
Equity in net loss of unconsolidated affiliates ....................... 8,133 7,756
Accrued interest/amortization of marketable securities ................ (2,040) (2,499)
Provision for bad debts and inventory ................................. 2,466 2,754
Gain on affiliate sale of stock ....................................... (20,270) (606)
Minority interest in net loss of subsidiary ........................... (856) (866)
Gain on sale of investments in equity securities ...................... -- (1,963)
Deferred income tax expense ........................................... 3,901 --
Other ................................................................. 317 (422)
Increase (decrease) in cash from working capital:
Accounts receivable .............................................. (781) (6,916)
Inventories ...................................................... 2,635 2,038
Prepaid expenses and other assets ................................ (1,776) (2,315)
Due from Genzyme Molecular Oncology .............................. 1,334 247
Due from Genzyme Surgical Products ............................... 1,389 --
Due from Genzyme Tissue Repair ................................... (560) (3,446)
Accounts payable, accrued expenses, income
taxes payable and deferred revenue ............................ 9,534 15,708
-------- --------
Net cash provided by operating activities ........................ 64,183 55,131
INVESTING ACTIVITIES:
Purchases of investments ................................................. (160,452) (196,387)
Sales and maturities of investments ...................................... 97,246 105,106
Proceeds from sale of investments in equity securities ................... -- 11,090
Acquisitions of property, plant and equipment ............................ (14,548) (9,628)
Investments in unconsolidated affiliates ................................. (6,032) (9,592)
Other .................................................................... 2,215 3,702
-------- --------
Net cash used in investing activities ............................ (81,571) (95,709)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock ..................................... 12,713 19,900
Payments of debt ........................................................... (6) (350)
Net cash allocated to Genzyme Surgical Products ............................ (906) (12,421)
Net cash allocated to Genzyme Tissue Repair ................................ (4,949) (5,000)
Bank overdraft ............................................................. (7,220) --
Other ...................................................................... 1,918 1,548
-------- --------
Net cash provided by financing activities .......................... 1,550 3,677
Effect of exchange rate changes on cash ........................................ (1,476) (2,642)
-------- --------
Decrease in cash and cash equivalents .......................................... (17,314) (39,543)
Cash and cash equivalents at beginning of period ............................... 94,523 100,012
-------- --------
Cash and cash equivalents at end of period ..................................... $ 77,209 $ 60,469
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME GENERAL
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
We prepared the unaudited, combined financial statements for Genzyme
General following the requirements of the SEC for interim reporting.
As permitted under those rules, certain footnotes or other financial
information that are normally required by generally accepted accounting
principles can be condensed or omitted. Certain prior year data have been
reclassified to conform to the 2000 presentation.
These financial statements include all normal and recurring
adjustments that we consider necessary for the fair presentation of Genzyme
General's financial position and operating results. Since these are
interim financial statements, you should also read the financial
statements and notes for Genzyme General included in our 1999 Form 10-K.
Revenues, expenses, assets and liabilities can vary from quarter to
quarter. Therefore, the results and trends in these interim financial
statements may not be the same as those for future periods.
In June 1999, we created Genzyme Surgical Products. The business of
Genzyme Surgical Products previously operated as a business unit of Genzyme
General. These unaudited combined financial statements reflect the
financial position, results of operations and cash flows of Genzyme
General as if Genzyme Surgical Products had existed as a separate division
of Genzyme for all periods presented.
2. FINANCIAL INFORMATION
We present financial information specific to Genzyme General in these
unaudited, combined financial statements. We present financial information
and accounting policies relevant to the corporation and its operating
divisions taken as a whole in our unaudited, consolidated financial
statements. You should read our unaudited, consolidated financial
statements.
3. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(Amounts in thousands)
<S> <C> <C>
Raw materials ....................... $22,674 $24,057
Work-in-process ..................... 39,253 40,592
Finished products ................... 17,548 19,735
------- -------
Total ............................. $79,475 $84,384
======= =======
</TABLE>
4. EQUITY LINE OF CREDIT
In 1998, our board of directors made $50.0 million of cash available
to Genzyme Tissue Repair under an equity line of credit from Genzyme
General. Genzyme Tissue Repair may draw down funds as needed each fiscal
quarter in exchange for GZTR designated shares. GZTR designated shares are
shares of GZTR Stock that are not issued and outstanding, but which our
board of directors may issue, sell or distribute without allocating the
proceeds to Genzyme Tissue Repair. In February 1999, Genzyme Tissue Repair
made a $5.0 million draw under this equity line in exchange for 1,633,399
GZTR designated shares. In May 1999, the amount available under this equity
line was reduced by $25.0 million to $20.0 million in connection with the
reallocation of our ownership interest in Diacrin/Genzyme LLC from Genzyme
Tissue Repair to Genzyme General.
In March 2000, Genzyme Tissue Repair made a $5.0 million draw on this
equity line in exchange for 765,169 GZTR designated shares. As required by
our charter, the number of designated shares of GZTR Stock was determined
using the average closing price of the GZTR Stock for the 20 trading days
beginning on the thirtieth trading day before the draw. The funds will
be used for Genzyme Tissue Repair's operating needs.
<PAGE>
GENZYME GENERAL
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
5. PURCHASE OF IN-PROCESS TECHNOLOGY
In March 2000, Genzyme General recorded a charge of $19.5 million to
in-process research and development representing the initial amounts
payable to Synpac (North Carolina), Inc. under a license granted by
Synpac to Genzyme to develop and commercialize an enzyme replacement
therapy for Pompe disease produced using a Chinese hamster ovary cell
line.
In connection with this license, Genzyme General will pay Synpac
certain amounts upon the achievement of certain development and
commercialization milestones. Genzyme General will also pay Synpac
royalties for a specified period of time based on certain percentages of
sales.
In Apri 2000, Genzyme and Pharming Group N.V. signed a
letter agreement to share in the development and the funding for
the commercialization of an enzyme replacement therapy for Pompe disease
licensed by Genzyme from Synpac in March 2000. Upon execution of the
definitive agreement, Pharming will issue a convertible note
payable to Genzyme for an aggregate principal amount of $10.0
million, representing Pharming's share of the payments previously
paid to Synpac by Genzyme.
6. GAIN ON AFFILIATE SALE OF STOCK
Genzyme General recognized a gain of $20.3 million for the three
months ended March 31, 2000 and $0.6 million for the three months ended
March 31, 1999 due to the issuance by Genzyme Transgenics Corporation of
additional shares of Genzyme Transgenics common stock.
7. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
---- ----
(Amounts in thousands,
except per share amounts)
<S> <C> <C>
Net income - basic ...................................... $51,637 $43,226
Effect of dilutive securities (net of tax):
Genzyme's 5 1/4% convertible subordinated notes
due June 2005 (the "GENZ Notes"):
Interest expense .................................. 2,163 2,046
Amortization of purchasers' discount and
Offering costs (1) ........................... 154 146
Genzyme's 5% convertible subordinated debentures
due August 2003 (the "GENZ Debentures"):
Interest expense .................................. 175 165
Amortization of debt offering costs (2) ........... 30 28
------- -------
Net income - diluted .................................... $54,159 $45,611
======= =======
Shares used in net income per common share - basic ...... 84,502 81,958
Effect of dilutive securities:
Employee and director stock options ............... 3,281 3,642
Warrants .......................................... -- 32
GENZ Notes (3) .................................... 6,313 6,313
GENZ Debentures (3) ............................... 630 646
------- -------
Shares used in net income per common share-diluted (4) .. 94,726 92,591
======= =======
Net income per common share - basic ..................... $ 0.61 $ 0.53
======= =======
Net income per common share - diluted (4) ............... $ 0.57 $ 0.49
======= =======
</TABLE>
- --------------
(1) The purchasers' discount and offering costs of approximately $7.0
million are being amortized over the term of the GENZ Notes, which
mature in June 2005.
<PAGE>
GENZYME GENERAL
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
7. NET INCOME PER SHARE (CONTINUED):
(2) The offering costs of approximately $0.9 million are being amortized
over the term of the GENZ Debentures, which mature in August 2003.
(3) The GENZ Notes were issued in May 1998 and the GENZ Debentures were
issued in August 1998.
(4) Certain securities were not included in the computation of Genzyme
General's diluted earnings per share for the three months ended March
31, 2000 and for the same period of 1999 because each such security
had an exercise price greater than the average market price of GENZ
Stock during each respective period. Such securities include:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
---- ----
(Amounts in thousands)
<S> <C> <C>
Shares of GENZ Stock issuable for options ................ 2,965 1,381
Shares of GENZ Stock issuable for warrants (1) ........... -- 80
----- -----
Total shares with exercise prices greater than the average
market price of GENZ Stock during the period ......... 2,965 1,461
===== =====
</TABLE>
-----------------
(1) In 1997, we sold three warrants to the Canadian Medical Discoveries
Fund ("CMDF") to purchase a total of 120,000 shares of GENZ Stock for
an aggregate purchase price of $1.0 million (Canadian). Two of the
warrants which entitled CMDF to purchase a total of 80,000 shares
of GENZ stock, were exercisable in the three months ended March 31,
1999. All of these warrants were cancelled in August 1999 when CMDF
exercised its right to require us to repurchase the fund's interest in
StressGen/Genzyme LLC.
8. SEGMENT REPORTING
We present segment information in a manner consistent with the
method we use to report this information to our management. Applying Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information," Genzyme General has two
reportable segments:
- the Therapeutics business unit, which develops, manufactures and
distributes human therapeutic products for significant unmet medical
needs. The business derives substantially all of its revenue from
Cerezyme-Registered Trademark- enzyme and Ceredase-Registered
Trademark- enzyme sales.
- the Diagnostic Products business unit, which provides diagnostic
products to niche markets with a focus on IN VITRO diagnostics.
Information concerning the operations in these reportable segments is
as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
(Amounts in thousands)
<S> <C> <C>
REVENUES:
Therapeutics ................................................... $133,802 $115,041
Diagnostic Products ............................................ 15,238 14,692
Other .......................................................... 21,422 20,457
Eliminations/Adjustments ....................................... 164 576
-------- --------
Total ....................................................... $170,626 $150,766
======== ========
</TABLE>
<PAGE>
GENZYME GENERAL
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
8. SEGMENT REPORTING (CONTINUED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
(Amounts in thousands)
<S> <C> <C>
NET INCOME:
Therapeutics......................................... $29,263 $ 33,871
Diagnostic Products.................................. 715 1,129
Other ............................................... (171) (2,038)
Eliminations/Adjustments............................. 15,502 543
------- --------
Total $45,309 $ 33,505
======= ========
</TABLE>
There has been no material change in segment assets since December 31,
1999.
9. SUBSEQUENT EVENT
In 1998, our board of directors made $30.0 million of cash available
to Genzyme Molecular Oncology under an equity line of credit from Genzyme
General. Genzyme Molecular Oncology may draw down funds as needed in
exchange for GZMO designated shares. GZMO designated shares are shares of
GZMO Stock that are not issued and outstanding, but which our board of
directors may issue, sell or distribute without allocating the proceeds
to Genzyme Molecular Oncology. In April 2000, Genzyme Molecular Oncology
drew $15.0 million of cash under this equity line in exchange for 676,254
GZMO designated shares. As required by our charter, the number of
designated shares of GZMO Stock was determined using the average closing
price of the GZMO Stock for the 20 trading days beginning on the thirtieth
trading day before the draw. These funds will be used for Genzyme
Molecular Oncology's operating needs.
In April, 2000, Genzyme General received net proceeds of
approximately $5.1 million in connection with a settlement of a lawsuit.
The lawsuit, initiated in 1993, pertained to an accidental spill of
Ceredase at a fill facility operated by a contractor to Genzyme General.
<PAGE>
GENZYME MOLECULAR ONCOLOGY
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
---- ----
(UNAUDITED, AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues:
Service revenue................................................ $ -- $ 900
Service revenue - related party ............................... -- 11
Revenue from research and development contracts -
related party ................................................ -- 298
Royalty and licensing ......................................... 2,555 404
-------- --------
Total revenues ............................................ 2,555 1,613
Operating costs and expenses:
Cost of service revenues ...................................... -- 346
Cost of research and development, royalty and licensing
revenue ...................................................... 56 294
Selling, general and administrative ........................... 1,190 1,619
Research and development ...................................... 4,058 3,905
Amortization of intangibles ................................... 2,956 2,956
-------- --------
Total operating costs and expenses: ....................... 8,260 9,120
-------- --------
Operating loss ..................................................... (5,705) (7,507)
Other income (expenses):
Equity in net loss of joint venture ........................... -- (375)
Interest income ............................................... 73 163
Interest expense .............................................. (87) (3)
-------- --------
Total other income (expenses) ............................. (14) (215)
-------- --------
Loss before income taxes ........................................... (5,719) (7,722)
Tax benefit ........................................................ 662 662
-------- --------
Net loss attributable to GZMO Stock ................................ $ (5,057) $ (7,060)
======== ========
Per GZMO basic and diluted common share:
Net loss ...................................................... $ (0.37) $ (0.56)
======== ========
Weighted average shares outstanding ................................ 13,495 12,658
======== ========
Net loss ........................................................... $ (5,057) $ (7,060)
Other comprehensive loss, net of tax:
Unrealized gains (losses) on securities arising during
the period .............................................. -- --
-------- --------
Comprehensive loss ........................................ $ (5,057) $ (7,060)
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME MOLECULAR ONCOLOGY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(UNAUDITED, AMOUNTS IN THOUSANDS)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 1,542 $ 3,587
Prepaid expenses and other current assets....................................... 453 218
---------- ------------
Total current assets......................................................... 1,995 3,805
Equipment, net..................................................................... 744 467
Intangibles, net................................................................... 2,464 5,420
--------- -----------
Total assets.................................................................. $ 5,203 $ 9,692
======== ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accrued expenses................................................................ $ 1,082 $ 676
Due to Genzyme General.......................................................... 2,459 3,793
Deferred revenue................................................................ 840 225
Current portion of long-term debt and capital lease obligation.................. 5,105 5,000
--------- ----------
Total current liabilities..................................................... 9,486 9,694
Noncurrent liabilities:
Deferred tax liability............................................................. 552 1,213
Other noncurrent liabilities....................................................... 210 -
----------- --------------
Total liabilities............................................................. 10,248 10,907
Division equity.................................................................... (5,045) (1,215)
-------- ---------
Total liabilities and division equity......................................... $ 5,203 $ 9,692
========= ==========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME MOLECULAR ONCOLOGY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
---- ----
(UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ......................................................................... $ (5,057) $ (7,060)
Reconciliation of net loss to net cash provided by (used in) operating activities:
Depreciation and amortization .................................................. 2,995 3,028
Deferred tax benefit ........................................................... (662) (662)
Equity in net loss of joint venture ............................................ -- 375
Accrued interest/amortization of marketable securities ......................... -- 10
Other .......................................................................... -- 10
Increase (decrease) in cash from working capital:
Accounts receivable .......................................................... -- 5,500
Prepaid expenses and other current assets .................................... (235) (19)
Accrued expenses, deferred revenue and other ................................. 1,021 (277)
Due to Genzyme General ....................................................... (1,334) (247)
-------- --------
Net cash provided by (used in) operating activities ........................ (3,272) 658
INVESTING ACTIVITY:
Maturities of investments ........................................................ -- 1,022
-------- --------
Net cash provided by investing activity .................................... -- 1,022
FINANCING ACTIVITIES:
Proceeds from issuance of common stock ........................................... 1,228 --
Other ............................................................................ (1) (2)
-------- --------
Net cash provided by (used in) financing activities ........................ 1,227 (2)
-------- --------
Increase (decrease) in cash and cash equivalents .................................... (2,045) 1,678
Cash and cash equivalents at beginning of period .................................... 3,587 10,868
-------- --------
Cash and cash equivalents at end of period .......................................... $ 1,542 $ 12,546
======== ========
Supplemental Non-cash Investing Activity:
Equipment acquired under capital lease obligations.................................. $ 315 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME MOLECULAR ONCOLOGY
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
We prepared these unaudited, combined financial statements for Genzyme
Molecular Oncology following the requirements of the SEC for interim
reporting. As permitted under those rules, certain footnotes or other
financial information that are normally required by generally accepted
accounting principles can be condensed or omitted. Certain prior year data
have been reclassified to conform to the 2000 presentation.
These financial statements include all normal and recurring
adjustments that we consider necessary for the fair presentation of Genzyme
Molecular Oncology's financial position and operating results. Since these
are interim financial statements, you should also read the financial
statements and notes for Genzyme Molecular Oncology included in our 1999
Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter
to quarter. Therefore, the results and trends in these interim financial
statements may not be the same as those for future periods.
2. FINANCIAL INFORMATION
We present financial information specific to Genzyme Molecular
Oncology in these unaudited, combined financial statements. We present
financial information and accounting policies relevant to the corporation
and its operating divisions taken as a whole in our unaudited, consolidated
financial statements. You should read our unaudited, consolidated financial
statements.
3. REGISTRATION STATEMENT
In March 2000, we filed with the SEC a Prospectus pursuant to Rule
424(b)(5) of the Securities Act of 1933, as amended, covering the offering
of 3,000,000 shares of GZMO Stock (plus 450,000 shares issuable upon
exercise of the underwriters's over-allotment option). The proceeds of the
offering were to be used to fund research, preclinical and clinical
development programs, to repay existing indebtedness, and for working
capital and general corporate purposes.
In April 2000, in light of recent market volatility and current market
conditions, Genzyme Molecular Oncology withdrew the offering of shares of
GZMO Stock contemplated by the Prospectus.
4. NET LOSS PER SHARE
We have disclosed certain information about Genzyme Molecular
Oncology's net loss per share in Note 6., "Net Income (Loss) Per Share," to
our unaudited, consolidated financial statements. We incorporate that
information into this note by reference.
5. SUBSEQUENT EVENT
In 1998, our board of directors made $30.0 million of cash available
to Genzyme Molecular Oncology under an equity line of credit from Genzyme
General. Genzyme Molecular Oncology may draw down funds as needed
in exchange for GZMO designated shares. GZMO designated shares are shares
of GZMO Stock that are not issued and outstanding, but which our board of
directors may issue, sell or distribute without allocating the proceeds
to Genzyme Molecular Oncology. In April 2000, Genzyme Molecular Oncology
drew $15.0 million of cash under this equity line in exchange for 676,254
GZMO designated shares. As required by our charter, the number of
designated shares of GZMO Stock was determined using the average closing
price of the GZMO Stock for the 20 trading days beginning on the thirtieth
trading day before the draw. These funds will be used for Genzyme
Molecular Oncology's operating needs.
<PAGE>
GENZYME SURGICAL PRODUCTS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
---- ----
(UNAUDITED, AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenues ................................................ $ 29,082 $ 27,353
Operating costs and expenses:
Cost of products sold .................................... 16,039 15,844
Selling, general and administrative ...................... 16,400 15,287
Research and development ................................. 6,971 5,602
Amortization of intangibles .............................. 1,426 1,417
-------- --------
Total operating costs and expenses ................... 40,836 38,150
-------- --------
Operating loss ................................................ (11,754) (10,797)
Other income (expenses)
Loss on sale of assets ................................... (4) --
Other .................................................... 32 46
Investment income ........................................ 1,682 7
Interest expense ......................................... 1 (1)
-------- --------
Total other income (expenses) ........................ 1,711 52
-------- --------
Net loss attributable to GZSP Stock ........................... $(10,043) $(10,745)
======== ========
Per GZSP basic and diluted common share:
Net loss ................................................... $ (0.68)
========
Weighted average shares outstanding ........................... 14,855
========
Pro forma net loss per GZSP basic and diluted common share .... $ (0.73)
========
Pro forma weighted average shares outstanding ................. 14,800
========
Net loss ...................................................... $(10,043) $(10,745)
Other comprehensive income (loss), net of tax:
Unrealized gains on securities arising during the period 1,439 --
-------- --------
Comprehensive loss ....................................... $ (8,604) $(10,745)
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME SURGICAL PRODUCTS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 24,999 $ 22,673
Short-term investments.......................................................... 64,615 41,606
Accounts receivable, net........................................................ 19,796 19,886
Inventories..................................................................... 36,138 30,491
Prepaid expenses and other current assets....................................... 1,368 815
------------- ---------------
Total current assets......................................................... 146,916 115,471
Property, plant and equipment, net................................................. 17,835 17,621
Long-term investments.............................................................. 26,388 61,846
Intangibles, net................................................................... 171,396 172,833
Investment in equity securities.................................................... 6,483 3,140
Other.............................................................................. 1,326 13
------------ -------------
Total assets.................................................................. $ 370,344 $ 370,924
============ =============
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable................................................................ $ 4,949 $ 3,562
Accrued expenses................................................................ 9,220 7,038
Due to Genzyme General.......................................................... 5,017 6,406
------------ -----------
Total current liabilities..................................................... 19,186 17,006
Division equity.................................................................... 351,158 353,918
------------ -------------
Total liabilities and division equity......................................... $ 370,344 $ 370,924
============ =============
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME SURGICAL PRODUCTS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
------------- ----------
(UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ........................................................... $(10,043) $(10,745)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization .................................... 2,224 2,008
Equity in loss of unconsolidated affiliate ....................... -- --
Accrued interest/amortization of marketable securities ........... 610 --
Provision for bad debts and inventory ............................ 1,470 329
Other ............................................................ 4 (36)
Increase (decrease) in cash from working capital:
Accounts receivable ............................................ 15 (681)
Inventories .................................................... (7,042) (3,222)
Prepaid expenses and other current assets ...................... (553) 585
Accounts payable and accrued expenses .......................... 3,360 1,691
Due to Genzyme General ......................................... (1,389) --
------- -------
Net cash used in operating activities ........................ (11,344) (10,071)
INVESTING ACTIVITIES:
Purchases of investments ........................................... (35,450) --
Sales and maturities of investments ................................ 47,315 --
Acquisitions of property, plant and equipment ...................... (939) (660)
Other .............................................................. (1,378) (491)
------- -------
Net cash provided by (used in) investing activities .......... 9,548 (1,151)
FINANCING ACTIVITIES:
Net cash allocated from Genzyme General ............................ 906 12,421
Bank overdraft ..................................................... 208 --
Proceeds from issuance of common stock ............................. 362 --
Other .............................................................. 2,646 --
------- -------
Net cash provided by financing activities .................... 4,122 12,421
------- -------
Increase in cash and cash equivalents ................................. 2,326 1,199
Cash and cash equivalents at beginning of period ...................... 22,673 --
------- -------
Cash and cash equivalents at end of period ............................ $ 24,999 $ 1,199
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME SURGICAL PRODUCTS
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
We created Genzyme Surgical Products in June 1999. The business of
Genzyme Surgical Products previously operated as a business unit of Genzyme
General. These unaudited, combined financial statements reflect the
financial position, results of operations and cash flows of Genzyme
Surgical Products as if it had existed as a separate division of Genzyme
for all periods presented.
We prepared the unaudited, combined financial statements for Genzyme
Surgical Products following the requirements of the SEC for interim
reporting. As permitted under those rules, certain footnotes or other
financial information that are normally required by generally accepted
accounting principles can be condensed or omitted. Certain prior year data
have been reclassified to conform to the 2000 presentation.
These financial statements include all normal and recurring
adjustments that we consider necessary for the fair presentation of Genzyme
Surgical Products' financial position and operating results. Since these
are interim financial statements, you should also read the financial
statements and notes for Genzyme Surgical Products included in our 1999
Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter
to quarter. Therefore, the results and trends in these interim financial
statements may not be the same as those for future periods.
2. FINANCIAL INFORMATION
We present financial information specific to Genzyme Surgical Products
in these unaudited, combined financial statements. We present financial
information and accounting policies relevant to the corporation and its
operating divisions taken as a whole in our unaudited, consolidated
financial statements. You should read our unaudited, consolidated financial
statements.
3. INVENTORIES
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(Amounts in thousands)
<S> <C> <C>
Raw materials................................... $ 15,091 $ 15,473
Work-in-process................................. 1,797 2,029
Finished products............................... 19,250 12,989
---------- ---------
Total....................................... $ 36,138 $ 30,491
========= ========
</TABLE>
4. NET LOSS PER SHARE
We have disclosed certain information about Genzyme Surgical Products'
net loss per share in Note 6., "Net Income (Loss) Per Share," to our
unaudited, consolidated financial statements. We incorporate that
information into this note by reference.
5. SEGMENT INFORMATION
We present segment information in a manner consistent with the method
we use to report this information to our management. Applying SFAS 131,
Genzyme Surgical Products has two reportable segments:
- Cardiovascular Surgery, which includes chest drainage systems,
instruments and closures used in coronary artery bypass, valve
replacement, and other cardiothoracic surgeries; and
- General Surgery, which includes surgical instruments and Sepra
Film-Registered Trademark- bioresorbable membrane.
<PAGE>
GENZYME SURGICAL PRODUCTS
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
5. SEGMENT INFORMATION (CONTINUED):
We have provided information concerning the operations in these
reportable segments in the following table:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
--------- ---------
(Amounts in thousands)
<S> <C> <C>
REVENUES:
Cardiovascular Surgery............................ $ 19,650 $ 19,388
General Surgery................................... 6,989 5,897
Other............................................. 2,443 2,068
--------- ---------
Total........................................... $ 29,082 $ 27,353
======== ========
GROSS PROFIT:
Cardiovascular Surgery............................ $ 8,387 $8,570
General Surgery................................... 3,562 1,878
Other............................................. 1,094 1,061
-------- --------
Total........................................... $ 13,043 $ 11,509
======== ========
</TABLE>
There has been no material change in segment assets since December 31,
1999.
6. ACQUISITION OF BIOMATRIX, INC. AND FORMATION OF GENZYME BIOSURGERY
In March 2000, we entered into an agreement to acquire Biomatrix, Inc.
Upon completion of the acquisition, we will form a new operating division
called Genzyme Biosurgery and create a new series of common stock to
reflect its value and track its performance. We refer to this stock as
"GZBX Stock." In connection with the merger, the assets of Genzyme Surgical
Products and Genzyme Tissue Repair will become part of Genzyme Biosurgery.
In addition, GZSP Stock and GZTR Stock will be exchanged for GZBX Stock. We
will account for the acquisition of Biomatrix as a purchase.
Biomatrix stockholders will have the option of receiving $37.00 in
cash or one share of GZBX Stock for each share of Biomatrix common stock
they hold. The merger agreement provides, however, that Genzyme will pay
cash for up to 28.38% of the outstanding shares of Biomatrix common stock
that receive merger consideration, or up to approximately $245.0 million.
Holders of GZSP Stock will receive 0.6060 share of GZBX Stock for each
share of GZSP Stock they hold and holders of GZTR Stock will receive 0.3352
share of GZBX Stock for each share of GZTR Stock they hold.
For more information about the merger and the merger consideration,
we encourage you to carefully read our Registration Statement on Form S-4
filed with SEC on April 18, 2000, as it may be amended.
<PAGE>
GENZYME SURGICAL PRODUCTS
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
7. SUBSEQUENT EVENT
We have included information regarding Focal Inc.'s exercise of the
First Option under the Genzyme/Focal Stock Purchase Agreement in April 2000
in Note 9., "Subsequent Events," to our unaudited, consolidated financial
statements. We incorporate that information into this note by reference.
<PAGE>
GENZYME TISSUE REPAIR
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
---- ----
(UNAUDITED, AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenues .............................................. $ 5,867 $ 4,023
Operating costs and expenses:
Cost of services sold ................................... 3,023 2,998
Selling, general and administrative ..................... 5,739 6,314
Research and development ................................ 1,871 1,968
-------- --------
Total operating costs and expenses: ................... 10,633 11,280
-------- --------
Operating loss .............................................. (4,766) (7,257)
Other income (expenses):
Equity in net loss of joint venture ..................... -- (2,007)
Other ................................................... (5) --
Interest income ......................................... 102 93
Interest expense ........................................ (302) (445)
-------- --------
Total other income (expenses) ......................... (205) (2,359)
-------- --------
Net loss attributable to GZTR Stock ......................... $ (4,971) $ (9,616)
======== ========
Per GZTR common share (basic and diluted):
Net loss ............................................... $ (0.17) $ (0.44)
======== ========
Weighted average shares outstanding ......................... 28,531 21,945
======== ========
Net loss .................................................... $ (4,971) $ (9,616)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities arising during
the period ............................................ -- --
-------- --------
Comprehensive loss ..................................... $ (4,971) $ (9,616)
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME TISSUE REPAIR
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 8,444 $ 9,373
Accounts receivable, net ......................... 5,356 4,968
Inventories ...................................... 2,378 2,394
Other current assets ............................. 383 253
-------- --------
Total current assets ........................... 16,561 16,988
Plant and equipment, net ............................ 2,343 2,545
Other ............................................... 104 115
-------- --------
Total assets ................................... $ 19,008 $ 19,648
======== ========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable ................................. $ 371 $ 1,062
Accrued expenses ................................. 1,621 3,131
Due to Genzyme General ........................... 1,243 683
-------- --------
Total current liabilities ...................... 3,235 4,876
Noncurrent liabilities:
Long-term debt ................................... 18,000 18,000
Other ............................................ 190 227
-------- --------
Total liabilities .............................. 21,425 23,103
Division equity ..................................... (2,417) (3,455)
-------- --------
Total liabilities and division equity .......... $ 19,008 $ 19,648
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME TISSUE REPAIR
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
---- ----
OPERATING ACTIVITIES: (UNAUDITED, AMOUNTS
IN THOUSANDS)
<S> <C> <C>
Net loss ........................................................... $(4,971) $(9,616)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization .................................... 335 328
Provision for bad debt and inventory ............................. 404 422
Technology license fee ........................................... 250 --
Equity in net loss of joint venture .............................. -- 2,007
Amortization of deferred rent .................................... (37) (37)
Increase (decrease) in cash from working capital:
Accounts receivable ............................................ (388) 700
Inventories .................................................... (388) (382)
Other current assets ........................................... (130) (81)
Accounts payable and accrued expenses .......................... (2,773) (816)
Due to Genzyme General ......................................... 560 3,446
------- -------
Net cash used in operating activities ........................ (7,138) (4,029)
INVESTING ACTIVITIES:
Investment in joint venture ........................................ -- (2,084)
Purchases of property, plant and equipment ......................... (133) (345)
Other .............................................................. 11 34
------- -------
Net cash used in investing activities ........................ (122) (2,395)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net ........................ 411 116
Proceeds from issuance of debt, net ................................ -- --
Payments of debt and capital lease obligations ..................... -- (47)
Cash allocated from Genzyme General ................................ 4,949 5,000
Bank overdraft ..................................................... 572 --
Other .............................................................. 399 --
------- -------
Net cash provided by financing activities .................... 6,331 5,069
------- -------
Decrease in cash and cash equivalents ................................. (929) (1,355)
Cash and cash equivalents at beginning of period ...................... 9,373 7,732
------- -------
Cash and cash equivalents at end of period ............................ $ 8,444 $ 6,377
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
<PAGE>
GENZYME TISSUE REPAIR
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
We prepared the unaudited, combined financial statements for Genzyme
Tissue Repair following the requirements of the SEC for interim reporting.
As permitted under those rules, certain footnotes or other financial
information that are normally required by generally accepted accounting
principles can be condensed or omitted. Certain prior year data have been
reclassified to conform to the 2000 presentation.
These financial statements include all normal and recurring
adjustments that we consider necessary for the fair presentation of Genzyme
Tissue Repair's financial position and operating results. Since these are
combined financial statements, you should also read the financial
statements and notes for Genzyme Tissue Repair included in our 1999 Form
10-K. Revenues, expenses, assets and liabilities can vary from quarter to
quarter. Therefore, the results and trends in these interim statements
may not be the same as those for future periods.
2. FINANCIAL INFORMATION
We present financial information specific to Genzyme Tissue Repair
in these unaudited, combined financial statements. We present financial
information and accounting policies relevant to the corporation and its
operating divisions taken as a whole in our unaudited, consolidated
financial statements. You should read our unaudited, consolidated financial
statements.
3. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(Amounts in thousands)
<S> <C> <C>
Raw materials ....................... $ 432 $ 428
Work-in-process ..................... 1,916 1,938
Finished products ................... 30 28
------ ------
Total ........................... $2,378 $2,394
====== ======
</TABLE>
4. NET LOSS PER SHARE
We have disclosed certain information about Genzyme Tissue Repair's
net loss per share in Note 6., "Net Income (Loss) Per Share," to our
unaudited, consolidated financial statements. We incorporate that
information into this note by reference.
5. DIACRIN JOINT VENTURE
In May 1999, we reallocated our ownership interest in Diacrin/Genzyme
LLC, our joint venture with Diacrin, Inc. to develop and commercialize
products using porcine fetal cells for the treatment of Parkinson's and
Huntington's diseases, from Genzyme Tissue Repair to Genzyme General in
exchange for $25.0 million in cash. If the joint venture does not initiate
a Phase III clinical trial of NeuroCell-TM--PD by June 30, 2000, Genzyme
Tissue Repair will be required to pay to Genzyme General $20.0 million
plus accrued interest at an annual rate of 13.5%. Any required refund may
be paid in cash, GZTR designated shares, or a combination of both, at
Genzyme Tissue Repair's option. GZTR designated shares are shares of GZTR
Stock that are not issued and outstanding, but which our board of
directors may issue, sell or distribute without allocating the
proceeds to Genzyme Tissue Repair.
<PAGE>
GENZYME TISSUE REPAIR
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
6. EQUITY LINE OF CREDIT
In 1998, our board of directors made $50.0 million of cash available
to Genzyme Tissue Repair under an equity line of credit from Genzyme
General. Genzyme Tissue Repair may draw down funds as needed each fiscal
quarter in exchange for GZTR designated shares. In February 1999, Genzyme
Tissue Repair made a $5.0 million draw under this equity line in exchange
for 1,633,399 GZTR designated shares. In May 1999, the amount available
under this equity line was reduced by $25.0 million to $20.0 million in
connection with the reallocation of our ownership interest in
Diacrin/Genzyme LLC from Genzyme Tissue Repair to Genzyme General.
In March 2000, Genzyme Tissue Repair made a $5.0 million draw on this
equity line in exchange for 765,169 GZTR designated shares. As required by
our charter, the number of designated shares of GZTR Stock was determined
using the average closing price of the GZTR Stock for the 20 trading days
beginning on the thirtieth trading day before the draw. The funds will
be used for Genzyme Tissue Repair's operating needs.
7. ACQUISITION OF BIOMATRIX, INC. AND FORMATION OF GENZYME BIOSURGERY
In March 2000, we entered into an agreement to acquire Biomatrix, Inc.
Upon completion of the acquisition, we will form a new operating division
called Genzyme Biosurgery and create a new series of common stock to
reflect its value and track its performance. We refer to this stock as
"GZBX Stock." In connection with the merger, the assets of Genzyme Surgical
Products and Genzyme Tissue Repair will become part of Genzyme Biosurgery.
In addition, GZSP Stock and GZTR Stock will be exchanged for GZBX Stock. We
will account for the acquisition of Biomatrix as a purchase.
Biomatrix stockholders will have the option of receiving $37.00 in
cash or one share of GZBX Stock for each share of Biomatrix common stock
they hold. The merger agreement provides, however, that Genzyme will pay
cash for up to 28.38% of the outstanding shares of Biomatrix common stock
that receive merger consideration, or up to approximately $245.0 million.
Holders of of GZSP Stock will receive 0.6060 share of GZBX Stock for
each share of GZSP Stock they hold and holders of GZTR Stock will receive
0.3352 share of GZBX Stock for each share of GZTR Stock they hold.
For more information about the merger and the merger consideration,
we encourage you to carefully read our Registration Statement on Form S-4
filed with the SEC on April 18, 2000, as it may be amended.
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
---- ----
(UNAUDITED, AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues:
Net product sales .................................................... $ 184,421 $ 163,702
Net service sales .................................................... 20,966 18,730
Revenue from research and development contracts ...................... 2,743 1,312
--------- ---------
Total revenues ................................................... 208,130 183,744
Operating costs and expenses:
Cost of products sold ................................................. 48,259 43,818
Cost of services sold ................................................. 11,851 12,088
Selling, general and administrative ................................... 61,551 58,945
Research and development (including research and development
related to contracts) ................................................ 36,199 32,834
Amortization of intangibles ........................................... 6,098 6,207
Charge for purchase of in-process research and development ............ 19,500 --
--------- ---------
Total operating costs and expenses ............................... 183,458 153,892
--------- ---------
Operating income .......................................................... 24,672 29,852
Other income (expenses):
Equity in net loss of unconsolidated affiliates ....................... (8,133) (10,092)
Gain on affiliate sale of stock ....................................... 20,270 606
Gain on sale of investments in equity securities ...................... -- 1,963
Minority interest ..................................................... 856 866
Gain on sale of assets ................................................ 31 --
Other ................................................................. (29) --
Investment income ..................................................... 9,944 8,193
Interest expense ...................................................... (3,939) (5,498)
--------- ---------
Total other income (expenses) .................................... 19,000 (3,962)
Income before income taxes ................................................ 43,672 25,890
Provision for income taxes ................................................ (11,854) (9,833)
--------- ---------
Net income ................................................................ $ 31,818 $ 16,057
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
---- ----
(UNAUDITED, AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Attributable to Genzyme General:
Net income ......................................................... $ 45,309 $ 33,505
Tax benefit allocated from Genzyme Molecular Oncology .............. 1,096 1,934
Tax benefit allocated from Genzyme Surgical Products ............... 3,420 3,825
Tax benefit allocated from Genzyme Tissue Repair ................... 1,812 3,962
--------- ---------
Net income attributable to GENZ Stock .............................. $ 51,637 $ 43,226
========= =========
Per GENZ common share:
Net income per GENZ common share-basic ......................... $ 0.61 $ 0.53
========= =========
Weighted average shares outstanding ................................ 84,502 81,958
========= =========
Net income per GENZ common and common equivalent share-diluted . $ 0.57 $ 0.49
========= =========
Adjusted weighted average shares outstanding ....................... 94,726 92,591
========= =========
Attributable to Genzyme Molecular Oncology:
Net loss attributable to GZMO Stock ................................ $ (5,057) $ (7,060)
========= =========
Per GZMO basic and diluted common share:
Net loss ....................................................... $ (0.37) $ (0.56)
========= =========
Weighted average shares outstanding ................................ 13,495 12,658
========= =========
Attributable to Genzyme Surgical Products:
Net loss attributable to GZSP Stock ................................ $ (10,043) $ (10,745)
========= =========
Per GZSP basic and diluted common share:
Net loss ....................................................... $ (0.68)
=========
Weighted average shares outstanding ................................ 14,855
=========
Pro forma net loss per GZSP basic and diluted common share ......... $ (0.73)
=========
Pro forma weighted average shares outstanding ...................... 14,800
=========
Attributable to Genzyme Tissue Repair:
Net loss attributable to GZTR Stock ................................ $ (4,971) $ (9,616)
========= =========
Per GZTR basic and diluted common share:
Net loss ....................................................... $ (0.17) $ (0.44)
========= =========
Weighted average shares outstanding ................................ 28,531 21,945
========= =========
Net income ............................................................ $ 31,818 $ 16,057
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustments ......................... (10,223) (8,826)
Unrealized gains (losses) on securities:
Unrealized gains (losses) arising during the period ......... 80,198 (2,319)
Reclassification adjustment for losses included in net income -- (1,214)
--------- ---------
Unrealized gains (losses) on securities, net ........... 80,198 (3,533)
--------- ---------
Other comprehensive income (loss) ................................ 69,975 (12,359)
--------- ---------
Comprehensive income .................................................. $ 101,793 $ 3,698
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 112,194 $ 130,156
Short-term investments ...................................... 252,266 255,846
Accounts receivable, net .................................... 163,236 166,803
Inventories ................................................. 117,991 117,269
Prepaid expenses and other current assets ................... 25,563 18,918
Deferred tax assets-current ................................. 40,780 41,195
----------- -----------
Total current assets ...................................... 712,030 730,187
Property, plant and equipment, net ............................ 386,843 383,181
Long-term investments ......................................... 322,158 266,988
Intangibles, net .............................................. 246,803 253,153
Deferred tax assets-noncurrent ................................ 15,480 18,631
Investments in equity securities .............................. 180,914 97,859
Other noncurrent assets ....................................... 51,814 37,283
----------- -----------
Total assets .............................................. $ 1,916,042 $ 1,787,282
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 21,355 $ 27,853
Accrued expenses ............................................ 78,187 73,359
Income taxes payable ........................................ 35,567 27,946
Deferred revenue ............................................ 4,972 3,700
Current portion of long-term debt and capital lease obligations 5,644 5,080
----------- -----------
Total current liabilities ................................. 145,725 137,938
Noncurrent liabilities:
Long-term debt .............................................. 18,103 18,000
Convertible notes and debentures ............................ 272,885 272,622
Other noncurrent liabilities ................................ 2,510 2,330
----------- -----------
Total liabilities ......................................... 439,223 430,890
Stockholders' equity:
Preferred Stock ............................................. -- --
GENZ Stock, $.01 par value .................................. 848 842
GZMO Stock, $.01 par value .................................. 137 134
GZSP Stock, $.01 par value .................................. 149 148
GZTR Stock, $.01 par value .................................. 287 285
Treasury Stock - at cost .................................... (901) (901)
Additional paid-in capital - Genzyme General ................ 475,324 469,776
Additional paid-in capital - Genzyme Molecular Oncology ..... 68,896 67,672
Additional paid-in capital - Genzyme Surgical Products ...... 546,347 542,343
Additional paid-in capital - Genzyme Tissue Repair .......... 223,110 217,103
Retained earnings ........................................... 89,020 57,202
Accumulated other comprehensive income ...................... 73,602 1,788
----------- -----------
Total stockholders' equity .................................... 1,476,819 1,356,392
----------- -----------
Total liabilities and stockholders' equity .................... $ 1,916,042 $ 1,787,282
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
<PAGE>
GENZYME CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
---- ----
(UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................... $ 31,818 $ 16,057
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization ..................................... 17,198 17,268
Equity in loss of unconsolidated affiliates ....................... 8,133 10,138
Accrued interest/amortization of marketable securities ............ (1,430) (2,489)
Provision for bad debts and inventory ............................. 4,340 3,505
Technology license fee ............................................ 250 --
Gain on affiliate sale of stock ................................... (20,270) (606)
Minority interest in net loss of subsidiary ....................... (856) (866)
Gain on sale of investments in equity securities .................. -- (1,963)
Deferred income tax expense (benefit) ............................. 3,239 (662)
Amortization of deferred rent ..................................... (37) (37)
Other ............................................................. 321 (448)
Increase (decrease) in cash from working capital:
Accounts receivable .......................................... (1,154) (1,397)
Inventories .................................................. (4,795) (1,566)
Prepaid expenses and other assets ............................ (858) (1,830)
Accounts payable, accrued expenses, income
taxes payable and deferred revenue ........................ 4,814 6,585
--------- ---------
Net cash provided by operating activities .................... 42,429 41,689
INVESTING ACTIVITIES:
Purchases of investments ............................................. (195,902) (196,387)
Sales and maturities of investments .................................. 144,561 106,128
Proceeds from sale of investments in equity securities ............... -- 11,090
Acquisitions of property, plant and equipment ........................ (15,620) (10,633)
Investments in unconsolidated affiliates ............................. (6,032) (11,676)
Other ................................................................ 848 3,245
--------- ---------
Net cash used in investing activities ........................ (72,145) (98,233)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................................. 14,714 20,016
Payments of debt ....................................................... (6) (397)
Bank overdraft ......................................................... (6,440) --
Other .................................................................. 4,962 1,546
--------- ---------
Net cash provided by financing activities ...................... 13,230 21,165
Effect of exchange rate changes on cash .................................... (1,476) (2,642)
--------- ---------
Decrease in cash and cash equivalents ...................................... (17,962) (38,021)
Cash and cash equivalents at beginning of period ........................... 130,156 118,612
--------- ---------
Cash and cash equivalents at end of period ................................. $ 112,194 $ 80,591
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
<PAGE>
GENZYME CORPORATION
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
We prepared the unaudited, consolidated financial statements
for Genzyme following the requirements of the SEC for interim
reporting. As permitted under those rules, certain footnotes or other
financial information that are normally required by generally accepted
accounting principles can be condensed or omitted. We have
reclassified certain 1999 data to conform with the 2000 presentation.
These financial statements include all normal and recurring
adjustments that we consider necessary for the fair presentation of
our financial position and operating results. Since these are
interim financial statements, you should also read the financial
statements and notes included in our 1999 Form 10-K. Revenues,
expenses, assets and liabilities can vary from quarter to quarter.
Therefore, the results and trends in these interim financial
statements may not be the same as those for future periods.
2. REGISTRATION STATEMENT
In March 2000, we filed with the SEC a Prospectus pursuant to
Rule 424(b)(5) of the Securities Act of 1933, as amended, covering the
offering of 3,000,000 shares of GZMO Stock (plus 450,000 shares
issuable upon exercise of the underwriters' over-allotment option).
The proceeds of the offering were to be used by Genzyme Molecular
Oncology to fund research, pre-clinical and clinical development
programs, to repay existing indebtedness, and for working capital and
general corporate purposes.
In April 2000, in light of recent market volatility and current
market condition, we withdrew the offering of shares of GZMO Stock
contemplated by the Prospectus.
3. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(Amounts in thousands)
<S> <C> <C>
Raw materials ............................. $ 38,197 $ 39,958
Work-in-process ........................... 56,555 44,559
Finished products ......................... 23,239 32,752
-------- --------
Total ................................... $117,991 $117,269
======== ========
</TABLE>
4. PURCHASE OF IN-PROCESS TECHNOLOGY
In March 2000, we recorded a charge of $19.5 million to in-process
research and development representing the initial amounts payable to
Synpac (North Carolina) Inc. under a license granted by Synpac to Genzyme
to develop and commercialize an enzyme replacement therapy for Pompe
disease produced using a Chinese hamster ovary cell line.
In connection with this license, Genzyme General will pay Synpac
certain amounts upon the achievement of certain development and
commercialization milestones. Genzyme General will also pay Synpac
royalties for a specified period of time based on certain percentages of
sales.
In April 2000, Genzyme and Pharming Group N.V. signed a
letter agreement to share in the development and the funding for
the commercialization of an enzyme replacement therapy for Pompe disease
licensed by Genzyme from Synpac in March 2000. Upon execution of the
definitive agreement, Pharming will issue a convertible note payable to
Genzyme General for an aggregate principal amount of $10.0 million,
representing Pharming's share of the payments previously paid to Synpac by
Genzyme.
5. GAIN ON AFFILIATE SALE OF STOCK
We recognized a gain of $20.3 million for the three months ended March
31, 2000 and $0.6 million for the three months ended March 31, 1999 due to
the issuance by Genzyme Transgenics Corporation of additional shares of
Genzyme Transgenics common stock.
<PAGE>
GENZYME CORPORATION
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS
6. NET INCOME (LOSS) PER SHARE
GENZYME GENERAL:
The following table sets forth the computation of basic and diluted
earnings per share of GENZ Stock:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
---- ----
(Amounts in thousands,
except per share amounts)
<S> <C> <C>
Net income - basic ...................................................... $51,637 $43,226
Effect of dilutive securities (net of tax):
GENZ Notes:
Interest expense .................................................. 2,163 2,046
Amortization of purchasers' discount and
offering costs (1) ........................................... 154 146
GENZ Debentures:
Interest expense .................................................. 175 165
Amortization of debt offering costs (2) ........................... 30 28
------- -------
Net income - diluted .................................................... $54,159 $45,611
======= =======
Shares used in net income per common share - basic ...................... 84,502 81,958
Effect of dilutive securities:
Employee and director stock options ............................... 3,281 3,642
Warrants .......................................................... -- 32
GENZ Notes (3) .................................................... 6,313 6,313
GENZ Debentures (3) ............................................... 630 646
------- -------
Shares used in net income per common share-diluted (4) .................. 94,726 92,591
======= =======
Net income per common share - basic ..................................... $ 0.61 $ 0.53
======= =======
Net income per common share - diluted (4) ............................... $ 0.57 $ 0.49
======= =======
</TABLE>
- ----------
(1) The purchasers' discount and offering costs of approximately $7.0 million
are being amortized over the term of the GENZ Notes, which mature in June
2005.
(2) The offering costs of approximately $0.9 million are being amortized over
the term of the GENZ Debentures, which mature in August 2003.
(3) The GENZ Notes were issued in May 1998 and the GENZ Debentures were issued
in August 1998.
(4) Certain securities were not included in the computation of Genzyme
General's diluted earnings per share for the three months ended March 31,
2000 and 1999 because each such security had an exercise price greater
than the average market price of GENZ Stock during each respective period.
Such securities include:
<PAGE>
GENZYME CORPORATION
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS
6. NET INCOME (LOSS) PER SHARE (CONTINUED)
GENZYME GENERAL (CONTINUED):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
(Amounts in thousands)
<S> <C> <C>
Shares of GENZ Stock issuable for options ................ 2,965 1,381
Shares of GENZ Stock issuable for warrants (1) ........... -- 80
----- -----
Total shares with exercise prices greater than the average
market price of GENZ Stock during the period ......... 2,965 1,461
===== =====
</TABLE>
- ----------------
(1) In 1997, we sold three warrants to CMDF to purchase a total of 120,000
shares of GENZ Stock for an aggregate purchase price of $1.0 million
(Canadian). Two of the warrants, which entitled CMDF to purchase a total
of 80,000 shares of GENZ Stock were exercisable in the three months ended
March 31, 1999. All of these warrants were cancelled in August 1999 when
the Canadian Medical Discoveries Fund exercised its right to require us to
repurchase the fund's interest in StressGen/Genzyme LLC.
GENZYME MOLECULAR ONCOLOGY:
For both periods presented, basic and diluted net loss per share of
GZMO common share are the same. We did not include the securities described
in the following table in the computation of Genzyme Molecular Oncology's
diluted loss per share for each period because these securities would have
an anti-dilutive effect due to Genzyme Molecular Oncology's net loss per
share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
(Amounts in thousands)
<S> <C> <C>
Shares of GZMO Stock issuable for options .......... 673 1,604
Warrants to purchase GZMO Stock .................... 10 10
Shares of GZMO Stock issuable upon conversion of the
GENZ Notes .................................... 682 682
GZMO designated shares ............................. 1,006 728
----- -----
Total shares excluded from the diluted loss per GZMO
share calculation ............................. 2,371 3,024
===== =====
</TABLE>
<PAGE>
GENZYME CORPORATION
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS
6. NET INCOME (LOSS) PER SHARE (CONTINUED)
GENZYME SURGICAL PRODUCTS:
We disclose pro forma net loss per share for Genzyme Surgical
Products for the three months ended March 31, 1999 because GZSP Stock was
not outstanding for this period.
For both periods presented, basic and diluted net loss per share of
GZSP common share are the same. We did not include the securities
described in the following table in the computation of Genzyme Surgical
Products' diluted loss per share for each period because these securities
would have an anti-dilutive effect due to Genzyme Surgical Products' net
loss per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
---- ----
(Amounts in thousands)
<S> <C> <C>
Shares of GZSP Stock issuable for options .......... 554 --
Shares of GZSP Stock issuable upon conversion of the
GENZ Notes .................................... 1,130 --
GZSP designated shares (1) ......................... 35 --
----- -----
Total shares excluded from the diluted loss per GZSP
share calculation ............................. 1,719 --
===== =====
</TABLE>
- ----------
(1) GZSP designated shares are shares of GZSP Stock that are not issued and
outstanding, but which our board of directors may issue, sell or distribute
without allocating the proceeds to Genzyme Surgical Products.
GENZYME TISSUE REPAIR:
For both periods presented, basic and diluted net loss per share of
GZTR common share are the same. We did not include the securities
described in the following table in the computation of Genzyme Tissue
Repair's diluted loss per share for each period because these securities
would have an anti-dilutive effect due to Genzyme Tissue Repair's net
loss per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
---- ----
(Amounts in thousands)
<S> <C> <C>
Shares of GZTR Stock issuable for options .......... 2,485 3,875
Shares of GZTR Stock issuable upon conversion of the
5% convertible subordinated note (1) .......... -- 6,458
GZTR designated shares ............................. 2,977 2,310
----- -----
Total shares excluded from the diluted loss per GZTR
Share calculation ............................. 5,462 12,643
====== ======
</TABLE>
- --------------
(1) The conversion of Genzyme Tissue Repair's 5% convertible subordinated note
was completed in the fourth quarter of 1999.
<PAGE>
GENZYME CORPORATION
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS
7. SEGMENT REPORTING
We present segment information in a manner consistent with the
method we use to report this information to our management. Applying
SFAS 131, we have five reportable segments:
- Therapeutics, which develops, manufactures and distributes human
therapeutic products for significant unmet medical needs. The business
derives substantially all of its revenue from sales of
Cerezyme-Registered Trademark- enzyme.
- Diagnostic Products, which provides diagnostic products to niche
markets with a focus on IN VITRO diagnostics.
- Genzyme Molecular Oncology, which is developing cancer products, with
a focus on therapeutic vaccines and angiogenesis inhibitors.
- Genzyme Surgical Products, which develops, manufactures and markets
surgical products for cardiovascular surgery and general surgery.
- Genzyme Tissue Repair, which develops and markets biological products
for orthopedic injuries such as cartilage repair and severe burns.
Information concerning the operations of these reportable segments is
as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
---- ----
(Amounts in thousands)
<S> <C> <C>
REVENUES:
Genzyme General:
Therapeutics .......... $ 133,802 $ 115,041
Diagnostic Products ... 15,238 14,692
Genzyme Molecular Oncology 2,555 1,613
Genzyme Surgical Products 29,082 27,353
Genzyme Tissue Repair .... 5,867 4,023
Other .................... 21,422 20,457
Eliminations/Adjustments.. 164 565
--------- ---------
Total ............... $ 208,130 $ 183,744
========= =========
NET INCOME:
Genzyme General:
Therapeutics .......... $ 29,263 $ 33,871
Diagnostic Products ... 715 1,129
Genzyme Molecular Oncology (5,057) (7,060)
Genzyme Surgical Products (10,043) (10,745)
Genzyme Tissue Repair .... (4,971) (9,616)
Other .................... (171) (2,038)
Eliminations/Adjustments . 22,082 10,516
--------- ---------
Total ................ $ 31,818 $ 16,057
========= =========
</TABLE>
There has been no material change in segment assets since December 31, 1999.
<PAGE>
GENZYME CORPORATION
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS
8. ACQUISITION OF BIOMATRIX, INC. AND FORMATION OF GENZYME BIOSURGERY
In March 2000, we entered into an agreement to acquire Biomatrix, Inc.
Upon completion of the acquisition, we will form a new operating division
called Genzyme Biosurgery and create a new series of common stock to
reflect its value and track its performance. We refer to this stock as
"GZBX Stock." In connection with the merger, the assets of Genzyme Surgical
Products and Genzyme Tissue Repair will become part of Genzyme Biosurgery.
In addition, GZSP Stock and GZTR Stock will be exchanged for GZBX Stock. We
will account for the acquisition of Biomatrix as a purchase.
Biomatrix stockholders will have the option of receiving $37.00 in
cash or one share of GZBX Stock for each share of Biomatrix common stock
they hold. The merger agreement provides, however, that Genzyme will pay
cash for up to 28.38% of the outstanding shares of Biomatrix common stock
that receive merger consideration, or up to approximately $245.0 million.
Holders of GZSP Stock will receive 0.6060 share of GZBX Stock for
each share of GZSP Stock they hold and holders of GZTR Stock will receive
0.3352 share of GZBX Stock for each share of GZTR Stock they hold.
For more information about the merger and the merger consideration,
we encourage you to carefully read our Registration Statement on Form S-4
filed with the SEC on April 18, 2000, as it may be amended.
9. SUBSEQUENT EVENT
In April 2000, Focal Inc. exercised its First Option under the
Genzyme/Focal Stock Purchase Agreement. Under the terms of this agreement,
Genzyme Surgical Products was required to purchase $5.0 million worth of
Focal common stock, or 614,250 shares at a price of $8.14 per share. We
are committed, at Focal's option, to make future equity investments of up
to $10.0 million subject to certain conditions.
In April, 2000, Genzyme General received net proceeds of
approximately $5.1 million in connection with a settlement of a
lawsuit. The lawsuit, initiated in 1993, pertained to an accidental
spill of Ceredase at a fill facility by a contractor to Genzyme General.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion contains forward-looking statements. These forward-looking
statements represent the expectations of our management as of the filing date of
this report. Actual results could differ materially from those anticipated by
the forward-looking statements due to numerous reasons, including the risks and
uncertainties described in Exhibit 99.2, "Factors Affecting Future Operating
Results," to our 1999 Form 10-K. You should consider carefully each of these
risks and uncertainties in evaluating our financial condition and results of
operations.
We are a biotechnology company that develops innovative products and
services for significant unmet medical needs. We have four operating divisions:
- Genzyme General, which develops and markets therapeutic products,
with an expanding focus on products to treat patients suffering from
lysosomal storage disorders and other specialty therapeutics;
diagnostic products, with a focus on IN VITRO diagnostics; and other
products and services, such as genetic testing services and lipids and
peptides for drug delivery.
- Genzyme Molecular Oncology, which is developing cancer products, with
a focus on therapeutic vaccines and angiogenesis inhibitors;
- Genzyme Surgical Products, which develops, manufactures and markets
surgical products for cardiovascular surgery and general surgery; and
- Genzyme Tissue Repair, which develops and markets biological products
for orthopedic injuries, such as cartilage damage and severe burns.
For purposes of financial presentation, we allocate all of our programs,
products, assets and liabilities to our divisions. We provide separate financial
statements for each of our divisions as well as consolidated financial
statements that include the consolidated results of each of our divisions and
our corporate operations taken as a whole. Holders of GENZ Stock, GZMO Stock,
GZSP Stock and GZTR Stock are common stockholders of Genzyme Corporation and
have no specific rights to the assets to which each stock relates. Genzyme
Corporation continues to hold title to all of the assets and is responsible
for all of the liabilities allocated to each of our divisions.
This report contains five sets of financial statements: one that presents
our results on a consolidated basis and one for each of our four operating
divisions. The discussion that follows is a summary of the factors our
management believes are necessary for an understanding of each of the five sets
of financial statements.
In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
completion of the acquisition, we will form a new operating division that will
be called Genzyme Biosurgery, and the assets of Genzyme Surgical Products and
Genzyme Tissue Repair will become part of that new division. See "Liquidity and
Capital Resources" and "Subsequent Events" below.
<PAGE>
A. RESULTS OF OPERATIONS
GENZYME CORPORATION
The components of Genzyme's consolidated statements of operations are
described in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE/
-------------------- (DECREASE)
2000 1999 % CHANGE
---- ---- --------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Total revenues ................................. $ 208,130 $ 183,744 13%
Cost of products and services sold ............. 60,110 55,906 8%
Selling, general and administrative ............ 61,551 58,945 4%
Research and development (including research
and development related to contracts) ..... 36,199 32,834 10%
Amortization of intangibles .................... 6,098 6,207 (2)%
Charge for purchase of in-process research and
development................................ 19,500 -- N/A
-------- --------
Total operating costs and expenses ............. 183,458 153,892 19%
-------- --------
Operating income ............................... 24,672 29,852 (17)%
Other income (expenses), net ................... 19,000 (3,962) 580%
-------- --------
Income before income taxes ..................... 43,672 25,890 69%
Provision for income taxes ..................... (11,854) (9,833) 21%
-------- --------
Net income ..................................... $ 31,818 $ 16,057 98%
======== =========
</TABLE>
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE/
-------------------- (DECREASE)
2000 1999 % CHANGE
---- ---- --------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Product revenue............................... $184,421 $ 163,702 13%
Service revenue................................ 20,966 18,730 12%
-------- --------
Total product and service revenue......... 205,387 182,432 13%
Research and development revenue.............. 2,743 1,312 109%
-------- --------
Total revenues...................... $ 208,130 $ 183,744 13%
======== =========
</TABLE>
<PAGE>
PRODUCT REVENUE:
We derive product revenue from sales by Genzyme General of therapeutic and
diagnostic products and sales by Genzyme Surgical Products of cardiovascular and
general surgery products. Our increase in product revenue during the three
months ended March 31, 2000 as compared to the three months ended March 31, 1999
is largely due to increased sales of Cerezyme-Registered Trademark- enzyme,
which is a therapy for the treatment of Gaucher disease. The increase In sales
of Cerezyme-Registered Trademark- enzyme is attributable to our identification
of new Gaucher disease patients throughout the world and strong international
sales. We also sell Ceredase-Registered Trademark- enzyme for the treatment of
Gaucher disease, but we have successfully converted virtually all Gaucher
disease patients to a treatment regimen using Cerezyme-Registered Trademark-
enzyme. We have provided information regarding the growth in sales of our
Gaucher disease therapies during the periods in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE/
-------------------- (DECREASE)
2000 1999 % CHANGE
---- ---- --------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Sales of Cerezyme-Registered Trademark-enzyme
and Ceredase-Registered Trademark-enzyme....... $128,605 $ 113,754 13%
% of total product revenue.................... 70% 69%
</TABLE>
Our results of operations are highly dependent on sales of
Cerezyme-Registered Trademark- enzyme and a reduction in revenue from sales of
this product would adversely affect our results of operations. Revenue from
Cerezyme-Registered Trademark- enzyme would be impacted negatively if
competitors developed alternative treatments for Gaucher disease and the
alternative products gained commercial acceptance. We are aware of companies
that have initiated efforts to develop competitive products and other companies
may do so in the future.
SERVICE REVENUE:
We derive service revenue from four principal sources:
- - genetic testing services performed by Genzyme General;
- - genomics services using Genzyme Molecular Oncology's SAGE-TM- gene
expression technology;
- - Genzyme Tissue Repair's Carticel-Registered Trademark- chondrocytes for the
treatment of cartilage damage; and
- - Genzyme Tissue Repair's Epicel-TM- skin grafts for the treatment of severe
burns.
Our service revenue increased during the three months ended March 31, 2000
as compared to the same period in 1999 as a result of increased sales of
Carticel-Registered Trademark- chondrocytes and Epicel-TM- skin grafts, as well
as increased revenue from genetic testing. The increase in genetic testing
service revenue during the period is a result of growth in sales of our DNA and
cancer testing services. These increases in service revenues were partially
offset by a decrease in genomics service revenue as a result of lower sales
volume.
RESEARCH AND DEVELOPMENT REVENUE:
Our research and development revenue increased during the three months
ended March 31, 2000 as compared to the same period of 1999 due to an
increase in licensing revenue. Genzyme Molecular Oncology recognized licensing
revenue in the first three months of 2000 as a result of a $2.0 million
development milestone payment received related to the advancement by Schering-
Plough Corporation of the p53 tumor suppressor gene in ovarian cancer clinical
trials.
The increase in research and development revenue was partially offset by a
decrease in revenue related to StressGen/Genzyme LLC, our joint venture with
StressGen Biotechnologies Corporation and the Canadian Medical Discoveries Fund,
Inc. to develop stress gene therapies for the treatment of cancer. This joint
venture was dissolved at the end of 1999. The research and development revenues
for the three months ended March 31, 1999 included work performed by Genzyme
Molecular Oncology on behalf of the joint venture for which there was no
comparable amount in the same period of 2000.
<PAGE>
INTERNATIONAL PRODUCT AND SERVICE REVENUE:
A substantial portion of Genzyme's revenue was generated outside of the
United States, as described in the following table. Most of these revenues were
attributable to sales of Cerezyme-Registered Trademark- enzyme.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE/
-------------------- (DECREASE)
2000 1999 % CHANGE
---- ---- --------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
International product and
service revenue.......................... $86,777 $72,336 20%
% of total product and service revenue........ 42% 40%
</TABLE>
MARGINS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE/
-------------------- (DECREASE)
2000 1999 % CHANGE
---- ---- --------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Product margin................................ $136,162 $ 119,884 14%
% of product revenue.......................... 74% 73%
Service margin................................ 9,115 6,642 39%
% of service revenue.......................... 43% 35%
Total gross margin............................ $ 145,277 $ 126,526 15%
% of total product and service revenue........ 71% 69%
</TABLE>
We provide a broad range of healthcare products and services. As a result,
our gross margin varies significantly based on the category of product or
service. Sales of therapeutic products, including Cerezyme-Registered Trademark-
enzyme, result in higher margins than diagnostic products.
Our service margin increased during the period. This increase is
attributable to:
- an increase in sales of DNA and cancer testing services;
- increased sales of Carticel-Registered Trademark- chondrocytes and
Epicel-TM- skin grafts; and
- a reduction in labor, materials and production costs for
Carticel-Registered Trademark- chondrocytes and Epicel-TM- skin
grafts.
These increases to service margins were partially offset, however, by
reduced margins from our genomics services business due to lower sales volume.
OPERATING EXPENSES
The increase in selling, general and administrative expenses for the three
months ended March 31, 2000 is related to:
- increased staffing to support the growth in several of Genzyme
General's product lines;
<PAGE>
- increased expenditures to support the increased sales of
Cerezyme-Registered Trademark- enzyme and Thyrogen -Registered
Trademark- hormone; and
- increased expenditures for marketing Genzyme Surgical Products'
cardiovascular products, primarily the minimally invasive cardiac
surgery instrument line.
The increases in selling, general and administrative expenses were
partially offset by a reduction of legal costs by Genzyme Molecular Oncology
associated with the prosecution and maintenance of its intellectual property
portfolio and a decrease in its license issue fees.
The increase in research and development expense for the three months ended
March 31, 2000 as compared to the same period of 1999 is primarily a result of:
- increased costs in connection with the operations of ATIII LLC, our
joint venture with Genzyme Transgenics Corporation for the development
and commercialization of transgenic recombinant human antithrombin
III;
- increased spending on our program to develop Fabrazyme-TM- enzyme for
the treatment of Fabry disease;
- increased spending in our cell and gene therapy programs; and
- increased spending on the development programs for our surgical
instruments and devices.
In March 2000, we recorded a charge of $19.5 million to in-process research
and development representing the initial amounts payable to Synpac (North
Carolina), Inc. under a license granted by Synpac to Genzyme to develop and
commercialize an enzyme replacement therapy for Pompe disease produced using a
Chinese hamster ovary cell line.
OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE/
-------------------- (DECREASE)
2000 1999 % CHANGE
---- ---- --------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Equity in net loss of unconsolidated
affiliates .................... $ (8,133) $(10,092) (19)%
Gain on affiliate sale of stock .... 20,270 606 3,245%
Gain on sale of investments in
equity securities ............. -- 1,963 N/A
Minority interest .................. 856 866 (1)%
Gain on sale of assets ............. 31 -- N/A
Other .............................. (29) -- N/A
Investment income .................. 9,944 8,193 21%
Interest expense ................... (3,939) (5,498) (28)%
--------- ---------
Total other income (expenses), net . $ 19,000 $ (3,962) 580%
========= =========
</TABLE>
EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATES
We currently own approximately 30% of the common stock of Genzyme
Transgenics and record our portion of its results in net loss of unconsolidated
affiliates. We also record the results of the following joint ventures in net
loss of unconsolidated affiliates:
<PAGE>
<TABLE>
<CAPTION>
JOINT VENTURE PARTNER EFFECTIVE DATE PRODUCT/INDICATION GENZYME DIVISION
- ------------- ------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
RenaGel LLC GelTex Pharmaceuticals, Inc. June 1997 Renagel-Registered Trademark- Genzyme General
capsules for the reduction
of serum phosphorus in
patients with end-stage
renal disease
BioMarin/ BioMarin Pharmaceutical Inc. September 1998 Aldurazyme-TM-enzyme for Genzyme General
Genzyme LLC the treatment of
mucopolysaccharidosis-I
Pharming/
Genzyme LLC Pharming Group, N.V. October 1998 Transgenic human
alpha-glucosidase Genzyme General
for the treatment of
Pompe disease
Diacrin/Genzyme LLC Diacrin, Inc. October 1996 Products using porcine Genzyme Tissue Repair
fetal cells for the (until May 1999);
treatment of Parkinson's Genzyme General (after
and Huntington's diseases May 1999)
</TABLE>
Our equity in net loss of unconsolidated affiliates decreased for the three
months ended March 31, 2000 as compared to the three months ended March 31, 1999
as a result of;
- decreased losses from Genzyme Transgenics and RenaGel LLC; and
- the dissolution of StressGen/Genzyme LLC.
These decreases were partially offset by increased losses from our joint
ventures with BioMarin and Pharming.
GAIN ON AFFILIATE SALE OF STOCK
We recognized a gain of $20.3 million for the three months ended March 31,
2000 and $0.6 million for the three months ended March 31, 1999 due to the
issuance by Genzyme Transgenics of additional shares of Genzyme
Transgenics common stock.
MINORITY INTEREST
We consolidate the results of ATIII LLC and record Genzyme Transgenics'
portion of the losses of that joint venture as minority interest. Minority
interest decreased, notwithstanding increases in ATIII LLC's losses, because
Genzyme Transgenics' portion of those losses decreased.
GAIN ON SALE OF INVESTMENTS IN EQUITY SECURITIES
We recorded a gain of $2.0 million in January 1999 upon the sale of the
shares of Techne Corporation common stock that we received when we sold our
research products business to Techne. There were no such sales of stock during
the three months ended March 31, 2000.
INVESTMENT INCOME
Our investment income increased for the three months ended March 31, 2000
due primarily to higher average cash balances as compared to the three months
ended March 31, 1999.
<PAGE>
INTEREST EXPENSE
Our interest expense decreased for the period as a result of our repayment
in November 1999 of $82.0 million outstanding under our revolving credit
facility from a syndicate of banks.
TAX PROVISION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE/
-------------------- (DECREASE)
2000 1999 % CHANGE
---- ---- --------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Provision for income taxes............... $ 11,854 $ 9,833 21%
Tax rate................................. 27% 38%
</TABLE>
Our tax rates vary from the U.S. statutory tax rate as a result of our:
- provision for state income taxes;
- use of a foreign sales corporation;
- nondeductible amortization of intangibles;
- use of tax credits; and
- share of losses of unconsolidated affiliates.
In the three months ended March 31, 2000, we released one of our
valuation allowances which reduced our tax provision by approximately $3.4
million and reduced our tax rate by 7.8%.
<PAGE>
GENZYME GENERAL
In June 1999, we created Genzyme Surgical Products. The business of
Genzyme Surgical Products previously operated as a business unit of Genzyme
General. The discussion that follows reflects the results of operations of
Genzyme General as if Genzyme Surgical Products had existed as a separate
division of Genzyme for all periods presented.
The components of Genzyme General's combined statements of operations
are described in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE/
-------------------- (DECREASE)
2000 1999 % CHANGE
---- ---- --------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Total revenues ................................. $ 170,626 $ 150,766 13%
Cost of products and services sold ............. 41,048 36,722 12%
Selling, general and administrative ............ 38,222 35,725 7%
Research and development (including research and
development related to contracts) .............. 23,243 21,065 10%
Amortization of intangibles .................... 1,968 2,086 (6)%
Charge for purchase of in-process research
and development ............................. 19,500 -- N/A
--------- ---------
Total operating costs and expenses ............. 123,981 95,598 30%
--------- ---------
Operating income ............................... 46,645 55,168 (15)%
Other income (expenses), net ................... 17,508 (1,447) 1,310%
--------- ---------
Income before income taxes ..................... 64,153 53,721 19%
Provision for income taxes ..................... (18,844) (20,216) (7)%
--------- ---------
Net income ..................................... 45,309 33,505 35%
Allocated tax benefits ......................... 6,328 9,721 (35)%
--------- ---------
Net income attributable to GENZ Stock .......... $ 51,637 $ 43,226 19%
========= =========
</TABLE>
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE/
-------------------- (DECREASE)
2000 1999 % CHANGE
---- ---- --------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Product revenue ................................ $155,339 $136,349 14%
Service revenue ................................ 15,120 13,892 9%
-------- --------
Total product and service revenue.......... 170,459 150,241 13%
Research and development revenue ............... 167 525 (68)%
-------- --------
Total revenues ....................... $170,626 $150,766 13%
======== ========
</TABLE>
<PAGE>
The following table sets forth Genzyme General's product and service
revenue on a segment basis:
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/
MARCH 31, (DECREASE)
2000 1999 % CHANGE
-------- -------- --------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Therapeutics ..................... $137,842 $117,915 17%
Diagnostics:
Product revenue ............. 15,268 14,694 4%
Service revenue ............. 15,120 13,892 9%
-------- -------- --------
Total Diagnostics ........... 30,388 28,586 6%
Other ............................ 2,229 3,740 (40)%
-------- -------- --------
Total product and service revenues $170,459 $150,241 13%
======== ======== ========
</TABLE>
THERAPEUTICS
Genzyme General's increase in product revenue is largely due to
increased sales of Cerezyme-Registered Trademark- enzyme, which is
attributable to the identification of new Gaucher disease patients throughout
the world and strong international sales. We have provided information
regarding the growth in sales of Genzyme General's Gaucher disease therapies
during the period in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/
MARCH 31, (DECREASE)
2000 1999 % CHANGE
--------- --------- ----------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Sales of Cerezyme-Registered Trademark-enzyme
and Ceredase-Registered Trademark-enzyme $128,605 $113,754 13%
% of total product revenue .................. 83% 83%
</TABLE>
Genzyme General's results of operations are highly dependent on sales
of Cerezyme-Registered Trademark- enzyme. A reduction in revenue from sales
of this product would adversely affect its results of operations. Revenue from
Cerezyme-Registered Trademark- enzyme would be impacted negatively if
competitors developed alternative treatments for Gaucher disease and the
alternative products gained commercial acceptance. Genzyme General is aware of
companies that have initiated efforts to develop competitive products and other
companies may do so in the future.
Therapeutics revenue for each period also includes sales of
Thyrogen-Registered Trademark- hormone, which is an adjunctive diagnostic tool
for well differentiated thyroid cancer.
DIAGNOSTICS
Diagnostics revenues increased for the three months ended March 31,
2000 as compared to the same period of 1999, due primarily to increased sales of
HDL and LDL cholesterol testing products, despite the sale of our bioreagent
and ELISA product lines, in July 1999. Diagnostics' product revenue includes
royalties on product sales by Techne Corporation's biotechnology group.
Diagnostics' service revenue increased during the period as a result of
growth in sales of our DNA and cancer testing services.
<PAGE>
OTHER
Other revenue for each period include sales of:
- lipids and peptides for drug delivery; and
- genetic testing services.
INTERNATIONAL PRODUCT AND SERVICE REVENUE
A substantial portion of Genzyme General's revenue was generated
outside of the United States, as described in the following table. Most of
these revenues were attributable to sales of Cerezyme-Registered Trademark-
enzyme.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/
MARCH 31, (DECREASE)
2000 1999 % CHANGE
------- -------- ----------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
International product and
service revenue ................. $77,772 $63,456 23%
% of total product and service revenue 46% 42%
</TABLE>
MARGINS
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/
MARCH 31, (DECREASE)
2000 1999 % CHANGE
-------- -------- ----------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Product margin ....................... $123,119 $108,382 14%
% of product revenue ................. 79% 79%
Service margin ....................... 6,292 5,137 22%
% of service revenue ................. 42% 37%
Total gross margin ................... $129,411 $113,519 14%
% of total product and service revenue 76% 76%
</TABLE>
Genzyme General provides a broad range of healthcare products and
services. As a result, Genzyme General's gross margin varies significantly based
on the category of product or service. Sales of therapeutic products, including
Cerezyme-Registered Trademark- enzyme, result in higher margins than diagnostic
products.
Our service margin increased during each period as a result of
increases in sales of DNA and cancer testing services.
<PAGE>
OPERATING EXPENSES
The increase in selling, general and administrative expenses for the
three months ended March 31, 2000 as compared to the three months ended March
31, 1999 is primarily related to:
- increased staffing to support the growth in several of Genzyme
General's product lines; and
- increased expenditures to support the increased sales of
Cerezyme-Registered Trademark- enzyme and Thyrogen -Registered
Trademark- hormone.
The increase in research and development expense for the three months
ended March 31, 2000 as compared to the three months ended March 31, 1999 is a
result of:
- increased costs in connection with the results of ATIII LLC, the
joint venture with Genzyme Transgenics Corporation for the
development and commercialization of transgenic recombinant human
antithrombin III; and
- increased spending on Genzyme General's program to develop
Fabrazyme-TM- enzyme for the treatment of Fabry disease;
In March 2000, Genzyme General recorded a charge of $19.5 million to
in-process research and development representing the initial amounts payable
to Synpac (North Carolina), Inc. under a license granted by Synpac to Genzyme
to develop and commercialize an enzyme replacement therapy for Pompe disease
produced using a Chinese hamster ovary cell line.
OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/
MARCH 31, (DECREASE)
2000 1999 % CHANGE
-------- -------- ----------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Equity in net loss of unconsolidated
affiliates .................... $ (8,133) $ (7,756) 5%
Gain on affiliate sale of stock .... 20,270 606 3,245%
Gain on sale of investments in
equity securities ............. -- 1,963 N/A
Minority interest .................. 856 866 (1)%
Gain on sale of assets ............. 35 -- N/A
Other .............................. (56) -- N/A
Investment income .................. 8,087 7,923 2%
Interest expense ................... (3,551) (5,049) (30)%
-------- -------- ----------
Total other income (expenses), net . $ 17,508 $ (1,447) 1,310%
======== ======== ==========
</TABLE>
EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATES
Genzyme General records in equity in net loss of unconsolidated
affiliates its portion of the results of our joint ventures with GelTex
Pharmaceuticals, Inc., BioMarin Pharmaceutical Inc., Pharming Group, N.V. and
Diacrin, Inc. Genzyme General also records a portion of the results of Genzyme
Transgenics in equity in net loss of unconsolidated affiliates.
Genzyme General's equity in net loss of unconsolidated affiliates
increased for the three months ended March 31, 2000 as compared to the three
months ended March 31, 1999 as a result of:
<PAGE>
- - the reallocation of our interest in our joint venture with Diacrin from
Genzyme Tissue Repair to Genzyme General in May 1999;
- - increased losses from our joint venture with BioMarin to develop and
commercialize Aldurazyme-TM- enzyme for the treatment of
mucopolysaccharidosis-I; and
- - increased losses from our joint venture with Pharming to develop a therapy
for Pompe disease.
These increases were partially offset by decreased losses from Genzyme
Transgenics and RenaGel LLC.
GAIN ON AFFILIATE SALE OF STOCK
Genzyme General recognized a gain of $20.3 million for the three months
ended March 31, 2000 and $0.6 million for the three months ended March 31, 1999
due to the issuance by Genzyme Transgenics of additional shares of Genzyme
Transgenics common stock.
MINORITY INTEREST
Genzyme General consolidates the results of ATIII LLC and records
Genzyme Transgenics' portion of the losses of that joint venture as minority
interest. Minority interest decreased, notwithstanding increases in ATIII LLC's
losses, because Genzyme Transgenics' portion of those losses decreased.
GAIN ON SALE OF INVESTMENTS IN EQUITY SECURITIES
Genzyme General recorded gains of $2.0 million in January 1999 upon the
sale of the shares of Techne common stock that it received when it sold
its research products business to Techne. There were no such sales of stock
during the three months ended March 31, 2000.
INVESTMENT INCOME
Genzyme General's investment income increased for the three months
ended March 31, 2000 due primarily to higher average cash balances as compared
to the three months ended March 31, 1999.
INTEREST EXPENSE
Genzyme General's interest expense decreased for the three months
ended March 31, 2000 as a result of our repayment in November 1999 of $82.0
million outstanding under our revolving credit facility, which had been
allocated to Genzyme General.
<PAGE>
TAX PROVISION AND ALLOCATED TAX BENEFITS
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/
MARCH 31, (DECREASE)
2000 1999 % CHANGE
--------- --------- -----------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Provision for income taxes .... $ 18,844 $ 20,216 (7)%
Effective tax rate ............ 29% 38%
Tax benefits allocated from:
Genzyme Molecular Oncology 1,096 1,934 (43)%
Genzyme Surgical Products 3,420 3,825 (11)%
Genzyme Tissue Repair .... 1,812 3,962 (54)%
--------- ---------
Net allocated tax benefits .... 6,328 9,721 (35)%
--------- ---------
Net tax provision ............. $ 12,516 $ 10,495 19%
========= =========
</TABLE>
Genzyme General's tax rates vary from the U.S. statutory tax rate as a
result of its:
- - provision for state income taxes;
- - use of a foreign sales corporation;
- - nondeductible amortization of intangibles;
- - use of tax credits; and
- - share of losses of unconsolidated affiliates.
In the three months ended March 31, 2000, we released one of our valuation
allowances which reduced our tax provision by $3.4 million and reduced our
tax rate by 5.3%.
GENZYME MOLECULAR ONCOLOGY
The components of Genzyme Molecular Oncology's combined statements of
operations are described in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/
MARCH 31, (DECREASE)
2000 1999 % CHANGE
------ ------- ----------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Total revenues ........................ $ 2,555 $ 1,613 58%
Cost of revenues ...................... 56 640 (91%)
Selling, general and administrative ... 1,190 1,619 (26%)
Research and development .............. 4,058 3,905 4%
Amortization of intangibles ........... 2,956 2,956 0%
------- -------
Total operating costs and expenses 8,260 9,120 (9%)
------- -------
Operating loss ........................ (5,705) (7,507) (24%)
Other expenses, net ................... (14) (215) (93%)
------- -------
Loss before income taxes .............. (5,719) (7,722) (26%)
Tax benefit ........................... 662 662 0%
------- -------
Net loss attributable to GZMO Stock ... $(5,057) $(7,060) (28%)
======= =======
</TABLE>
<PAGE>
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/
MARCH 31, (DECREASE)
2000 1999 % CHANGE
------- ------- ----------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Service revenue ................ $ -- $ 911 (100%)
Research and development revenue -- 298 (100%)
Royalty and licensing revenue .. 2,555 404 532%
------- -------
Total revenues ............ $2,555 $1,613 58%
======= =======
</TABLE>
Service revenues decreased as a result of lower sales volumes for
genomics services using Genzyme Molecular Oncology's SAGE-TM- gene expression
technology.
Our research and development revenue increased during the three months
ended March 31, 2000 as compared to the same period of 1999 due to an
increase in licensing revenue. Genzyme Molecular Oncology recognized
licensing revenue in the first three months of 2000 as a result of a $2.0
million development milestone payment received related to the advancement by
Schering-Plough Corporation of the p53 tumor suppressor gene in ovarian
cancer clinical trials.
Licensing revenue increased as a result of a $2.0 million development
milestone payment received in the first quarter of 2000 under a license
agreement with Schering-Plough Corporation. This milestone payment was related
to the advancement by Schering-Plough of the p53 tumor suppressor gene in
ovarian cancer clinical trials.
COST OF REVENUES
Genzyme Molecular Oncology's cost of revenues includes:
- services performed using the SAGE-TM- gene expression technology on
behalf of third parties;
- royalties paid to third parties; and
- work performed on behalf of StressGen/Genzyme LLC.
Cost of revenues decreased as a result of the dissolution of
StressGen/Genzyme LLC and a planned reduction of genomics services provided by
Genzyme Molecular Oncology.
OPERATING EXPENSES
Genzyme Molecular Oncology's selling, general and administrative
expenses decreased primarily as a result of reduced legal costs associated
with the prosecution and maintenance of its intellectual property portfolio
and a decrease in license issue fees.
Genzyme Molecular Oncology's research and development expenses increased
as a result of:
- clinical trial costs for its melanoma and breast tumor vaccine
product; and
- an increase in the number of research personnel and related
expenses required to support its immunotherapy and antiangiogenesis
programs.
AMORTIZATION OF INTANGIBLES
Genzyme Molecular Oncology's amortization of intangibles is attributable to
intangible assets acquired in connection with the acquisition of PharmaGenics,
Inc. in June 1997.
<PAGE>
Genzyme Molecular Oncology's other expenses decreased as a result of the
dissolution of StressGen/Genzyme LLC in December 1999. Genzyme Molecular
Oncology no longer incurs expenses related to this joint venture because it was
dissolved in 1999.
GENZYME SURGICAL PRODUCTS
In June 1999, we created Genzyme Surgical Products. The business of Genzyme
Surgical Products previously operated as a business unit of Genzyme General.
Genzyme Surgical Products consists primarily of:
- - the products and assets we acquired upon the purchase of Deknatel Snowden
Pencer, Inc. in 1996;
- - the Sepra products (our line of products and product candidates designed to
limit post-operative adhesions); and
- - our research and development programs in biomaterials and gene and cell
therapy for cardiovascular disease.
Genzyme General transferred $150.0 million in cash, cash equivalents,
investments and certain other assets, to Genzyme Surgical Products in connection
with the creation of Genzyme Surgical Products as a separate division of
Genzyme. In exchange for this transfer, we issued approximately 14.8 million
shares of GZSP Stock and distributed them as a dividend to holders of GENZ
Stock. The following discussion reflects the results of operations of Genzyme
Surgical Products as if it had existed as a separate division of Genzyme for all
periods presented.
The components of Genzyme Surgical Products' combined statements of
operations are described in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE/(DECREASE)
2000 1999 % CHANGE
------------------- -------------------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Total revenues ........................ $ 29,082 $ 27,353 6%
Cost of products sold ................. 16,039 15,844 1%
Selling, general and administrative ... 16,400 15,287 7%
Research and development .............. 6,971 5,602 24%
Amortization of intangibles ........... 1,426 1,417 1%
-------- --------
Total operating costs and expenses 40,836 38,150 7%
-------- --------
Operating loss ........................ (11,754) (10,797) 9%
Other income (expense), net ........... 1,711 52 3,190%
-------- --------
Net loss attributable to GZSP Stock ... $(10,043) $(10,745) (7%)
======== ========
</TABLE>
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------- INCREASE/(DECREASE)
2000 1999 % CHANGE
------- ------ -------------------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Cardiovascular surgery products... $19,650 $19,388 1%
General surgery products ......... 6,989 5,897 19%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Other products ................ 2,443 2,068 18%
------- --------
Total revenues ........... $29,082 $27,353 6%
======= ========
</TABLE>
Cardiovascular surgery products include chest drainage and fluid management
systems, surgical closures, biomaterials, and instruments for conventional and
minimally invasive cardiac surgery. The increase in cardiovascular surgery
product revenues is due to increased sales of instruments for minimally invasive
cardiac surgery. This increase was partially offset by a decrease in sales of
fluid management systems and surgical closures as a result of seasonal
fluctuations for these products.
The increase in general surgery product revenues is primarily due to the
increase in sales of Sepra Film-Registered Trademark- bioresorbable membrane.
Product sales of Sepra Film-Registered Trademark- bioresorbable membrane for
the three months ended March 31, 2000 were $3.9 million compared to $2.9
million during the same period in 1999. An increase in general surgery
instrument sales also contributed to the overall increase in general surgery
product revenue.
Other surgery product revenues consist of sales of Genzyme Surgical
Products' Snowden-Pencer-Registered Trademark- line of instruments for
plastic surgery and products sold to original equipment manufacturers,
including sutures. The increase in other surgery product revenues for the
first three months of 2000 as compared to the same period of 1999 is
primarily due to increased sales of plastic surgery instruments.
International revenue as a percentage of total sales for the three
months ended March 31, 2000 was 29% as compared to 30% in the same period of
1999.
MARGINS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------- INCREASE/(DECREASE)
2000 1999 % CHANGE
------- ------ -------------------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Gross margins ......................... $13,043 $11,509 13%
% of total revenues .............. 45% 42%
</TABLE>
Genzyme Surgical Products sells a broad range of products. As a result,
Genzyme Surgical Products' gross margins may vary significantly depending on the
particular market conditions of each product line.
Gross margins increased in the first quarter of 2000 when compared to the
same period of 1999 due to increased sales of higher margin products, such as
devices for minimally invasive cardiac surgery.
OPERATING EXPENSES
Genzyme Surgical Products' selling, general and administrative expenses
increased in the first three months of 2000 as a result of increased spending in
marketing of the cardiovascular products, primarily the minimally invasive
cardiac surgery instrument line.
Genzyme Surgical Products' research and development expenses for the three
months ended March 31, 2000 increased when compared to the same period in 1999
as a result of increased spending in Genzyme Surgical Products' cell and gene
therapy programs as well as increased research and development spending for
surgical instruments and devices.
<PAGE>
OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------- INCREASE/(DECREASE)
2000 1999 % CHANGE
------- ------ -------------------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Loss on sale of assets..... $ (4) $ -- N/A
Other ..................... 32 46 (30%)
Investment income ......... 1,682 7
Interest expense .......... 1 (1) 200%
------- -----
Total other income $ 1,711 $ 52 3,190%
======= =====
</TABLE>
The increase in other income and expenses is primarily due to an
increase in investment income. Investment income increased because Genzyme
Surgical Products had a higher average cash balance during the three months
ended March 31, 2000 as a result of the allocation in June 1999 of $150.0
million in cash from Genzyme General to Genzyme Surgical Products.
GENZYME TISSUE REPAIR
The components of Genzyme Tissue Repair's combined statements of
operations are described in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------- INCREASE/(DECREASE)
2000 1999 % CHANGE
------- ------ -------------------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Total revenues ...................... $ 5,867 $ 4,023 46%
Cost of services sold ............... 3,023 2,998 1%
Selling, general and administrative.. 5,739 6,314 (9)%
Research and development ............ 1,871 1,968 (5)%
-------- --------
Total operating costs and expenses 10,633 11,280 (6)%
Operating loss ...................... (4,766) (7,257) (34)%
Other income (expenses), net ........ (205) (2,359) (91)%
-------- --------
Net loss attributable to GZTR stock.. $ (4,971) $ (9,616) (48)%
======== ========
REVENUES
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------- INCREASE/(DECREASE)
2000 1999 % CHANGE
------- ------ -------------------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Carticel-Registered Trademark-chondrocytes $4,532 $2,942 54%
Epicel-TM-skin grafts .................... 1,314 996 32%
Other .................................... 21 85 (75)%
------ ------
Total revenues .............. $5,867 $4,023 46%
====== ======
</TABLE>
Genzyme Tissue Repair's service revenue increased during the three months
ended March 31, 2000 as compared to the same period of 1999 as a result of
increases in sales of Carticel-Registered Trademark- chondrocytes and Epicel-TM-
skin grafts.
The increase in sales of Carticel-Registered Trademark- chondrocytes
during the period is a result of continued increases in the numbers of patients
treated and surgeons trained as well as an increase in the number of insurance
reimbursement
<PAGE>
approvals. Revenue from Epicel-TM- skin grafts varies widely from quarter to
quarter depending on the number of patients requiring severe burn care.
GROSS MARGIN
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------- INCREASE/(DECREASE)
2000 1999 % CHANGE
------- ------ -------------------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Total gross margin................................... $2,844 $1,025 177%
% of total revenue................................... 48% 25%
</TABLE>
Genzyme Tissue Repair's gross margins improved in both periods as a result of:
- increased sales of Carticel-Registered Trademark- chondrocytes and
Epicel-TM- skin grafts;
- a reduction in labor, materials and production costs for
Carticel-Registered Trademark- chondrocytes and Epicel-TM- skin
grafts; and
- continued expense controls.
OPERATING EXPENSES
Genzyme Tissue Repair's selling, general and administrative expenses
decreased in the three months ended March 31, 2000 as compared to the same
period of 1999 as a result of its efforts to streamline its operations. Its
research and development expenses decreased in the period due to the
termination of its TGF-beta and other research and development programs.
OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------- INCREASE/(DECREASE)
2000 1999 % CHANGE
------- ------ -------------------
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C>
Equity in net loss of joint venture.. $ -- $(2,007) (100)%
Other ............................... (5) -- N/A
Interest income ..................... 102 93 10%
Interest expense .................... (302) (445) (32)%
------ -------
Total other income (expenses) .... $ (205) $(2,359) (91)%
====== =======
</TABLE>
Equity in net loss of joint venture decreased during the period as a
result of the reallocation of Genzyme's ownership interest in Diacrin/Genzyme
LLC from Genzyme Tissue Repair to Genzyme General in May 1999.
Interest income increased in the three months ended March 31, 2000 as
a result of higher average cash balances during the period.
Interest expense decreased in the three months ended March 31, 2000 as a
result of the completion of the conversion of Genzyme Tissue Repair's 5%
convertible subordinated note in the fourth quarter of 1999.
<PAGE>
B. LIQUIDITY AND CAPITAL RESOURCES
GENZYME CORPORATION
At March 31, 2000, we had cash, cash-equivalents, and short- and long-term
investments of $686.6 million, an increase of $33.6 million from December 31,
1999.
We generated $46.4 million in cash from our operations for the three months
ended March 31, 2000.
Our investing activities utilized $67.4 million in cash for the three
months ended March 31, 2000. Investing activities used:
- $51.4 million for our net purchases of investments;
- $13.6 million to fund capital expenditures; and
- $6.0 million to fund our investments in joint ventures;
During the three months ended March 31, 2000, we received $16.6 million
in cash from exercises of stock options and the issuance of stock under our
employee stock purchase plan.
In November 1999, we refinanced our $225.0 million revolving credit
facility with a $50.0 million revolving credit facility that matures in
November 2000 and a $100.0 million revolving credit facility that matures in
November 2002. At March 31, 2000, $23.0 million was outstanding in the credit
facility that matures in November 2002.
We believe that our available cash, investments and cash flow from
operations will be sufficient to fund our planned operations and capital
requirements for the foreseeable future. Although we currently have substantial
cash resources and positive cash flow, we intend to use substantial portions of
our available cash for:
- product development and marketing;
- expanding facilities;
- working capital; and
- strategic business initiatives.
Our cash reserves will be further reduced to pay principal and interest on
the following debt:
- $21.2 million in principal under our 5% convertible subordinated
debentures due August 2003, which are convertible into GENZ Stock; and
- $250.0 million in principal under our 5 1/4% convertible subordinated
notes due June 2005, which are convertible into GENZ Stock, GZMO
and GZSP Stock.
Our cash reserves will also be reduced if we exercise our option to
purchase the limited partnership interests in Genzyme Development Partners,
L.P. and use cash to pay all or a portion of the approximately $26.0 million
advance payment to the limited partners. This option will be exercisable
during the ninety day period beginning August 31, 2000.
Genzyme Development Partners is a Delaware limited partnership that was
formed in 1989 to develop, produce and derive income from the sale of Sepra
products. Its general partner is a wholly-owned subsidiary of Genzyme.
If we use cash to pay or redeem this debt, including the interest due on
it, our cash reserves will be diminished.
In March 2000, we entered into an agreement to acquire Biomatrix, Inc.
Upon completion of the acquisition, we will form a new operating division called
Genzyme Biosurgery and create a new series of common stock to reflect its value
and track its performance. We refer to this stock as "GZBX Stock." In connection
with the merger, the assets of Genzyme Tissue Repair will become part of Genzyme
Biosurgery. In addition, upon shareholder
<PAGE>
approval, GZSP Stock and GZTR Stock will be exchanged for GZBX Stock. We will
account for the acquisition of Biomatrix as a purchase.
Biomatrix stockholders will have the option of receiving $37.00 in cash
or one share of GZBX Stock for each share of Biomatrix common stock they
hold. The merger agreement provides, however, that Genzyme will pay cash for
up to 28.38% of the outstanding shaes of Biomatrix common stock that receive
merger consideration, or up to approximately $245.0 million. Holders of GZSP
Stock will receive 0.6060 share of GZBX Stock for each share of GZSP Stock
they hold and holders of GZTR Stock will receive 0.3352 share of GZBX Stock
for each share of GZTR Stock they hold.
For more information about the merger and the merger consideration, we
encourage you to carefully read the Registration Statement on Form S-4 filed
with the SEC on April 18, 2000, as it may be amended.
The acquisition, which we expect to complete in the second quarter of 2000,
is subject to:
- approval by Biomatrix's shareholders;
- approval by our shareholders, including separate approval of the
holders of GZSP Stock and GZTR Stock;
- clearance under federal antitrust laws; and
- other customary closing conditions.
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.
GENZYME GENERAL
At March 31, 2000, Genzyme General had cash, cash-equivalents, and short-
and long-term investments of $560.6 million, an increase of $46.7 million from
December 31, 1999.
Genzyme General generated $64.2 million in cash from its operations for the
three months ended March 31, 2000.
Genzyme General's investing activities utilized $81.6 million in cash for
the three months ended March 31, 2000. Investing activities used:
- $63.2 million for Genzyme General's net purchases of investments;
- $14.5 million to fund capital expenditures; and
- $6.0 million to fund Genzyme General's investments in joint ventures.
During the three months ended March 31, 2000, Genzyme General received
$12.7 million in cash from exercise of stock options and the issuance of
stock under our employee stock purchase plan.
In 1998, our board of directors made $30.0 million of Genzyme General's
cash available to Genzyme Molecular Oncology under an equity line of credit.
Under the terms of this equity line, Genzyme Molecular Oncology may draw down
funds as needed in exchange for GZMO designated shares. GZMO
designated shares are shares of GZMO Stock that are not issued and outstanding,
but which our board of directors may issue, sell or distribute without
allocating the proceeds to Genzyme Molecular Oncology. In April 2000, Genzyme
Molecular Oncology drew $15.0 million of cash from this equity line to meets its
financing needs. We have included more information about this draw below under
the heading "Subsequent Events - Genzyme Molecular Oncology Equity Line of
Credit," which we incorporate into this discussion by reference. The amount
remaining available for Genzyme Molecular Oncology to draw under the equity
line is $15.0 million.
In 1998, our board of directors also made $50.0 million of Genzyme
General's cash available to Genzyme
<PAGE>
Tissue Repair under an equity line of credit. Under the terms of this equity
line, Genzyme Tissue Repair may draw down funds as needed each quarter in
exchange for GZTR designated shares. In February 1999, Genzyme Tissue Repair
made a $5.0 million draw under the line. In May 1999, the amount available under
this equity line was reduced by $25.0 million to $20.0 million in connection
with the reallocation of our ownership interest in Diacrin/Genzyme LLC from
Genzyme Tissue Repair to Genzyme General. In March 2000, Genzyme Tissue Repair
made a $5.0 million draw on this equity line in exchange for 765,169 GZTR
designated shares. As of March 31, 2000, $15.0 million of cash remained
available to Genzyme Tissue Repair under this equity line.
Genzyme General, together with our other operating divisions, has access to
Genzyme's revolving credit facilities. At March 31, 2000, $50.0 million was
available under a facility that matures in November 2000 and $77.0 million was
available under a facility that matures in November 2002.
We believe that Genzyme General's available cash, investments and cash flow
from operations will be sufficient to fund its planned operations and capital
requirements for the foreseeable future. Although Genzyme General currently has
substantial cash resources and positive cash flow, it intends to use substantial
portions of its available cash for:
- product development and marketing;
- expanding facilities;
- working capital; and
- strategic business initiatives.
Genzyme General's cash reserves will be further reduced to pay principal
and interest on the following debt:
- $21.2 million in principal under our 5% convertible subordinated
debentures due August 2003, which are convertible into GENZ Stock; and
- $250.0 million in principal under our 5 1/4% convertible subordinated
notes due June 2005, which are convertible into GENZ Stock.
If Genzyme General uses cash to pay or redeem any of this debt, including
the interest due on it, its cash reserves will be diminished. In addition,
Genzyme General's cash resources will be reduced to the extent that the
liabilities of Genzyme Molecular Oncology, Genzyme Surgical Products or Genzyme
Tissue Repair affect our consolidated results of operations.
To satisfy these and other commitments, Genzyme General may have to obtain
additional financing. We cannot guarantee that Genzyme General will be able to
obtain any additional financing, extend any existing financing arrangement, or
obtain either on favorable terms.
GENZYME MOLECULAR ONCOLOGY
At March 31, 2000, Genzyme Molecular Oncology had cash and cash equivalents
of $1.5 million, a decrease of $2.0 million from December 31, 1999.
During the first quarter of 2000, Genzyme Molecular Oncology used $3.3
million of cash for operations. Financing activities provided $1.2 million of
cash proceeds from exercises of stock options and the issuance of stock under
our employee stock purchase plan.
In 1998, our board of directors made $30.0 million of Genzyme General's
cash available to Genzyme Molecular Oncology under an equity line of credit.
Under the terms of this equity line, Genzyme Molecular Oncology may draw down
funds as needed in exchange for GZMO designated shares. GZMO designated shares
are shares of GZMO Stock that are not issued and outstanding, but which our
board of directors may issue, sell, or distribute without allocating the
proceeds to Genzyme Molecular Oncology. In April 2000, Genzyme Molecular
<PAGE>
Oncology drew $15.0 million of cash from this equity line to meets its financing
needs. We have included more information about this draw below under the heading
"Subsequent Events - Genzyme Molecular Oncology Equity Line of Credit," which we
incorporate into this discussion by reference. The amount remaining available
for Genzyme Molecular Oncology to draw under the equity line is $15.0 million.
In March 2000, we filed with the SEC a Prospectus pursuant to Rule
424(b)(5) of the Securities Act of 1933, as amended, covering the offering of
3,000,000 shares of GZMO Stock (including 450,000 shares issuable upon
exercise of the underwriters' over-allotment option). The proceeds of the
offering were to be used by Genzyme Molecular Oncology to fund research,
pre-clinical and clinical development programs, to repay existing
indebtedness, and for working capital and general corporate purposes. In
April 2000, in light of recent market volatility and current market
conditions, we withdrew the offering of shares of GZMO Stock contemplated by
the Prospectus.
Genzyme Molecular Oncology, together with our other operating divisions,
has access to Genzyme's revolving credit facilities. At March 31, 2000, $50.0
million was available under a facility that matures in November 2000 and
$77.0 million was available under a facility that matures in November 2002.
We anticipate that Genzyme Molecular Oncology's current cash resources,
together with amounts available from the following sources, will be sufficient
to fund its operations through 2000.
- the $15.0 million remaining on the equity line of credit from Genzyme
General;
- our revolving credit facilities;
- revenues generated from the SAGE-TM- gene expression technology; and
- revenues from license agreements.
We expect Genzyme Molecular Oncology to have significant operating losses
for the next several years. Genzyme Molecular Oncology plans to spend
substantial amounts of money on, among other things:
- research and development;
- preclinical and clinical testing; and
- pursuing regulatory approvals.
Genzyme Molecular Oncology's cash needs may differ from those planned as a
result of many factors, including the:
- results of research and development efforts and clinical testing;
- achievement of milestones under existing licensing arrangements;
- ability to establish and maintain additional strategic alliances and
licensing arrangements;
- enforcement of patent and other intellectual property rights;
- development of competitive products and services; and
- ability to satisfy regulatory requirements of the FDA and other
government authorities.
Genzyme Molecular Oncology may require significant additional financing to
continue operations. We cannot guarantee that Genzyme Molecular Oncology will be
able to obtain any additional financing or find it on favorable terms. If
Genzyme Molecular Oncology has insufficient funds or is unable to raise
additional funds, it may delay, reduce or eliminate certain of its programs.
Genzyme Molecular Oncology may also have to give rights to third parties to
attempt to commercialize technologies or products that it would otherwise
commercialize itself.
GENZYME SURGICAL PRODUCTS
At March 31, 2000, Genzyme Surgical Products had cash, cash equivalents,
and short- and long-term investments of $116.0 million, a decrease of $10.1
million from December 31, 1999.
Genzyme Surgical Products used $11.3 million in cash for operations in the
first three months of 2000. This is primarily due to Genzyme Surgical Products'
net loss of $10.0 million for the three months ended March 31, 2000.
<PAGE>
Genzyme Surgical Products' investing activities in the first three months
of 2000 generated $11.9 million in cash from its investments, and used $0.9
million to fund capital expenditures.
During the three months ended March 31, 2000, Genzyme Surgical Products
received $0.9 million in cash from exercises of stock options and the
issuance of stock under our employee stock purchase plan.
In June 1999, Genzyme General transferred $150.0 million in cash, cash
equivalents, investments and certain other assets to Genzyme Surgical Products
in connection with the creation of Genzyme Surgical Products as a separate
division of Genzyme. In exchange for this transfer, approximately 14.8 million
shares of GZSP Stock were issued and distributed as a dividend to holders of
GENZ Stock.
In March 2000, we entered into an agreement to acquire Biomatrix, Inc.
Upon completion of the acquisition, we will form a new operating division
called Genzyme Biosurgery and create a new series of common stock to reflect
its value and track its performance. We refer to this stock as "GZBX Stock."
In connection with the merger, the assets of Genzyme Surgical Products and
Genzyme Tissue Repair will become part of Genzyme Biosurgery. In addition,
upon shareholder approval, GZSP Stock and GZTR Stock will be exchanged for
GZBX Stock. We will account for the acquisition of BioMatrix as a purchase.
Biomatrix stockholders will have the option of receiving $37.00 in cash or
one share of GZBX Stock for each share of Biomatrix common stock they hold.
The merger agreement provides, however, that Genzyme will pay cash for up to
28.38% of the outstanding shares of Biomatrix common stock that receive
merger consideration, or approximately $245.0 million. Holders of GZSP Stock
will receive 0.6060 share of GZBX Stock for each share of GZSP Stock they
hold and holders of GZTR Stock will receive 0.3352 share of GZBX Stock for
each share of GZTR Stock they hold. To the extent Genzyme Surgical Products
uses cash to complete the acquisition, its cash reserves will be diminished.
We expect to complete the acquisition in the second quarter of 2000.
For more information about the merger and the merger consideration, we
encourage you to carefully read the Registration Statement on Form S-4 filed
with the SEC on April 18, 2000, as it may be amended.
Genzyme Surgical Products, together with our other operating divisions, has
access to our revolving credit facilities. At March 31, 2000 $50.0 million was
available under a facility that matures in November 2000 and $77.0 million was
available under a facility that matures in November 2002.
In April 2000, Focal Inc. exercised its First Option under the
Genzyme/Focal Stock Purchase Agreement. Under the terms of this agreement,
Genzyme Surgical Products was required to purchase $5.0 million worth of
Focal common stock, or 614,250 shares at a price of $8.14 per share. We are
committed, at Focal's option, to make future equity investments of up to
$10.0 million subject to certain conditions.
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 collaborations and licensing
arrangements for research and development programs;
- the achievement of milestones under strategic collaborations;
- 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.
In addition, if Genzyme Surgical Products exercises its option to
purchase the limited partnership interests in Genzyme Development Partners,
L.P. and uses cash to pay all or a portion of the approximately $26.0 million
advance payment to the limited partners, Genzyme Surgical Products' cash
resources will be diminished. Genzyme Development Partners is a Delaware
limited partnership that was formed in 1989 to develop, produce and derive
income from the sale of Sepra products. Its general partner is a
wholly-owned subsidiary of Genzyme.
<PAGE>
Genzyme Surgical Products may require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that it will be
able to obtain any additional financing or find it on favorable terms. If
Genzyme Surgical Products has insufficient funds or is unable to raise
additional funds, it may have to delay, reduce or eliminate some of its
programs. Genzyme Surgical Products may also have to give third parties rights
to commercialize technologies or products that it would otherwise have sought to
commercialize itself.
GENZYME TISSUE REPAIR
At March 31, 2000, Genzyme Tissue Repair had cash and cash equivalents of
$8.4 million, a decrease of $0.9 million from December 31, 1999.
During the first quarter of 2000, Genzyme Tissue Repair used $7.1 million
of cash for operations. This is primarily due to Genzyme Tissue Repair's net
loss of $5.0 million during the period.
Genzyme Tissue Repair used $0.1 million for investing activities in the
three months ended March 31, 2000 primarily for the purchase of property,
plant and equipment.
Financing activities provided Genzyme Tissue Repair with $6.3 million of
cash. This includes $5.0 million drawn by Genzyme Tissue Repair under its
equity line from Genzyme General and $0.4 million of cash from the issuance
of stock under employee stock plans.
In March 2000, we entered into an agreement to acquire Biomatrix, Inc.
Upon completion of the acquisition, we will form a new operating division
called Genzyme Biosurgery and create a new series of common stock to reflect
its value and track its performance. We refer to this stock as "GZBX Stock."
In connection with the merger, the assets of Genzyme Surgical Products and
Genzyme Tissue Repair will become part of Genzyme Biosurgery. In addition,
upon shareholder approval, GZSP Stock and GZTR Stock will be exchanged for
GZBX Stock. We will account for the acquisition of BioMatrix as a purchase.
We have included more information about the proposed acquisition of
Biomatrix, Inc. and proposed formation of Genzyme Biosurgery as a new
division of Genzyme above under the heading "Liquidity and Capital Resources
- - Genzyme Surgical Products," which we incorporate into this discussion by
reference.
Genzyme Tissue Repair, together with our other operating divisions, has
access to our revolving credit facilities. At March 31, 2000, $50.0 million was
available under a facility that matures in November 2000 and $77.0 million was
available under a facility that matures in November 2002. At March 31, 2000,
$18.0 million of funds outstanding under our revolving credit facility were
allocated to Genzyme Tissue Repair.
In 1998, our board of directors also made $50.0 million of Genzyme
General's cash available to Genzyme Tissue Repair under an equity line of
credit. Under the terms of this equity line, Genzyme Tissue Repair may draw down
funds as needed each quarter in exchange for GZTR designated shares. GZTR
designated shares are shares of GZTR Stock that are not issued and outstanding,
but which our board of directors may issue, sell or distribute without
allocating the proceeds to Genzyme Tissue Repair. In February 1999, Genzyme
Tissue Repair made a $5.0 million draw under the line. In May 1999, the amount
available under this equity line was reduced by $25.0 million to $20.0 million
in connection with the reallocation of our ownership interest in Diacrin/Genzyme
LLC from Genzyme Tissue Repair to Genzyme General. In March 2000, Genzyme Tissue
Repair made a $5.0 million draw on this equity line in exchange for 765,169 GZTR
designated shares. As of March 31, 2000, $15.0 million of cash remained
available to Genzyme Tissue Repair under this equity line.
We anticipate that Genzyme Tissue Repair's current cash resources,
together with the $15.0 million that remains available under the GZTR equity
line from Genzyme General, will be sufficient to fund its operations through
the end of 2000.
Genzyme Tissue Repair's cash needs may differ from those planned as a
result of various factors, including the:
- ability to satisfy regulatory requirements of the FDA and other
government agencies;
- results of research and development and clinical testing;
<PAGE>
- enforcement of patent and other intellectual property rights; and
- development of competitive products and services.
In addition, in 1999, Genzyme Tissue Repair received $25.0 million in
cash from Genzyme General in connection with the transfer from, Genzyme Tissue
Repair to Genzyme General of our interest in our joint venture with Diacrin,
Inc. If the joint venture does not initiate a Phase III clinical trial of
NeuroCell-TM--PD by June 30, 2000, Genzyme Tissue Repair will be required to
pay to Genzyme General $20.0 million plus accrued interest at an annual rate
of 13.5%. If a Phase II clinical trial is initiated by June 30, 2000 but
NeuroCell-PD-TM- does not receive final marketing approval from the FDA by
June 30, 2004, Genzyme Tissue Repair will be required to pay Genzyme General
$15.0 million plus accrued interest at an annual rate of 13.5%. Genzyme
Tissue Repair may repay these amounts in cash, GZTR designated shares, or
combination of both, at its option. If these milestones are not achieved, and
Genzyme Tissue Repair elects to repay Genzyme General in cash, its cash
reserves will be substantially diminished or depleted in their entirety. If
Genzyme Tissue Repair elects to repay Genzyme General in GZTR designated
shares, this would substantially dilute the rights of the holders of GZTR
Stock and could significantly affect the market price of GZTR Stock.
Genzyme Tissue Repair will require substantial additional funds in order to
continue operations at current levels beyond 2000. We cannot guarantee that
Genzyme Tissue Repair will be able to obtain any additional financing or find it
on favorable terms. If Genzyme Tissue Repair has insufficient funds or is unable
to raise additional funds, it may be required to delay, scale back or eliminate
certain of its programs. Genzyme Tissue Repair may also have to give rights to
third parties to commercialize technologies or products that it would otherwise
commercialize itself.
EURO-THE EUROPEAN CURRENCY
Since December 31, 1999, there have been no material changes related to
our outstanding derivatives and forward contracts, or any other material
contracts as a result of the euro conversion, nor have there been any
material changes in our competitive position as a result of the conversion.
We incorporate our disclosure related to the euro conversion set forth under
the heading "Management's Discussion and Analysis of Genzyme Corporation and
Subsidiaries' Financial Condition and Results of Operations - Euro - the New
European Currency" in Exhibit 13.5 to our 1999 Form 10-K by reference into
this discussion.
YEAR 2000
There have been no material changes in our Year 2000 compliance program
or our potential Year 2000 exposures since December 31, 1999. We incorporate
our disclosure related to our Year 2000 compliance program and potential year
2000 exposures set forth under the heading "Management's Discussion and
Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and
Results of Operations - Year 2000" in Exhibit 13.5 to our 1999 Form 10-K by
reference into this discussion.
MARKET RISK
There have been no material changes in our market risk since December
31, 1999. We incorporate our disclosure related to our market risk set forth
under the heading "Management's Discussion and Analysis of Genzyme
Corporation and Subsidiaries' Financial Condition and Results of Operations -
Market Risk" in Exhibit 13.5 to our l999 Form 10-K by reference into this
discussion.
NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of Accounting Principles Board Opinion No. 25"
("FIN-44"). FIN-44 will be effective on July 1, 2000, but certain conclusions
in FIN-44 cover specific events that occurred after either December 15, 1998
or January 12, 2000.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101") which summarizes
the staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 will be effective beginning in
fiscal year 2001.
We are currently evaluating the guidance provided in FIN-44 and SAB 101.
<PAGE>
We do not expect the application of either FIN-44 or SAB 101 to have a material
effect on our financial statements.
SUBSEQUENT EVENTS
SETTLEMENT OF LAWSUIT
In April, 2000, Genzyme General received net proceeds of approximately
$5.1 million in connection with a settlement of a lawsuit. The lawsuit,
initiated in 1993, pertained to an accidental spill of Ceredase-R- at a fill
facility operated by a contractor to Genzyme General.
GENZYME MOLECULAR ONCOLOGY EQUITY LINE OF CREDIT
In April 2000, Genzyme Molecular Oncology drew $15.0 million of Genzyme
General's cash under a $30.0 million equity line of credit set up in August
1998 in exchange for 676,254 designated shares of GZMO Stock. As required by
our charter, the draw is priced at the average closing price of the GZMO
Stock for the 20 trading days beginning on the thirtieth trading day before
the draw. These funds will be used for Genzyme Molecular Oncology's operating
needs.
ADDITIONAL INVESTMENT IN FOCAL, INC.
In April 2000, Focal Inc. exercised its First Option under the
Genzyme/Focal Stock Purchase Agreement. Under the terms of this agreement,
Genzyme Surgical Products was required to purchase $5.0 million worth of
Focal common stock, or 614,250 shares at a price of $8.14 per share. We are
committed, at Focal's option, to make future equity investments of up to
$10.0 million subject to certain conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK
We are exposed to potential loss from financial market risks that may occur
as a result of changes in interest rates, equity prices and foreign exchange
rates. Our exposure to these risks has not materially changed since December 31,
1999.
We incorporate our disclosure related to market risk which is set forth
under the heading "Management's Discussion and Analysis of Genzyme
Corporation and Subsidiaries' Financial Condition and Results of Operations -
Market Risk" in Exhibit 13.5 to our 1999 Form 10-K by reference into this
discussion.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule for the three month period ended
March 31, 2000 (for EDGAR filing purposes only). Filed herewith.
(b) Reports on Form 8-K
On March 23, 2000, we filed a Current Report on Form 8-K
relating to board authorization of an amendment to our charter
for the purpose of updating the terms of our tracking stock to
include the types of rights and other terms contained in more
recently introduced tracking stocks of other companies.
On March 15, 2000, we filed a Current Report on Form 8-K
relating to the execution of an Agreement and Plan of Merger
pursuant to which we will effect a business combination
through the merger of Biomatrix, Inc. with and into a wholly-
owned subsidiary of Genzyme.
On January 10, 2000, we filed a Current Report on Form 8-K
relating to the conversion of Genzyme Tissue Repair's $13.0
million 5% convertible subordinated note.
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENZYME CORPORATION
DATE: May 15, 2000 By: /S/ MICHAEL S. WYZGA
---------------------------
Michael S. Wyzga
Senior Vice President Finance,
Chief Financial Officer and
Chief Accounting Officer
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 2000
EXHIBIT INDEX
27 Financial Data Schedule for the three month period ended
March 31, 2000 (for EDGAR filing purposes only). Filed herewith.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) the
Unaudited, Consolidated Financial Statements of Genzyme Corporation and
Subsidiaries for the three months ended March 31, 2000 and is qualified in its
entirety by reference to such, (b) financial statements as included in the form
10-Q for Genzyme Corporation dated March 31, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 112,194
<SECURITIES> 574,424
<RECEIVABLES> 186,967
<ALLOWANCES> 23,731
<INVENTORY> 117,991
<CURRENT-ASSETS> 712,030
<PP&E> 582,583
<DEPRECIATION> 195,740
<TOTAL-ASSETS> 1,916,042
<CURRENT-LIABILITIES> 145,725
<BONDS> 0
0
0
<COMMON> 1,421
<OTHER-SE> 1,475,398
<TOTAL-LIABILITY-AND-EQUITY> 1,916,042
<SALES> 205,387
<TOTAL-REVENUES> 208,130
<CGS> 48,259
<TOTAL-COSTS> 60,110
<OTHER-EXPENSES> 96,069
<LOSS-PROVISION> 4,340
<INTEREST-EXPENSE> 3,939
<INCOME-PRETAX> 43,672
<INCOME-TAX> 11,854
<INCOME-CONTINUING> 31,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,818
<EPS-BASIC> 0.61<F1>
<EPS-DILUTED> 0.57<F1>
<FN>
<F1>Genzyme Corporation reports earnings per share for each of its four series of
common stock. The earnings per share information presented on this schedule
represents the earnings per share data for net income attributable to Genzyme
General Division Common Stock. For the period presented, net income
attributable to Genzyme General was $51,637. For the period presented, net loss
attributable to Genzyme Molecular Oncology was $(5,057) or $(0.37) per basic
and diluted share of Genzyme Molecular Oncology Common Stock, net loss
attributable to Genzyme Surgical Products was $(10,043) or $(0.68) per basic
and diluted share of Genzyme Surgical Products Division Common Stock, and net
loss attributable to Genzyme Tissue Repair was $(4,971) or $(0.17) per basic
and diluted share of Genzyme Tissue Repair Division Common Stock.
</FN>
</TABLE>
