<PAGE>
Filed Pursuant to
Rule 424(b)(5)
Reg No. 333-31548
SUBJECT TO COMPLETION, DATED MARCH 22, 2000
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED MARCH 9, 2000
3,000,000 Shares
[LOGO]
Common Stock
Genzyme Corporation is offering 3,000,000 shares of Genzyme Molecular
Division Common Stock, which is referred to as "GZMO Stock." GZMO Stock is
traded on the Nasdaq National Market under the symbol "GZMO." On March 22, 2000,
the last sale price for GZMO Stock as reported by Nasdaq was $24.25 per share.
Investing in GZMO Stock involves significant risk. These risks are described
under the caption "Risk Factors" beginning on page S-8 of this prospectus
supplement and page 4 of the accompanying prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement and the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
---------------------
<TABLE>
<S> <C> <C>
Per Share Total
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to Genzyme Molecular Oncology.... $ $
</TABLE>
The underwriters may also purchase up to an additional 450,000 shares of
GZMO Stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on or about , 2000.
---------------------
SG COWEN PAINEWEBBER INCORPORATED
CHASE H&Q
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary......... S-3
Risk Factors.......................... S-8
Use of Proceeds....................... S-15
Capitalization........................ S-16
Price Range of GZMO Stock and Genzyme
Dividend Policy..................... S-17
Genzyme Molecular Oncology Selected
Financial Data...................... S-18
Management's Discussion and Analysis
of Genzyme Molecular Oncology's
Financial Condition and Results of
Operations.......................... S-20
Business.............................. S-25
Management of Genzyme Molecular
Oncology............................ S-40
Underwriting.......................... S-41
Validity of the Shares................ S-42
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS
Genzyme Corporation................... 3
Risk Factors.......................... 4
Note Regarding Forward-Looking
Statements.......................... 24
Use of Proceeds....................... 25
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends........... 25
Description of Debt Securities........ 26
Description of Preferred Stock........ 35
Description of Genzyme Common Stock... 37
Description of Warrants............... 46
Description of Management and
Accounting Policies................. 48
Plan of Distribution.................. 53
Legal Matters......................... 54
Experts............................... 54
Where You Can Find More Information... 55
</TABLE>
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with information that is different. We are
offering to sell and seeking offers to buy shares of GZMO Stock only in
jurisdictions where offers and sales are permitted. Any information in the
accompanying prospectus or incorporated by reference that is inconsistent with
information in this prospectus supplement, is automatically superseded by the
information in this prospectus supplement. The information in this prospectus
supplement, the accompanying prospectus or any document incorporated by
reference is accurate only as of the date of those documents.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SOME OF THE INFORMATION FOUND IN GREATER
DETAIL ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
IN ADDITION TO THIS SUMMARY, WE URGE YOU TO READ THE ENTIRE PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS
DISCUSSED UNDER "RISK FACTORS," BEFORE YOU DECIDE TO BUY GZMO STOCK. UNLESS
OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS SUPPLEMENT ASSUMES THAT THE
UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT OPTION.
IN THIS PROSPECTUS SUPPLEMENT, THE WORDS "WE," "US," AND "OUR" REFER TO
GENZYME MOLECULAR ONCOLOGY, AND "GENZYME" REFERS TO GENZYME CORPORATION.
GENZYME MOLECULAR ONCOLOGY
Genzyme Molecular Oncology is developing a new generation of cancer
therapeutics, with a focus on:
- VACCINES that treat cancer by stimulating the body's immune system to
fight tumor cells;
- ANGIOGENESIS INHIBITORS that treat cancer by preventing the formation and
development of blood vessels that tumors require for growth; and
- PATHWAY REGULATORS that treat cancer by regulating one or more of the
metabolic processes necessary for tumor cells to grow and survive.
These three novel classes of therapy are based upon the growing understanding of
the molecular basis of cancer and have the potential to treat multiple types of
cancer, minimize toxicity and side effects, and complement both existing and
novel therapies.
We utilize our functional genomics tools and draw upon Genzyme's
capabilities in gene therapy, cell therapy, protein therapy and small molecule
drugs to select and pursue the most appropriate of these approaches for each
cancer target. We believe that our focus on novel classes of therapy, combined
with our multiple approaches for cancer targets, should enable us to address the
significant unmet needs of cancer patients.
Our product pipeline includes:
- an antigen-specific vaccine in a Phase I/II trial for melanoma;
- a cell therapy vaccine in a Phase I/II trial for breast cancer;
- five additional cancer vaccine clinical trials expected to begin during
2000; and
- multiple preclinical development and research programs to develop
additional cancer vaccines, angiogenesis inhibitors and cancer pathway
regulators.
We initiated an EX VIVO Phase I/II antigen-specific vaccine trial for
melanoma in April 1999 at Massachusetts General Hospital in Boston. We plan to
enroll approximately 24 patients with late stage disease in this trial and to
complete enrollment later this year. We initiated the Phase I/II trial of our
cell therapy vaccine for breast cancer in September 1999 at the Dana-Farber
Cancer Institute and the Beth Israel Deaconess Medical Center in Boston. We plan
to enroll approximately 20 patients in this trial and to complete the trial by
the end of 2000. Of the five cancer vaccine clinical trials that we expect to
begin later this year, one will be an IN VIVO Phase I/II antigen-specific
vaccine trial for melanoma, two will be Phase I cell therapy vaccine trials for
kidney cancer, and two will be Phase I cell therapy vaccine trials for melanoma.
In addition, we have licensed our gene therapy rights to the p53 gene to
Schering-Plough, who is currently conducting a Phase II/III clinical study of a
p53 gene therapy product.
S-3
<PAGE>
We use our broad technology platforms to support and expand our product
pipeline. Our powerful SAGE-TM- gene expression technology is the cornerstone of
our functional genomics platform. We apply SAGE in all of our programs to
identify genes involved in cancer and to understand the role of these genes in
the disease process. To expand our cancer vaccine pipeline, we have built a
proprietary, state-of-the-art antigen discovery platform that combines
identification and validation in one step. We are using this platform to rapidly
and efficiently identify and validate target antigens for incorporation into
novel antigen-specific cancer vaccines.
We complement our internal resources through our collaborations with some of
the world's preeminent researchers in cancer research. These researchers include
Drs. Judah Folkman, Kenneth Kinzler, Donald Kufe, Lloyd Old, Steven Rosenberg,
and Bert Vogelstein. Our collaborations with these researchers enable us to
remain at the forefront of the development of novel cancer therapies by
providing us with new technologies, novel therapeutic targets and drug
candidates, access to leading clinical research centers, state-of-the-art
research programs in the laboratories of our collaborators, and expert advice.
We are an operating division of Genzyme, one of the world's largest
biopharmaceutical companies. We have technology and personnel dedicated to our
business and access to Genzyme's extensive technology base and development
infrastructure. We believe our access to Genzyme's infrastructure together with
our development strategy increases the likelihood that we will develop effective
novel therapeutics and accelerate the speed at which we expect to bring them to
market.
RECENT DEVELOPMENTS
In March 2000, we reported that our total revenues for 1999 were $4.6
million, as compared to $19.4 million in 1998, a decrease of $14.8 million. This
decrease was primarily attributable to $10.0 million in license fees and
milestones that we recorded in 1998 from our p53 gene therapy license to
Schering-Plough and to the completion of research collaborations for which we
received revenue during 1998. Our net loss for 1999 was $28.8 million, or $2.25
per share, as compared to a net loss of $19.1 million, or $3.81 per share, in
1998, an increase in net loss of $9.7 million. Our 1999 net loss included
$13.7 million of non-cash expenses related to the amortization of intangibles
and the losses from a joint venture that dissolved in December 1999. Our 1999
operating expenses included $17.3 million in research and development expense
and cost of revenues, and $5.5 million in selling, general and administrative
expense. At December 31, 1999, we had $3.6 million in cash and marketable
securities and access to a $30.0 million equity line of credit from Genzyme
General.
PROPOSED CHARTER AMENDMENT
Genzyme's board of directors currently plans to solicit stockholder approval
of an amendment to Genzyme's charter at Genzyme's annual stockholder meeting in
May 2000. The charter amendment would modify the terms of GZMO Stock, as well as
the terms of Genzyme Surgical Products Division Common Stock and Genzyme Tissue
Repair Division Common Stock. The summary of the proposed amendment we have
included below provides an overview, but not a complete description, of the
proposed amendment. We urge you to review Genzyme's Current Report on Form 8-K
that Genzyme intends to file on or about March 23, 2000, which will include a
form of amended and restated charter reflecting the proposed amended terms for
GZMO Stock. See "Where You Can Find More Information" on page 55 of the
accompanying prospectus.
The proposed amendment would update the terms of Genzyme's tracking stocks
to include rights and other terms contained in the more recently introduced
tracking stocks of other companies. Specifically, it would modify the provisions
of the charter governing the treatment of shares of GZMO Stock upon a sale of
all or substantially all of the assets allocated by Genzyme to Genzyme Molecular
Oncology. Under Genzyme's current charter, subject to certain exceptions, if
Genzyme were to sell all
S-4
<PAGE>
or substantially all of the assets allocated to Genzyme Molecular Oncology,
then, in exchange for their GZMO Stock, GZMO stockholders would receive Genzyme
General Division Common Stock and/or cash with a value equal to 130% of the
market value of GZMO Stock BEFORE announcement of the sale. Under the proposed
amendment, subject to other exceptions, if Genzyme were to sell all or
substantially all of the assets allocated to Genzyme Molecular Oncology, then,
in exchange for their GZMO Stock, GZMO stockholders would receive, at the
discretion of Genzyme's board of directors, either:
- cash, securities (other than Genzyme common stock) and/or other property
equal in value to the after-tax net proceeds from the sale; or
- a number of shares of Genzyme General Division Common Stock determined
based on 110% of the ratio of the average market price per share of GZMO
Stock to the average market price per share of Genzyme General Division
Common Stock during a ten day trading period beginning AFTER the
announcement of the estimated net proceeds from the sale.
This amendment is designed to permit GZMO stockholders to receive a
distribution that more accurately reflects the value assigned to those assets by
a third party purchaser.
The proposed amendment would also:
- add provisions permitting Genzyme's board of directors to exchange all
shares of GZMO Stock for Genzyme General Division Common Stock at no
premium to market value in the event that a change in federal tax law or
regulations results in adverse tax treatment of Genzyme's tracking stock
structure;
- add provisions permitting:
-- holders of Genzyme common stock, voting together as one class, to
eliminate special series-based voting rights; or
-- Genzyme's board of directors to modify or eliminate exchange
provisions governing GZMO Stock;
if those rights or exchange provisions would result, under a change in
federal tax law or regulations, in adverse tax treatment of Genzyme's
tracking stock structure;
- add provisions to the charter permitting Genzyme to "spin-off" the
division to the holders of GZMO Stock; and
- modify the provisions governing the content of notices to stockholders
regarding exchanges of or distributions on GZMO Stock.
These amendments are designed to permit Genzyme to modify or unwind its
tracking stock structure without incurring the substantial costs and dilutive
effects of exchanging any series of its tracking stock for Genzyme General
Division Common Stock at a premium.
The terms of the proposed amendment relating to GZMO Stock will not become
effective unless the proposed amendment is presented at the annual meeting and
approved by:
- the affirmative vote of a majority of all shares of GZMO Stock outstanding
and entitled to vote, voting as a separate class; and
- the affirmative vote of a majority of all shares of Genzyme common stock
outstanding and entitled to vote, voting together as one class.
S-5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
GZMO Stock we are offering......................... 3,000,000 shares
GZMO Stock to be outstanding and reserved for
issuance after this offering (1)................. 17,826,692 shares
Underwriters' over-allotment option................ 450,000 shares
Use of proceeds.................................... We intend to use the net proceeds from this
offering to fund our research and preclinical
and clinical development programs, repay
existing indebtedness, and for working capital
and general corporate purposes. See "Use of
Proceeds" in this prospectus supplement.
Nasdaq National Market Symbol...................... GZMO
</TABLE>
- ------------------------
(1) The number of shares of GZMO Stock that will be outstanding and reserved for
issuance immediately after the offering includes:
- 13,519,186 shares of GZMO Stock outstanding as of February 29, 2000; and
- 1,307,506 GZMO designated shares. GZMO designated shares are authorized
but unissued shares of GZMO Stock that Genzyme's board of directors may
from time to time issue, sell or otherwise distribute without allocating
the proceeds to us. Of these designated shares, 973,951 were reserved for
issuance as of February 29, 2000, of which 682,316 are issuable upon
conversion of Genzyme's 5 1/4% convertible subordinated notes and under
Genzyme's directors' deferred compensation plan and 291,635 are available
for distribution. The remaining 333,555 designated shares will be reserved
for issuance upon completion of this offering based on an assumed offering
price of $24.25 per share, the last sale price of GZMO Stock as reported
by Nasdaq on March 22, 2000.
This number excludes:
- 1,700,068 shares of GZMO Stock reserved for issuance upon exercise of
options outstanding as of February 29, 2000 with a weighted average
exercise price of $6.14 per share; and
- 9,563 shares of GZMO Stock issuable upon exercise of warrants outstanding
as of February 29, 2000 with an exercise price of $8.04 per share.
"GENZYME" IS A TRADEMARK AND SERVICE MARK, AND "SAGE" IS A TRADEMARK, OF
GENZYME. ALL RIGHTS RESERVED.
S-6
<PAGE>
GENZYME MOLECULAR ONCOLOGY SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FROM
DECEMBER 1,
1994 (DATE NINE MONTHS
OF YEAR ENDED ENDED
INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ----------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ -- $ -- $ -- $ 782 $ 19,407 $ 6,491 $ 3,455
Operating costs and expenses:
Cost of revenues.............................. -- -- -- 337 5,447 3,534 1,074
Research and development...................... 29 377 818 5,341 12,743 8,772 12,448
Selling, general and administrative........... 8 87 185 2,118 7,155 5,260 4,205
Amortization of intangibles................... -- -- -- 5,127 11,983 9,026 8,869
Charge for in-process technology.............. -- -- -- 7,000 -- -- --
------ ------ ------- -------- -------- -------- --------
Total operating costs and expenses.......... 37 464 1,003 19,923 37,328 26,592 26,596
------ ------ ------- -------- -------- -------- --------
Operating loss................................ (37) (464) (1,003) (19,141) (17,921) (20,101) (23,141)
Other income (expense):
Equity in loss of joint venture............. -- -- -- (258) (1,647) (1,244) (2,030)
Interest income............................. -- -- -- 392 782 633 416
Interest expense............................ -- -- -- (1,663) (2,968) (3,341) (8)
------ ------ ------- -------- -------- -------- --------
Total other income (expense).............. -- -- -- (1,529) (3,833) (3,952) (1,622)
------ ------ ------- -------- -------- -------- --------
Loss before income taxes...................... (37) (464) (1,003) (20,670) (21,754) (24,053) (24,763)
Tax benefit................................... -- -- -- 1,092 2,647 1,986 1,986
------ ------ ------- -------- -------- -------- --------
Net loss...................................... $ (37) $ (464) $(1,003) $(19,578) $(19,107) $(22,067) $(22,777)
====== ====== ======= ======== ======== ======== ========
Per GZMO common share (basic and diluted):
Net loss.................................... $ (3.81) $ (5.62) $ (1.80)
======== ======== ========
Weighted average shares outstanding........... 5,019 3,929 12,672
======== ======== ========
Pro forma net loss per GZMO common share
(basic and diluted) (1)..................... $(0.01) $(0.12) $ (0.26) $ (4.98)
====== ====== ======= ========
Pro forma weighted average shares
outstanding................................. 3,929 3,929 3,929 3,929
====== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1999
1998 ------------------------------------
ACTUAL ACTUAL AS ADJUSTED (2)
------------ -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and investments...................................... $ 11,900 $ 1,685 $ 69,570
Working capital........................................... 9,189 (6,257) 61,628
Total assets.............................................. 35,952 10,859 78,744
Accumulated deficit....................................... (40,189) (62,966) (62,966)
Division equity........................................... 23,364 750 68,635
</TABLE>
- ------------------------------
(1) We present pro forma per share information for periods ending prior to June
18, 1997 because no shares of GZMO Stock were outstanding before that date.
(2) As adjusted to reflect the net proceeds (after deducting underwriting
discounts and commissions and estimated offering expenses) from the sale of
the 3,000,000 shares of GZMO Stock offered by this prospectus supplement at
an assumed price of $24.25 per share, the last sale price for GZMO Stock as
reported by Nasdaq on March 22, 2000.
S-7
<PAGE>
RISK FACTORS
IF YOU PURCHASE THE SHARES OF GZMO STOCK OFFERED BY THIS PROSPECTUS
SUPPLEMENT YOU WILL TAKE ON FINANCIAL RISK. IN DECIDING WHETHER TO INVEST, YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, THE INFORMATION CONTAINED
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AND THE OTHER
INFORMATION TO WHICH WE HAVE REFERRED YOU. IT IS ESPECIALLY IMPORTANT TO KEEP
THESE RISK FACTORS IN MIND WHEN YOU READ FORWARD-LOOKING STATEMENTS.
RISKS RELATED TO GENZYME MOLECULAR ONCOLOGY
WE MAY NEVER BE ABLE TO SUCCESSFULLY DEVELOP OR COMMERCIALIZE ANY OF OUR CANCER
THERAPIES.
We do not have any cancer therapies on the market and our only therapies in
clinical development are our melanoma and breast cancer vaccines. Before
commercializing any cancer therapies, we will need to conduct substantial
research and development, including, in some cases, the replication of
preclinical studies performed by our collaborators, undertake preclinical and
clinical testing and obtain regulatory approvals. This process involves a high
degree of uncertainty and may take several years. Our product development
efforts may fail for many reasons, including:
- the product fails in preclinical studies;
- clinical trials may not support the safety or effectiveness of the
product; or
- we fail to obtain the required regulatory approvals.
We cannot guarantee that we will successfully develop any particular product
or that any product we successfully develop will gain market acceptance.
WE ANTICIPATE FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE.
We have not generated significant revenues to date and do not expect to do
so for several years. As of September 30, 1999, we had an accumulated deficit of
approximately $63.0 million. We expect to have significant operating losses for
the next several years. We plan to spend substantial amounts of money on, among
other things:
- research and development;
- preclinical and clinical testing; and
- pursuing regulatory approvals.
We cannot guarantee that the efforts underlying these expenditures will be
successful or that our operations will ever be profitable.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS.
We anticipate that the estimated net proceeds from this offering, together
with our current cash resources, amounts available under a line of credit from
Genzyme General, and revenues generated from our SAGE-TM- technology and license
agreements, will be sufficient to fund our operations through 2002. Our cash
needs may differ from those planned, however, because of many factors, including
the:
- results of research and development and clinical testing;
- achievement of milestones under existing strategic collaborations;
S-8
<PAGE>
- ability to establish and maintain additional strategic collaborations and
licensing arrangements;
- costs of protecting our intellectual property rights;
- development of competing products and services; and
- ability to satisfy regulatory requirements of the U.S. Food and Drug
Administration (FDA) and other government authorities.
We may require significant additional financing to continue operations at
anticipated levels. We cannot guarantee that we will be able to obtain any
additional financing or find it on favorable terms. If we have insufficient
funds or are unable to raise additional funds, we may have to delay, reduce or
eliminate some of our programs. We may also have to give third parties rights to
commercialize technologies or products that we would otherwise have sought to
commercialize ourselves.
WE MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM COLLABORATORS DUE TO UNSUCCESSFUL
RESULTS IN EXISTING COLLABORATIONS OR A FAILURE TO ENTER INTO FUTURE
COLLABORATIONS.
Our strategy to develop and commercialize some of our products and services
includes entering into various arrangements with academic and corporate
collaborators and licensees. We depend on the success of these parties in
performing research, preclinical and clinical testing and marketing. These
arrangements may require us to transfer important rights to our corporate
collaborators and licensees. Our collaborators and licensees could choose not to
devote resources to these arrangements or, under certain circumstances, may
terminate them early. In addition, our collaborators and licensees, outside of
their arrangements with us, may develop technologies or products that are
competitive with those that we are developing. As a result, we cannot guarantee
that we will receive revenues from these relationships or that any of our
strategic collaborations will continue or not terminate early. In addition, we
cannot guarantee that we will be able to enter into collaborations in the
future.
OUR COMPETITORS MAY TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS IF WE
FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY.
Our long-term success largely depends on our ability to obtain and maintain
patent and other proprietary right protection for our technology and products.
If we fail to obtain or maintain these protections, we may not be able to
prevent third parties from using our proprietary rights.
Patents based on our currently pending or our future patent applications may
not issue. In addition, our issued patents may not contain claims sufficiently
broad to protect us against third parties with similar technologies or products,
or provide us with any competitive advantage. Further, our patents, our
collaborators' patents, and those patents for which we have license rights may
be challenged, narrowed, invalidated or circumvented.
The U.S. Patent and Trademark Office (PTO) and the courts have not
established a consistent policy regarding the breadth of claims allowed in
biotechnology patents. The allowance of broader claims may increase the
incidence and cost of patent interference proceedings and the risk of
infringement litigation. On the other hand, the allowance of narrower claims may
limit the value of our proprietary rights. In the past, the PTO has considered
proposals regarding the appropriateness and scope of patent protection for genes
and gene fragments. These or other proposals may result in changes in or
interpretations of the patent laws that adversely affect our patent position.
We also rely upon trade secrets, proprietary know-how, and continuing
technological innovation to remain competitive. We have taken measures to
protect our trade secrets and know-how, including the use of confidentiality
agreements with our employees, consultants and corporate collaborators. It is
possible that these agreements may be breached and that any remedies for a
breach will not make us whole. We also cannot guarantee that other parties will
not independently develop our know-how or otherwise obtain access to our
technology.
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<PAGE>
WE MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS IN ORDER TO DEVELOP
AND COMMERCIALIZE SOME OF OUR PRODUCTS AND SERVICES, AND IT IS UNCERTAIN WHETHER
THESE LICENSES WILL BE AVAILABLE.
Third party patent rights and pending patent applications filed by third
parties, if issued, may cover some of the products we are developing or testing.
As a result, we may be required to obtain licenses from the holders of these
patents in order to use or sell certain products and services. We cannot
guarantee that these licenses will be made available to us on acceptable terms
or at all. If these licenses are not available to us, our ability to
commercialize our products and services may be impaired.
In our cancer vaccine program, we are in the process of evaluating the
therapeutic administration of peptide products and genes that encode specific
tumor antigens, including MART-1 and gp100. We know of two issued U.S. patents
directed to the gene that encodes MART-1. While we have obtained rights under
one of these patents, we are still in the process of evaluating the scope and
validity of the other to determine whether we need to obtain a license. We are
also evaluating an issued U.S. patent covering the gene that encodes gp100 and
three published Patent Cooperation Treaty applications by three different
applicants which may cover antigens derived from gp100. We are in the process of
evaluating the scope and validity of these patents and patent applications to
determine whether we need to obtain licenses.
WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.
If we or one of our strategic collaborators initiate litigation to enforce
our patent or license rights, or are required to defend these rights in response
to third party claims, it could consume a substantial portion of our resources.
We cannot guarantee that we or our strategic collaborator would prevail in such
litigation. If we do not prevail, we or our strategic collaborators may be
required to:
- pay monetary damages;
- stop commercial activities relating to the affected products or services;
or
- obtain a license in order to continue manufacturing or marketing the
affected products or services.
If we are required to pay damages or if commercial activities are disrupted,
our business or financial position may be negatively impacted. In addition, if
we or our strategic collaborators are required to obtain a license, we cannot
guarantee that one would be made available to us on acceptable terms or at all.
We have licensed our p53 gene therapy rights to Schering-Plough. These
patent rights are the subject of an interference proceeding in the U.S. and an
opposition proceeding in Europe. Adverse determinations in these proceedings may
negatively affect our ability to receive future milestones and product royalties
under our agreement with Schering-Plough.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF OUR GENE THERAPY PRODUCTS.
The recent death of a patient undergoing gene therapy using an adenoviral
vector to deliver a therapeutic gene has been widely publicized. This death and
any other adverse events in the field of gene therapy that may occur in the
future may result in greater governmental regulation and potential regulatory
delays relating to the testing or approval of our gene therapy products. As a
result of this death, the U.S. Senate has commenced hearings to determine
whether additional legislation is required to protect volunteers and patients
who participate in gene therapy clinical trials. Additionally, the Recombinant
DNA Advisory Committee, which acts as an advisory body to the National
Institutes of Health (NIH), has extensively discussed the use of adenoviral
vectors in gene therapy clinical trials and recently issued a draft report on
the safety of adenoviral vectors. While this draft report recommends
S-10
<PAGE>
that clinical trials using adenoviral vectors should continue with caution, it
also suggested a number of changes in the way gene therapy clinical trials are
conducted. If any new guidelines are adopted by the NIH, our gene therapy
clinical trials could be delayed or become more expensive to conduct.
We have reported to the FDA and the NIH that there have been three deaths in
our Phase I/II melanoma cancer vaccine trial at Massachusetts General Hospital.
The principal investigator for this trial indicated that each of these deaths
was due to disease progression and not related to the patient's treatment.
Deaths are not unexpected in a clinical trial treating patients with advanced
stage melanoma because these patients have short life expectancies. We cannot,
however, rule out the possibility that our cancer vaccines may be a contributing
cause of death for patients in the future.
The commercial success of any gene therapy products that we develop will
depend in part on public acceptance of the use of gene therapies for the
prevention or treatment of human diseases. Public attitudes may be influenced by
claims that gene therapy is unsafe, and gene therapy may not gain the acceptance
of the public or the medical community. Negative public reaction to gene therapy
could result in greater government regulation and stricter clinical trial
oversight and commercial product labeling requirements of gene therapies and
could cause a decrease in the demand for any gene therapy product that we may
develop.
REGULATION BY GOVERNMENT AGENCIES IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON
THE DEVELOPMENT OF OUR PRODUCTS AND SERVICES.
Our ability to successfully satisfy regulatory requirements will
significantly determine our future success. We cannot guarantee that any
required regulatory approvals will be granted or that they will be granted on a
timely basis. The manufacture and sale of health care products and the provision
of health care services are highly regulated. In particular, the FDA and
comparable agencies in foreign countries must approve human therapeutic and
diagnostic products before they are marketed. This approval process can involve
lengthy and detailed laboratory and clinical testing, sampling activities and
other costly and time-consuming procedures. This regulation may delay the time
at which a product or service first can be sold, limit how a product or service
may be used, or adversely impact third party reimbursement.
OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE
SUPERIOR RESEARCH AND DEVELOPMENT, MARKETING AND MANUFACTURING CAPABILITIES.
The field of cancer therapeutics is extremely competitive. Major
pharmaceutical companies and other biotechnology companies compete with us in
each of our primary areas of focus. These competitors may have superior research
and development, marketing and manufacturing capabilities. Some competitors also
may have greater financial resources than we do. Our future success will depend
on our ability to effectively develop and market our products against those of
our competitors.
Competition can arise from the use of the same or similar technologies as
those we currently use or contemplate using, as well as from existing therapies.
Any or all of these may be more effective or less expensive than those we
develop. In addition, technological advances or different approaches developed
by one or more of our competitors may render our products obsolete, less
effective or uneconomical.
IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS OR
SERVICES MAY BECOME OBSOLETE.
The field of biotechnology is characterized by significant and rapid
technological change. Although we attempt to expand our technological
capabilities in order to remain competitive, research and discoveries by others
may make our products or services obsolete. For example, certain of our
competitors may develop genomics technology that make our SAGE technology
obsolete.
S-11
<PAGE>
IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR ONCOLOGY PRODUCTS
AND SERVICES FROM THIRD-PARTY PAYERS, THE COMMERCIAL POTENTIAL OF OUR PRODUCTS
AND SERVICES WILL BE SIGNIFICANTLY LIMITED.
A substantial portion of our future revenue may come from payments by third
party payers, including government health administration authorities and private
health insurers. Third party payers may not reimburse patients for newly
approved health care products. Increasingly, third party payers are attempting
to contain health care costs by:
- challenging the prices charged for health care products and services;
- limiting both coverage and the amount of reimbursement for new therapeutic
products;
- denying or limiting coverage for products that are approved by the FDA,
but are considered experimental or investigational by third party payers;
and
- refusing in some cases to provide coverage when an approved product is
used for disease indications in a way that has not received FDA marketing
approval.
Government and other third party payers may provide inadequate or no
insurance coverage and reimbursement for our products and services.
In addition, Congress has occasionally discussed implementing broad-based
measures to contain health care costs. It is possible that Congress will enact
legislation specifically designed to contain health care costs. We cannot
predict the effect that legislation of this type would have on our business.
RISKS RELATED TO GENZYME TRACKING STOCKS
GZMO Stock is one of four series of Genzyme tracking stock. Genzyme has
three other series of tracking stock: GENZ Stock, GZSP Stock, and GZTR Stock.
These stocks reflect the value and track the performance of Genzyme's three
other operating divisions:
- GENZ Stock tracks the performance of Genzyme General;
- GZSP Stock tracks the performance of Genzyme Surgical Products; and
- GZTR Stock tracks the performance of Genzyme Tissue Repair.
There are risks related to owning shares of Genzyme's tracking stock.
Accordingly, before investing in GZMO Stock, you should review the risks and
uncertainties referred to below related to Genzyme's tracking stock that are
described in more detail under the heading "Risk Factors" beginning on page 10
and ending on page 13 of the accompanying prospectus.
- Holders of GZMO Stock are stockholders of a single company and unfavorable
financial trends affecting another division could negatively affect us.
- Genzyme's board of directors may take actions that, while in the best
interests of Genzyme as a whole, have an unequal and adverse effect on the
holders of one or more series of Genzyme's tracking stock, including GZMO
Stock.
- Members of Genzyme's board of directors may favor one series of tracking
stock over GZMO Stock if they own a disproportionate amount of that
series.
- Holders of GZMO Stock have limited decision-making power because they have
limited separate voting rights.
- The liquidation rights for GZMO Stock are not adjusted to reflect changes
in its market value.
- Genzyme's board of directors may change Genzyme's management and
accounting policies to the detriment of the holders of GZMO Stock without
stockholder approval.
S-12
<PAGE>
- Genzyme may eliminate tracking stock if a corporate level tax is imposed
on the issuance or receipt of tracking stock.
- The use of our operating losses to lower the reported tax liability of
Genzyme's profitable divisions will cause us to report lower earnings in
the future.
- Future sales or distributions of GZMO designated shares may significantly
dilute your ownership of GZMO Stock.
RISKS RELATED TO GENZYME
Holders of GZMO Stock are stockholders of Genzyme. Liabilities or
contingencies of the other divisions of Genzyme that affect Genzyme's resources
or financial condition could affect our financial condition or the results of
our operations. Accordingly, you should review the risks and uncertainties
referred to below related to Genzyme that are described in more detail under the
heading "Risk Factors" beginning on page 4 and ending on page 10 of the
accompanying prospectus.
- A reduction in revenues from sales of products that treat Gaucher disease
would have an adverse effect on Genzyme's business.
- Government regulation imposes significant costs and restrictions on the
development and commercialization of Genzyme's products and services.
- Legislative changes may adversely impact Genzyme's business.
- Because the development of Genzyme's products involves a lengthy and
complex process, it is uncertain whether Genzyme will be able to
commercialize any of its products currently in development.
- Any marketable products that Genzyme develops may not be commercially
successful.
- Genzyme may require significant additional financing, which may not be
available or available on favorable terms.
- Genzyme may fail to protect adequately its proprietary technology, which
would allow competitors to take advantage of its research and development
efforts.
- Genzyme may be required to license technology from competitors in order to
develop and commercialize some of its products and services, and it is
uncertain whether these licenses will be available.
- Genzyme may incur substantial costs as a result of litigation or other
proceedings relating to patent and other intellectual property rights.
- Genzyme may be liable for product liability claims not covered by
insurance.
- Genzyme's competitors in the biotechnology and pharmaceutical industries
may have superior products, manufacturing capabilities or marketing
expertise.
- If Genzyme is unable to keep up with rapid technological changes, its
products or services may become obsolete.
- If Genzyme fails to obtain adequate levels of reimbursement for its
products from third-party payers, the commercial potential of its products
will be significantly limited.
- Changes in the economic, political, legal and business environments in the
foreign countries in which Genzyme does business could cause its
international sales and operations, which account for a significant
percentage of its consolidated net sales, to be limited or disrupted.
S-13
<PAGE>
- Several anti-takeover provisions may deprive Genzyme's stockholders of the
opportunity to receive a premium for their shares upon a change in
control.
- Genzyme could experience system failures and disruptions of its operations
as a result of the year 2000 date recognition problem.
RISKS RELATED TO THIS OFFERING
VOLATILITY IN THE PRICE OF GZMO STOCK COULD RESULT IN A DECREASE IN THE PRICE OF
GZMO STOCK AND THE LOSS OF A SUBSTANTIAL AMOUNT OF YOUR INVESTMENT.
Stock prices of many companies in the biotechnology industry have
experienced wide fluctuations that have often been unrelated to the operating
performance of these companies. The market price for GZMO Stock may vary widely
as a result of several factors, including:
- announcements of technological innovations or new commercial products by
us or our competitors;
- governmental regulatory initiatives;
- patent or proprietary rights developments;
- results of our preclinical studies and clinical trials;
- public concern as to the safety or other implications of biotechnology
products;
- quarterly fluctuations in our revenues and other financial results; and
- general market conditions.
These factors could lead to a significant decrease in the market price of
GZMO Stock and you could lose a substantial amount of your investment.
S-14
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the sale of 3,000,000 shares of GZMO Stock
in this offering will be approximately $67.9 million after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, assuming a public offering price of $24.25 per share, the last sale price
for GZMO Stock as reported by Nasdaq on March 22, 2000. Our net proceeds are
estimated to be approximately $78.1 million if the underwriters exercise their
over-allotment option in full.
The principal purpose of this offering is to fund our research and
preclinical and clinical development activities. We also anticipate that the net
proceeds will be used to repay approximately $5.1 million of outstanding
indebtedness and for working capital and general corporate purposes. The
indebtedness that we are repaying was borrowed under Genzyme's revolving credit
facility with a syndicate of commercial banks. This indebtedness currently bears
interest at the rate of 6.74% per annum and is due in May 2000. We may use a
portion of the net proceeds to acquire or invest in complementary businesses,
joint ventures, products or technologies. From time to time we may enter into
discussions regarding acquisitions or investments. Our management will have
broad discretion to allocate the proceeds from this offering to uses that it
believes are appropriate. Pending these uses, the net proceeds from this
offering will be invested in short-term, interest-bearing securities or deposit
accounts.
S-15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
on an actual basis and on an as adjusted basis to reflect the net proceeds
(after deducting underwriting discounts and commissions and estimated offering
expenses) from the sale of the 3,000,000 shares of GZMO Stock offered by this
prospectus supplement at an assumed public offering price of $24.25 per share,
the last sale price for GZMO Stock as reported by Nasdaq on March 22, 2000.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.............................................. $ -- $ --
Division equity:
Common stock at par..................................... 127 157
Additional paid-in capital.............................. 63,589 131,444
Accumulated deficit..................................... (62,966) (62,966)
--------- ---------
Total division equity....................................... 750 68,635
--------- ---------
Total capitalization.................................... $ 750 $ 68,635
========= =========
</TABLE>
S-16
<PAGE>
PRICE RANGE OF GZMO STOCK AND GENZYME DIVIDEND POLICY
GZMO Stock began trading on the Nasdaq National Market under the symbol
"GZMO" on November 16, 1998. The following table shows for the periods indicated
the high and low bid prices of GZMO Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Year Ended December 31, 1998:
Fourth Quarter (from November 16, 1998)................... $15.00 $ 2.00
Year Ended December 31, 1999:
First Quarter............................................. $ 5.47 $ 2.31
Second Quarter............................................ $ 3.97 $ 2.63
Third Quarter............................................. $10.50 $ 2.63
Fourth Quarter............................................ $ 7.13 $ 4.19
Year Ended December 31, 2000:
First Quarter (through March 22, 2000).................... $44.00 $ 5.00
</TABLE>
On March 22, 2000, the last sale price of GZMO Stock as reported by Nasdaq
was $24.25. As of March 22, 2000, there were approximately 2,200 record holders
of GZMO Stock.
Genzyme has never paid a cash dividend on shares of its capital stock,
including GZMO Stock. Genzyme has retained all its earnings for use in its
business. Genzyme expects to continue to follow the policy of retaining funds
for reinvestment in its business.
S-17
<PAGE>
GENZYME MOLECULAR ONCOLOGY SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
The table below represents our selected historical combined statement of
operations and balance sheet data. The information for the nine months ended
September 30, 1998 and 1999 includes all normal and recurring adjustments that
we consider necessary for the fair presentation of our financial position and
operating results. Revenues, expenses, assets and liabilities may vary from
quarter to quarter. Therefore, the results and trends for interim periods may
not be the same as those for the full year. This information is only a summary.
You should read it in conjunction with our historical financial statements and
related notes contained in Genzyme's annual and quarterly reports and other
information on file with the SEC, as well as "Management's Discussion and
Analysis of Genzyme Molecular Oncology's Financial Condition and Results of
Operations" in this prospectus supplement.
In addition, Genzyme owns all the assets and is responsible for all the
liabilities allocated to us. Liabilities or contingencies of any of Genzyme's
other operating divisions that affect its resources or financial condition could
affect our financial condition or results of operations. Therefore, we encourage
you to review Genzyme's consolidated financial statements, related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in Genzyme's annual and quarterly reports and other
information on file with the SEC. See "Where You Can Find More Information" on
page 55 of the accompanying prospectus.
S-18
<PAGE>
<TABLE>
<CAPTION>
FROM
DECEMBER 1,
1994 (DATE OF NINE MONTHS ENDED
INCEPTION) TO FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ----------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENTS OF OPERATIONS DATA:
Revenues:
Service revenue............................... $ -- $ -- $ -- $ 467 $ 2,229 $ 1,698 $ 1,500
Service revenue--related party................ -- -- -- -- 466 324 11
Research and development revenue--related
party....................................... -- -- -- 315 2,177 1,619 496
Research and development revenue.............. -- -- -- -- 14,535 2,850 1,448
------ ------ ------- -------- -------- -------- --------
Total revenue............................. -- -- -- 782 19,407 6,491 3,455
Operating costs and expenses:
Cost of revenues............................ -- -- -- 337 5,447 3,534 1,074
Research and development.................... 29 377 818 5,341 12,743 8,772 12,448
Selling, general and administrative......... 8 87 185 2,118 7,155 5,260 4,205
Amortization of intangibles................. -- -- -- 5,127 11,983 9,026 8,869
Charge for in-process technology............ -- -- -- 7,000 -- -- --
------ ------ ------- -------- -------- -------- --------
Total operating costs and expenses........ 37 464 1,003 19,923 37,328 26,592 26,596
------ ------ ------- -------- -------- -------- --------
Operating loss................................ (37) (464) (1,003) (19,141) (17,921) (20,101) (23,141)
Other income (expense):
Equity in loss of joint venture............. -- -- -- (258) (1,647) (1,244) (2,030)
Interest income............................. -- -- -- 392 782 633 416
Interest expense............................ -- -- -- (1,663) (2,968) (3,341) (8)
------ ------ ------- -------- -------- -------- --------
Total other income (expense).............. -- -- -- (1,529) (3,833) (3,952) (1,622)
------ ------ ------- -------- -------- -------- --------
Loss before income taxes...................... (37) (464) (1,003) (20,670) (21,754) (24,053) (24,763)
Tax benefit................................... -- -- -- 1,092 2,647 1,986 1,986
------ ------ ------- -------- -------- -------- --------
Net loss attributable to GZMO Stock........... $ (37) $ (464) $(1,003) $(19,578) $(19,107) $(22,067) $(22,777)
====== ====== ======= ======== ======== ======== ========
Per GZMO common share (basic and diluted):
Net loss.................................... $ (3.81) $ (5.62) $ (1.80)
======== ======== ========
Weighted average shares outstanding........... 5,019 3,929 12,672
======== ======== ========
Pro forma per GZMO common share (basic and
diluted)(1):
Pro forma net loss.......................... $(0.01) $(0.12) $ (0.26) $ (4.98)
====== ====== ======= ========
Pro forma weighted average shares
outstanding................................... 3,929 3,929 3,929 3,929
====== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1999
------------------------------------------------------- --------------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED (2)
----------- -------- -------- -------- -------- -------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and investments....................... $ -- $ -- $ -- $ 21,229 $ 11,900 $ 1,685 $ 69,570
Working capital............................ -- -- -- 11,953 9,189 (6,257) 61,628
Total assets............................... -- -- -- 53,801 35,952 10,859 78,744
Long-term debt and convertible debt........ -- -- -- 24,606 -- -- --
Accumulated deficit........................ (37) (501) (1,504) (21,082) (40,189) (62,966) (62,966)
Division equity............................ -- -- -- 13,466 23,364 750 68,635
</TABLE>
- ------------------------------
(1) We present pro forma per share information for periods ending prior to June
18, 1997 because no shares of GZMO Stock were outstanding before that date.
(2) The combined balance sheet data as of September 30, 1999 is as adjusted to
reflect the net proceeds (after deducting underwriting discounts and
commissions and estimated offering expenses) from the sale of
3,000,000 shares of GZMO Stock offered by this prospectus supplement at an
assumed price of $24.25 per share, the last sale price for GZMO Stock as
reported by Nasdaq on March 22, 2000.
S-19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
GENZYME MOLECULAR ONCOLOGY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
Genzyme formed Genzyme Molecular Oncology on June 18, 1997 by acquiring
PharmaGenics, Inc. and combining it with several of Genzyme's ongoing programs
in the field of oncology. The amounts we report in our financial statements for
periods ending prior to June 18, 1997 are attributable to Genzyme's oncology
programs that were allocated to us upon our formation.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES
We recorded $3.5 million of total revenue for the nine months ended
September 30, 1999 as compared to $6.5 million of total revenue for the
corresponding period in 1998. Service revenue decreased from $2.0 million to
$1.5 million in this period as a result of a decline in the provision of
genomics services using our SAGE-TM- gene expression technology. Licensing
revenue increased in this period from $0.6 million to $1.4 million as a result
of our grant of licenses under our rights to the SAGE technology and the MDM2
protein. Research and development revenue decreased from $3.9 million to $0.5
million in this period. This decrease was a result of a reduction in work we
performed on behalf of 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 that was dissolved in
December 1999) and the completion of research and development work we performed
on behalf of Schering-Plough in 1998.
MARGINS AND OPERATING EXPENSES
Our cost of revenues for the nine months ended September 30, 1999 was
$1.1 million as compared to $3.5 million in the same period in 1998. Our cost of
revenues includes:
- work performed on behalf of StressGen/Genzyme LLC;
- services performed using the SAGE gene expression technology on behalf of
third parties;
- performance of gene therapy research on behalf of Schering-Plough; and
- royalties payable to third parties.
The decrease in cost of revenues was attributable to the completion of the
Schering-Plough research project and a reduction in the royalty rate payable by
us for using the SAGE technology on behalf of third parties.
For the nine months ended September 30, 1999, we incurred $4.2 million of
selling, general and administrative expenses, as compared to $5.3 million for
the nine-month period ended September 30, 1998. This decrease was primarily the
result of:
- reduced legal costs associated with the prosecution and maintenance of our
intellectual property portfolio; and
- a one-time charge taken in the third quarter of 1998 to write off costs
incurred in connection with a public offering of GZMO Stock that we did
not complete.
S-20
<PAGE>
Our research and development expenses were $12.4 million for the nine months
ended September 30, 1999 as compared to $8.8 million for the same period in
1998. The increase in research and development costs were the result of:
- the initiation of a clinical trial for our melanoma tumor vaccine product;
and
- an increase in the number of research personnel and related expenses
required to support the continued development of our cancer vaccine and
angiogenesis inhibitor programs.
We incur direct selling, general and administrative expenses and research
and development expenses, as well as cross charges for the actual cost of
selling, general and administrative and research and development services
performed by Genzyme General on our behalf.
Our amortization expense was $8.9 million for the nine months ended
September 30, 1999 as compared to $9.0 million for the same period in 1998. This
expense relates to intangible assets acquired in the PharmaGenics acquisition in
1997.
OTHER EXPENSES
Our other expenses decreased from $4.0 million in the first nine months of
1998 to $1.6 million in the same period in 1999. This decrease was a result of
lower interest expense resulting from the transfer of our convertible debt to
Genzyme General in August 1998. The decrease in interest expense, however, was
partially offset by a $1.0 million charge we took in the third quarter of 1999
in connection with our repurchase of one-half of the Canadian Medical
Discoveries Fund's interest in the StressGen joint venture.
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
REVENUES
We recorded $19.4 million of total revenue in 1998 as compared to $0.8
million of total revenue in 1997. The increase in revenue in 1998 was primarily
attributable to an increase of $16.4 million in research and development
revenue. The increase in research and development revenue was primarily
attributable to $13.0 million in revenue recorded in connection with a research
and license agreement with Schering-Plough. Our revenue also included work
performed on behalf of StressGen/Genzyme LLC.
MARGINS AND OPERATING EXPENSES
Our cost of revenues in 1998 was $5.4 million as compared to $0.3 million in
1997. This increase was primarily attributable to:
- services performed using the SAGE gene expression technology on behalf of
third parties;
- performance of gene therapy research on behalf of Schering-Plough; and
- research and development work performed on behalf of StressGen/Genzyme
LLC.
In 1998, we incurred $7.2 million of selling, general and administrative
expenses, compared to $2.1 million in 1997. The increase was due to:
- increased administrative support needed to support the growth of our
business; and
- a one-time charge taken in the third quarter of 1998 to write off costs
incurred in connection with a public offering of GZMO Stock that we did
not complete.
S-21
<PAGE>
Research and development expenses in 1998 increased to $12.7 million from
$5.3 million in 1997. The increase was attributable to increases in research
personnel and related expenses required to support our SAGE, gene therapy and
small molecule programs.
Amortization expenses in 1998 increased to $12.0 million from $5.1 million,
in 1997. The increase was attributable to intangible assets we acquired in the
PharmaGenics acquisition in June 1997.
OTHER INCOME AND EXPENSES
Interest income increased in 1998 to $0.8 million from $0.4 million in 1997,
mainly as the result of higher average cash balances during 1998. Interest
expense increased to $3.0 million in 1998 compared to $1.7 million in 1997. The
increase in interest expense was the result of interest and related amortization
of the discount on the 6% convertible debentures issued in August 1997. These
debentures, which had been convertible into shares of GZMO Stock, were exchanged
in August 1998 for 5% convertible debentures convertible into shares of GENZ
Stock.
We established StressGen/Genzyme LLC in July 1997. We recorded equity in net
loss of the joint venture of $1.6 million in 1998 and $0.3 million in 1997.
We recorded a tax benefit of $2.6 million in 1998 as compared to $1.1
million during 1997. The tax benefit resulted from the amortization of the
deferred tax liability established upon the acquisition of PharmaGenics.
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
REVENUES
We recorded $0.8 million total revenue in 1997 as compared to no revenue in
1996. We recorded service revenue of $0.5 million in connection with the
provision of SAGE services to a third party. We also recorded research and
development revenue of $0.3 million, which consisted of research and development
work performed on behalf of StressGen/Genzyme LLC.
MARGINS AND OPERATING EXPENSES
Our cost of revenues in 1997 was $0.3 million and consisted of research and
development work performed on behalf of StressGen/Genzyme LLC.
In 1997, we incurred $2.1 million of selling, general and administrative
expenses as compared to $0.2 million in 1996. The increase was attributable to
increased administrative support corresponding to the growth of our business
following the acquisition of PharmaGenics.
Research and development expenses in 1997 increased to $5.3 million from
$0.8 million in 1996. The increase in research and development costs related to
an increase in the number of research personnel and related expenses required to
support the development of our SAGE and gene therapy programs.
Amortization expense of $5.1 million in 1997 was attributable to the
PharmaGenics acquisition in June 1997. There were no similar amounts in 1996.
OTHER INCOME AND EXPENSES
Interest income was $0.4 million in 1997 and interest expense was $1.7
million in 1997. There were no similar amounts in 1996. The interest income
resulted from higher average cash balances due to the issuance in August 1997 of
the 6% convertible debentures. Interest expense consisted of interest and
related amortization of the discount on these debentures.
S-22
<PAGE>
We recorded equity in net loss of StressGen/Genzyme LLC of $0.3 million in
1997. Because StressGen/Genzyme LLC was formed in July 1997, there were no
comparable amounts in 1996.
We recorded a tax benefit of $1.1 million during 1997. There was no similar
amount in 1996. The tax benefit results from amortization of the deferred tax
liability established upon the acquisition of PharmaGenics.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had cash, cash equivalents and short-term
investments of $1.7 million, a decrease of $10.2 million from December 31, 1998.
Substantially all of this decrease is attributable to cash used for operating
activities.
In 1998, we used $8.1 million of cash for operations. Investing activities
in 1998 provided $4.0 million of cash, which consisted of $7.1 million in
proceeds from the maturities of investments, offset by $2.1 million used to
purchase investments and $0.6 million used to acquire equipment.
In 1998, Genzyme's board of directors made $30.0 million of Genzyme
General's cash available to us under an equity line of credit. Under the terms
of this equity line, we 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 Genzyme's board of directors may issue, sell,
or distribute without allocating the proceeds to us. We have not yet drawn down
any funds under this equity line.
We anticipate that the estimated net proceeds from this offering, together
with our current cash resources and amounts available from the following
sources, will be sufficient to fund our operations through 2002:
- the $30.0 million equity line of credit from Genzyme General;
- revenues generated from the SAGE gene expression technology; and
- revenues from license agreements.
We expect to have significant operating losses for the next several years.
We plan to spend substantial amounts of money on, among other things:
- research and development;
- preclinical and clinical testing; and
- pursuing regulatory approvals.
Our cash needs may differ from those planned as a result of many factors,
including the:
- results of research and development and clinical testing;
- achievement of milestones under existing strategic collaborations;
- ability to establish and maintain additional strategic collaborations and
licensing arrangements;
- costs of protecting our intellectual property rights;
- development of competing products and services; and
- ability to satisfy regulatory requirements of the FDA and other government
authorities.
We may require significant additional financing to continue operations. We
cannot guarantee that we will be able to obtain any additional financing or find
it on favorable terms. If we have insufficient funds or are unable to raise
additional funds, we may have to delay, scale back or eliminate some of
S-23
<PAGE>
our programs. We may also have to give third parties rights to commercialize
technologies or products that we would otherwise have sought to commercialize
ourselves.
For a discussion of the demands, commitments and events that may affect
Genzyme's liquidity and capital resources, including those affecting Genzyme
Molecular Oncology, see "Management's Discussion and Analysis of Genzyme
Corporation and Subsidiaries' Financial Condition and Results of
Operations--Liquidity and Capital Resources," contained in Genzyme's annual
reports, quarterly reports and other information on file with the SEC. See
"Where You Can Find More Information" on page 55 of the accompanying prospectus.
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<PAGE>
BUSINESS
OVERVIEW
Genzyme Molecular Oncology is developing a new generation of cancer
therapeutics based upon the growing understanding of the molecular basis of
cancer. We are focusing on three novel classes of cancer therapy: cancer
vaccines, angiogenesis inhibitors and cancer pathway regulators. We believe that
each of these therapeutic classes will address multiple cancer indications with
limited side effects and will enable us to capitalize on the large and growing
market for cancer therapeutics.
Our product pipeline includes:
- an antigen-specific vaccine in a Phase I/II trial for melanoma;
- a cell therapy vaccine in a Phase I/II trial for breast cancer;
- five additional cancer vaccine clinical trials expected to begin during
2000; and
- multiple preclinical development and research programs to develop
additional cancer vaccines, angiogenesis inhibitors and cancer pathway
regulators.
We use our broad technology platforms to support and expand our product
pipeline. Our powerful SAGE-TM- gene expression technology is the cornerstone of
our functional genomics platform. We apply SAGE in all of our programs to
identify genes involved in cancer and to understand their role in the disease
process. To expand our cancer vaccine pipeline, we have built a proprietary,
state-of-the-art antigen discovery platform that combines identification and
validation in one step. We are using this platform to rapidly and efficiently
identify and validate target antigens for incorporation into novel
antigen-specific cancer vaccines.
We complement our own capabilities through our collaborations with some of
the world's preeminent cancer researchers. Our collaborators include Drs. Judah
Folkman at Children's Hospital in Boston, Kenneth Kinzler at The Johns Hopkins
University, Donald Kufe at the Dana-Farber Cancer Institute, Lloyd Old at the
Ludwig Institute for Cancer Research, Steven Rosenberg at the National Cancer
Institute, and Bert Vogelstein at The Johns Hopkins University and the Howard
Hughes Medical Institute. These collaborations enable us to remain at the
forefront of the development of novel cancer therapies by providing us with new
technologies, novel therapeutic targets and drug candidates, access to leading
clinical research centers, state-of-the-art research programs in the
laboratories of our collaborators, and expert advice.
We have established an extensive intellectual property estate. This estate
allows us to generate out-licensing revenues in fields in which we are not
developing products. Under an agreement with Schering-Plough covering gene
therapy rights to the p53 gene, we have received $12 million in revenues to
date, and may receive an additional $30 million in future milestones as well as
royalties on product sales. Schering-Plough is currently conducting a Phase
II/III clinical study of a p53 gene therapy product. We also generate revenues
from SAGE through license and service agreements and database collaborations. In
addition, our antigen discovery platform provides opportunities for
out-licensing in the fields of infectious disease and autoimmune disorders.
We are an operating division of Genzyme, one of the world's leading
biopharmaceutical companies. We have technology and personnel dedicated to our
business and access to Genzyme's extensive technology base and infrastructure.
This infrastructure includes production capabilities for each of our classes of
products, a large and experienced clinical, regulatory and biostatistics staff,
and a broad intellectual property portfolio. We intend to selectively establish
additional resources required to commercialize products that we develop,
including a dedicated sales force to address the oncology market.
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<PAGE>
OPPORTUNITY
Cancer ranks second to cardiovascular disease as the leading cause of death
in the U.S. The American Cancer Society estimates that 550,000 cancer patients
will die and over 1,200,000 new cancer cases will be diagnosed in the U.S. this
year. The National Cancer Institute (NCI) projects that within five years cancer
will be the leading cause of death in the U.S.
The following table presents information from the American Cancer Society
regarding a number of common cancers in the U.S.:
<TABLE>
<CAPTION>
ANNUAL GROWTH RATE
NEW CASES DEATHS OF NEW CASES
TYPE OF CANCER IN 2000 IN 2000 1995-2000
- -------------- --------- -------- ------------------
<S> <C> <C> <C>
Breast.................................. 184,200 41,200 +0.1%
Prostate................................ 180,400 31,900 -5.9%
Lung.................................... 164,100 156,900 -0.7%
Colorectal.............................. 130,200 56,300 -1.2%
Melanoma................................ 47,700 7,700 +6.9%
Kidney.................................. 31,200 11,900 +1.6%
</TABLE>
The National Institutes of Health estimate overall annual costs for cancer
in the U.S. at $107 billion, with direct medical costs totaling $37 billion. The
worldwide market for cancer drugs was over $16 billion in 1998, and is expected
to grow to over $26 billion by 2002. Novel treatments, such as tumor vaccines,
gene therapies, monoclonal antibodies and antisense therapies, are expected to
account for a growing portion of this market. We believe that there is
substantial opportunity to expand the market for cancer drugs without increasing
the overall cost of cancer by developing more effective therapies that reduce
non-drug expenditures.
To be effective, cancer therapies must eliminate the cancer both at its site
of origin and at sites to which it has spread, or metastasized. Metastatic
disease is often responsible for the relapse of previously-treated cancer and
the ultimate death of patients. Current treatments for cancer consist primarily
of surgery, radiation and chemotherapy. Surgery and radiation treat cancer at
its origin, but are of limited utility against cancer that has already
metastasized. Radiation and chemotherapy attack healthy cells as well as cancer
cells, and many patients suffer debilitating side effects from these treatments,
including fatigue, nausea, loss of appetite, immunosuppression and hair loss.
Further, cancer cells often mutate and become resistant to chemotherapy over
time. The overall five year survival rate for cancer patients has gradually
increased to 59% due to improvements in diagnosis and treatment, but there is
still a great need for more effective, less harsh therapies.
High rates of failure from current therapies and the limitations posed by
severe side effects and tumor resistance have compelled researchers to focus on
alternative strategies for cancer treatment. This research, together with
advances in the fields of genomics and gene-based medicine, offers promising
therapies that may overcome the limitations of existing approaches to the
treatment of cancer. The wealth of genomics information generated in the last
decade has dramatically increased our understanding of the molecular basis of
cancer and has provided us with new targets for therapeutic intervention and
insights into how to control the disease at the genetic level. In addition, a
variety of clinically validated, gene-based approaches to medicine have been
developed in recent years, and these are facilitating the development of novel
cancer therapies that specifically target cancer cells and/or the tumor's
environment. We believe that these specific, selective therapies will enhance
efficacy with fewer side effects than existing therapies.
These advances in understanding the genetic basis of cancer are the
cornerstone of our efforts to develop the next generation of cancer
therapeutics.
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OUR NOVEL APPROACHES TO CANCER TREATMENT
We are developing a new generation of cancer therapies to address the
significant unmet needs of large segments of the worldwide population who suffer
from cancer. These therapies are designed to:
- ADDRESS MULTIPLE CANCERS. Because these treatment approaches target
processes common to most cancers and are designed to act systemically,
they may work effectively against virtually all types of solid tumors and
against cancers which have metastasized.
- MINIMIZE TOXICITY AND SIDE EFFECTS. Because these treatment approaches
target processes that are specific to cancer and are highly selective,
they should have less toxicity and cause fewer side effects than
traditional chemotherapy and radiation therapy. This should improve the
patient's quality of life and permit extended periods of therapy.
- COMPLEMENT EXISTING AND NOVEL THERAPIES. Because these treatments work on
selected novel targets and have limited toxicity, we believe that
oncologists are likely to combine them with both existing and novel
therapies, similar to today's multi-drug chemotherapy regimens.
We are developing products in three therapeutic classes that have the
characteristics outlined above. These classes are:
- VACCINES that treat cancer by stimulating the body's immune system to
fight tumor cells;
- ANGIOGENESIS INHIBITORS that treat cancer by preventing the formation and
development of blood vessels that tumors require for growth; and
- PATHWAY REGULATORS that treat cancer by regulating one or more of the
metabolic processes in cancer cells necessary for tumor cells to grow and
survive.
We employ a strong and diverse set of capabilities in developing products
within these three therapeutic classes. We use our functional genomics tools to
identify targets and to better understand the molecular basis of cancer, the
mechanism of action of our drugs, and patients' response to drugs. We draw upon
Genzyme's extensive experience in gene therapy, cell therapy, protein therapy
and small molecules to select and pursue the most appropriate therapeutic
approach for each target. Once we have identified a product candidate, we access
Genzyme's worldwide resources and infrastructure to accelerate its development.
We believe that the combination of these capabilities increases the likelihood
and speed of bringing effective novel therapies to market.
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OUR PRODUCTS AND DEVELOPMENT PROGRAMS
The following chart describes the development status of our current products
and development programs:
<TABLE>
<CAPTION>
PRODUCT/PROGRAM TYPES OF CANCER STATUS
- --------------- --------------- ------------------------
<S> <C> <C>
CANCER VACCINES
Dendritic/tumor cell fusion....................... Breast Phase I/II trial ongoing
Melanoma IND filed
Kidney Preclinical
Melan-A/MART-1 and gp100 antigens................. Melanoma Phase I/II trial ongoing
NY-ESO-1 antigen.................................. Multiple Preclinical
ANGIOGENESIS INHIBITORS
aaATIII........................................... Multiple Preclinical
Small molecules................................... Multiple Research
Gene therapy...................................... Multiple Research
CANCER PATHWAY REGULATORS
Small molecules................................... Multiple Research
</TABLE>
We own all commercial rights to each of these programs other than aaATIII, which
we are co-developing with the ATIII LLC, a joint venture between Genzyme General
and Genzyme Transgenics Corporation.
CANCER VACCINES
OVERVIEW OF CANCER IMMUNOTHERAPY
The immune system is the body's natural defense mechanism to prevent and
fight disease, including cancer. The immune system responds to disease in two
distinct ways: the humoral, or B cell system; and the cellular, or T cell
system. Researchers have demonstrated that the cellular arm of the immune system
plays the dominant role in anti-tumor immune response. Antigens are molecular
markers in tumor cells that enable the immune system to recognize and respond to
these cells as being foreign. Specialized immune system cells called dendritic
cells capture the antigens and present them to T cells that selectively
recognize them. Once a T cell recognizes an antigen, the T cell multiplies.
These T cells then search out and kill cells containing that same antigen.
Consequently, we are seeking to stimulate a cellular immune response against
tumors by using vaccines to present tumor-specific antigens to the immune
system. Unlike infectious disease vaccines that are predominantly used to
prevent disease, current cancer vaccines are designed to treat patients with
active disease.
OUR CANCER VACCINE PROGRAMS
We believe that the most successful cancer vaccines will be those that
activate a cellular immune response directed at the tumor. Our program features
two types of vaccines for generating a tumor-specific cellular immune response:
- where the specific tumor antigens are not known, we use a technique that
fuses the patient's own tumor cells with dendritic cells, creating a cell
therapy product; and
- where specific tumor antigens have been identified as targets of the
cellular immune response, we use gene-based or peptide-based tumor
vaccines.
We believe that both of these vaccine types will provide clinical benefit
and have commercial potential. Development of antigen-specific vaccines,
however, is currently limited by the lack of known
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tumor-specific antigens. Therefore, cell fusion may be more broadly applicable
in the near term. Over time, as we identify more tumor-specific antigens, we
anticipate having the ability to provide off-the-shelf vaccines that are
customized based on the set of specific antigens present in the patient's tumor.
CELL FUSION VACCINES
Cell fusion vaccines are produced by removing tumor tissue from a patient,
fusing that tissue with dendritic cells and irradiating the fusion product.
Fusion is achieved using either a chemical or electrical process. The vaccine is
then injected into the patient. By using the entire tumor cell, the vaccine is
designed to incorporate all of the antigens found in the original tumor cell.
The potential market for cell fusion vaccines includes all cancers characterized
by surgically accessible tumors of sufficient size, and may be particularly
useful where antigens specific to the target cancer have not yet been
identified. The initial indications we plan to address are breast cancer,
melanoma and kidney cancer.
DEVELOPMENT PROGRAMS
BREAST CANCER. Working with the Dana-Farber Cancer Institute and the Beth
Israel Deaconess Medical Center in Boston, we initiated a Phase I/II study for
the treatment of metastatic breast cancer in September 1999. We plan to enroll
up to 20 patients in this study and to complete the study in late 2000. The
vaccine used in this trial is produced using a chemical fusion process to
combine the patient's own cancer cells and dendritic cells derived from the
patient. The patients receive three doses of vaccine over a six-week period. The
end points for this trial are safety, immunologic response and clinical
response.
KIDNEY CANCER AND MELANOMA. An academic group in Germany has recently
published clinical data for the treatment of kidney cancer with a vaccine
produced using electrofusion to combine a patient's cancer cells with dendritic
cells derived from another source. The clinical response rate reported in that
study was significantly higher than has been achieved with standard therapy in
that patient population.
Because of the positive results reported in the German study, we plan to
commence four additional Phase I clinical trials for cell fusion vaccines in
2000. These trials will be in kidney cancer and in melanoma. For each type of
cancer, we intend to conduct two trials, one using vaccine produced in the
manner used in our breast cancer trial and one using vaccine produced in the
manner used in the German study. These trials should provide us insight into the
safety and efficacy of cell fusion vaccines in a variety of cancer indications,
as well as a comparison of these two processes for producing cell fusion
vaccines.
We plan to analyze the cancer cells extracted from the patients in these
cell fusion vaccine clinical trials using our antigen discovery technologies in
order to identify the antigens associated with anti-tumor response. We plan to
use this knowledge to expand development of our antigen-specific vaccines.
ANTIGEN-SPECIFIC VACCINES
An antigen-specific vaccine is a vaccine that delivers one or more antigens
or antigen fragments to a patient to activate the immune system to selectively
identify and kill tumor cells. The vaccine can be formulated as a gene therapy
or as a peptide vaccine. A gene therapy vaccine is comprised of a gene delivery
vector that incorporates the gene encoding an antigen and presents it to the
immune system. A peptide vaccine is comprised of an antigen fragment which may
be combined with substances that enhance its ability to trigger an immune
response. We are focusing our initial efforts on cancer indications where
tumor-specific antigens have already been identified.
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<PAGE>
DEVELOPMENT PROGRAMS
MELAN-A/MART-1 AND GP100. In collaboration with Dr. Rosenberg at the
National Cancer Institute, we have conducted two Phase I clinical trials. In
these trials, adenoviral gene delivery vectors carrying either the
Melan-A/MART-1 or gp100 gene were evaluated for safety, immunologic reactivity
and potential therapeutic effect when administered IN VIVO alone or in
conjunction with recombinant interleukin-2. The results from these clinical
studies indicated that the adenoviral vectors were safe and well tolerated, and
that a small but notable number of both the 36 patients immunized with Melan-A/
MART-1 and the 18 patients treated with gp100 showed clinically significant
tumor regression. These responses were seen in very late stage (Stage IV)
metastatic disease patients, who are a heavily pre-treated patient population
not expected to mount a robust immune response and who, as a group, have a very
short life expectancy.
In April 1999, we initiated a Phase I/II trial in melanoma patients at
Massachusetts General Hospital. This trial involves extracting dendritic cells
from the patient and combining these cells with a vaccine containing
Melan-A/MART-1 and gp100 EX VIVO. The treated cells are then injected into the
patient. We expect to enroll approximately 24 Stage III or IV patients in this
trial and to complete enrollment in 2000. Each patient receives six doses of
vaccine over a 15-week period. In this trial, we will assess safety, immunologic
response and clinical response. Throughout the trial we will be performing a
comprehensive analysis of the patient's immune response to the vaccine to help
us to understand better why some patients respond well to the therapy while
others do not. This analysis should aid us in optimizing our antigen-specific
vaccines.
We are also conducting preclinical studies to support a Phase I/II IN VIVO
melanoma trial expected to begin early in the second half of 2000. For this
study, we plan to utilize both the Melan-A/MART-1 and gp100 tumor antigens. In
this trial, we intend to monitor patient immune responses in order to further
elucidate the immunology of cancer to enhance our antigen-specific vaccine
development efforts. We plan to enroll 27 patients with Stage II, III and IV
disease. The end-points of this trial will be safety and immunologic response.
Through our melanoma trials, we are optimizing our vaccine delivery systems
and dosing methods for use with other antigens that we may discover through our
antigen discovery program or license from third parties such as the NY-ESO-1
antigen.
NY-ESO-1. NY-ESO-1 is an antigen expressed in a subset of a number of
different tumor types, including breast cancer, melanoma and lung cancer. We are
conducting preclinical development to support a Phase I/II trial for
NY-ESO-1-positive tumors to be performed in collaboration with the Ludwig
Institute. In this trial we plan to enroll patients with tumors that express
NY-ESO-1 regardless of the location of the tumor. In this way, the trial will
offer an opportunity to shift the paradigm for treating cancer from one based on
the anatomical location of the tumor to one based on the antigenic profile of
the tumor.
NOVEL PEPTIDE VACCINE. We are conducting validation and preclinical studies
with novel peptides identified through our antigen discovery program. We expect
to file an IND in late 2000 for a Phase I/ II clinical trial using the first of
these novel peptides.
ANGIOGENESIS INHIBITORS
OVERVIEW OF ANGIOGENESIS
Angiogenesis refers to the formation of new capillary blood vessels in
tissues, including tumors. Without the formation of new blood vessels that
supply oxygen and nutrients, solid tumors cannot grow beyond the size of a pea
or spread throughout the body. Angiogenesis inhibitors are therapeutics that
arrest the growth of a tumor by blocking the development of new blood vessels.
In 1971, Dr. Judah Folkman discovered that tumor cells secrete proteins that
induce angiogenesis. Dr. Folkman's discovery implies that introducing an agent
into a patient's system that prevents angiogenesis in tumors could contribute
significantly to fighting cancer.
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We believe that angiogenesis inhibitors represent a large market opportunity
because they are potentially less toxic than conventional therapies and should
be applicable to all solid tumors. Oncologists are likely to use angiogenesis
inhibitors in combination with each other and with other therapies. In addition,
unlike chemotherapies, angiogenesis inhibitors may provide a method for chronic
treatment since they target stable endothelial cells rather than highly
mutagenic tumor cells and are therefore less likely to induce drug resistance.
OUR ANGIOGENESIS INHIBITOR PROGRAMS
We are pursuing proteins, small molecules, and gene therapies for use as
angiogenesis inhibitors. We are using SAGE in conjunction with our other
integrated technologies to identify new angiogenesis inhibitor genes. We are
also employing SAGE to provide insight into the mechanism of action of
angiogenesis inhibitors discovered using other methods. In addition, we are
taking advantage of Genzyme Surgical Products' angiogenesis gene discovery
research in cardiovascular disease to identify targets for therapeutic
intervention.
AAATIII
aaATIII is our lead development candidate in our angiogenesis inhibition
program. aaATIII is a modified form of antithrombin III (ATIII), which is a
protein normally found in human plasma that helps regulate blood clotting. While
ATIII does not inhibit angiogenesis, preclinical studies have shown that when it
is modified to aaATIII, the modified compound acts as a potent angiogenesis
inhibitor.
DEVELOPMENT PROGRAM
Dr. Judah Folkman, Dr. Michael S. O'Reilly, and other scientists in the
Surgical Research Laboratories at Children's Hospital in Boston discovered
aaATIII. These scientists demonstrated the strength of aaATIII as an
angiogenesis inhibitor and its ability to cause tumor regression in mice. The
results, published in the September 17, 1999 issue of SCIENCE, also showed that
in animal models and cell cultures aaATIII produced no toxic side effects or
inflammatory reaction at any dose tested. Assays used to characterize
angiogenesis inhibitors, including those used by Dr. Folkman's laboratory in the
published studies, are complex. We are working with Dr. Folkman's laboratory to
establish at Genzyme quantitative and reproducible IN VITRO and IN VIVO assays
that should allow us to replicate the studies published in SCIENCE and to
proceed with clinical development of aaATIII.
We are co-developing aaATIII in collaboration with the ATIII LLC, a joint
venture between Genzyme General and Genzyme Transgenics Corporation. The joint
venture produces ATIII in the milk of transgenic goats and is conducting
clinical trials using transgenically produced ATIII for a cardiac indication.
Our collaboration with the ATIII LLC provides us with an ample supply of
transgenic ATIII as starting material for producing aaATIII.
SMALL MOLECULE ANGIOGENESIS INHIBITORS
We are also investigating the role of small molecule inhibitors of
angiogenesis. We have developed proprietary, high-throughput, functional,
cell-based assays for screening against Genzyme's proprietary library of more
than two million small molecule compounds. Cell-based assays are screens that
use an intact, living cell to test whether different compounds have the desired
effect in their "working environment." By contrast, assays that test compounds
against isolated targets, such as receptor binding assays that measure the
binding affinity of a compound to an isolated receptor, cannot determine whether
the compound exerts the desired activity in a whole living cell.
Over the last 12 months, we have developed high-throughput, cell-based
assays to identify inhibitors of three key aspects of angiogenesis: endothelial
cell activation and division, endothelial cell migration and the formation of
tubes of endothelial cells. We are currently conducting lead
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optimization of several active compounds from these assays and intend to begin
follow-up IN VIVO studies later this year.
GENE THERAPY FOR ANGIOGENESIS INHIBITORS
Gene therapy may offer the advantage of providing prolonged stable
expression of angiogenesis inhibitors. Researchers have suggested that prolonged
stable expression may be important because a constant level of the expressed
protein may be required to maintain the suppression of growth of tumor blood
vessels. We are exploring the use of viral and non-viral vectors to deliver
genes encoding angiogenesis inhibitors to tumor blood vessels. Our non-viral
vectors may be especially useful in the inhibition of angiogenesis since they
preferentially target both tumor blood vessels and tumor cells when administered
by intravenous injection. We intend to use these vectors to deliver
antiangiogenic genes that we identify using SAGE or that we in-license from
third parties.
CANCER PATHWAY REGULATORS
Cancer pathway regulators treat cancer by regulating one or more metabolic
processes required for growth and survival of cancer cells.
RESEARCH PROGRAM
We have early stage programs focusing on small molecule drugs. Our small
molecule drug discovery effort relies upon our access to extensive libraries of
compounds and multiple high-throughput assays. We use robot-assisted, solution
phase combinatorial chemistry synthesis to generate diverse compound libraries
based on over 30 different chemical reactions. The number of small molecules in
Genzyme's libraries of chemical compounds now exceeds two million compounds. We
also have access to compound libraries of other companies.
We use two types of assays in our program, both optimized for high
throughput. We use functional cell-based assays to identify potent selective
compounds that exhibit the desired effect in living cells. The fact that we can
conduct these cell-based assays in a high-throughput manner distinguishes our
program. We also use molecular pathway-based assays when specific molecular
targets have been shown to be particularly important in tumor development. This
allows us to find compounds that selectively impact particular targets,
including proprietary targets such as MDM2/p53, which has been implicated in the
genetic pathway for several different types of cancer and b-Catenin, which has
been implicated in the colon and other cancer pathways. Our assays employ
targets that we identify using SAGE and targets we obtain from third parties.
In addition, we actively seek collaborations to complement our internal
efforts. We have entered into an agreement with CellPath, Inc. under which our
compound libraries are being screened against CellPath's proprietary human tumor
cell-based assays. We also have a collaboration with the NCI under which the NCI
is screening our compound libraries against a cancer screen incorporating 60
different tumor cell lines. Each of these collaborations has yielded active
compounds which are currently undergoing optimization as lead compounds. We plan
to conduct preclinical IN VIVO safety and efficacy studies with these lead
compounds during 2000 to identify clinical candidates.
OUR TECHNOLOGY PLATFORMS
SAGE
OVERVIEW
SAGE is a patented high-throughput, high efficiency method of simultaneously
detecting and measuring the expression level of virtually all genes expressed in
a cell at a given time. SAGE detects and quantifies expression of novel as well
as known genes and, because of its high efficiency and
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sensitivity, SAGE can detect genes expressed at low levels. Some of the uses of
SAGE are comparison of disease tissue with healthy tissue, comparison of genes
expressed at different stages of disease, elucidation of disease pathways and
measurement of response to and toxicity of drug candidates.
USE OF SAGE IN OUR DRUG DISCOVERY AND DEVELOPMENT PROGRAMS
We have used SAGE to analyze the most prevalent types of cancer and
corresponding normal tissue and also have access to SAGE data generated in the
laboratories of Drs. Bert Vogelstein and Kenneth Kinzler at The Johns Hopkins
University. We have accumulated from our proprietary analyses, our collaborators
and the Cancer Genome Anatomy Project at the NCI a database of over 3.5 million
SAGE gene sequence identification tags, representing over 125,000 unique genes.
We are using SAGE extensively in our drug discovery and development efforts
to identify genes that are functionally relevant. In cancer vaccines, we combine
SAGE with other proprietary tools to identify tumor-specific antigens. In
angiogenesis inhibition, we are using SAGE to dissect the genetic pathways for
angiogenesis and to explore and understand the mechanism of action of drug
candidates discovered in functional assays. In cancer pathway regulation, we are
using SAGE to identify targets to use in high-throughput screens.
We continue to enhance the power of SAGE through software and bioinformatics
development, technology improvements, database expansion and the integration of
SAGE with other genomics tools, such as microarrays.
COMMERCIALIZATION OF SAGE
In addition to using SAGE in our drug discovery and development programs, we
are using SAGE technology and our proprietary SAGE database to generate revenues
through licenses and service agreements and database collaborations. These
arrangements are described below under the caption "--Commercial
Arrangements--SAGE Collaborations."
ANTIGEN DISCOVERY PROGRAMS
Historically, the development of antigen-specific vaccines has been limited
due to the lack of known antigens for indications other than melanoma. To
overcome this limitation, we have integrated four proprietary technologies that
allow us to rapidly identify potent tumor antigens and antigen fragments that
are specifically recognized by T cells.
OUR ANTIGEN DISCOVERY PLATFORM
[Diagram depicting the relationship between the four technologies (SELEC-T,
SCAN, SAGE and SPHERE) we use to identify and validate novel antigens for use in
antigen-specific vaccines]
SELEC-T: SELECTION OF T CELLS. We use SELEC-T to rapidly harvest T cells
from primary tumor samples, to clone them and to grow relatively large numbers
of identical patient-derived T cells. We obtain primary tumor samples from both
the Massachusetts General Hospital tumor bank and the Beth Israel Deaconess
Medical Center. These sources have allowed us to build a bank of melanoma,
ovarian,
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breast, lung, colon and prostate cancer tissues. From a single tumor sample, we
can isolate hundreds of T cell clones that recognize a variety of antigens.
Because the extreme difficulty of cultivating T cells has posed a serious
obstacle to antigen discovery, we believe that our success with SELEC-T provides
us with a competitive advantage.
SCAN: SYSTEMATIC CHARACTERIZATION OF CANCER ANTIGENS. We use SCAN to
rapidly characterize individual T cell clones by exposing them to different
defined tumor cell lines and assessing the T cell clones' ability to kill the
tumor cells. This creates a fingerprint of the T cell clone which describes the
degree to which the antigen recognized by the T cell clone is present in various
tumor cell lines. By comparing the results from different tumor cell lines, we
can determine whether the antigen is shared across several tumor cell types. We
use the data provided by SCAN fingerprints to prioritize T cell clones for
further analysis using our SAGE and SPHERE technologies.
SAGE-TM-: SERIAL ANALYSIS OF GENE EXPRESSION. We use our SAGE library and
bioinformatics tools to rapidly identify a short list of candidate genes whose
expression pattern in the tumor cells matches the distribution pattern of the
SCAN fingerprint. We are able to do this quickly because our SAGE database
contains gene expression profiles for all tumor cell lines used in the SCAN
analysis. By using T cell recognition of antigens as a sorting criterion, we can
select a small number of candidate genes from hundreds of
differentially-expressed genes.
SPHERE: SOLID PHASE EPITOPE RECOVERY. We use SPHERE to screen the T-cell
clones that were identified in the SCAN fingerprint against combinatorial
libraries of over 47 million peptides to identify the specific peptides
recognized by the T cell. These peptides, called epitopes, are fragments of
antigens. Because SPHERE involves an efficient, high-throughput process, we can
screen the entire peptide library against a T cell clone and identify individual
epitopes in two weeks. By comparing candidates from SAGE with those from SPHERE,
we identify not only target tumor antigens, but also the epitope(s) within the
antigen that are specifically recognized by the T cell. We can also use SPHERE
to optimize epitopes to increase the potency of the immune response.
Several characteristics distinguish our program from traditional approaches
to antigen discovery:
- we start with T cells from cancer patients to ensure from the outset that
the antigens we identify are clinically relevant;
- SCAN, SAGE and SPHERE are all high-throughput processes that we can
conduct in parallel to produce relevant data rapidly;
- our access to phenotypic data from SCAN, genotypic data from SAGE and
epitope data from SPHERE gives us a unique combination of information on
which to base our conclusions about which antigens are the most promising
clinical candidates; and
- we can complete this entire process from commencing SELEC-T to completing
SPHERE in as little as two months.
We are using our integrated technology platform to identify new antigens to
form the basis for novel antigen-specific peptide or gene vaccines. For antigens
that we have already identified, such as gp100, we have used SPHERE to identify
optimized epitopes that are more potent than the native epitopes. Additionally,
we plan to use this integrated platform to analyze residual tumor material from
patients who respond to cell-fusion cancer vaccines to identify the antigens
that generate the immune response. This may enable us to develop
antigen-specific vaccines to treat patients with that tumor type.
This integrated technology platform can also be used to identify antigens
and epitopes useful in non-cancer immunotherapies, such as infectious disease
and autoimmune disorders. In addition, we have modified these technologies to
identify antibody targets. We intend to seek collaboration partners to use our
integrated platform in areas outside of cancer or for antibody target
identification.
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PRODUCT COLLABORATIONS AND TECHNOLOGY IN-LICENSING ARRANGEMENTS
Our collaboration strategy is designed to provide access to complementary
technologies and products. We have outlined below the key terms of our principal
product collaborations and technology in-licensing arrangements.
CANCER VACCINES
DANA-FARBER CANCER INSTITUTE. In March 2000, we obtained an exclusive,
worldwide license from the Dana-Farber Cancer Institute to all therapeutic uses
of the dendritic cell fusion technology developed by Dr. Donald Kufe. We paid an
up-front fee for this license and will also be obligated to make milestone
payments upon achievement of defined product development milestones and to pay
royalties on worldwide sales of these products.
NATIONAL CANCER INSTITUTE. We have a sponsored research agreement with the
NCI relating to the development of treatments for metastatic melanoma. This
agreement, which is effective until August 2002, covers the use of adenoviral
vectors that incorporate the genes for the melanoma tumor antigens
Melan-A/MART-1 and gp100. Under this agreement, we provide Dr. Steven Rosenberg
with clinical grade adenoviral vectors, research funding and support for the
conduct of clinical trials at the NCI relating to these vectors in exchange for
an option to obtain either an exclusive or non-exclusive license to the
technology developed under this agreement.
LUDWIG INSTITUTE FOR CANCER RESEARCH. In March 1998, we entered into an
agreement with the Ludwig Institute for Cancer Research granting us an exclusive
option to obtain an exclusive, worldwide license to NY-ESO-1 for use with
adenoviral and cationic lipid vectors in exchange for an up-front fee. We will
be obligated to make milestone payments upon achievement of defined product
development milestones and to pay royalties on worldwide sales of these
products.
In April 1999, we obtained a non-exclusive, worldwide license to
Melan-A/MART-1 from the Ludwig Institute. The license gives us the ability to
use Melan-A/MART-1 with adenoviral and cationic lipid vectors in exchange for an
up-front fee. We will be obligated to make milestone payments upon achievement
of defined product development milestones and to pay royalties on worldwide
sales of these products.
AAATIII
CHILDREN'S HOSPITAL COLLABORATION. In February 1999, we exclusively
licensed the worldwide rights to aaATIII from Children's Hospital in Boston. We
will also be obligated to make milestone payments upon achievement of defined
product development milestones and to pay royalties on worldwide sales of these
products. We are currently collaborating with Dr. Folkman in the further
development of aaATIII.
ATIII LLC COLLABORATION. Effective February 1999, we entered into a
collaboration agreement to develop and commercialize aaATIII for oncology
indications with the ATIII LLC, the joint venture between Genzyme General and
Genzyme Transgenics Corporation. Under the terms of this agreement, we have
agreed with the ATIII LLC to share equally in the development costs of an
aaATIII cancer therapy and equally share in any profits from a successful
oncology product developed through the collaboration. The agreement also grants
the ATIII LLC exclusive rights to develop aaATIII for potential non-oncology
indications.
SAGE
EXCLUSIVE LICENSE AND SPONSORED RESEARCH WITH THE JOHNS HOPKINS
UNIVERSITY. We have exclusively licensed the commercial rights to the SAGE
technology from The Johns Hopkins University in
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exchange for license fees, milestone payments upon the issuance of patents
relating to the technology, and royalties on sublicenses by us of SAGE patent
rights and revenues generated from the provision of SAGE services and the sale
of SAGE products. We also have a research agreement extending through
December 2000 with JHU and Dr. Kinzler under which we provide funding for Dr.
Kinzler's SAGE-related research at JHU. Under this research agreement, we are
obligated to make milestone payments upon the fulfillment of research
objectives. Furthermore, we have the rights to the SAGE data generated in Dr.
Kinzler's laboratory and an option to license diagnostic and therapeutic rights
to discoveries using SAGE that are developed in Dr. Kinzler's laboratory. We
anticipate that we will renew this agreement.
SAGE USER GROUP. JHU provides non-exclusive licenses, free of charge, to
other academic laboratories for non-commercial use of SAGE. This program is led
and supported by JHU in close collaboration with us. The academic user base now
has hundreds of members that explore and validate SAGE in additional
applications and generate potential collaborators for our future programs. We
support further growth in the academic user base through our sponsorship of the
SAGE User Group web site and SAGE User Group conferences. The first SAGE
conference was held in Amsterdam in January 1999 and a second conference will be
held in Baltimore in September 2000. We believe that the academic user group
serves as an incubator for starting commercial relationships. We offer
commercial licenses to academic laboratories that anticipate collaborating with
commercial parties. We have granted these licenses to the University of
California, the Institute for Clinical Biochemistry, Wuerzburg and Environment
Canada.
OTHER AGREEMENTS
THE JOHNS HOPKINS UNIVERSITY. Under the terms of a research agreement with
JHU, we sponsor cancer-based research (in addition to SAGE) in Dr. Kinzler's
laboratory in exchange for an option to obtain an exclusive, worldwide license
to technology developed in the course of the research. In addition, we have
retained Drs. Kinzler and Vogelstein's services on a non-exclusive basis through
consulting agreements. The research agreement is effective through
December 2000, the consulting agreement with Dr. Vogelstein is effective through
April 2000 and the agreement with Dr. Kinzler is effective through October 2000.
We anticipate that we will renew each of these agreements.
HOFFMAN LA-ROCHE AND THE JOHNS HOPKINS UNIVERSITY. We are also parties with
JHU and Roche to a broad-based license agreement relating to the development and
commercialization of technology developed by Dr. Vogelstein under an earlier
research agreement. Under this license agreement, JHU has granted Roche a
co-exclusive license, without the right to grant sublicenses, to certain
diagnostic products. We have an exclusive license to therapeutic products and
the diagnostic products not licensed to Roche, each with the right to
sublicense. We also have a co-exclusive license (with the right to grant
sublicenses) to the diagnostic rights also licensed to Roche. While the licenses
from JHU are exclusive as to all rights that JHU possesses, some of the genes
licensed from JHU are covered by patent applications that are co-owned with
entities from which we and Roche have not obtained a license. We will owe
royalties to JHU on net sales by us and our sublicensees of therapeutic and
diagnostic products incorporating technology licensed under this license
agreement. This obligation extends to each of the non-SAGE-related agreements
described in "--Commercial Arrangements" below.
COMMERCIAL ARRANGEMENTS
By licensing our technology to third parties, we seek to generate revenues
from technologies or in fields in which we are not developing products. We have
outlined below the key terms of our principal out-licensing arrangements.
SCHERING-PLOUGH. Effective October 1998, we entered into a license
agreement with Schering-Plough Ltd. and its U.S. affiliate, Schering
Corporation, under which we granted Schering-Plough an
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exclusive worldwide license under our intellectual property to develop and
commercialize gene therapy products using the p53 tumor suppressor gene. Loss of
function of the p53 gene is believed to be implicated in more than 50% of all
human cancers, including breast, colon, lung, ovarian and prostate cancers. To
date, we have received $12 million in license fees and milestones under the
agreement. We could receive an additional $30 million in patent, product
development and sales milestones under the agreement, in addition to royalty
payments on product sales by Schering-Plough. Schering-Plough is in Phase II/III
studies in ovarian cancer with a p53 gene therapy product.
MERCK. In January 1998, we non-exclusively licensed an assay to Merck & Co.
relating to methods for identifying small molecules that interfere with the
binding of the MDM2 protein with the p53 protein. We received an up-front fee
for this license and could receive approximately $8 million in milestone
payments if the defined development milestones are achieved by Merck for a
product developed by a method licensed from us or covered by our patent rights.
In addition, we would receive royalties on worldwide sales of any developed
products.
ISIS/ASTRAZENECA. In December 1998, we non-exclusively licensed to Isis
Pharmaceuticals, Inc. patent rights relating to antisense compounds that
interfere with the expression of a cancer-related gene, methods for treating
cancerous cells with these compounds, and methods for identifying these
compounds. Isis licensed these rights from us in order to facilitate work on
compounds being developed under its agreement with AstraZeneca. We received an
up-front fee for this license and could receive several million dollars in
milestone payments if defined development milestones are achieved by Isis or
AstraZeneca for a product developed by a method licensed from us or covered by
our patent rights. In addition, we would receive royalties on worldwide sales of
any developed products.
HYBRIDON. In September 1999, we non-exclusively licensed to Hybridon, Inc.
patent rights relating to antisense compounds that interfere with the expression
of MDM2, methods for treating cancerous cells with these compounds and methods
for identifying these compounds. We received an up-front fee for this license
and could receive significant milestone payments if defined development
milestones are achieved by Hybridon for a product developed by a method licensed
from us or covered by our patent rights. In addition, we would receive royalties
on worldwide sales of any developed products.
EXACT LABORATORIES. In March 1999, we granted EXACT Laboratories, Inc. a
non-exclusive license to patent rights covering detection of mutations in two
genes, p53 and APC. EXACT will use these rights to develop and provide
diagnostic services, reagents and kits to determine the presence of these
mutations in stool or stool-derived samples. EXACT is presently focused on the
screening, diagnosis, prognosis and monitoring of colon cancer, but may use
their rights in conjunction with other cancers in the future. We received an
up-front fee for this license and will receive royalties on worldwide sales of
EXACT services and products covered by the licensed patents. The agreement also
provides for annual maintenance payments until the last of the patents licensed
to EXACT expires.
SAGE COLLABORATIONS
We are commercializing our SAGE gene expression technology to generate
near-term revenues and increase the long-term value of the technology.
LICENSE AND SERVICE AGREEMENTS. We non-exclusively license the SAGE
technology to pharmaceutical, biotechnology and agricultural companies in
exchange for fees based on the licensee's use of the technology. We provide
training, software and ongoing technical support to our licensees. Our licensees
include the Parke-Davis Division of Warner-Lambert and the Novartis Agricultural
Discovery Institute. We also offer SAGE service contracts to companies that
require the production of a smaller number of SAGE libraries or where the
company would like to evaluate SAGE in practice. Under these agreements, we
generate SAGE libraries in exchange for a per-library fee. We have provided SAGE
services to Ontogeny, Reprogen, Bayer and Monsanto.
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COMPUGEN. In January 2000, we entered into two agreements with Compugen
Ltd. relating to access to our proprietary SAGE database. Under the first
agreement, we will share revenue generated by customer use of SAGE data on
Compugen's research Web site. Under the second agreement, we are sharing profits
from sales of a product that combines our SAGE database with Compugen's
proprietary LEADS computational biology platform technology.
MEMOREC. We have entered into an agreement with Memorec Stoffel GmbH under
which Memorec will provide SAGE services to customers in Europe. With this
arrangement, we plan to take advantage of Memorec's access to the European
market and complementary microarray technology to expand the use of SAGE. We
share revenue for SAGE services performed by Memorec.
PATENTS AND PROPRIETARY RIGHTS
We have access to all of Genzyme's patents and proprietary rights for use in
our programs. Genzyme pursues a policy of obtaining patent protection in both
the U.S. and in other selected countries for subject matter considered
patentable and important to its business. We also license patents and
proprietary rights from third parties. These licenses generally require us to
make up-front license fees and milestone payments and to pay royalties upon
commercialization of products covered by the licensed technology.
Third party patent rights and pending patent applications filed by third
parties, if issued, may cover some of the products we are developing or testing.
As a result, we may be required to obtain licenses from the holders of these
patents in order to use or sell these products and services. We cannot guarantee
that these licenses will be available to us on acceptable terms or at all. If
these licenses are not available, our ability to commercialize our products and
services may be impaired.
In our immunotherapy program, we are in the process of evaluating the
therapeutic administration of peptide products and genes that encode specific
tumor antigens, including Melan-A/MART-1 and gp100. We know of two issued U.S.
patents directed to the gene that encodes Melan-A/MART-1. While we have obtained
rights under one of these patents, we are still in the process of evaluating the
scope and validity of the other to determine whether we need to obtain a
license. We are also evaluating an issued U.S. patent covering the gene that
encodes gp100 and three published Patent Cooperation Treaty applications by
three different applicants which may cover antigens derived from gp100. We are
in the process of evaluating the scope and validity of these patents and patent
applications to determine whether we need to obtain licenses.
If we or one of our strategic collaborators initiate litigation to enforce
our patent or license rights, or are required to defend these rights in response
to third party claims, our business or financial position may be negatively
affected. We have licensed our p53 gene therapy rights to Schering-Plough. These
patent rights are the subject of an interference proceeding in the U.S. and an
opposition proceeding in Europe. Adverse determinations in these proceedings may
negatively affect our ability to receive future milestones and product royalties
under our agreement with Schering-Plough.
GOVERNMENT REGULATION
All of our products are subject to regulation by the FDA and other
government agencies in the U.S. as well as similar regulatory authorities in
other countries. These regulations cover the preclinical and clinical testing of
our product candidates, outline the steps we must follow for product approval
and govern the manufacture, use and sale of any of our products that are
approved.
In addition, the Orphan Drug Act provides incentives to manufacturers to
develop and market drugs for rare diseases and conditions affecting fewer than
200,000 people in the U.S. at the time of application for orphan drug
designation. The first entity to receive FDA marketing approval for a drug
designated as an orphan drug is entitled to a seven-year exclusive marketing
period in the U.S. for that
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product. Our Melan-A/MART-1 and gp 100 cancer vaccines have been designated as
orphan drugs, and we intend to seek orphan drug protection on our other products
that may qualify.
COMPETITION
The field of cancer therapeutics is extremely competitive. Major
pharmaceutical companies and other biotechnology companies compete with us in
each of our primary areas of focus. Many of these competitors have superior
research and development, marketing and manufacturing capabilities. Some of our
competitors also may have greater financial resources than us.
Competition can arise from the use of the same or similar technologies as
those currently used or contemplated to be used by us, as well as from existing
therapies. Any or all of these may be more effective or less expensive than
those developed by us. In addition, technological advances or different
approaches developed by one or more of our competitors may render our products
obsolete, less effective or uneconomical. For instance, other companies provide
genomics services that are competitive with SAGE. We believe, however, that SAGE
offers several advantages over competing genomics services, including that the
genetic sequences used in SAGE for gene identification can be considerably
shorter than those used in competing techniques, thus increasing the rate at
which information can be analyzed.
We rely on our strategic collaborators for support in a number of our
research and development programs and intend to rely on collaborators for
preclinical evaluation and clinical development of many of our products. Some of
our strategic collaborators are conducting multiple product development programs
in fields similar to their collaborations with us. Our product candidates may,
therefore, be subject to competition with a potential product under development
by one of our collaborators.
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MANAGEMENT OF GENZYME MOLECULAR ONCOLOGY
Our senior management consists of the following individuals:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- -------- -----
<S> <C> <C>
Gail J. Maderis......................... 42 President
Katherine W. Klinger, Ph.D.............. 47 Senior Vice President, Research and Development
Fredric J. Vinick, Ph.D................. 52 Senior Vice President, Drug Discovery
Mark J. Enyedy.......................... 36 Vice President, Business Development
Mark A. Goldberg, M.D................... 45 Vice President, Medical Affairs
Clifford L. Hendrick.................... 48 Vice President, Operations
Bruce L. Roberts, Ph.D.................. 44 Senior Director, Immunotherapy
</TABLE>
MS. MADERIS joined Genzyme in 1992 as Director, Corporate Development,
served as Vice President, Gene Therapy from 1993 through June 1997 and, upon the
formation of Genzyme Molecular Oncology in June 1997, became its President. Ms.
Maderis is a member of the scientific advisory board of the Canadian Medical
Discoveries Fund. Prior to joining Genzyme, Ms. Maderis practiced strategy and
health care consulting at Bain & Company, a management consulting firm, from
1985 to 1992. Ms. Maderis received an M.B.A. from Harvard Business School.
DR. KLINGER joined Genzyme in August 1989 through its merger with Integrated
Genetics, Inc. and has served as Senior Vice President, Genetics and Genomics of
Genzyme and Senior Vice President, Science of Genzyme from October 1995 to
August 1997. Prior to that, she served as Vice President--Science of IG
Laboratories, Inc., a majority-owned subsidiary of Genzyme, from January 1990
until its merger with Genzyme in October 1995. From 1985 to 1989, Dr. Klinger
held various positions in the genetic disease group at Integrated Genetics. Dr.
Klinger received a Ph.D. in Biochemistry from the University of Texas Health
Science Center at San Antonio.
DR. VINICK joined Genzyme in 1994 as Vice President, Drug Discovery. He is
currently Senior Vice President with responsibility for all small molecule
research within Genzyme Molecular Oncology, including combinatorial chemistry,
high throughput screening, lead optimization and development. Prior to joining
Genzyme, Dr. Vinick was at Pfizer Central Research from 1978 to 1994 where his
last position was Director, Exploratory Medicinal Chemistry. He was employed at
CIBA-Geigy Corporation from 1975 to 1978. Dr. Vinick received a Ph.D. in organic
chemistry from Yale University.
MR. ENYEDY joined Genzyme in 1996 as Corporate Counsel, served as Director,
Business Development for Genzyme Molecular Oncology from April 1998 through
October 1999 and in November 1999 became Vice President, Business Development.
Prior to joining Genzyme, Mr. Enyedy practiced law from 1990 to 1996 at Palmer &
Dodge LLP, a Boston law firm, where he represented a number of companies in the
biopharmaceutical industry in acquisition, partnering and financing
transactions. Mr. Enyedy received his J.D. from Harvard Law School.
DR. GOLDBERG joined the Medical Affairs Department at Genzyme in 1996 as
Medical Director, Oncology and has served as Vice President Medical Affairs
since 1998. He has been a member of the Hematology/Oncology staff at Brigham and
Women's Hospital since 1987, and is also a staff physician at the Dana-Farber
Cancer Institute and an Associate Professor of Medicine at Harvard Medical
School. Dr. Goldberg received an M.D. from Harvard Medical School.
MR. HENDRICK joined Genzyme in 1989 through its merger with Integrated
Genetics and served as Senior Director of Development, Gene Therapy from 1995
through June 1997 prior to assuming responsibility for operations of Genzyme
Molecular Oncology upon its formation. From 1990 to 1995, Mr. Hendrick was
Director, Market Development for Genzyme Pharmaceuticals. From 1983 to 1990, he
held various positions in research and development and operations for Integrated
Genetics. Mr. Hendrick received an M.B.A. from Northeastern University.
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<PAGE>
DR. ROBERTS joined Genzyme in 1995 as Senior Staff Scientist, Gene Therapy.
From 1995 through 1999, Dr. Roberts held various positions in gene therapy at
Genzyme. In 1997, Dr. Roberts assumed responsibility for cancer gene therapy.
Prior to joining Genzyme, Dr. Roberts was a staff scientist at Protein
Engineering Corporation (now Dyax Corp.) from 1989 until 1995. Dr. Roberts
received a Ph.D. in Protein Chemistry from the University of Ottawa.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
, 2000, the underwriters named below, through their representatives
SG Cowen Securities Corporation, PaineWebber Incorporated and Chase Securities
Inc., have severally agreed to purchase from us the number of shares of GZMO
Stock set forth opposite their names at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus supplement.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
SG Cowen Securities Corporation.............................
PaineWebber Incorporated....................................
Chase Securities Inc........................................
---------
Total..................................................... 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are conditional and may be terminated at their discretion based on their
assessment of the state of the financial markets. The obligations of the
underwriters may also be terminated upon the occurrence of other events
specified in the underwriting agreement. The underwriters are severally
committed to purchase all of the GZMO Stock offered by Genzyme if any shares are
purchased, other than those covered by the over-allotment option described
below.
The underwriters propose to offer the GZMO Stock directly to the public at
the public offering price set forth on the cover page of this prospectus
supplement. The underwriters may offer the GZMO Stock to securities dealers at
that price less a concession not in excess of $ per share. Securities
dealers may reallow a concession not in excess of $ per share to other
dealers. After the shares of the GZMO Stock are released for sale to the public,
the underwriters may vary the offering price and other selling terms from time
to time.
Genzyme has granted to the underwriters an option to purchase up to an
aggregate of additional shares of GZMO Stock at the public offering price
set forth on the cover of this prospectus supplement to cover over-allotments,
if any. The option is exercisable for a period of 30 days. If the underwriters
exercise the over-allotment option, the underwriters have severally agreed to
purchase shares in approximately the same proportion as shown in the table
above.
The following table shows the per share and total public offering price, the
underwriting discount to be paid by us to the underwriters and the proceeds from
the sale of shares to the underwriters before our expenses. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.....................
Underwriting discount.....................
Proceeds, before expenses, to Genzyme
Molecular Oncology......................
</TABLE>
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<PAGE>
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, and to contribute to
payments that the underwriters may be required to make in respect of those
liabilities.
Genzyme has agreed that for a period of 90 days following the date of this
prospectus supplement, without the prior written consent of SG Cowen Securities
Corporation, not to directly or indirectly, offer, sell, assign, transfer,
pledge, contract to sell, or otherwise dispose of, other than by operation of
law, any shares of GZMO Stock or any securities convertible into or exercisable
or exchangeable for GZMO Stock, except in connection with: (1) the exercise,
conversion or exchange of warrants, options or other convertible securities
outstanding on the date of this prospectus supplement; (2) grants of any stock
options or other equity incentive awards to any employee, director or consultant
under a plan in effect on the date of this prospectus supplement; or (3) any
acquisition or investment in any complementary business, joint venture,
technology or product, or any merger or combination with a complementary
business, provided that the aggregate number of shares of GZMO Stock issued in
connection with all transactions described in this clause (3) does not exceed
20% of the total number of shares of GZMO Stock outstanding on the date of this
prospectus supplement.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the GZMO Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the GZMO Stock originally sold by such syndicate member is
purchased in a syndicate covering transaction to cover syndicate short
positions. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the GZMO Stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
We estimate that our out-of-pocket expenses for this offering, not including
the underwriting discount, will be approximately $500,000.
VALIDITY OF THE SHARES
Our counsel, Palmer & Dodge LLP, Boston, Massachusetts, will give us an
opinion on the validity of the GZMO Stock offered by this prospectus supplement.
Brown & Wood LLP, New York, New York will act as counsel for the underwriters in
connection with the offering of the GZMO Stock made by this prospectus
supplement.
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<PAGE>
PROSPECTUS
$500,000,000
GENZYME CORPORATION
DEBT SECURITIES, PREFERRED STOCK, GENZYME GENERAL DIVISION COMMON STOCK,
GENZYME MOLECULAR ONCOLOGY DIVISION COMMON STOCK,
GENZYME SURGICAL PRODUCTS DIVISION COMMON STOCK,
GENZYME TISSUE REPAIR DIVISION COMMON STOCK,
OTHER SERIES OF GENZYME COMMON STOCK AND WARRANTS
We may offer to the public from time to time in one or more series or
issuances:
- debt securities consisting of debentures, notes or other evidences of
indebtedness;
- shares of our preferred stock;
- shares of Genzyme General Division Common Stock, which we refer to as
"GENZ Stock";
- shares of Genzyme Molecular Oncology Division Common Stock, which we refer
to as "GZMO Stock";
- shares of Genzyme Surgical Products Division Common Stock, which we refer
to as "GZSP Stock";
- shares of Genzyme Tissue Repair Division Common Stock, which we refer to
as "GZTR Stock";
- shares of other series of our common stock; or
- warrants to purchase any series of common stock, preferred stock or debt
securities.
GENZ Stock, GZMO Stock, GZSP Stock and GZTR Stock each trade on the Nasdaq
National Market under the symbols "GENZ," "GZMO," "GZSP" and "GZTR." Any GENZ
Stock, GZMO Stock, GZSP Stock, GZTR Stock or other series of our common stock
sold by means of a prospectus supplement to this prospectus may be listed on the
Nasdaq National Market.
This prospectus provides you with a general description of the securities
that we may offer. Each time we sell securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described under the
heading "Where You Can Find More Information" beginning on page 55 of this
prospectus before you make your investment decision.
SEE RISK FACTORS BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THESE SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus may not be used to sell securities unless it is accompanied
by a prospectus supplement.
------------------------
The date of this prospectus is March 9, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Genzyme Corporation......................................... 3
Risk Factors................................................ 4
Note Regarding Forward-Looking Statements................... 24
Use of Proceeds............................................. 25
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends................................................. 25
Description of Debt Securities.............................. 26
Description of Preferred Stock.............................. 35
Description of Genzyme Common Stock......................... 37
Description of Warrants..................................... 46
Description of Management and Accounting Policies........... 48
Plan of Distribution........................................ 53
Legal Matters............................................... 54
Experts..................................................... 54
Where You Can Find More Information......................... 55
</TABLE>
2
<PAGE>
GENZYME CORPORATION
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 and
diagnostic services and products. It has three therapeutic products on the
market and a strong pipeline of products in development focused primarily
on the treatment of rare genetic diseases;
- Genzyme Molecular Oncology, which is developing cancer products, with a
focus on cancer vaccines and angiogenesis inhibitors. It is shaping these
new therapies through the integration of its gene discovery, gene therapy,
small molecule drug discovery, and protein therapeutic efforts;
- Genzyme Surgical Products, which develops and markets a portfolio of
mechanical devices, biomaterials and biotherapeutics for the
cardiovascular and general surgery markets. It is pioneering the field of
"biosurgery," which is being created by the increasing convergence of
mechanical and biological approaches to surgery and other interventional
procedures; and
- Genzyme Tissue Repair, which develops and markets biological products for
the treatment of orthopedic injuries, such as cartilage damage, and severe
burns.
Each of our four designated series of common stock is intended to reflect
the value and track the performance of one of our divisions.
For purposes of financial presentation, we allocate programs, products,
assets and liabilities among our divisions; however, Genzyme, the corporation,
continues to own all of the assets and is responsible for all of the liabilities
allocated to each of the divisions.
We were founded in 1981 and became a Massachusetts corporation in 1991. You
can find additional information about us in our filings with the SEC. See "Where
You Can Find More Information" on page 55.
Our principal offices are located at One Kendall Square, Cambridge,
Massachusetts 02139 and our main telephone number is (617) 252-7500.
In this prospectus, 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" or "our board" refer to the board of directors of
Genzyme Corporation.
"Genzyme" is a registered trademark and service mark of Genzyme Corporation.
All rights reserved.
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.
RISK FACTORS
If you purchase securities offered by this prospectus you will take on
financial risk. In deciding whether to invest, you should carefully consider the
following risk factors, the information contained in this prospectus and the
other information to which we have referred you. It is especially important to
keep these risk factors in mind when you read forward-looking statements.
RISKS RELATED TO GENZYME
The following risk factors relate to us generally and affect all of our
divisions. Accordingly, you should consider these risk factors before you
purchase any type of security offered by this prospectus.
A REDUCTION IN REVENUES FROM SALES OF PRODUCTS THAT TREAT GAUCHER DISEASE WOULD
HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
We generate a majority of our product revenues from sales of
enzyme-replacement products for patients with Gaucher disease. We entered this
market in 1991 with Ceredase-Registered Trademark- enzyme. Because production of
Ceredase-Registered Trademark- enzyme was subject to supply constraints, we
developed Cerezyme-Registered Trademark- enzyme, a recombinant form of the
enzyme. Recombinant technology uses specially engineered cells to produce
enzymes, or other substances, by inserting into the cells of one organism the
genetic material of a different species. In the case of
Cerezyme-Registered Trademark- enzyme, Chinese hamster ovary cells are
engineered to produce human alpha glucocerebrosidase. We stopped producing
Ceredase-Registered Trademark- enzyme, except for small quantities, during 1998,
after substantially all the patients who previously used
Ceredase-Registered Trademark- enzyme converted to
Cerezyme-Registered Trademark- enzyme. Sales of Ceredase-Registered Trademark-
enzyme and Cerezyme-Registered Trademark- enzyme totaled $411.1 million for the
year ended December 31, 1998, representing approximately 67% of our, and 81% of
Genzyme General's, product revenues for that year, and $351.7 million for the
nine months ended September 30, 1999, representing approximately 70% of our, and
84% of Genzyme General's, product revenues for that period.
Because our business is highly dependent on Cerezyme-Registered Trademark-
enzyme, a reduction in revenue from sales of this product would have an adverse
effect on our operations and may cause the value of our securities to decline
substantially. Revenues from Cerezyme-Registered Trademark- enzyme would be
impacted negatively if competitors develop alternative treatments for Gaucher
disease and these alternative products gained commercial acceptance. Some
companies have initiated efforts to develop competitive products, and other
companies may do so in the future. Cerezyme-Registered Trademark- enzyme has
orphan drug status, providing it with market exclusivity in the U.S. until
May 2001. We also have patents protecting its manufacturing method until 2010
and its composition until 2013. We cannot predict the effect that the expiration
of orphan drug status and market exclusivity will have on sales of
Cerezyme-Registered Trademark- enzyme after May 2001.
GOVERNMENT REGULATION IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE
DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND SERVICES.
Our ability to successfully satisfy regulatory requirements will
significantly determine our future success. We cannot guarantee that any
required regulatory approvals will be granted or that they will be granted on a
timely basis. The production and sale of health care products and provision of
health care services are highly regulated. In particular, the FDA and comparable
agencies in foreign countries must approve human therapeutic and diagnostic
products before they are marketed. This approval process can involve lengthy and
detailed laboratory and clinical testing, sampling activities and other costly
and time-consuming procedures. This regulation may delay the time at which a
product or service first can be sold, limit how a product or service may be
used, or adversely impact third party reimbursement. In addition, therapies that
have received, or in the future receive, regulatory approval for commercial sale
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may still face subsequent regulatory difficulties. The FDA and comparable
foreign regulatory agencies, for example, may require postmarketing clinical
trials. In addition, a marketed therapy, its manufacturer and the manufacturer's
facilities are subject to continual review and periodic inspections by
regulatory agencies. The discovery of previously unknown problems with a
therapy, manufacturer or facility can result in restrictions on the therapy or
manufacturer, including withdrawal of the therapy from the market. The failure
to comply with applicable regulatory approval requirements can, among other
things, result in:
- warning letters;
- fines and other civil penalties;
- suspended regulatory approvals;
- refusal to approve pending applications or supplements to approved
applications;
- suspension of product sales in the U.S. and/or exports from the U.S.;
- product recalls; and
- seizure of products.
LEGISLATIVE CHANGES MAY ADVERSELY IMPACT OUR BUSINESS.
Some of our products, including Cerezyme-Registered Trademark- enzyme, have
been designated as orphan drugs under the Orphan Drug Act. The Orphan Drug Act
provides incentives to manufacturers to develop and market drugs for rare
diseases, generally by entitling the first developer that receives FDA marketing
approval for an orphan drug to a seven-year exclusive marketing period in the
U.S. for that product. Legislation periodically has been introduced in recent
years to change the Orphan Drug Act to shorten the period of automatic market
exclusivity and to allow marketing rights to simultaneous developers of the
drug. We cannot be sure whether the Orphan Drug Act will be amended, or if
amended, what effect the changes may have on us.
In addition, healthcare reform is an area of significant government focus.
Any reform measures, if adopted, could adversely affect:
- the pricing of therapeutic products in the U.S. or internationally; and
- the amount of reimbursement available from governmental agencies or other
third party payers.
BECAUSE THE DEVELOPMENT OF OUR PRODUCTS INVOLVES A LENGTHY AND COMPLEX PROCESS,
IT IS UNCERTAIN WHETHER WE WILL BE ABLE TO COMMERCIALIZE ANY OF OUR PRODUCTS
CURRENTLY IN DEVELOPMENT.
Before we can commercialize our development-stage products, we will need to:
- conduct substantial research and development;
- undertake pre-clinical and clinical testing; and
- pursue regulatory approvals.
This process is risky and takes several years. We cannot guarantee that we
will successfully develop any particular product.
Several of our development-stage products are currently in clinical trials
to test their safety and effectiveness. We may encounter problems in these
clinical trials that cause us to delay or suspend development of these products.
In addition, we cannot be sure that the clinical testing, if completed, will
show any of these products to be safe and effective.
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ANY MARKETABLE PRODUCTS THAT WE DEVELOP MAY NOT BE COMMERCIALLY SUCCESSFUL.
The commercial success of any marketable product that we develop will depend
on many factors, including:
- regulation by the FDA and other government authorities;
- market acceptance by doctors and hospital administrators;
- the effectiveness of our sales force;
- the effectiveness of our production and marketing capabilities;
- the success of competitive products; and
- the availability of third party reimbursement.
WE MAY REQUIRE SIGNIFICANT ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE ON
FAVORABLE TERMS, IF AT ALL.
As of September 30, 1999, we had approximately $695.9 million in cash, cash
equivalents and short- and long-term investments, excluding investments in
equity securities.
Although we currently have substantial cash resources and positive cash
flow, we intend to use substantial portions of our available cash for:
- product development and marketing;
- expanding facilities; and
- working capital.
We will further reduce available cash reserves to pay principal and interest
on the following debt:
- In May 1998, we issued $250.0 million in convertible notes, the entire
principal amount of which is allocated to Genzyme General. These
convertible notes bear interest at an annual rate of 5.25% and mature on
June 1, 2005. However, the holders of these notes may exchange principal
on the notes for shares of GENZ Stock, GZMO Stock, and GZSP Stock.
- As of December 31, 1999, we owed approximately $23.0 million under a
revolving credit facility with a group of commercial banks. Of this
amount, we have allocated $18.0 million to Genzyme Tissue Repair and
$5.0 million to Genzyme Molecular Oncology. Amounts borrowed under this
revolving credit facility bear interest at a floating rate based upon an
applicable margin above either the prime rate announced by Fleet National
Bank or the London InterBank Offered Rate. We must repay all borrowings
under this facility no later than November 12, 2002.
- In August 1998, we issued $21.2 million in convertible debentures, the
entire principal amount of which is allocated to Genzyme General. These
convertible debentures bear interest at an annual rate of 5% and mature on
August 29, 2003, but the holders of these convertible debentures may
exchange principal, and under some circumstances interest, on the
convertible debentures for shares of GENZ Stock.
If we use cash to pay or redeem this debt, including the principal and
interest due on it, our cash reserves will be diminished. 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.
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WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW
COMPETITORS TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS.
Our long-term success largely depends on our ability to market
technologically competitive products. We can prevent unauthorized third parties
from using proprietary rights relating to our products and services only if
these rights are covered by patents or are kept confidential.
We cannot guarantee that the patents issued or licensed to us will remain
free from challenge by third parties.
While our employees, consultants and corporate partners with access to
proprietary information generally are required to enter into confidentiality
agreements, we cannot guarantee that these agreements will be honored. In
addition, some of our consultants have developed portions of our proprietary
technology at universities or in governmental laboratories. These universities
or governmental authorities may claim rights to the intellectual property
arising out of the research performed at the university or governmental
laboratory.
We rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. We cannot be sure that other
parties will not independently develop that know-how or otherwise obtain access
to our technology.
WE MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS IN ORDER TO DEVELOP
AND COMMERCIALIZE SOME OF OUR PRODUCTS AND SERVICES, AND IT IS UNCERTAIN WHETHER
THESE LICENSES WILL BE AVAILABLE.
Third party patent rights and pending patent applications filed by third
parties, if issued, may cover some of the products that we or our strategic
partners are developing or testing. As a result, we or a strategic partner may
be required to obtain licenses from the holders of these patents in order to
use, manufacture or sell these products and services, and payments under these
licenses may reduce the profitability of the products. Furthermore, we cannot be
sure that these licenses would be available on acceptable terms. If these
licenses are not available, our ability to commercialize our products and
services may be impaired.
WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.
If we initiate or are required to defend ourselves in patent litigation, it
could consume a substantial portion of our resources. We cannot guarantee that
we, or our strategic partners, would prevail in any legal action. Any legal
action against us or our strategic partners claiming damages or seeking to stop
commercial activities relating to the affected products and processes could
subject us to substantial liability for damages or negatively impact our
financial results.
WE MAY BE LIABLE FOR PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE.
Individuals who use our products or services may bring product liability
claims against us. While we have taken, and continue to take, what we believe
are appropriate precautions, we cannot guarantee that we will avoid significant
liability exposure. We have only limited amounts of product liability insurance,
and we cannot be sure that this insurance will provide sufficient coverage
against any product liability claims. If we attempt to obtain additional
insurance in the future, we may not be able to do so on acceptable terms, and
any additional insurance we do obtain may not provide adequate coverage against
any asserted claims. In addition, regardless of merit or eventual outcome,
product liability claims may result in:
- diversion of management time and attention;
- expenditure of large amounts of cash on legal fees, expenses and payment
of damages;
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- decreased demand for our products and services; and
- injury to our reputation.
OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE
SUPERIOR PRODUCTS, MANUFACTURING CAPABILITIES OR MARKETING EXPERTISE.
The human health care products and services industry is extremely
competitive. Our competitors include major pharmaceutical companies and other
biotechnology companies. Some of these competitors may have superior research
and development, marketing and production capabilities. Some competitors also
may have greater financial resources than us. Our future success will depend on
our ability to develop and market effectively our products against those of our
competitors.
IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS OR
SERVICES MAY BECOME OBSOLETE.
The field of biotechnology is characterized by significant and rapid
technological change. Although we attempt to expand our technological
capabilities in order to remain competitive, research and discoveries by others
may make our products or services obsolete. For example, some of our competitors
may develop a product to treat Gaucher disease that is more effective or less
expensive than Cerezyme-Registered Trademark- enzyme.
IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR PRODUCTS FROM
THIRD-PARTY PAYERS, THE COMMERCIAL POTENTIAL OF OUR PRODUCTS WILL BE
SIGNIFICANTLY LIMITED.
A substantial portion of our revenue comes from payments by third party
payers, including government health administration authorities and private
health insurers. Third party payers may not reimburse patients for newly
approved health care products. More and more third party payers are attempting
to contain health care costs by:
- challenging the prices charged for health care products and services;
- limiting both coverage and the amount of reimbursement for new therapeutic
products;
- denying or limiting coverage for products that are approved by the FDA,
but are considered experimental or investigational by third party payers;
and
- refusing, in some cases, to provide coverage when an approved product is
used for disease indications in a way that has not received FDA marketing
approval.
Government and other third party payers may not provide adequate insurance
coverage or reimbursement for our products and services, which could impair our
financial results.
CHANGES IN THE ECONOMIC, POLITICAL, LEGAL AND BUSINESS ENVIRONMENTS IN THE
FOREIGN COUNTRIES IN WHICH WE DO BUSINESS COULD CAUSE OUR INTERNATIONAL SALES
AND OPERATIONS, WHICH ACCOUNT FOR A SIGNIFICANT PERCENTAGE OF OUR CONSOLIDATED
NET SALES, TO BE LIMITED OR DISRUPTED.
Our international operations accounted for 40% of our consolidated revenues
for the nine month period ended September 30, 1999, 41% of our consolidated
revenues in 1998 and 36% of our consolidated revenues in 1997, and we expect
that international sales will continue to account for a significant percentage
of our revenues for the foreseeable future. In addition, we have direct
investments in a number of subsidiaries outside of the U.S., primarily in Europe
and Japan. Our international sales and operations could be limited or disrupted,
and the value of our direct investments may be adversely affected, by any of the
following:
- fluctuations in currency exchange rates;
- the imposition of government controls;
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- less favorable intellectual property or other applicable laws;
- the inability to obtain any necessary foreign regulatory approvals of
products in a timely manner;
- import and export license requirements;
- political instability;
- trade restrictions;
- changes in tariffs;
- difficulties in staffing and managing international operations; and
- longer payment cycles.
A significant portion of our business is conducted in currencies other than
the U.S. dollar, which is our reporting currency. We recognize foreign currency
gains or losses arising from our operations in the period incurred. As a result,
currency fluctuations among the U.S. dollar and the currencies in which we do
business have caused foreign currency transaction gains and losses in the past
and will likely do so in the future. We cannot predict the effects of exchange
rate fluctuations upon our future operating results because of the number of
currencies involved, the variability of currency exposures and the potential
volatility of currency exchange rates.
SEVERAL ANTI-TAKEOVER PROVISIONS MAY DEPRIVE OUR STOCKHOLDERS OF THE OPPORTUNITY
TO RECEIVE A PREMIUM FOR THEIR SHARES UPON A CHANGE IN CONTROL.
Provisions of Massachusetts law and our charter, by-laws and shareholder
rights plan could delay or prevent a change in control of Genzyme or a change in
our management.
Our tracking stock structure may also deprive our stockholders of the
opportunity to receive a premium for their shares upon a change in control
because, in order to obtain control of a particular division, an acquiror would
have to obtain control of the entire corporation.
In addition, our board of directors may, in their sole discretion:
- exchange shares of GZMO Stock, GZSP Stock or GZTR Stock for GENZ Stock at
a 30% premium over the market value of the exchanged shares; and
- issue shares of undesignated preferred stock from time to time in one or
more series.
Either of these board actions could increase the cost of an acquisition of
Genzyme and thus discourage a takeover attempt.
WE COULD EXPERIENCE SYSTEM FAILURES AND DISRUPTIONS OF OUR OPERATIONS AS A
RESULT OF THE YEAR 2000 DATE RECOGNITION PROBLEM.
The year 2000 date recognition problem could cause our computer systems to
fail, resulting in miscalculations and incorrect data. Parties affected by a
disruption in our operations and services could make claims or bring lawsuits
against us. Depending upon the extent and duration of any disruptions caused by
the year 2000 problem and the specific services affected, these disruptions
could have an adverse affect on our business.
Computer systems which may be affected by this year 2000 problem include
computer systems embedded in production equipment; displays containing computer
systems; business data processing systems; production, management and planning
systems; and personal computers. Consequently, the year 2000 problem could
disrupt our daily commercial activities if we do not take the steps necessary to
address it effectively.
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In addition, we cannot assure you that our customers, suppliers and other
third parties that we deal with are or will be year 2000 compliant in a timely
manner. Interruptions in the services provided to us or in the purchases made by
these third parties could also disrupt our operations.
Although, as of the date of this prospectus, we have not experienced any
significant disruption in our operations as a result of the year 2000 date
recognition problem, we cannot guarantee that we will not experience disruptions
in the future.
RISKS RELATED TO GENZYME TRACKING STOCKS
We have four series of tracking stock: GENZ Stock, GZMO Stock, GZSP Stock
and GZTR Stock. These stocks reflect the value and track the performance of our
four operating divisions:
- GENZ Stock tracks the performance of Genzyme General;
- GZMO Stock tracks the performance of Genzyme Molecular Oncology;
- GZSP Stock tracks the performance of Genzyme Surgical Products; and
- GZTR Stock tracks the performance of Genzyme Tissue Repair.
The following are risks related to owning shares of our tracking stock.
Accordingly, you should consider these risk factors before investing in GENZ
Stock, GZMO Stock, GZSP Stock, GZTR Stock or any securities which may be
exchanged for, exercised for or converted into shares of these tracking stocks.
HOLDERS OF OUR TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY AND
UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE DIVISION COULD NEGATIVELY AFFECT OUR
OTHER DIVISIONS.
None of our divisions are separate legal entities. Holders of our tracking
stock are stockholders of a single company and face all of the risks of an
investment in Genzyme.
For purposes of financial presentation, we allocate programs, products,
assets and liabilities among our four divisions. Genzyme Corporation, however,
continues to own all of the assets and is responsible for all of the liabilities
of each division. A holder of GENZ Stock, for example, does not have any
specific rights to the assets allocated to Genzyme General in our financial
statements. Furthermore, if we are unable to satisfy one division's liabilities
out of the assets we allocate to that division, we may be required to satisfy
those liabilities with assets we have allocated to another division.
Accordingly, we encourage you to review our consolidated financial statements
and the financial statements of each of our divisions included in the reports
that we file with the SEC.
OUR BOARD OF DIRECTORS MAY TAKE ACTIONS THAT, WHILE IN THE BEST INTERESTS OF
GENZYME AS A WHOLE, HAVE AN UNEQUAL AND ADVERSE EFFECT ON THE HOLDERS OF ONE OR
MORE SERIES OF OUR TRACKING STOCK.
There may be times when the interests of holders of each series of our
common stock diverge or appear to diverge. Massachusetts law does not define a
board of directors' duties in that situation. Based on the advice of counsel,
however, we believe that a Massachusetts court would conclude that a board of
directors owes an equal duty to all stockholders regardless of class or series
and does not have separate or additional duties to any particular group of
stockholders. That duty is the fiduciary duty to act in good faith and in a
manner the board reasonably believes to be in the best interests of the
corporation. Under Massachusetts law, if a disinterested and adequately informed
board of directors determines in good faith that an action would be in the
corporation's best interests, taking into account both the interests of holders
of each series of tracking stock as well as the alternatives reasonably
available, then the board of directors should be able to successfully defend
against any stockholder claim that the action could have an unequal effect on
different series of tracking stock.
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In March 1999, the Delaware Court of Chancery, in two separate cases,
dismissed all stockholder claims that the board of directors had violated its
fiduciary duties under Delaware law by approving actions that had a disparate
impact on holders of different classes of tracking stock. The court indicated in
each case that even where the decision of the board of directors affected
holders of separate classes of tracking stock differently, stockholders must
allege facts sufficient to indicate that a board of directors' approval was not
based on the good faith belief that the approved actions were in the
corporation's best interests. While Delaware case law is not binding on a
Massachusetts court, we believe that a Massachusetts court would be influenced
by these decisions in addressing similar issues. A Massachusetts court hearing a
case, however, may apply principles of Massachusetts law other than those
described above or develop new principles of Massachusetts law to decide the
case.
MEMBERS OF OUR BOARD OF DIRECTORS MAY FAVOR ONE SERIES OF TRACKING STOCK OVER
ANOTHER IF THEY OWN A DISPROPORTIONATE AMOUNT OF THAT SERIES.
A member of our board may own a disproportionate amount of tracking stock in
a particular series, or the value of his or her holdings of a particular series
of stock may be different from the value of his or her holdings in another
series. This disparate stock ownership may cause the board member to favor one
series of stock over another. Nevertheless, we believe that a member of our
board could properly discharge his or her fiduciary responsibilities even if his
or her interests in shares of different series were disproportionate or of
unequal values. Our board members may create committees to review matters that
raise conflict-of-interest issues. If a committee is formed, it would report to
the full board.
HOLDERS OF OUR TRACKING STOCK HAVE LIMITED DECISION-MAKING POWER BECAUSE THEY
HAVE LIMITED SEPARATE VOTING RIGHTS.
Holders of all series of our tracking stock vote together as a single class
on all matters requiring common stockholder approval, including the election of
directors. Holders of one series of tracking stock do not have the right to vote
on matters separately from the other series except in limited circumstances.
These circumstances are dictated by Massachusetts law, our charter and the
management and accounting policies adopted by our board of directors. Therefore,
stockholders of one series of tracking stock generally could not make a proposal
that would require approval only of the holders of that series. Instead, they
would have to obtain approval from all common stockholders.
THE LIQUIDATION RIGHTS FOR EACH SERIES OF TRACKING STOCK ARE NOT ADJUSTED TO
REFLECT CHANGES IN THE SERIES' MARKET VALUE.
If we dissolve, liquidate or wind up our affairs, other than as part of a
merger, business combination or sale of substantially all of our assets, our
stockholders will receive any remaining assets according to the percentage of
total liquidation units that they hold. The number of liquidation units per
share for each series of our tracking stock is as follows:
- each share of GENZ Stock has 100 liquidation units;
- each share of GZMO Stock has 25 liquidation units;
- each share of GZSP Stock has 61 liquidation units; and
- each share of GZTR Stock has 58 liquidation units.
Although we adjust liquidation units to prevent dilution in the event of
some subdivisions, combinations or distributions of common stock, we do not
adjust them to reflect changes in the relative market value or performance of
the divisions. Accordingly, at the time of a dissolution, liquidation or winding
up, the relative liquidation units attributable to each series of tracking stock
may not correspond to the value of the underlying assets of that division.
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OUR BOARD OF DIRECTORS MAY CHANGE OUR MANAGEMENT AND ACCOUNTING POLICIES TO THE
DETRIMENT OF ONE SERIES OF TRACKING STOCK WITHOUT STOCKHOLDER APPROVAL.
Our board of directors has adopted management and accounting policies that
are used to govern our business and to prepare our financial statements. These
policies cover the allocation of corporate expenses, assets and liabilities and
other accounting matters, and the reallocation of assets between divisions and
other matters. Our board generally may modify or rescind these policies or adopt
new ones without stockholder approval. Any revised policies could have different
effects on each series of our tracking stock and could be detrimental to one
series as compared to another. The discretion of our board to make changes is
limited only by the policies themselves and the board's fiduciary duty to all of
our stockholders. You can review the summary of our management and accounting
policies beginning on page 48 of this prospectus. We also encourage you to
review the full text of these policies, which are filed as Exhibit 99.1 to the
registration statement of which this prospectus is a part.
WE MAY ELIMINATE TRACKING STOCK IF A CORPORATE LEVEL TAX IS IMPOSED ON THE
ISSUANCE OR RECEIPT OF TRACKING STOCK.
In 1999 the Clinton Administration proposed legislation that would have
imposed a corporate level tax on issuances of tracking stock. More recently, the
Clinton Administration has proposed legislation that would tax stockholders upon
the receipt of tracking stock from the issuing corporation as a distribution or
in a recapitalization. Although Congress has not enacted either of these
proposals into law, if these or similar proposals are enacted into law or
effected through Treasury regulations in the future, we could be taxed on an
amount up to the gain realized in future financings in which we sell tracking
stock, including GENZ Stock. Also, any use of our tracking stock to acquire
other companies could be taxed. We also may be taxed if we distribute to
stockholders "designated" shares of tracking stock, which are shares designated
by the tracked division as issuable at the option of our board for Genzyme
General's benefit. In addition, stockholders could be taxed if they receive a
distribution of designated shares of tracking stock or if they receive shares of
tracking stock in exchange for other Genzyme stock. These or similarly adverse
tax consequences could cause us to eliminate tracking stock from our capital
structure. We cannot predict, however, whether Congress will enact legislation,
or the Treasury Department will issue regulations, effecting these or similar
proposals.
THE USE OF OPERATING LOSSES TO LOWER THE REPORTED TAX LIABILITY OF OUR
PROFITABLE DIVISIONS WILL CAUSE LOWER REPORTED EARNINGS IN THE FUTURE FOR THE
DIVISIONS GENERATING THESE OPERATING LOSSES.
Genzyme Corporation, rather than its divisions, is liable for taxes. Under
our management and accounting policies, for financial reporting purposes we
generally allocate taxes among our divisions as if they were separate taxpayers.
However, our board of directors has adopted a policy that provides that if any
of our divisions is unable to use our operating losses or other projected annual
tax benefits to reduce our current or deferred income tax expense, we may
reallocate these losses or benefits to our profitable divisions on a quarterly
basis for financial reporting purposes. This will result in a division with
current losses (such as Genzyme Molecular Oncology, Genzyme Surgical Products
and Genzyme Tissue Repair) reporting lower earnings available to its common
stockholders in the future than would be the case if that division had retained
its historical losses or other benefits in the form of a net operating loss
carryforward. We encourage you to review the summary of our tax allocation
policy on page 49 of this prospectus, and the full text of this policy which is
filed as Exhibit 99.1 to the registration statement of which this prospectus is
a part.
THE NON-COMPETE POLICY AMONG OUR DIVISIONS MAY NOT COVER ALL OF THE ACTIVITIES
OF A PARTICULAR DIVISION.
Our board of directors has adopted a policy regarding competition among our
divisions. This non-compete policy requires that we develop certain products and
services within a given division, as opposed to another division, or through
joint ventures involving a given division, because the product
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or service is within the field of activity of that division. This non-compete
policy, however, does not cover the entire field of activity of each division.
For example, Genzyme General Division or Genzyme Molecular Oncology may develop
certain tissue repair products or services. In order words, we cannot guarantee
that all products and services we develop in a given field of activity will be
allocated to a division primarily engaged in that field of activity. We
encourage you to review the summary of our non-compete policy on page 52 of this
prospectus and the full text of this policy, which is filed as Exhibit 99.1 to
the registration statement of which this prospectus is a part.
FUTURE SALES OR DISTRIBUTIONS OF DESIGNATED SHARES OF GZMO STOCK, GZSP STOCK OR
GZTR STOCK MAY SIGNIFICANTLY DILUTE YOUR OWNERSHIP OF THE AFFECTED SHARES OF
TRACKING STOCK.
Our management and accounting policies require us to sell or distribute any
designated shares of GZMO Stock, GZSP Stock or GZTR Stock that may be created,
subject to certain limitations. Proceeds from a sale or distribution will not be
allocated to the affected divisions and the issuance and sale may substantially
dilute your ownership of tracking stock of the affected divisions. Circumstances
under which the designated shares of tracking stock will be sold or distributed
are described in the section of this document entitled "DESCRIPTION OF GENZYME
COMMON STOCK--GZSP Designated Shares, GZMO Designated Shares and GZTR Designated
Shares."
RISKS RELATING TO GENZYME GENERAL
The following risks and uncertainties may adversely affect the business of
Genzyme General. Accordingly, you should consider these risks before investing
in GENZ Stock or any securities which may be exchanged for, exercised for or
converted into GENZ Stock.
GENZYME GENERAL MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE
THYROGEN-REGISTERED TRADEMARK- HORMONE AND RENAGEL-REGISTERED TRADEMARK-
CAPSULES.
In January 1999, Genzyme General, together with Knoll Pharmaceutical
Company, launched U.S. sales of Thyrogen-Registered Trademark- recombinant
thyroid stimulating hormone for use in the treatment of thyroid cancer. At about
the same time, Genzyme General, in collaboration with GelTex
Pharmaceuticals, Inc., launched Renagel-Registered Trademark- capsules, a
non-absorbed phosphate binder used in the treatment of end-stage renal disease.
The commercial success of Thyrogen-Registered Trademark- hormone and
Renagel-Registered Trademark- capsules will depend on a number of factors,
including:
- regulation by the FDA;
- the ability to obtain regulatory approvals in foreign countries;
- the development and commercial success of competitive products; and
- the availability of third party reimbursement.
Genzyme General cannot be sure that market penetration of
Thyrogen-Registered Trademark- hormone and Renagel-Registered Trademark-
capsules will increase.
IF THE STRATEGIC ALLIANCES GENZYME GENERAL HAS ENTERED INTO TO DEVELOP AND
COMMERCIALIZE ITS PRODUCTS ARE NOT SUCCESSFUL, GENZYME GENERAL'S RESULTS OF
OPERATIONS WILL BE ADVERSELY IMPACTED.
Several of Genzyme General's strategic initiatives involve alliances with
other biotechnology companies and arrangements with academic medical centers.
These include:
- a joint venture with GelTex Pharmaceuticals, Inc. for the
commercialization of Renagel-Registered Trademark- capsules, a
non-absorbed phosphate binder for the treatment of end stage renal
disease;
- an agreement with Knoll Pharmaceutical Company for the marketing of our
Thyrogen-Registered Trademark- hormone in the U.S.;
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- an agreement with Biogen, Inc. for the marketing of
AVONEX-Registered Trademark- (Interferon beta1a), Biogen's treatment for
relapsing forms of multiple sclerosis, in Japan following regulatory
approval;
- a joint venture with BioMarin Pharmaceutical Inc. for the development and
commercialization of alpha-L-iduronidase for the treatment of the
lysosomal storage disorder known as mucopolysaccharidosis I;
- a joint venture with Genzyme Transgenics Corporation for the development
and commercialization of transgenic antithrombin III, a human protein that
Genzyme Transgenics produces in the milk of genetically modified animals;
- a joint venture with Pharming Group N.V. for the development and
commercialization of human alpha-glucosidase for the treatment of Pompe
disease;
- an agreement with Genovo Inc. for the development of gene therapy products
for the treatment of lysosomal storage disorders;
- a relationship with Mount Sinai Medical Center for the development of a
therapy for the treatment of Niemann-Pick disease;
- a joint venture with Diacrin, Inc. to develop and commercialize products
and processes using porcine fetal cells for the treatment of Parkinson's
disease and Huntington's disease; and
- an agreement with Dyax Corp. to develop and commercialize the protein
EPI-KAL2 for the treatment of chronic inflammatory diseases.
Genzyme General plans to enter into additional alliances in the future. The
success of these arrangements are largely dependent on the efforts and skills of
Genzyme General's partners. Genzyme General cannot guarantee that:
- these agreements will not be terminated;
- its strategic partners will devote significant resources to the
collaborations; or
- any of these alliances will result in the successful development or
commercialization of any products.
OUR OPTION TO PURCHASE LIMITED PARTNERSHIP INTERESTS COULD DILUTE THE RIGHTS OF
HOLDERS OF GENZ STOCK.
We organized Genzyme Development Partners, L.P., a special purpose research
and development entity, in 1989 and transferred to it technology and commercial
rights to our hyaluronic acid-based products designed to prevent the occurrence
and severity of post-operative adhesions. These products, which we refer to as
the Sepra products, are now allocated to Genzyme Surgical Products. We have an
option to purchase the limited partnership interests in the partnership. If we
exercise this option, we may have to issue shares of GENZ Stock or make
substantial cash payments or both. If we make payments in GENZ Stock, the rights
of holders of GENZ Stock could be diluted and the market price of that stock may
fall. If we make cash payments, our cash resources would diminish.
RISKS RELATED TO GENZYME MOLECULAR ONCOLOGY
The following risks and uncertainties may adversely affect the business of
Genzyme Molecular Oncology. Accordingly, you should consider these risks before
investing in GZMO Stock or any securities which may be exchanged for, exercised
for or converted into GZMO Stock.
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THE SAGE-TM- GENE EXPRESSION TECHNOLOGY GENERATES ONLY MODEST REVENUES AND IT IS
UNCERTAIN WHETHER GENZYME MOLECULAR ONCOLOGY WILL BE ABLE TO DEVELOP AND
COMMERCIALIZE OTHER MARKETABLE PRODUCTS AND SERVICES.
We do not expect Genzyme Molecular Oncology's products and services to
generate significant revenue for several years. Services based on the SAGE-TM-
gene expression technology represent its only product or service that is not at
an early stage of development. To date, these services have generated only
modest revenue, and we compete with several companies in the genomics market.
Before commercializing any other products and services, Genzyme Molecular
Oncology will need to conduct substantial research and development, including,
in some cases, the replication of pre-clinical studies performed by its
collaborators, undertake preclinical and clinical testing and pursue regulatory
approvals. We cannot guarantee that these efforts will be successful. Clinical
trials, for example, may not support the safety or effectiveness of a particular
product or service. Currently, Genzyme Molecular Oncology's gene therapy
products for melanoma are its only therapeutic products in clinical development.
Genzyme Molecular Oncology may encounter problems in these or other clinical
trials that lead to delay or suspension of the trials.
GENZYME MOLECULAR ONCOLOGY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.
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:
- commercialization of the SAGE-TM- technology;
- research and development;
- preclinical and clinical testing; and
- pursuing regulatory approvals.
We cannot guarantee that the efforts underlying these expenditures will be
successful or that Genzyme Molecular Oncology's operations will ever be
profitable. It may be years before the division generates any revenue from sales
of products or services other than those based on the SAGE-TM- technology.
IF GENZYME MOLECULAR ONCOLOGY FAILS TO OBTAIN THE CAPITAL NECESSARY TO FUND ITS
OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL
TRIALS.
We anticipate that Genzyme Molecular Oncology's current cash resources,
together with amounts available under a line of credit from Genzyme General and
revenues generated from the SAGE-TM- technology, license agreements and
committed research funding from collaborators, will be sufficient to fund its
operations through 2000. However, Genzyme Molecular Oncology's cash needs may
differ from those planned because of many factors, including:
- the results of research and development and clinical testing;
- the achievement of milestones under existing strategic alliances;
- the ability to establish and maintain additional strategic alliances and
licensing arrangements;
- the enforcement of patent and other intellectual property rights;
- the development of competitive products and services; and
- the ability to satisfy regulatory requirements of the FDA and other
government authorities.
Genzyme Molecular Oncology may require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that the division
will be able to obtain any additional
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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 MOLECULAR ONCOLOGY MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM
COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A
FAILURE TO ENTER INTO FUTURE COLLABORATIONS.
Genzyme Molecular Oncology's strategy to develop and commercialize certain
of its products and services includes entering into various arrangements with
both academic collaborators, and corporate partners and licensees. Genzyme
Molecular Oncology depends on the success of these parties in performing
research, preclinical and clinical testing, and marketing. These arrangements
may require Genzyme Molecular Oncology to transfer certain important rights to
its corporate partners and licensees. While Genzyme Molecular Oncology believes
its collaborators and licensees will want to perform their contractual
responsibilities, in some cases the amount and timing of resources that they
devote to their collaborations with the division, and the ability to terminate
the collaboration, will be controlled by the collaborators. As a result, Genzyme
Molecular Oncology cannot guarantee that it will receive revenues or profits
from these arrangements, that any of its strategic alliances will continue or
not terminate early, or that it will be able to enter into future
collaborations.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME MOLECULAR ONCOLOGY'S GENE THERAPY
PRODUCTS.
The recent death of a patient undergoing gene therapy using an adenoviral
vector to deliver the therapeutic gene has been widely publicized. This death
and any other adverse events in the field of gene therapy that may occur in the
future may result in greater governmental regulation and potential regulatory
delays relating to the testing or approval of Genzyme Molecular Oncology's gene
therapy product candidates. As a result of this death, the U.S. Senate has
commenced hearings to determine whether additional legislation is required to
protect volunteers and patients who participate in gene therapy clinical trials.
Additionally, the Recombinant DNA Advisory Committee, which acts as an advisory
body to the National Institutes of Health (NIH), has extensively discussed the
use of adenoviral vectors in gene therapy clinical trials and intends to issue a
report in March 2000 on the adverse events reported by investigators using
adenoviral vectors. Any increased scrutiny could delay or increase the costs of
Genzyme Molecular Oncology's product development efforts or clinical trials.
The commercial success of any gene therapy products developed by Genzyme
Molecular Oncology will depend in part on public acceptance of the use of gene
therapies for the prevention or treatment of human diseases. Public attitudes
may be influenced by claims that gene therapy is unsafe, and gene therapy may
not gain the acceptance of the public or the medical community. Negative public
reaction to gene therapy could result in greater government regulation and
stricter clinical trial oversight and commercial product labeling requirements
of gene therapies and could cause a decrease in the demand for any gene therapy
product that Genzyme Molecular Oncology may develop.
GENZYME MOLECULAR ONCOLOGY MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM
COMPETITORS IN ORDER TO DEVELOP AND COMMERCIALIZE SOME ITS PRODUCTS AND
SERVICES, AND IT IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE.
Third party patent rights and pending patent applications filed by third
parties, if issued, may cover some of the products Genzyme Molecular Oncology is
developing or testing. As a result, Genzyme Molecular Oncology may be required
to obtain licenses from the holders of these patents in order to use or sell
certain products and services. We cannot guarantee that these licenses will be
available on acceptable terms. If these licenses are not available, Genzyme
Molecular Oncology's ability to commercialize its products and services may be
impaired.
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In its immunotherapy program, Genzyme Molecular Oncology is in the process
of evaluating the therapeutic administration of genes that encode specific tumor
antigens and antigenic peptide products, including MART-1 and gp100. Genzyme
Molecular Oncology knows of two issued U.S. patents directed to the gene which
encodes MART-1. While Genzyme Molecular Oncology has obtained rights under one
of these patents, it is still in the process of evaluating the scope and
validity of the other. Genzyme Molecular Oncology is also evaluating an issued
U.S. patent covering the gene that encodes gp100 and three published Patent
Cooperation Treaty applications by three different applicants which may cover
antigens derived from gp100. Genzyme Molecular Oncology is in the process of
evaluating the scope and validity of these patents and patent applications to
determine whether it needs to obtain licenses.
RISKS RELATED TO GENZYME SURGICAL PRODUCTS
The following risks and uncertainties may adversely affect the business of
Genzyme Surgical Products. Accordingly, you should consider these risks before
investing in GZSP Stock or any securities which may be exchanged for, exercised
for or converted into GZSP Stock.
GENZYME SURGICAL PRODUCTS ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.
Genzyme Surgical Products expects to have significant operating losses for
the next several years. It plans to spend substantial amounts of money on, among
other things:
- conducting research and development activities;
- pursuing regulatory approvals;
- conducting commercialization activities; and
- providing surgeon education and training.
We cannot guarantee that the efforts underlying these expenditures will be
successful or that Genzyme Surgical Products' operations will ever be
profitable. It may be years before the division generates any revenue from sales
of products currently under development.
IF GENZYME SURGICAL PRODUCTS FAILS TO OBTAIN CAPITAL NECESSARY TO FUND ITS
OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL
TRIALS.
We anticipate that Genzyme Surgical Products' current cash resources,
together with revenues generated from its products and distribution agreements,
will be sufficient to fund its operations through 2001. However, its cash needs
may differ from those planned because of many factors, including:
- the ability to become profitable;
- the results of research and development efforts;
- the ability to establish strategic alliances and licensing arrangements
for research and development programs;
- the achievement of milestones under strategic alliances;
- the ability to establish and maintain additional distribution
arrangements;
- the enforcement of patent and other intellectual property rights;
- market acceptance of novel approaches and therapies;
- the development of competitive products; and
- the ability to satisfy regulatory requirements of the FDA and other
government authorities.
Genzyme Surgical Products may require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that it will be
able to obtain additional financing or find it on favorable terms. If the
division has insufficient funds or is unable to raise additional funds, it may
delay, reduce or eliminate certain of its programs. It may also have to give
rights to third parties to attempt to commercialize technologies or products
that it would otherwise commercialize itself.
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IF GENZYME SURGICAL PRODUCTS EXERCISES AN OPTION TO PURCHASE INTERESTS IN
GENZYME DEVELOPMENT PARTNERS, ITS CASH RESOURCES MAY DIMINISH AND THE RIGHTS OF
ITS STOCKHOLDERS MAY BE DILUTED.
In 1989, we organized Genzyme Development Partners, L.P., a special purpose
research and development entity, and transferred to it technology and commercial
rights to the Sepra products. We have an option to purchase the limited
partnership interests in the partnership under certain circumstances for
approximately $26 million plus continuing royalties based on certain sales of
the Sepra products. We have allocated the purchase option to Genzyme Surgical
Products. The option's exercise price is payable in cash, shares of GENZ Stock
or a combination of the two, as determined by Genzyme Surgical Products when it
exercises the option.
If Genzyme Surgical Products exercises this option, it will have to make
substantial cash payments or compensate Genzyme General with shares of GZSP
Stock for the GENZ Stock used, or both. If the division makes cash payments, its
cash resources would diminish. If it makes the payment in whole or in part in
shares of GENZ Stock, then our board of directors would need to approve the
issuance of GENZ Stock in return for Genzyme General receiving a number of GZSP
designated shares with a fair market value equal to the fair market value of the
shares of GENZ Stock. Those GZSP designated shares would be shares of GZSP Stock
that our board would have the option to issue from time to time with all
proceeds allocable to Genzyme General. Beginning on June 30, 2000, and on every
June 30(th) thereafter, we will have to distribute substantially all the GZSP
designated shares if the number of those shares exceeds 10% of the number of
shares of GZSP Stock then outstanding. See "DESCRIPTION OF GENZYME COMMON
STOCK--GZSP Designated Shares, GZMO Designated Shares and GZTR Designated
Shares."
We cannot guarantee that our board would authorize the issuance of shares of
GENZ Stock for payment of the option exercise price and the creation of any GZSP
designated shares. If our board creates and subsequently distributes or
otherwise disposes of any GZSP designated shares, this would substantially
dilute the rights of the holders of GZSP Stock and could significantly affect
the market price of GZSP Stock.
If Genzyme Surgical Products does not exercise the option, the partnership
would have the right to sell or otherwise transfer to a third party a license to
background technology that we granted to it. A sale or transfer of this
technology may terminate our joint venture with the partnership to manufacture
and sell the Sepra products in the U.S. and Canada. In addition, failure to
exercise the option would cause the joint venture to become terminable upon
90 days' prior notice by either Genzyme or Genzyme Development Partners.
GENZYME SURGICAL PRODUCTS IS DEVOTING SIGNIFICANT RESOURCES TO DEVELOPING NOVEL
ALTERNATIVE PRODUCTS AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL.
Genzyme Surgical Products is devoting a significant amount of money to
developing products that will represent alternatives to traditional surgical
procedures or treatments. These products will likely require several years of
aggressive and costly marketing before they might become widely accepted by the
surgical community. Genzyme Surgical Products is developing products that are
designed to enable surgeons to perform minimally invasive cardiovascular
surgery. The medical conditions that can be treated with minimally invasive
cardiovascular surgery are currently being treated with widely accepted surgical
procedures such as coronary artery bypass grafting and catheter-based
treatments, including balloon angioplasty, atherectomy and coronary stenting. To
date, minimally invasive cardiovascular surgery has been performed on a limited
basis and its further adoption by the surgical community will partly depend on
Genzyme Surgical Products' ability to educate cardiothoracic surgeons about its
effectiveness and to facilitate the training of cardiothoracic surgeons in
minimally invasive cardiovascular surgery techniques.
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Similarly, until recently surgeons have not used products designed to reduce
the incidence and extent of postoperative adhesions. Since 1996, when
Seprafilm-TM- bioresorbable membrane was introduced, market acceptance of
anti-adhesion products has been slow. To increase sales of the Sepra products,
Genzyme Surgical Products has had to educate surgeons and hospital
administrators about the problems of, and costs associated with, adhesions and
the benefit of preventing adhesions. It has also had to train surgeons on the
proper handling and use of these products.
We cannot guarantee that Genzyme Surgical Products' efforts in educating and
training the surgical community will result in the widespread adoption of
minimally invasive cardiovascular surgery and anti-adhesion products or that
surgeons adopting these procedures and products will use Genzyme Surgical
Products' products.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME SURGICAL PRODUCTS' GENE THERAPY
PRODUCTS.
The recent death of a patient undergoing gene therapy using an adenoviral
vector to deliver the therapeutic gene has been widely publicized. This death
and any other adverse events in the field of gene therapy that may occur in the
future may result in greater governmental regulation and potential regulatory
delays relating to the testing or approval of Genzyme Surgical Products' gene
therapy product candidates. As a result of this death, the United States Senate
has commenced hearings to determine whether additional legislation is required
to protect volunteers and patients who participate in gene therapy clinical
trials. Additionally, the Recombinant DNA Advisory Committee, which acts as an
advisory body to the NIH, has extensively discussed the use of adenoviral
vectors in gene therapy clinical trials and intends to issue a report in
March 2000 on the adverse events reported by investigators using adenoviral
vectors. Any increased scrutiny could delay or increase the costs of Genzyme
Surgical Products' product development efforts or clinical trials.
The commercial success of any gene therapy products developed by Genzyme
Surgical Products will depend in part on public acceptance of the use of gene
therapies for the prevention or treatment of human diseases. Public attitudes
may be influenced by claims that gene therapy is unsafe, and gene therapy may
not gain the acceptance of the public or the medical community. Negative public
reaction to gene therapy could result in greater government regulation and
stricter clinical trial oversight and commercial product liability requirements
of gene therapy products that Genzyme Surgical Products may develop.
COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT
GENZYME SURGICAL PRODUCTS' PERFORMANCE.
The human health care products and services industry is extremely
competitive. Major medical device and technology companies compete or may
compete with Genzyme Surgical Products. These include such companies as:
- Atrium Medical Corporation and Sherwood-Davis & Geck, a division of Tyco
International, Ltd. in the cardiovascular chest drainage and fluid
management market;
- The Ethicon division of Johnson & Johnson Ltd. and U.S. Surgical
Corporation, a division of Tyco in the cardiovascular closure market;
- CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical, Guidant
Corporation, Baxter Healthcare Corporation and Ethicon in the minimally
invasive cardiovascular surgery market;
- Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc. and
Gliatech, Inc. in the anti-adhesion market; and
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- Karl Storz Endoscopy America, Inc., Scanlan International, Inc., Pilling
Weck Surgical Instruments and the Codman division of Johnson &
Johnson Ltd. in the reusable instruments market.
These competitors may have superior research and development, marketing and
production capabilities. Some competitors also may have greater financial
resources than Genzyme Surgical Products. The division is likely to incur
significant costs developing and marketing new products without any guarantee
that it will be commercially successful. The future success of Genzyme Surgical
Products will depend on its ability to effectively develop and market its
products against those of its competitors.
THE TREND TOWARD CONSOLIDATION IN THE SURGICAL DEVICES INDUSTRY MAY ADVERSELY
AFFECT GENZYME SURGICAL PRODUCTS' ABILITY TO MARKET SUCCESSFULLY ITS PRODUCTS TO
SOME SIGNIFICANT PURCHASERS.
The current trend among hospitals and other significant consumers of
surgical devices is to combine into larger purchasing groups to increase their
purchasing power and thus reduce their purchase price for surgical devices.
Partly in response to this development, surgical device manufacturers have been
consolidating to be able to offer a more comprehensive product line to these
larger purchasing groups. In order to successfully market its products to larger
purchasing groups, Genzyme Surgical Products may have to expand its product
lines or enter into joint marketing or distribution agreements with other
manufacturers of surgical devices. We cannot guarantee that it will be able to
employ either of these initiatives or that, when employed, these initiatives
will increase the marketability of its products.
GENZYME SURGICAL PRODUCTS MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM
COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A
FAILURE TO ENTER INTO FUTURE COLLABORATIONS.
Genzyme Surgical Products' strategy to develop and commercialize certain of
its products, in particular its gene and cell therapies for the treatment of
cardiovascular disease, includes entering into various arrangements with both
academic collaborators and corporate partners and licensees. The division may
depend on the success of these parties in performing research, pre-clinical and
clinical testing and marketing. These arrangements may require the division to
transfer certain important rights to these collaborators and licensees. While we
believe that Genzyme Surgical Products' collaborators and licensees will want to
perform their contractual responsibilities, in some cases the amount and timing
of resources that they devote to their collaborations with Genzyme Surgical
Products, and the ability to terminate the collaboration, will be controlled by
the collaborators and licensees. As a result, we cannot guarantee that Genzyme
Surgical Products will receive revenues or profits from these arrangements, that
any of its strategic alliances will continue or not terminate early, or that it
will be able to enter into future collaborations.
RISKS RELATED TO GENZYME TISSUE REPAIR
The following risks and uncertainties may adversely affect the business of
Genzyme Tissue Repair. Accordingly, you should consider these risks before
investing in GZTR Stock or any securities which may be exchanged for, exercised
for or converted into GZTR Stock.
THE COMMERCIAL SUCCESS OF GENZYME TISSUE REPAIR'S LEAD PRODUCT,
CARTICEL-REGISTERED TRADEMARK- CHONDROCYTES, IS UNCERTAIN.
Carticel-Registered Trademark- chondrocytes are used to treat knee cartilage
damage. This service involves a proprietary process for growing autologous (a
patient's own) cartilage cells to replace those that are damaged or lost.
Revenues from this service accounted for approximately 72% of Genzyme Tissue
Repair's revenue
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during the first nine months of 1999 and 64% of its 1998 revenue. The commercial
success of Carticel-Registered Trademark- chondrocytes will depend on many
factors including:
- POSITIVE RESULTS FROM POST-MARKETING STUDIES.
We have agreed with the FDA to conduct two post-marketing studies to
confirm the effectiveness of Carticel-Registered Trademark- chondrocytes.
The first study compares clinical outcomes of patients in Genzyme Tissue
Repair's registry who did not respond to treatment before being implanted
with Carticel-Registered Trademark- chondrocytes. This study will measure
outcomes before and after implantation with Carticel-Registered Trademark-
chondrocytes. The second study compares the long-term clinical effects of
treatment with Carticel-Registered Trademark- chondrocytes to other
available treatments. If these studies demonstrate that treatment with
Carticel-Registered Trademark- chondrocytes is not superior to the
alternatives studied, the FDA may suspend or withdraw its approval of
Carticel-Registered Trademark- chondrocytes. If Genzyme Tissue Repair
cannot market Carticel-Registered Trademark- chondrocytes in the U.S., its
financial results will be negatively impacted.
- FDA APPROVAL OF RELATED DEVICE
Genzyme Tissue Repair has developed a device to improve the procedure for
implanting Carticel-Registered Trademark- chondrocytes and plans to file
for marketing approval with the FDA. Genzyme Tissue Repair believes it will
begin marketing this device in 2000. We cannot guarantee that the FDA will
approve this device, that this device will improve the procedure for
implanting Carticel-Registered Trademark- chondrocytes, or that this device
will gain commercial acceptance.
- THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT.
Since the FDA approved Carticel-Registered Trademark- chondrocytes, we have
seen a substantial increase in the number of third party payers who cover
it. Some third party payers, however, do not cover
Carticel-Registered Trademark- chondrocytes. We cannot guarantee that any
third party payers will continue to cover it or that additional third party
payers will begin to provide reimbursement.
Although FDA approval is a crucial factor in insurance plans deciding to
cover new treatments, a number of major insurance plans also base such
decisions on their own or third party evaluations of such treatments. One
independent association that conducts such evaluations is the Blue Cross
Blue Shield Association. The Blue Cross Blue Shield Association has
determined that its Technology Assessment Committee does not believe that
Carticel-Registered Trademark- chondrocytes meets all of its published
criteria for new treatments. We believe that Carticel-Registered Trademark-
chondrocytes does in fact meet all of such criteria and are discussing the
evaluation with the Blue Cross Blue Shield Association. While individual
Blue Cross Blue Shield plans representing more than 50% of Blue Cross Blue
Shield policyholders have provided policy coverage for
Carticel-Registered Trademark- chondrocytes without a favorable evaluation
by the Blue Cross Blue Shield Association, many Blue Cross Blue Shield
plans have delayed approving Carticel-Registered Trademark- chondrocytes
from coverage under their policies as a direct result of this unfavorable
ruling. Since these remaining plans represent a significant percentage of
insured lives in the U.S., this ruling has delayed our access to a
substantial portion of the market for Carticel-Registered Trademark-
chondrocytes.
- THE SUCCESS OF COMPETITIVE PRODUCTS.
The process we use to grow a patient's cartilage cells is not patentable,
and we do not yet have significant patent protection covering the other
processes used in providing Carticel-Registered Trademark- chondrocytes.
Consequently, we cannot prevent a competitor from developing the ability to
grow cartilage cells and from offering a product or service that is similar
or superior to Carticel-Registered Trademark- chondrocytes. If a competitor
were to develop such ability and obtain FDA approval for a competitive
product or service, Genzyme Tissue Repair's financial results of operations
would be negatively impacted. We are aware of at least two other companies
that are growing autologous cartilage cells for cartilage repair in the
European market. Also, several pharmaceutical and
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biotechnology companies are developing alternative treatments for knee
cartilage damage. One or more of these companies may develop products or
services superior to the Carticel-Registered Trademark- chondrocytes.
- MARKET ACCEPTANCE BY ORTHOPEDIC SURGEONS.
We are marketing Carticel-Registered Trademark- chondrocytes to orthopedic
surgeons. We cannot guarantee that we will train enough surgeons who
incorporate it into their practice to make it commercially successful.
GENZYME TISSUE REPAIR ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE.
We expect Genzyme Tissue Repair to have significant operating losses at
least through 2000 as it continues to commercialize
Carticel-Registered Trademark- chondrocytes and to conduct research and
development and clinical programs. We cannot guarantee that Genzyme Tissue
Repair's operations will ever be profitable.
IF GENZYME TISSUE REPAIR FAILS TO OBTAIN CAPITAL NECESSARY TO FUND ITS
OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL
TRIALS.
We anticipate that Genzyme Tissue Repair's current cash resources, together
with amounts available under an equity line of credit from Genzyme General, will
be sufficient to fund Genzyme Tissue Repair's operations through the end of
2000.
In 1999, Genzyme Tissue Repair received $25 million in cash from Genzyme
General in connection with the transfer to Genzyme General of Genzyme Tissue
Repair's interest in our joint venture with Diacrin, Inc. Of this amount,
$20 million is subject to the successful achievement of product development
milestones by the joint venture. Genzyme Tissue Repair may repay any amounts due
to Genzyme General in cash, GZTR designated shares, or combination of both, at
its option. These GZTR designated shares would be shares of GZTR Stock that our
board would have the option to issue from time to time with all proceeds
allocable to Genzyme General. 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 shares of 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'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;
- enforcement of patent and other intellectual property rights; and
- development of competitive products and services.
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.
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GENZYME TISSUE REPAIR'S RESULTS FLUCTUATE QUARTERLY AND THIS COULD HAVE AN
ADVERSE EFFECT ON ITS OPERATIONS.
We expect that the revenues from the sale of the
Carticel-Registered Trademark- chondrocytes will fluctuate based on Genzyme
Tissue Repair's success in penetrating the market, the availability of
competitive procedures and the availability of third party reimbursement. We
cannot predict the timing or magnitude of these fluctuations. Furthermore, we
expect that revenues from Carticel-Registered Trademark- chondrocytes will be
lower in the summer months because fewer operations are typically performed
during those months.
We also expect that revenues from the sale of Epicel-TM- skin grafts will
continue to fluctuate from quarter to quarter. This fluctuation is a result of
several unpredictable factors, including the number and survival rate of severe
burn patients who are treated with Epicel-TM- skin grafts.
Since the Genzyme Tissue Repair must maintain extensive tissue culture
facilities and a trained staff for both Carticel-Registered Trademark-
chondrocytes and Epicel-TM- skin grafts, a significant portion of its costs are
fixed and, therefore, fluctuations in demand can have an adverse effect on its
results of operations.
GENZYME TISSUE REPAIR RELIES ON KEY COLLABORATORS TO SUPPORT FURTHER RESEARCH
AND DEVELOPMENT OF CARTICEL-REGISTERED TRADEMARK- CHONDROCYTES AND THESE EFFORTS
COULD SUFFER IF IT EXPERIENCES PROBLEMS WITH THESE COLLABORATORS.
Carticel-Registered Trademark- chondrocytes were developed based on the work
of a group of Swedish physicians. Genzyme Tissue Repair had consulting
agreements with the two leaders of that group. These agreements, however,
expired in 1998 and Genzyme Tissue Repair is currently negotiating renewals of
these agreements. Pending these negotiations, these physicians are continuing to
advise Genzyme Tissue Repair on the commercialization and further development of
Carticel-Registered Trademark- chondrocytes.
We cannot guarantee that the two physicians will sign a new consulting
agreement or continue to advise Genzyme Tissue Repair.
In addition, individuals who are familiar with the know-how underlying
Carticel-Registered Trademark- chondrocytes through their association with these
physicians may disclose such information to our competitors. Either event could
have an adverse effect on Genzyme Tissue Repair's results of operations.
We have entered into a sponsored research agreement with the University of
Gotenburg in Sweden and certain physicians, including the two physicians
discussed above. The purpose of the agreement is to conduct additional research
on Carticel-Registered Trademark- chondrocytes. The agreement prohibits each
member of the research team from disclosing any information relating to Genzyme
Tissue Repair or its business that they acquire in connection with their work
under the agreement. The agreement also states that all inventions that the
members conceive or reduce to practice during the course of the research program
will be Genzyme Tissue Repair's property, with royalties payable to the
inventing member. We cannot guarantee that these members will honor their
obligations under the sponsored research agreement.
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about our:
- product development activities and projected expenditures;
- receipt of regulatory approvals;
- plans for sales and marketing;
- projected cash needs;
- financial results; and
- dividend policy.
These forward-looking statements involve a number of risks and uncertainties
that could cause actual results to differ materially from those suggested by the
forward-looking statements. Therefore, you should consider these forward-looking
statements in light of all of the information included or referred to in this
prospectus, including that set forth under the heading "Risk Factors."
Words such as "estimate," "project," "plan," "intend," "expect," "believe,"
"should," "may" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are found at various places
throughout this prospectus and the other documents incorporated by reference,
including, but not limited to, our Annual Report on Form 10-K for the year ended
December 31, 1998, including any amendments, and our Current Reports on
Form 8-K dated June 11, 1999 and June 30, 1999.
We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus. We do not
undertake any obligation to publicly update or release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this prospectus or to reflect the occurrence of unanticipated events or
developments.
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USE OF PROCEEDS
Except as otherwise provided in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities offered by this
prospectus for general corporate purposes, which may include the repayment,
refinancing, redemption or repurchase of existing indebtedness or capital stock,
working capital, capital expenditures, acquisitions of new technologies and
businesses and investments. Additional information on the use of net proceeds
from the sale of securities offered by this prospectus may be set forth in the
prospectus supplement relating to the specific offering.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth our ratio of earnings to combined fixed
charges and preferred stock dividends on a historical basis for the periods
indicated. For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges. "Fixed charges" consist of interest,
amortization of debt issuance costs, preferred stock dividends and the component
of rental expense believed by management to be representative of the interest
factor on those amounts.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED
--------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1997 1998 1998 1999
-------- -------- ------------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges (1)(3)............... 2.6x 3.5x n/a 2.3x 4.4x 3.8x 3.7x
Ratio of Earnings to Fixed
Charges and Preferred Stock
Dividends (2)(3)............. 2.6x 3.5x n/a 2.3x 4.4x 3.8x 3.7x
Coverage Deficiency (3)........ n/a n/a $72.3 million n/a n/a n/a n/a
</TABLE>
- ------------------------
(1) The ratio of earnings to fixed charges is computed by dividing net income
(loss) before income taxes and extraordinary credits and fixed charges
(excluding interest capitalized during the period), by fixed charges.
(2) The ratio of earnings to fixed charges and preferred stock dividends is
computed by dividing net income (loss) before income taxes and extraordinary
credits and fixed charges (excluding interest capitalized during the
period), by fixed charges and preferred stock dividend requirements. The
preferred stock dividend requirements represent the pretax earnings which
would have been required to cover the dividend requirements on any preferred
stock outstanding. We did not have any preferred stock outstanding during
the periods presented above and accordingly there were no preferred stock
dividend requirements during these periods.
(3) The ratio of earnings to fixed charges is not presented for the year ended
December 31, 1996 because fixed charges in 1996 exceeded earnings by
$72.3 million due primarily to charges for in-process research and
development of $130.6 million.
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DESCRIPTION OF DEBT SECURITIES
We will issue the debt securities (the "Debt Securities") offered by this
prospectus and any accompanying prospectus supplement under an indenture (the
"Indenture") to be entered into between Genzyme and the trustee identified in
the applicable prospectus supplement (the "Trustee"). The terms of the Debt
Securities will include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as in effect on the
date of the Indenture. We have filed a copy of the proposed form of Indenture as
an exhibit to the registration statement in which this prospectus is included.
Each Indenture will be subject to and governed by the terms of the Trust
Indenture Act of 1939.
We may offer under this prospectus up to an aggregate principal amount of
$500,000,000 in Debt Securities. If Debt Securities are issued at a discount, or
in a foreign currency, foreign currency units or composite currency, the
principal amount as may be sold for an initial public offering price of up to
$500,000,000. Unless otherwise specified in the applicable prospectus
supplement, the Debt Securities will represent direct, unsecured obligations of
Genzyme and will rank equally with all of our other unsecured indebtedness.
The following statements relating to the Debt Securities and the Indenture
are summaries and do not purport to be complete, and are subject in their
entirety to the detailed provisions of the Indenture.
GENERAL
We may issue the Debt Securities in one or more series with the same or
various maturities, at par, at a premium, or at a discount. We will describe the
particular terms of each series of Debt Securities in a prospectus supplement
relating to that series, which we will file with the SEC. To review the terms of
a series of Debt Securities, you must refer to both the prospectus supplement
for the particular series and to the description of Debt Securities in this
prospectus.
The prospectus supplement will set forth the following terms of the Debt
Securities in respect of which this prospectus is delivered:
- the title of the series;
- the aggregate principal amount;
- the issue price or prices, expressed as a percentage of the aggregate
principal amount of the Debt Securities;
- any limit on the aggregate principal amount;
- the date or dates on which principal is payable;
- the interest rate or rates (which may be fixed or variable) or, if
applicable, the method used to determine such rate or rates;
- the date or dates from which interest, if any, will be payable and any
regular record date for the interest payable;
- the place or places where principal and, if applicable, premium and
interest, is payable;
- the terms and conditions upon which we may, or the holders may require us
to, redeem or repurchase the Debt Securities;
- the denominations in which such Debt Securities may be issuable, if other
than denominations of $1,000 or any integral multiple of that number;
- whether the Debt Securities are to be issuable in the form of certificated
Debt Securities (as described below) or global Debt Securities (as
described below);
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- the portion of principal amount that will be payable upon declaration of
acceleration of the maturity date if other than the principal amount of
the Debt Securities;
- the currency of denomination;
- the designation of the currency, currencies or currency units in which
payment of principal and, if applicable, premium and interest, will be
made;
- if payments of principal and, if applicable, premium or interest, on the
Debt Securities are to be made in one or more currencies or currency units
other than the currency of denomination, the manner in which the exchange
rate with respect to such payments will be determined;
- if amounts of principal and, if applicable, premium and interest may be
determined by reference to an index based on a currency or currencies or
by reference to a commodity, commodity index, stock exchange index or
financial index, then the manner in which such amounts will be determined;
- the provisions, if any, relating to any collateral provided for such Debt
Securities;
- any addition to or change in the covenants and/or the acceleration
provisions described in this prospectus or in the Indenture;
- any Events of Default, if not otherwise described in this prospectus under
"Events of Default";
- the terms and conditions for conversion into or exchange for shares of
common stock or preferred stock;
- any depositaries, interest rate calculation agents, exchange rate
calculation agents or other agents;
- the terms and conditions, if any, upon which the Debt Securities shall be
subordinated in right of payment to other indebtedness of Genzyme;
- if applicable, whether the Debt Securities will be defeasible; and
- any other terms, which may modify or delete any provision of the Indenture
insofar as it applies to the series.
We may issue discount Debt Securities ("Discount Securities") that provide
for an amount less than the stated principal amount to be due and payable upon
acceleration of the maturity of such Debt Securities in accordance to the terms
of the Indenture. We may also issue Debt Securities in bearer form, with or
without coupons. If we issue Discount Securities or Debt Securities in bearer
form, we will describe U.S. federal income tax considerations and other special
considerations which apply to these Debt Securities in the applicable prospectus
supplement.
We may issue Debt Securities denominated in or payable in a foreign currency
or currencies or a foreign currency unit or units. If we do, we will describe
the restrictions, elections, general tax considerations, specific terms and
other information relating to the Debt Securities and the foreign currency or
currencies or foreign currency unit or units in the applicable prospectus
supplement.
EXCHANGE AND/OR CONVERSION RIGHTS
We may issue Debt Securities which can be exchanged for or converted into
shares of GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock, other series of common
stock or preferred stock. If we do, we will describe the term of exchange or
conversion in the prospectus supplement relating to these Debt Securities.
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<PAGE>
TRANSFER AND EXCHANGE
We may issue Debt Securities that will be represented by either:
- "book-entry securities," which means that there will be one or more global
securities registered in the name of The Depository Trust Company, as
Depository (the "Depository"), or a nominee of the Depository; or
- "certificated securities," which means that they will be represented by a
certificate issued in definitive registered form.
We will specify in the prospectus supplement applicable to a particular
offering whether the Debt Securities offered will be book-entry or certificated
securities. Except as set forth under "--Global Debt Securities and Book Entry
System" below, book-entry Debt Securities will not be issuable in certificated
form.
CERTIFICATED DEBT SECURITIES
If you hold certificated Debt Securities, you may transfer or exchange such
debt securities at the Trustee's office or at the paying agency in accordance
with the terms of the Indenture. You will not be charged a service charge for
any transfer or exchange of certificated Debt Securities, but may be required to
pay an amount sufficient to cover any tax or other governmental charge payable
in connection with such transfer or exchange.
You may effect the transfer of certificated Debt Securities and of the right
to receive the principal of, premium, and/or interest, if any, on the
certificated Debt Securities only by surrendering the certificate representing
the certificated Debt Securities and having us or the Trustee issue a new
certificate to the new holder.
GLOBAL DEBT SECURITIES AND BOOK ENTRY SYSTEM
The Depository has indicated that it would follow the procedures described
below to book-entry Debt Securities.
Beneficial interests in book-entry Debt Securities may be owned only by
participants that have accounts with the Depository for the related global Debt
Security or persons that hold interests through participants. Upon the issuance
of a global Debt Security, the Depository will credit, on its book-entry
registration and transfer system, each participants' account with the principal
amount of the book-entry Debt Securities represented by such global Debt
Security that is beneficially owned by the participant. The accounts to be
credited will be designated by any dealers, underwriters or agents participating
in the distribution of such book-entry Debt Securities. Ownership of book-entry
Debt Securities will be shown on, and the transfer of such ownership interests
will be effected only through, records maintained by the Depository for the
related global Debt Security (with respect to interests of participants) and on
the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. These laws may impair your ability to own, transfer or pledge beneficial
interests in book-entry Debt Securities.
So long as the Depository for a global Debt Security, or its nominee, is the
registered owner of a global Debt Security, the Depository or its nominee will
be considered the sole owner or holder of the book-entry Debt Securities
represented by the global Debt Security for all purposes under the Indenture.
Except as described below, beneficial owners of book-entry Debt Securities will
not be entitled to have such securities registered in their names, will not
receive or be entitled to receive physical delivery of a certificate in
definitive form representing the securities and will not be considered the
owners or holders of the securities under the Indenture. Accordingly, each
person who beneficially
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<PAGE>
owns book-entry Debt Securities and desires to exercise its rights as a holder
under the Indenture, must rely on the procedures of the Depository for the
related global Debt Security. If a person is not a participant, they must rely
on the procedures of the participant through which they own their interest, to
exercise the rights.
We understand, however, that under existing industry practice, the
Depository will authorize the persons on whose behalf it holds a global Debt
Security to exercise certain rights of holders of Debt Securities. Genzyme, the
Trustee, and any of their agents, will treat as the holder of a Debt Security
the persons specified in a written statement of the Depository with respect to
the global Debt Security for purposes of obtaining any consents or directions
required to be given by holders of the Debt Securities under the Indenture.
Payments of principal and, if applicable, premium and interest, on
book-entry Debt Securities will be made to the Depository or its nominee, as the
case may be, as the registered holder of the related global Debt Security.
Genzyme and the Trustee, and any of their agents will not have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in such global Debt
Security or for maintaining, supervising or reviewing any records relating to
the beneficial ownership interests.
We expect that the Depository, upon receipt of any payment of principal of,
premium, if any, or interest, if any, on a global Debt Security, will
immediately credit participants' accounts with payments in amounts proportionate
to the amounts of book-entry Debt Securities held by each participant as shown
on the records of the Depository. We also expect that payments by participants
to owners of beneficial interests in book-entry Debt Securities held through the
participants will be governed by standing customer instructions and customary
practices, as is now the case with the securities held for the accounts of
customers in bearer form or registered in "street name." These payments will be
the responsibility of the participants.
If the Depository is at any time unwilling or unable to continue as
Depository or ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, we will appoint a successor Depository. If we do not
appoint a successor Depository registered as a clearing agency under the
Securities Exchange Act of 1934 within 90 days, we will issue certificated Debt
Securities in exchange for each global Debt Security. In addition, we may at any
time and in our sole discretion determine not to have the book-entry Debt
Securities of any series represented by one or more global Debt Securities. If
this happens, we will issue certificated Debt Securities in exchange for the
global Debt Securities of the effected series. Global Debt Securities will also
be exchangeable by the holders for certificated Debt Securities if an Event of
Default (see "Events of Default" below) with respect to the book-entry Debt
Securities represented by the global Debt Securities has occurred and is
continuing. Any certificated Debt Securities issued in exchange for a global
Debt Security will be registered in such name or names as the Depository shall
instruct the Trustee. We expect that such instructions will be based upon
directions received by the Depository from participants.
We obtained the information in this section concerning the Depository and
the Depository's book-entry system from sources we believe to be reliable, but
we do not take any responsibility for the accuracy of this information.
NO PROTECTION IN THE EVENT OF CHANGE OF CONTROL
The Indenture does not have any covenants or other provisions providing for
a put or increased interest or otherwise that would afford holders of Debt
Securities additional protection in the event of a recapitalization transaction,
a change of control of Genzyme or a highly leveraged transaction. If we offer
any covenants or provisions of this type with respect to any Debt Securities in
the future, we will describe them in the applicable prospectus supplement.
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<PAGE>
COVENANTS
Unless otherwise indicated in this prospectus or a prospectus supplement,
the Debt Securities will not have the benefit of any covenants that limit or
restrict our business or operations, the pledging of our assets or the
incurrence by us of indebtedness. We will describe in the applicable prospectus
supplement any material covenants in respect of a series of Debt Securities.
With respect to any series of senior subordinated Debt Securities, we will
agree not to issue debt which is, expressly by its terms, subordinated in right
of payment to any other debt of Genzyme and which is not ranked on a parity
with, or subordinate and junior in right of payment to, the senior subordinated
Debt Securities.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We have agreed in the Indenture that we will not consolidate with or merge
into any other person or convey, transfer, sell or lease our properties and
assets substantially as an entirety to any person, unless:
- the person formed by the consolidation or into or with which we are merged
or the person to which our properties and assets are conveyed,
transferred, sold or leased, is a corporation organized and existing under
the laws of the U.S., any state or the District of Columbia or a
corporation or comparable legal entity organized under the laws of a
foreign jurisdiction and, if we are not the surviving person, the
surviving person has expressly assumed all of our obligations, including
the payment of the principal of and, premium, if any, and interest on the
Debt Securities and the performance of the other covenants under the
Indenture; and
- immediately after giving effect to the transaction, no event of default,
and no event which, after notice or lapse of time or both, would become an
Event of Default, has occurred and is continuing under the Indenture.
EVENTS OF DEFAULT
Unless otherwise specified in the applicable prospectus supplement, the
following events will be Events of Default under the Indenture with respect to
Debt Securities of any series:
- we fail to pay any principal of, or premium, if any, when it becomes due;
- we fail to pay any interest within 30 days after it becomes due;
- we fail to observe or perform any other covenant in the Debt Securities or
the Indenture for 60 days after written notice specifying the failure from
the Trustee or the holders of not less than 25% in aggregate principal
amount of the outstanding Debt Securities of that series;
- we are in default under one or more agreements, instruments, mortgages,
bonds, debentures or other evidences of indebtedness under which we or any
significant subsidiaries then has more than $25 million in outstanding
indebtedness, individually or in the aggregate, and either (a) the
indebtedness is already due and payable in full or (b) the default or
defaults have resulted in the acceleration of the maturity of such
indebtedness;
- any final judgment or judgments which can no longer be appealed for the
payment of more than $25 million in money (not covered by insurance) is
rendered against us or any of our significant subsidiaries and has not
been discharged for any period of 60 consecutive days during which a stay
of enforcement is not in effect; and
- certain events occur involving bankruptcy, insolvency or reorganization of
Genzyme or any of our significant subsidiaries.
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The Trustee may withhold notice to the holders of the Debt Securities of any
series of any default, except in payment of principal or premium, if any, or
interest on the Debt Securities of a series, if the Trustee considers it to be
in the best interest of the holders of the Debt Securities of that series to do
so.
If an Event of Default (other than an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization) occurs, and is
continuing, then the Trustee or the holders of not less than 25% in aggregate
principal amount of the outstanding Debt Securities of any series may accelerate
the maturity of the Debt Securities. If this happens, the entire principal
amount, plus the premium, if any, of all the outstanding Debt Securities of the
affected series plus accrued interest to the date of acceleration will be
immediately due and payable. At any time after the acceleration, but before a
judgment or decree based on such acceleration is obtained by the Trustee, the
holders of a majority in aggregate principal amount of outstanding Debt
Securities of such series may rescind and annul such acceleration if:
- all Events of Default (other than nonpayment of accelerated principal,
premium or interest) have been cured or waived;
- all overdue interest and overdue principal has been paid; and
- the rescission would not conflict with any judgment or decree.
In addition, if the acceleration occurs at any time when Genzyme has outstanding
indebtedness which is senior to the Debt Securities, the payment of the
principal amount of outstanding Debt Securities may be subordinated in right of
payment to the prior payment of any amounts due under the senior indebtedness,
in which case the holders of Debt Securities will be entitled to payment under
the terms prescribed in the instruments evidencing the senior indebtedness and
the Indenture.
If an Event of Default resulting from certain events of bankruptcy,
insolvency or reorganization occurs, the principal, premium and interest amount
with respect to all of the Debt Securities of any series will be due and payable
immediately without any declaration or other act on the part of the Trustee or
the holders of the Debt Securities of that series.
The holders of a majority in principal amount of the outstanding Debt
Securities of a series will have the right to waive any existing default or
compliance with any provision of the Indenture or the Debt Securities of that
series and to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, subject to certain limitations specified in
the Indenture.
No holder of any Debt Security of a series will have any right to institute
any proceeding with respect to the Indenture or for any remedy under the
Indenture, unless:
- the holder gives to the Trustee written notice of a continuing Event of
Default;
- the holders of at least 25% in aggregate principal amount of the
outstanding Debt Securities of the affected series make a written request
and offer reasonable indemnity to the Trustee to institute a proceeding as
trustee;
- the Trustee fails to institute a proceeding within 60 days of such
request; and
- the holders of a majority in aggregate principal amount of the outstanding
Debt Securities of the affected series do not give the Trustee a direction
inconsistent with such request during such 60-day period.
However, these limitations do not apply to a suit instituted for payment on
Debt Securities of any series on or after the due dates expressed in the Debt
Securities.
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MODIFICATION AND WAIVER
From time to time, we and the Trustee may, without the consent of holders of
the Debt Securities of one or more series, amend the Indenture or the Debt
Securities of one or more series, or supplement the Indenture, for certain
specified purposes, including:
- to provide that the surviving entity following a change of control of
Genzyme permitted under the Indenture will assume all of our obligations
under the Indenture and Debt Securities;
- to provide for uncertificated Debt Securities in addition to certificated
Debt Securities;
- to comply with any requirements of the SEC under the Trust Indenture Act
of 1939;
- to cure any ambiguity, defect or inconsistency, or make any other change
that does not materially and adversely affect the rights of any holder;
- to issue and establish the form and terms and conditions; and
- to appoint a successor Trustee under the Indenture with respect to one or
more series.
From time to time we and the trustee may, with the consent of holders of at
least a majority in principal amount of the outstanding Debt Securities, amend
or supplement the indenture or the Debt Securities, or waive compliance in a
particular instance by us with any provision of the indenture or the Debt
Securities. However, we may not, without the consent of each holder affected by
such action, modify or supplement the indenture or the Debt Securities or waive
compliance with any provision of the indenture or the Debt Securities in order
to:
- reduce the amount of Debt Securities whose holders must consent to an
amendment, supplement, or waiver to the Indenture or such Debt Security;
- reduce the rate of or change the time for payment of interest;
- reduce the principal of or premium on or change the stated maturity;
- make any Debt Security payable in money other than that stated in the Debt
Security;
- change the amount or time of any payment required or reduce the premium
payable upon any redemption, or change the time before which no such
redemption may be made;
- waive a default on the payment of the principal of, interest on, or
redemption payment; or
- take any other action otherwise prohibited by the Indenture to be taken
without the consent of each holder affected by the action.
DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
The Indenture permits us, at any time, to elect to discharge our obligations
with respect to one or more series of Debt Securities by following certain
procedures described in the Indenture. These procedures will allow us either:
- to defease and be discharged from any and all of our obligations with
respect to any Debt Securities except for the following obligations (which
discharge is referred to as "legal defeasance"):
(1) to register the transfer or exchange of such Debt Securities;
(2) to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities;
(3) to compensate and indemnify the Trustee; or
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(4) to maintain an office or agency in respect of the Debt Securities and
to hold monies for payment in trust; or
- to be released from our obligations with respect to the Debt Securities
under certain covenants contained in the Indenture, as well as any
additional covenants which may be contained in the applicable supplemental
indenture (which release is referred to as "covenant defeasance").
In order to exercise either defeasance option, we must deposit with the
Trustee or other qualifying trustee, in trust for that purpose:
- money;
- U.S. Government Obligations (as described below) or Foreign Government
Obligations (as described below) which through the scheduled payment of
principal and interest in accordance with their terms will provide money;
or
- a combination of money and/or U.S. Government Obligations and/or Foreign
Government Obligations sufficient in the written opinion of a
nationally-recognized firm of independent accountants to provide money;
which in each case specified above, provides a sufficient amount to pay the
principal of, premium, if any, and interest, if any, on the Debt Securities of a
series, on the scheduled due dates or on a selected date of redemption in
accordance with the terms of the Indenture.
In addition, defeasance may be effected only if, among other things:
- in the case of either legal or covenant defeasance, we deliver to the
Trustee an opinion of counsel, as specified in the Indenture, stating that
as a result of the defeasance neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company
Act of 1940;
- in the case of legal defeasance, we deliver to the Trustee an opinion of
counsel stating that we have received from, or there has been published
by, the Internal Revenue Service a ruling to the effect that, or there has
been a change in any applicable federal income tax law with the effect
that (and the opinion shall confirm that), the holders of outstanding Debt
Securities will not recognize income, gain or loss for U.S. federal income
tax purposes solely as a result of such legal defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same
manner, including as a result of prepayment, and at the same times as
would have been the case if legal defeasance had not occurred;
- in the case of covenant defeasance, we deliver to the Trustee an opinion
of counsel to the effect that the holders of the outstanding Debt
Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of covenant defeasance and will be subject to
U.S. federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if covenant defeasance had not
occurred; and
- certain other conditions described in the Indenture are satisfied.
If we fail to comply with our remaining obligations under the Indenture and
applicable supplemental indenture after a covenant defeasance of the Indenture
and applicable supplemental indenture, and the Debt Securities are declared due
and payable because of the occurrence of any undefeased Event of Default, the
amount of money and/or U.S. Government Obligations and/or Foreign Government
Obligations on deposit with the Trustee could be insufficient to pay amounts due
under the Debt Securities of the affected series at the time of acceleration. We
will, however, remain liable in respect of these payments.
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The term "U.S. Government Obligations" as used in the above discussion means
securities which are direct obligations of or non-callable obligations
guaranteed by the United States of America for the payment of which obligation
or guarantee the full faith and credit of the United States of America is
pledged.
The term "Foreign Government Obligations" as used in the above discussion
means, with respect to Debt Securities of any series that are denominated in a
currency other than U.S. dollars (1) direct obligations of the government that
issued or caused to be issued such currency for the payment of which obligations
its full faith and credit is pledged or (2) obligations of a person controlled
or supervised by or acting as an agent or instrumentality of such government the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by that government, which in either case under clauses (1) or (2),
are not callable or redeemable at the option of the issuer.
REGARDING THE TRUSTEE
We will identify the Trustee with respect to any series of Debt Securities
in the prospectus supplement relating to the applicable Debt Securities. You
should note that if the Trustee becomes a creditor of the Company, the Indenture
and the Trust Indenture Act of 1939 limit the rights of the Trustee to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim, as security or otherwise. The Trustee and its
affiliates may engage in, and will be permitted to continue to engage in, other
transactions with us and our affiliates. If, however, the Trustee, acquires any
"conflicting interest" within the meaning of the Trust Indenture Act of 1939, it
must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding Debt
Securities of any series may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee. If an Event of
Default occurs and is continuing, the Trustee, in the exercise of its rights and
powers, must use the degree of care and skill of a prudent person in the conduct
of his or her own affairs. Subject to that provision, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at the
request of any of the holders of the Debt Securities, unless they have offered
to the Trustee reasonable indemnity or security.
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DESCRIPTION OF PREFERRED STOCK
We currently have authorized 6,600,000 shares of undesignated preferred
stock, none of which were issued and outstanding as of the date of this
prospectus. Under Massachusetts law and our charter, our board is authorized,
without stockholder approval to issue shares of preferred stock from time to
time in one or more series.
Subject to limitations prescribed by Massachusetts law and our charter and
by-laws, the board can determine the number of shares constituting each series
of preferred stock and the designation, preferences, voting powers,
qualifications, and special or relative rights or privileges of that series.
These may include such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and other subjects or matters as may be fixed by resolution of the
board or an authorized committee of the board.
Our board could authorize the issuance of shares of preferred stock with
terms and conditions which could have the effect of discouraging a takeover or
other transaction which holders of some, or a majority, of these shares might
believe to be in their best interests or in which holders of some, or a
majority, of these shares might receive a premium for their shares over the
then-market price of the shares.
If we offer a specific series of preferred stock under this prospectus, we
will describe the terms of the preferred stock in the prospectus supplement for
such offering and will file a copy of the certificate establishing the terms of
the preferred stock with the SEC. This description will include:
- the title and stated value;
- the number of shares offered, the liquidation preference per share and the
purchase price;
- the dividend rate(s), period(s) and/or payment date(s), or method(s) of
calculation for such dividends;
- whether dividends will be cumulative or non-cumulative and, if cumulative,
the date from which dividends will accumulate;
- the procedures for any auction and remarketing, if any;
- the provisions for a sinking fund, if any;
- the provisions for redemption, if applicable;
- any listing of the preferred stock on any securities exchange or market;
- whether the preferred stock will be convertible into any series of Genzyme
common stock, and, if applicable, the conversion price (or how it will be
calculated) and conversion period;
- whether the preferred stock will be exchangeable into Debt Securities,
and, if applicable, the exchange price (or how it will be calculated) and
exchange period;
- voting rights, if any, of the preferred stock;
- whether interests in the preferred stock will be represented by depositary
shares;
- a discussion of any material and/or special U.S. federal income tax
considerations applicable to the preferred stock;
- the relative ranking and preferences of the preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the
affairs of the company;
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- any limitations on issuance of any class or series of preferred stock
ranking senior to or on a parity with the series of preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
Genzyme; and
- any other specific terms, preferences, rights, limitations or restrictions
of the preferred stock.
The preferred stock offered by this prospectus will, when issued, be fully
paid and nonassessable and will not have, or be subject to, any preemptive or
similar rights.
Unless we specify otherwise in the applicable prospectus supplement, the
preferred stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of Genzyme, rank as follows:
- senior to all classes or series of Genzyme common stock, and to all equity
securities issued by Genzyme the terms of which specifically provide that
they rank junior to the preferred stock with respect to those rights;
- on a parity with all equity securities issued by Genzyme that do not rank
senior or junior to the preferred stock with respect to those rights; and
- junior to all equity securities issued by Genzyme the terms of which do
not specifically provide that they rank on a parity with or junior to the
preferred stock with respect to these rights (including any entity with
which Genzyme may be merged or consolidated or to which all or
substantially all the assets of Genzyme may be transferred or which
transfers all or substantially all of the assets of Genzyme).
As used for these purposes, the term "equity securities" does not include
convertible debt securities.
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DESCRIPTION OF GENZYME COMMON STOCK
AUTHORIZED COMMON STOCK
We are authorized to issue 390,000,000 shares of common stock of which:
- 200,000,000 shares have been designated GENZ Stock;
- 40,000,000 shares have been designated GZMO Stock;
- 60,000,000 shares have been designated GZSP Stock;
- 40,000,000 shares have been designated GZTR Stock; and
- 50,000,000 remain undesignated as to series.
Under Massachusetts law and our charter, our board is authorized to issue
undesignated shares of common stock from time to time in one or more series.
Subject to limitations prescribed by Massachusetts law and our charter and
by-laws, the board may determine the number of shares constituting each series
of common stock and the designation, preferences, voting powers, qualifications,
and special or relative rights or privileges of that series. These may include
provisions concerning dividends, dissolution or the distribution of assets,
conversion or exchange, and other subjects or matters as may be fixed by
resolution of the board or an authorized committee of the board.
If we offer a specific series of newly designated common stock under this
prospectus, we will describe the terms of the common stock in the prospectus
supplement for such offering and will file a copy of the certificate
establishing the terms of the common stock with the SEC. This description will
describe:
- the title and stated value;
- the number of shares offered and the purchase price;
- the dividend rights;
- any listing of the common stock on any securities exchange or market;
- any conversion or exchange provisions;
- voting rights
- liquidation rights; and
- other specific terms, preferences, rights, limitations or restrictions of
the common stock.
We may also issue shares of GENZ Stock, GZMO Stock, GZSP Stock and GZTR
Stock. Below is a summary of the current terms of Genzyme common stock. For a
more complete understanding of the terms of our capital stock you should read
our charter and by-laws, which are incorporated by reference in this document.
See "Where You Can Find More Information" on page 55.
The common stock offered by this prospectus will, when issued, be fully paid
and nonassessable and will not have, or be subject to, any preemptive or similar
rights.
In this description of Genzyme's common stock, the "fair market value" of
any series of common stock means the average per share closing price for the 20
consecutive trading days beginning the 30(th) trading day before the shares are
valued.
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DIVIDENDS
We have never paid cash dividends on our stock. Currently, we intend to
retain our earnings to finance future growth. Accordingly, we do not expect to
pay any cash dividends on our common stock in the near future.
We can declare and pay dividends on a series of our common stock only in
amounts permitted by our charter, and only if we have funds legally available.
Under Massachusetts law, we can pay a dividend if we are solvent, would remain
solvent after paying the dividend, and the payment would not violate our
charter. Subject to these limitations and the preferences of any outstanding
shares of preferred stock, our board may, in its sole discretion, declare and
pay dividends exclusively on any series of our common stock in equal or unequal
amounts.
Our charter sets the amount available for dividends on a division's tracking
stock. The amount available is the excess of the greater of either:
- the fair value of the net assets allocated to the division; or
- the equity amount initially allocated to the division as adjusted to
reflect:
-- the division's net income or loss;
-- any dividends or other distributions, including by reclassification or
exchange, declared or paid on shares of the division's capital stock,
excluding those paid in shares of the division's own capital stock;
-- repurchases or issuances of capital stock attributed to the division;
and
-- any other adjustments made to stockholders' equity of the division
consistent with GAAP;
over the sum of
- the total par value of all outstanding shares of the division's capital
stock; and
- unless our charter permits otherwise, the total amount of preferential
payments that would be due to the division's preferred stockholders, if
any, upon our dissolution less that preferred stock's aggregate par value
and any amount needed by the division to pay its debts as they become due.
If that available dividend amount is less than would be otherwise available
under Massachusetts law, assuming that the division were a separate corporation,
then the greater amount permitted by law will be the available dividend amount.
EXCHANGE OF GZMO STOCK, GZSP STOCK AND GZTR STOCK
We may exchange GZMO Stock, GZSP Stock or GZTR Stock for any combination of
cash and/or GENZ Stock upon the terms described below.
OPTIONAL EXCHANGE
Under our charter, the board may, at any time, exchange all outstanding
shares of GZMO Stock, GZSP Stock or GZTR Stock for any combination of cash
and/or GENZ Stock with a fair market value of 130% of the fair market value of
the series to be exchanged. We will determine the fair market value of the
series on the day we first publicly announce the exchange.
The optional exchange provision allows us to redeem all outstanding shares
of GZMO Stock, GZSP Stock and/or GZTR Stock and leave outstanding one, two or
three series of Genzyme common stock that would, after the exchange,
collectively represent the entire equity interest in all of our businesses. We
could exercise the optional exchange at any future time if our board determines
that
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considering current facts and circumstances, an equity structure consisting of
four series of common stock is no longer in the best interests of all of our
stockholders. We may make an exchange, however, at a time that is
disadvantageous to the holders of a particular series of our common stock. The
board's right to exchange at any time all outstanding shares of GZMO Stock, GZSP
Stock or GZTR Stock for any combination of cash and/or GENZ Stock with a fair
market value 30% greater than the fair market value of the stock being exchanged
does not prevent the board from offering to exchange the shares on other terms.
Although the holders of the shares to be exchanged would have to approve any
alternative offer, we could make the offer on terms less favorable than those
provided in our charter. See the risk factor entitled "Our board of directors
may take actions that, while in the best interests of Genzyme as a whole, have
an unequal and adverse effect on the holders of one or more series of our
tracking stock" on page 10 of this prospectus.
If at any time we receive an opinion of tax counsel that an "adverse tax
event" has occurred due to a "tax law change," we may exchange the GZSP Stock
for GENZ Stock, and not for cash, at its fair market value. This means that the
holders of the GZSP Stock will not receive any premium in the exchange.
The phrase "adverse tax event" means an event making it more likely than
not, for U.S. federal income tax purposes, that:
- Genzyme or its stockholders are, or will be in the future, taxed upon
issuance of shares of GZSP Stock; or
- GZSP Stock is not, or will not be in the future, treated solely as Genzyme
common stock.
When tax counsel renders this opinion, it will assume that any legislative
or administrative proposals will be adopted or enacted as proposed.
The phrase "tax law change" means either:
- any enactment of or change in federal, state or other tax laws or
regulations, including any proposed changes announced by a legislative
committee or administrative agency; or
- any official or administrative pronouncement, action or judicial decision
interpreting or applying the tax laws or regulations.
MANDATORY EXCHANGE
If we transfer to a third party in one or more related transactions all or
substantially all of the properties and assets allocated to Genzyme Molecular
Oncology, Genzyme Surgical Products, or Genzyme Tissue Repair, we must exchange
each outstanding share of GZMO Stock, GZSP Stock or GZTR Stock as follows:
<TABLE>
<CAPTION>
IF WE ARE TRANSFERRING THE AMOUNT OF CASH AND/OR GENZ STOCK
ASSETS OF . . . THEN WE MUST EXCHANGE GIVEN IN EXCHANGE WOULD EQUAL . . .
- ----------------------------- ----------------------------- ------------------------------------
<S> <C> <C>
Genzyme Molecular Oncology each share of GZMO Stock for a 30% premium over the fair market
cash and/or shares of GENZ value of the GZMO Stock being
Stock. exchanged.
Genzyme Surgical Products each share of GZSP Stock for the fair market value of the GZSP
cash and/or shares of GENZ Stock being exchanged.
Stock.
Genzyme Tissue Repair each share of GZTR Stock for a 30% premium over the fair market
cash and/or shares of GENZ value of the GZTR Stock being
Stock. exchanged.
</TABLE>
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Fair market value will be determined as of the date the transfer is first
publicly announced. This mandatory exchange does not apply, however, where we
sell all or substantially all of our assets, or where the transfer is to a
wholly-owned subsidiary or any entity formed at our direction to obtain
financing for the programs or products of Genzyme Molecular Oncology, Genzyme
Surgical Products or Genzyme Tissue Repair, as the case may be.
TERMINATION OF CASH EXCHANGE FEATURE
If we receive an opinion of tax counsel at any time that, because of a tax
law change, our right to exchange GZMO Stock, GZSP Stock or GZTR Stock for cash
would cause an adverse tax event, then our board may by majority vote elect to
terminate our cash exchange right. If Genzyme's board elects to terminate this
right, then the GZMO Stock, GZSP Stock or GZTR Stock, as the case may be, will
only be exchangeable for GENZ Stock, and not for cash.
VOTING RIGHTS
Stockholders of all series of our common stock vote together as one class on
all matters that common stockholders generally are entitled to vote, including
the election of directors. The following chart shows the number of votes per
share each series of common stock is entitled to on those matters, as well as
each series' relative voting power based on the number of shares outstanding on
December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF VOTES PER SHARE APPROXIMATE PERCENTAGE
SERIES (UNTIL DECEMBER 31, 2000) OF TOTAL VOTING POWER
- ------ ------------------------- ----------------------
<S> <C> <C>
GENZ Stock......................................... 1.00 87.7%
GZMO Stock......................................... 0.08 1.1%
GZSP Stock......................................... 0.61 9.4%
GZTR Stock......................................... 0.06 1.8%
</TABLE>
You can calculate the percentage of the total voting power held by a series
of common stock, at any time, by dividing that series' number of votes per share
by the total number of votes per share held by all series. On January 1, 2001
and on January 1st every two years after this date, we will adjust the number of
votes per share to which GZMO Stock, GZSP Stock and GZTR Stock are entitled as
follows:
<TABLE>
<S> <C> <C>
Number of votes per share of GZMO Stock = fair market value of a share of GZMO Stock
---------------------------------------
fair market value of a share of GENZ Stock
Number of votes per share of GZSP Stock = fair market value of a share of GZSP Stock
---------------------------------------
fair market value of a share of GENZ Stock
Number of votes per share of GZTR Stock = fair market value of a share of GZTR Stock
---------------------------------------
fair market value of a share of GENZ Stock
</TABLE>
If no shares of GENZ Stock are outstanding on that date, then of the series
that are outstanding, the one with the highest fair market value per share
becomes the "base" series. That series becomes the denominator in the formula
above and has one vote per share. Each other series then has the number of votes
per share determined under the above formulas, after replacing GENZ Stock in the
denominator with the new base series.
We will adjust the voting rights of the GZMO Stock, GZSP Stock and the GZTR
Stock to avoid dilution of any series' voting rights in the event the
outstanding shares of any series are subdivided or combined by stock split,
reverse stock split, reclassification or otherwise, or a stock dividend or
distribution is issued to stockholders of that series. If shares of only one
series are outstanding, or if shares of any series are entitled to vote
separately as a class, each share of that series will have one vote.
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While generally all common stockholders vote together as a single class, our
charter requires that holders of a series affected by any of the following
proposals approve the proposal at a meeting at which both a quorum is present
and the votes in favor of the proposal exceed those against it:
- to allow any proceeds from a disposition of the properties or assets
allocated to a division to be used in the business of another division
without fair compensation;
- to allow any properties or assets allocated to a division to be used in
the business of another division or to declare or pay any dividend or
distribution on any series of common stock not attributed to that division
without fair compensation;
- to issue shares of any series of common stock without allocating the
proceeds of the issuance to the division represented by that series
except, however, for specifically "designated" shares as described below
under the heading "GZMO Designated Shares, GZSP Designated Shares and GZTR
Designated Shares";
- to change the rights or preferences of any series in a manner that affects
the series adversely; or
- to effect any merger or business combination in which (a) stockholders of
all series together will no longer own, directly or indirectly, at least
fifty percent (50%) of the voting power of the surviving corporation, and
(b) stockholders of all series will not receive the same form of
consideration, distributed among stockholders in proportion to the market
capitalization of each series of our common stock as of the date of the
first public announcement of the merger or business combination.
If, however, we receive an opinion of tax counsel at any time that, because
of a tax law change, the special voting rights described above for the GZMO
Stock, GZSP Stock or GZTR Stock would cause an adverse tax event, then our board
may amend our charter to delete the special voting rights of the GZMO Stock,
GZSP Stock or GZTR Stock, as the case may be, with the approval of holders of a
majority of all series of our outstanding capital stock voting together as a
single class.
Under Massachusetts law, any amendment to our charter that would adversely
alter or change the powers, preferences or special rights of any series of
common stock, must be approved by a majority of the outstanding shares of each
affected series, voting together as a single class. Massachusetts law does not
currently provide for any other separate voting rights for a series of common
stock. Consequently, because most matters brought to a stockholder vote will
require only the approval of a majority of all of our outstanding capital stock
entitled to vote and because the GENZ stockholders currently have more than the
number of votes required to approve a matter, GENZ stockholders are currently in
a position to control the outcome of the vote. See the risk factor entitled
"Holders of our tracking stock have limited decision-making power because they
have limited separate voting rights" on page 11 of this prospectus.
LIQUIDATION RIGHTS
If we voluntarily or involuntarily dissolve, liquidate or wind up our
affairs, common stockholders will be entitled to receive any net assets
remaining for distribution after we have satisfied or made provision for our
debts and obligations and for payment to any stockholders with preferential
rights to receive distributions of our net assets. We will distribute any
remaining assets to common stockholders on a per share basis in proportion to
each series' respective per share liquidation units. Common
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stockholders will have no direct claim against any of our particular assets or
those of our subsidiaries. Each series has the following number of liquidation
units per share:
<TABLE>
<CAPTION>
NUMBER OF
SERIES LIQUIDATION UNITS
- ------ -----------------
<S> <C>
GENZ Stock................................................ 100
GZMO Stock................................................ 25
GZSP Stock................................................ 61
GZTR Stock................................................ 58
</TABLE>
We will adjust the liquidation units of the GZMO Stock, the GZSP Stock and
the GZTR Stock only to avoid dilution in the aggregate liquidation rights of any
series in the event the outstanding shares of any series are subdivided or
combined by stock split, reverse stock split, reclassification or otherwise, or
a dividend or distribution is given to stockholders of that series. A merger or
business combination or a sale of all or substantially all of our assets will
not be treated as a liquidation.
We may not, however, without approval from GENZ stockholders, GZMO
stockholders, GZSP stockholders and GZTR stockholders voting as separate series
of stock, effect a merger or business combination involving Genzyme that results
in:
- stockholders of all series no longer owning, directly or indirectly, at
least 50% of the voting power of the surviving corporation; and
- stockholders of each series not receiving the same form of consideration
distributed among stockholders in proportion to the market capitalization
of each series of common stock as of the date of the first public
announcement of the merger or business combination.
GZMO DESIGNATED SHARES, GZSP DESIGNATED SHARES AND GZTR DESIGNATED SHARES
GZMO designated shares, GZSP designated shares or GZTR designated shares are
authorized but unissued shares which our board of directors may from time to
time issue, sell or otherwise distribute without allocating the proceeds or
other benefits of the issuance, sale or distribution to the division tracked by
the shares. Until the shares are issued by our board, designated shares are not
outstanding shares of stock, may not receive dividends and cannot be voted by
us.
GZMO DESIGNATED SHARES
On September 30, 1999, there were 1,409,992 GZMO designated shares,
representing a potential 10.0% equity interest in Genzyme Molecular Oncology. Of
these designated shares, 682,316 were reserved for issuance upon conversion of
our 5 1/4% convertible subordinated notes and under our directors' deferred
compensation plan. The number of GZMO designated shares, from time to time will
be:
- adjusted to reflect subdivisions or combinations by stock split, reverse
stock split or otherwise of the GZMO Stock and dividends or distributions
of shares of GZMO Stock to GZMO stockholders and other reclassifications
of GZMO Stock;
- decreased by
-- the number of any designated shares of GZMO Stock that we issue, the
proceeds of which are allocated to Genzyme General,
-- the number of any shares of GZMO Stock issued upon the exercise or
conversion of securities convertible into GZMO Stock that are
attributed to Genzyme General, and
-- the number of any shares of GZMO Stock that we issue as a dividend or
distribution or by reclassification, exchange or otherwise to GENZ
stockholders; and
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- increased by
-- the number of any outstanding shares of GZMO Stock that we
repurchase, the consideration for which is allocated to Genzyme
General; or
-- the number of shares of GZMO Stock equal to the fair value, as
determined by our board, of assets or properties allocated to Genzyme
General that are reallocated to Genzyme Molecular Oncology excluding
reallocations that represent sales at fair value between those
divisions divided by the fair market value of one share of GZMO Stock
on the date of that reallocation.
Our charter prohibits us from taking any action that would reduce the number
of GZMO designated shares below zero.
GZSP DESIGNATED SHARES
On September 30, 1999, there were 1,164,839 GZSP designated shares,
representing a potential 7.3% equity interest in Genzyme Surgical Products. That
number from time to time will be:
- adjusted to reflect subdivisions or combinations by stock split, reverse
stock split or otherwise of the GZSP Stock and dividends or distributions
of shares of GZSP Stock to GZSP stockholders and other reclassifications
of GZSP Stock;
- decreased by
-- the number of any designated shares of GZSP Stock that we issue, the
proceeds of which are allocated to Genzyme General,
-- the number of any shares of GZSP Stock issued upon the exercise or
conversion of securities convertible into GZSP Stock that are
attributed to Genzyme General, and
-- the number of any shares of GZSP Stock that we issue as a dividend or
distribution or by reclassification, exchange or otherwise to GENZ
stockholders; and
- increased by
-- the number of any outstanding shares of GZSP Stock that Genzyme
repurchases, the consideration for which is allocated to Genzyme
General,
-- the number of shares of GZSP Stock equal to the fair value, as
determined by our board, of assets or properties allocated to Genzyme
General that are reallocated to Genzyme Surgical Products excluding
reallocations that represent sales at fair value between those
divisions divided by the fair market value of one share of GZSP Stock
as of the date of that reallocation, or
-- the number of shares of GZSP Stock equal to (i) the aggregate fair
market value of any shares of GENZ Stock issued to the limited
partners of Genzyme Development Partners in connection with our
exercise on behalf of Genzyme Surgical Products of our purchase
option to reacquire all of the limited partnership interests of that
partnership divided by (ii) the fair market value of one share of
GZSP Stock on the date of the exercise.
Our charter prohibits us from taking any action that would reduce the number
of GZSP designated shares below zero.
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GZTR DESIGNATED SHARES
On September 30, 1999, there were 2,260,494 GZTR designated shares,
representing a potential 8.1% equity interest in Genzyme Tissue Repair. That
number from time to time will be:
- adjusted as appropriate to reflect subdivisions or combinations by stock
split, reverse stock split or otherwise of the GZTR Stock and dividends or
distributions of shares of GZTR Stock to GZTR stockholders and other
reclassifications of GZTR Stock;
- decreased by
-- the number of any designated shares of GZTR Stock that we issue, the
proceeds of which are allocated to Genzyme General,
-- the number of any shares of GZTR Stock issued upon the exercise or
conversion of securities convertible into GZTR Stock that are
attributed to Genzyme General, and
-- the number of any shares of GZTR Stock issued as a dividend or
distribution or by reclassification, exchange or otherwise to GENZ
stockholders; and
- increased by
-- the number of any outstanding shares of GZTR Stock that we
repurchase, the consideration for which is allocated to Genzyme
General; and
-- the number of shares of GZTR Stock equal to the fair value, as
determined by our board, of assets or properties allocated to Genzyme
General that are reallocated to Genzyme Tissue Repair excluding
reallocations that represent sales at fair value between those
divisions, divided by the fair market value of one share of GZTR
Stock on the date of the reallocation.
Our charter prohibits us from taking any action that would reduce the number
of GZTR designated shares below zero.
Whenever we issue or sell additional shares of any series of common stock,
we will identify:
- the number of shares issued and sold for account of a particular division
to which they relate, the proceeds of which will be allocated to and
reflected in the financial statements of that division, and
- the number of shares issued and sold from the designated shares of GZMO
Stock, GZSP Stock and/or GZTR Stock, which will reduce the number of
designated shares, and the proceeds of which may be used for any proper
corporate purpose.
If we repurchase outstanding shares of GZMO Stock, GZSP Stock or GZTR Stock,
we will identify the number of shares that are repurchased for consideration
that were allocated to Genzyme General and the number of designated shares may
increase accordingly.
DETERMINATIONS BY OUR BOARD
Any determination made by our board in good faith under any of the
provisions described above will be final and binding on all stockholders.
"ANTI-TAKEOVER" PROVISIONS
CONTRACTUAL MEASURES
Our charter and by-laws contain provisions that could discourage potential
takeover attempts and prevent stockholders from changing our management. For
example, our board is authorized to issue
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shares of common stock and preferred stock in series, enlarge the board's size
and fill any vacancies on the board. Also, stockholders face restrictions on
calling a special meeting of stockholders, bringing business before an annual
meeting and nominating candidates for election as directors. We also have
agreements with some officers containing change of control provisions.
In addition, we have a stockholder rights plan. Under the plan, each
outstanding share of our common stock carries with it a right, currently
unexercisable, that if triggered permits the holder to purchase large amounts of
our or any successor entity's securities at a discount and/or trade those
purchase rights separately from the common stock. The rights are triggered when
a person acquires, or makes a tender or exchange offer to acquire, 15% of our
common stock's voting power. The plan, however, prohibits the 15%- acquiror, or
its affiliates, from exercising these purchase rights. As a result, the
acquiror's interest in us is substantially diluted. The rights are described
completely in a rights agreement between us and American Stock Transfer & Trust
Company as rights agent. The agreement is an exhibit to our Form 8-A/A filed
with the SEC on June 11, 1999, and is incorporated in this document by
reference.
BUSINESS COMBINATION STATUTE
The Massachusetts Business Combination statute provides that, if a person
acquires 5% or more of the outstanding voting stock of a Massachusetts
corporation without the approval of its board of directors that person becomes
an interested stockholder and he or she may not engage in business combination
transactions with the corporation for three years. There are exceptions to this
prohibition, including:
- if the board of directors approves the acquisition of stock or the
transaction before the time that the person became an interested
stockholder;
- if the interested stockholder acquires 90% of the outstanding voting stock
of the company, excluding voting stock owned by directors who are also
officers and some employee stock plans, in one transaction; or
- if the transaction is approved by the board and by two-thirds of the
outstanding voting stock not owned by the interested stockholder.
We are subject to the Massachusetts Business Combination statute unless we
elect not to be. We have not elected to be exempt and do not currently intend to
do so.
CONTROL SHARE ACQUISITION STATUTE
The Massachusetts Control Share Acquisition statute provides that a person
who offers to acquire, or acquires, shares of stock resulting in its controlling
at least 20%, 33 1/3% or a majority of the voting power of a corporation, cannot
vote those acquired shares unless the acquiror obtains the approval of a
majority in interest of the shares held by all stockholders, excluding shares
held by the acquiror, officers of the corporation, and directors who are also
employees of the corporation. The statute does not require that the acquiror
have already purchased the shares before the stockholder vote.
As permitted under Massachusetts law, we have elected not to be governed by
the Massachusetts Control Share Acquisition statute. However, our board could
decide at a future date that it is in the best interests of Genzyme and its
stockholders that we be governed by the statute. If so, our board may amend our
by-laws accordingly. That amendment, however, would apply only to acquisitions
that occur after the effective date of the amendment.
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REGISTRATION RIGHTS
The holders of 3,163,032 shares of our capital stock can, if the conditions
to exercising the rights are met, require us to register those shares.
Notwithstanding these rights, all of those shares, if held by our nonaffiliates,
can be sold without restriction under the federal securities law.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company is the registrar and transfer agent
for each series of our common stock. Its telephone number is (212) 936-5100.
DESCRIPTION OF WARRANTS
GENERAL
We may issue warrants to purchase Debt Securities (the "Debt Warrants"),
preferred stock (the "Preferred Stock Warrants") or one or more series of
Genzyme common stock (the "Common Stock Warrants" and, collectively with the
Debt Warrants and the Preferred Stock Warrants, the "Warrants"). Warrants may be
issued independently or together with any other securities offered by this
prospectus and may be attached to or separate from the other securities. If
Warrants are issued, they will be issued under warrant agreements to be entered
into between us and a bank or trust company, as warrant agent (the "Warrant
Agent"), all of which will be described in the prospectus supplement relating to
the Warrants being offered.
DEBT WARRANTS
We will describe the terms of the Debt Warrants offered in the applicable
prospectus supplement, the Warrant Agreement relating to the Debt Warrants and
the Debt Warrant certificates representing the Debt Warrants, including the
following:
- the title;
- the aggregate number offered;
- their issue price or prices;
- the designation, aggregate principal amount and terms of the Debt
Securities purchasable upon exercise, and the procedures and conditions
relating to exercise;
- the designation and terms of any related Debt Securities and the number of
such Debt Warrants issued with each Debt Security;
- the date, if any, on and after which the Debt Warrants and the related
Debt Securities will be separately transferable;
- the principal amount of Debt Securities purchasable upon exercise, and the
price at which such principal amount of Debt Securities may be purchased
upon exercise;
- the commencement and expiration dates of the right to exercise;
- the maximum or minimum number which may be exercised at any time;
- a discussion of the material U.S. federal income tax considerations
applicable to exercise; and
- any other terms, procedures and limitations relating to exercise.
Debt Warrant certificates will be exchangeable for new Debt Warrant
certificates of different denominations, and Debt Warrants may be exercised at
the corporate trust office of the Warrant Agent or any other office indicated in
the applicable prospectus supplement. Before exercising their Debt
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Warrants, holders will not have any of the rights of holders of the securities
purchasable upon such exercise and will not be entitled to payments of principal
of, or premium, if any, or interest, if any, on the securities purchasable upon
such exercise.
OTHER WARRANTS
The applicable prospectus supplement will describe the following terms of
Preferred Stock Warrants or Common Stock Warrants offered under this prospectus:
- the title;
- the securities issuable upon exercise;
- the issue price or prices;
- the number of such Warrants issued with each share of preferred stock or
common stock;
- any provisions for adjustment of (1) the number or amount of shares of
preferred stock or common stock receivable upon exercise of the Warrants
or (2) the exercise price;
- if applicable, the date on and after which the Warrants and the related
preferred stock or common stock will be separately transferable;
- if applicable, a discussion of the material U.S. federal income tax
considerations applicable to the exercise of the Warrants;
- any other terms, including terms, procedures and limitations relating to
exchange and exercise;
- the commencement and expiration dates of the right to exercise; and
- the maximum or minimum number which may be exercised at any time.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder to purchase for cash such principal
amount of Debt Securities or shares of preferred stock or common stock at the
applicable exercise price set forth in, or determined as described in, the
applicable prospectus supplement. Warrants may be exercised at any time up to
the close of business on the expiration date set forth in the applicable
prospectus supplement. After the close of business on the expiration date,
unexercised Warrants will become void.
Warrants may be exercised by delivering to the corporation trust office of
the Warrant Agent or any other officer indicated in the applicable prospectus
supplement (a) the Warrant certificate properly completed and duly executed and
(b) payment of the amount due upon exercise. As soon as practicable following
the exercise, we will forward the Debt Securities or shares of preferred stock
or common stock purchasable upon the exercise. If less than all of the Warrants
represented by a Warrant certificate are exercised, a new Warrant certificate
will be issued for the remaining Warrants.
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DESCRIPTION OF MANAGEMENT AND ACCOUNTING POLICIES
OVERVIEW
Because each of our operating divisions are part of a single company, our
board has adopted policies to address issues that may arise among divisions and
to govern the management of and the relationships between each division. The
issues addressed by the policies include:
- the financing of each division;
- competition among the divisions;
- inter-divisional business transactions;
- access to technology and know-how;
- corporate opportunities; and
- the allocation of debt, corporate overhead, interest, taxes and other
charges between the divisions.
We have summarized below the policies as they relate to our four divisions.
We recommend that you read the full text of the policies, which is contained in
Exhibit 99.1 to the registration statement of which this prospectus is a part.
With a few exceptions that are noted, our board may modify or rescind the
policies, or adopt additional policies, in its sole discretion without approval
of the stockholders, subject only to our board's fiduciary duty to our
stockholders.
PURPOSE OF GENZYME GENERAL, GENZYME MOLECULAR ONCOLOGY, GENZYME SURGICAL
PRODUCTS AND GENZYME TISSUE REPAIR
The purpose of Genzyme General is to develop and market therapeutic products
and diagnostic services and products. The purpose of Genzyme Molecular Oncology
is to create a focused, integrated oncology business that will develop and
commercialize novel therapeutic and diagnostic products and services based on
molecular tools and genomic information. The purpose of Genzyme Surgical
Products is to create a business with a comprehensive approach to and portfolio
of devices, biomaterials, biotherapeutics and other products for the field of
biosurgery. The purpose of Genzyme Tissue Repair is to create a business with a
comprehensive approach to the field of tissue repair by developing and
commercializing a portfolio of novel products for the treatment and prevention
of serious tissue injury (excluding products developed on behalf of Genzyme
Development Partners). In addition to the programs initially assigned to each of
the divisions, we expect that the product and service portfolio of each division
will expand through the addition of complementary programs, products and
services developed either internally or externally to the division, including
outside of Genzyme. We will operate and manage each of the divisions similarly
to Genzyme General except as provided in these policies.
REVENUE ALLOCATION AND RECOGNITION
We credit revenues received from third parties in connection with a
particular division's products and services to that division. When products and
services that are normally sold by a division to third parties are used by other
divisions, we record interdivisional revenue and interdivisional purchases,
which we describe in detail in our policy "Other Interdivisional Transactions."
EXPENSE ALLOCATION
We charge all direct expenses to the division that has incurred the
expenses. Our policy "Other Interdivisional Transactions" addresses expenses
other than direct expenses.
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ASSET ALLOCATION
We allocate assets that are exclusively dedicated to the production of goods
and services of a particular division to that division. We address the use of
production assets by more than one division in our policy "Other Interdivisional
Transactions."
TAX ALLOCATIONS
We allocate income taxes to each division based upon the financial statement
income, taxable income, credits and other amounts properly allocable to it under
generally accepted accounting principles as if it were a separate taxpayer. As
of the end of any fiscal quarter, however, if a division cannot use any
projected annual tax benefit attributable to it to offset or reduce its current
or deferred income tax expense, we may allocate the tax benefit to the other
divisions in proportion to their taxable income without any compensating payment
or allocation.
ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS
If we acquire any programs, products or assets from a third party, we will
allocate among our divisions the aggregate cost of the acquisition and the
programs, products or assets acquired. In the case of material acquisitions, we
will make the allocation in a manner that our board determines to be fair and
reasonable to each division and to holders of the common stock representing each
division, taking into account matters that our board and its financial advisors,
if any, deem relevant. Our policies provide that the determinations by our board
will be final and binding on all holders of common stock.
DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS
If we dispose of any programs, products or assets that do not consist of all
or substantially all of the assets of a division, we will allocate all proceeds
to the division to which the program, product or asset had been allocated. If a
program, product or asset was allocated to more than one division, we will
allocate the proceeds among the divisions based on their interests in the
program, product or asset. We will make the allocation in a manner that our
board determines to be fair and reasonable to each of the divisions and to
holders of the common stock representing each of the divisions, taking into
account matters that our board and its financial advisors, if any, deem
relevant. Our policies provide that the determinations by our board will be
final and binding on all holders of common stock.
INTERDIVISIONAL ASSET TRANSFERS
Our board may at any time reallocate any program, product or other asset
from one division to any other division. We will make reallocations at fair
market value, determined by our board, taking into account the following
criteria in the case of a program under development:
- the commercial potential of the program;
- the phase of clinical development of the program;
- the expenses associated with realizing any income from the program and the
likelihood and timing of the realization; and
- other matters that our board and its financial advisors, if any, deem
relevant.
One division may pay another division the consideration for a reallocation
in cash or other consideration with a value equal to the fair market value of
the reallocated assets. In the case of a reallocation of assets from Genzyme
General to another division, our board may elect instead to account for the
reallocation as an increase in the designated shares representing the division
to which the assets are reallocated in accordance with the provisions of our
charter.
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These policies regarding transfers of assets between divisions will not be
changed by our board without the approval of the holders of the common stock
representing each of the divisions voting as a separate class. If, however, the
policy change affects one or more, but not all of the divisions, only holders of
shares of the affected division(s) will be entitled to vote on the matter.
OTHER INTERDIVISIONAL TRANSACTIONS
Our divisions may engage in transactions directly with one or more other
divisions or jointly with one or more other divisions and one or more third
parties. These transactions may include agreements by one division to provide
products and services for use by another division, license agreements and joint
ventures or other collaborative arrangements involving more than one division to
develop new products and services jointly and with third parties. These
transactions will be subject to the following conditions:
- We will charge research and development (including clinical and regulatory
support), distribution, sales, marketing, and general and administrative
services (including allocated space) performed by one division for another
division to the division for which the services are performed on a cost
basis. We charge all direct expenses to the division that has incurred the
expenses. We will allocate direct labor and indirect costs in reasonable
and consistent manners based on the use by a division of relevant
services. Divisions performing services for other divisions will not
recognize revenue because of the services they have performed.
- We will charge the manufacturing of goods and services by one division
exclusively for another division to the division for which it is performed
on a cost basis. We will include in manufacturing costs an interest charge
on the gross fixed assets used in the manufacturing process. We will
determine gross fixed assets for the facility used at the beginning of
each fiscal year. The interest rate will be our short term borrowing rate
at the beginning of each fiscal year. We will allocate direct labor and
indirect costs in reasonable and consistent manners based on the benefit
received by a division of related goods and services. Divisions performing
services for other divisions will not recognize revenue because of the
services they have performed.
- Other than transactions involving research and development, distribution,
sales, marketing, general and administrative services, which are addressed
above, all interdivisional transactions will be on terms and conditions
obtainable in arm's length transactions with third parties. Divisions
performing services for other divisions will not recognize revenue because
of the services they have performed.
- Our board must approve interdivisional transactions that are performed on
terms and conditions other than as described above and that are material
to one or more of the participating divisions. In giving its approval, our
board must determine that the transaction is fair and reasonable to each
participating division and to holders of the common stock representing
each participating division.
- Divisions may make loans to other divisions. Any loan of $1 million or
less will mature within 18 months and interest will accrue at the best
borrowing rate available to Genzyme for a loan of a similar type and
duration. Our board must approve any loan in excess of $1 million. In
giving its approval, our board must determine that the material terms of
such loan, including the interest rate and maturity date, are fair and
reasonable to each participating division and to holders of the common
stock representing each such division.
- All material interdivisional transactions will be set forth in a written
agreement signed by an authorized member of the management team of each
division involved in the transaction.
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ACCESS TO TECHNOLOGY AND KNOW-HOW
Each division will have unrestricted access to all of our technology and
know-how that may be useful in that division's business, subject to any
obligations or limitations that apply to us.
DISPOSITION OF DESIGNATED SHARES OF GZMO STOCK, GZSP STOCK, AND GZTR STOCK
Our Board may from time to time and in its sole discretion dispose of
designated shares of GZMO Stock, GZSP Stock, and GZTR Stock in the following
manner:
- issue the designated shares upon the exercise or conversion of outstanding
stock options, warrants or convertible securities allocated to Genzyme
General;
- sell the designated shares for any valid purpose, subject to the
restrictions set forth in our policy entitled "Open Market Purchases of
Shares of Common Stock," which is set forth below; and
- distribute the designated shares as a dividend to the holders of shares of
GENZ Stock.
GZMO DESIGNATED SHARES. We will distribute substantially all of the
designated shares of GZMO Stock to holders of record of GENZ Stock, if as of
November 30 of each year, the number of GZMO designated shares exceeds 10% of
the number of shares of GZMO stock then issued and outstanding. We will,
however, reserve for issuance a number of shares equal to the sum of:
- the number of GZMO designated shares reserved for issuance with respect to
"GENZ convertible securities" which include stock options, stock purchase
rights, warrants or other securities convertible into or exercisable for
shares of GENZ Stock then outstanding as a result of anti-dilution
adjustments required by the terms of these instruments or approved by our
board, plus
- the number of GZMO designated shares reserved by our Board as of that date
for sale not later than six months afterwards, with the proceeds to be
allocated to Genzyme General.
GZSP DESIGNATED SHARES. We will distribute substantially all of the
designated shares of GZSP Stock to holders of record of GENZ Stock if, as of
June 30 of each year, starting on June 30, 2000 the number of GZSP designated
shares exceeds 10% of the number of shares of GZSP Stock then issued and
outstanding. We will, however, reserve a number of shares equal to the sum of:
- the number of GZSP designated shares reserved for issuance with respect to
GENZ convertible securities which then outstanding as a result of
anti-dilution adjustments required by the terms of these instruments or
approved by our board, plus
- the number of GZSP designated shares reserved by our board as of that date
for sale not later than six months afterwards, with the proceeds to be
allocated to Genzyme General.
GZTR DESIGNATED SHARES. We will distribute substantially all designated
shares of GZTR Stock to holders of record of GENZ Stock, if as of May 31 of each
year, the number of GZTR designated shares exceeds 10% of the number of shares
of GZTR stock then issued and outstanding. We will, however, reserve for
issuance a number of shares equal to the sum of:
- the number of GZTR designated shares reserved for issuance with respect to
the GENZ convertible securities then outstanding as a result of
anti-dilution adjustments required by the terms of these instruments or
approved by our board, plus
- the number of GZTR designated shares reserved by our Board as of that date
for sale not later than six months afterwards, with the proceeds to be
allocated to Genzyme General.
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ISSUANCE AND SALE OF ADDITIONAL SHARES OF COMMON STOCK
When we issue additional shares of our common stock, we will identify both:
- the number of shares issued and sold for the account of the division to
which they relate and the corresponding proceeds, which we will allocate
to and reflect in the financial statements of that division; and
- the number of shares issued and sold for the account of Genzyme General,
which will reduce the number of designated shares of that division.
We will not, however, sell any designated shares of a division, except upon
exercise or conversion of options, warrants or convertible securities issued by
Genzyme General that were adjusted as a result of a dividend of GZSP Stock, GZMO
Stock, or GZTR Stock paid to holders of GENZ Stock, unless either:
- our board determines that the division has sufficient cash to fund its
operations for at least the next 12 months; or
- we are then selling shares of a division for its own account in an amount
that will produce proceeds sufficient to fund that division's cash needs
for the next 12 months.
OPEN MARKET PURCHASES OF SHARES OF COMMON STOCK
We may purchase our common stock in the open market in accordance with
applicable securities law requirements. We will not, however, purchase our
common stock if, as an immediate result, the number of designated shares of a
division will exceed 60% of the sum of the number of shares of the division
outstanding and the number of designated shares. Additionally, we may not,
within 90 days of any open market purchase of the common stock of any division,
exercise the right provided under our charter to exchange shares of that
division for cash and/or shares of GENZ Stock.
CLASS VOTING
Where we have provided that the approval of the holders of a division's
common stock is required to take any action pursuant to these policies or our
charter, the requirement may be satisfied if the action is approved by a
majority of the votes cast at a meeting of the holders of the division's common
stock at which a quorum is present. This is in addition to any stockholder
approval required by Massachusetts law.
NON-COMPETE
Our divisions may not materially engage in each other's principal businesses
other than through joint ventures or other collaborative arrangements involving
more than one division to develop new products and services jointly and with
third parties. These permissible transactions are subject to the conditions set
forth above in our policy entitled "Interdivisional Asset Transfers". The
divisions may compete in a business which is not a principal business of another
division. Our board may determine in its good faith business judgment whether
particular activities of one division constitute a material engagement in the
principal businesses of another division.
CORPORATE OPPORTUNITIES
Our board will review any matter which involves the allocation of a
corporate opportunity to any of the divisions, or in part to one division and in
part to another division. Our board will make its determination with regard to
the allocation and benefit of an opportunity in accordance with its good faith
business judgment of the best interests of Genzyme and all of its stockholders
as a whole. In making this allocation, our board may consider, among other
factors:
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- whether a particular corporate opportunity is principally related to the
business of a particular division;
- whether one division, because of its managerial or operational expertise,
will be better positioned to undertake the corporate opportunity;
- whether one division, because of its financial resources, will be better
positioned to undertake the corporate opportunity; and
- existing contractual agreements and restrictions.
PLAN OF DISTRIBUTION
We may sell the securities being offered by us in this prospectus:
- directly to purchasers;
- through agents;
- through dealers;
- through underwriters; or
- through a combination of any of these methods of sale.
We and our agents and underwriters may sell the securities being offered by
us in this prospectus from time to time in one or more transactions:
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to such prevailing market prices; or
- at negotiated prices.
We may solicit directly offers to purchase securities. We may also designate
agents from time to time to solicit offers to purchase securities. Any agent
that we designate, who may be deemed to be an "underwriter" as that term is
defined in the Securities Act of 1933, may then resell such securities to the
public at varying prices to be determined by such agent at the time of resale.
If we use underwriters to sell securities, we will enter into an
underwriting agreement with the underwriters at the time of the sale to them.
The names of the underwriters will be set forth in the prospectus supplement
which will be used by them together with this prospectus to make resales of the
securities to the public. In connection with the sale of the securities offered,
the underwriters may be deemed to have received compensation from us in the form
of underwriting discounts or commissions. Underwriters may also receive
commissions from purchasers of the securities.
Underwriters may also use dealers to sell securities. If this happens, the
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents.
Any underwriting compensation paid by us to underwriters in connection with
the offering of the securities offered in this prospectus, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement.
Underwriters, dealers, agents and other persons may be entitled, under
agreements that may be entered into with us, to indemnification by us against
certain civil liabilities, including liabilities under the Securities Act of
1933, or to contribution with respect to payments which they may be required to
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make in respect of such liabilities. Underwriters and agents may engage in
transactions with, or perform services for, us in the ordinary course of
business.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters, dealers, or other persons to solicit offers by certain
institutions to purchase the securities offered by us under this prospectus
pursuant to contracts providing for payment and delivery on a future date or
dates. The obligations of any purchaser under these contracts will be subject
only to those conditions described in the applicable prospectus supplement, and
the prospectus supplement will set forth the price to be paid for securities
pursuant to those contracts and the commissions payable for solicitation of the
contracts.
Any underwriter may engage in over-allotment, stabilizing and syndicate
short covering transactions and penalty bids in accordance with Regulation M of
the Securities Exchange Act of 1934. Over-allotment involves sales in excess of
the offering size, which creates a short position. Stabilizing transactions
involve bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum. Syndicate short covering transactions involve
purchases of securities in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
underwriters to reclaim selling concessions from dealers when the securities
originally sold by such dealers are purchased in covering transactions to cover
syndicate short positions. These transactions may cause the price of the
securities sold in an offering to be higher than it would otherwise be. These
transactions, if commenced, may be discontinued by the underwriters at any time.
Each series of securities offered under this prospectus will be a new issue
with no established trading market, other than the GENZ Stock, GZMO Stock, GZSP
Stock and GZTR Stock, which are each listed on the Nasdaq National Market. Any
shares of GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock or other series of
Genzyme Common Stock sold pursuant to a prospectus supplement will be listed on
the Nasdaq National Market or on the exchange on which the series of stock
offered is then listed, subject to official notice of issuance. Any underwriters
to whom we sell securities for public offering and sale may make a market in the
securities that they purchase, but the underwriters will not be obligated to do
so and may discontinue any market making at any time without notice. We may
elect to list any of the securities we may offer from time to time for trading
on an exchange or on the Nasdaq National Market, but we are not obligated to do
so.
The anticipated date of delivery of the securities offered hereby will be
set forth in the applicable prospectus supplement relating to each offering.
LEGAL MATTERS
Our counsel, Palmer & Dodge LLP, Boston, Massachusetts, will give us an
opinion on the legality and validity of the securities offered by this
prospectus and any accompanying prospectus supplement.
EXPERTS
The financial statements of Genzyme Corporation, Genzyme Molecular Oncology
and Genzyme Tissue Repair incorporated in this prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 1998, as amended, the
combined financial statements of Genzyme Surgical Products incorporated in the
prospectus by reference to our Form 8-K as filed on June 11, 1999 and the
combined financial statements of Genzyme General incorporated in this prospectus
by reference to our Form 8-K as filed on June 30, 1999, and the financial
statements of the Genzyme Retirement Savings Plan incorporated in this
prospectus by reference to the Form 10-K/A as filed on June 30, 1999 have been
so incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information that we file with the SEC at the SEC's public reference rooms at the
following locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, 7 World Trade Center Citicorp Center
N.W Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. These SEC filings are also available to the public from
commercial document retrieval services and at the Internet world wide web site
maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and
other information concerning Genzyme may also be inspected at the offices of The
Nasdaq Stock Market, which is located at 1735 K Street, N.W., Washington, D.C.
20006.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we disclose important information to you by
referring you to other documents that we filed separately with the SEC. The
information incorporated by reference is considered part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information.
This prospectus incorporates by reference the documents set forth below that
we have previously filed with the SEC. These documents contain important
business and financial information about us that is not included in or delivered
with this prospectus.
<TABLE>
<CAPTION>
FILINGS (FILE NO. 0-14680) DATE FILED
- -------------------------- ---------------------------------------------
<S> <C>
Annual Report on Form 10-K Filed on March 31, 1999 (except for the
financial statements on pages 2-31 of Exhibit
13.1, which we restated and filed on June 30,
1999 as Exhibit 99 to our Form 8-K), as
amended by Amendment No. 1 on Form 10-K/A
filed on June 30, 1999
Quarterly Reports on Form 10-Q Filed on May 17, 1999 (except for pages 4-9
and 26-28 to the extent the financial
statements and related discussion relates to
Genzyme General, which we restated and filed
on June 30, 1999 as Exhibit 99 to our Form
8-K), August 16, 1999 and November 15, 1999.
Current Reports on Form 8-K Filed on March 17, 1999, June 11, 1999, June
30, 1999, October 21, 1999 and January 10,
2000
Proxy Statement on Schedule 14A Filed on April 16, 1999
The description of GENZ Stock, GZMO Stock and Filed on June 18, 1997
GZTR Stock contained in Genzyme's
Registration Statement on Form 8-A
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
FILINGS (FILE NO. 0-14680) DATE FILED
- -------------------------- ---------------------------------------------
<S> <C>
The description of GENZ Stock purchase Filed on June 11, 1999
rights, GZMO Stock purchase rights, GZSP
Stock purchase rights and GZTR Stock purchase
rights contained in Genzyme's Registration
Statement on Form 8-A/A
The description of GZSP Stock contained in Filed on June 11, 1999
Genzyme's Registration Statement on Form 8-A
</TABLE>
We also incorporate by reference additional documents that we may file with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
sale of all of the securities covered by this prospectus. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.
Documents incorporated by reference are available from us without charge,
excluding all exhibits, except that if we have specifically incorporated by
reference an exhibit in this prospectus, the exhibit will also be provided
without charge. You may obtain documents incorporated by reference in this
prospectus by requesting them in writing or by telephone from us at the
following address and telephone number.
Genzyme Corporation
Shareholder Relations
One Kendall Square
Cambridge, Massachusetts 02139
(617) 252-7526
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information that is different from what is contained in this prospectus. This
prospectus is dated March 9, 2000. You should not assume that the information
contained in this prospectus is accurate as of any date other than that date.
Neither the delivery of this prospectus nor the sale of securities creates any
implication to the contrary.
56
<PAGE>
- ---------------------------------------------------------
- ---------------------------------------------------------
3,000,000 Shares
[LOGO]
Common Stock
-------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------
SG COWEN
PAINEWEBBER INCORPORATED
CHASE H&Q
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
