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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-14680
GENZYME CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 06-1047163
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE KENDALL SQUARE, CAMBRIDGE, 02139
MASSACHUSETTS (zip code)
(Address of principal executive
offices)
</TABLE>
(617) 252-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
The number of shares outstanding of each of the issuer's series of common
stock as of October 31, 2000:
<TABLE>
<S> <C>
Genzyme General Division Common Stock 86,975,019
Genzyme Molecular Oncology Division Common Stock 15,866,633
Genzyme Surgical Products Division Common Stock 14,998,968
Genzyme Tissue Repair Division Common Stock 28,867,698
</TABLE>
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<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements, including
statements regarding our:
- planned creation of a new division and a new publicly traded stock;
- planned acquisitions of Biomatrix, Inc. and GelTex Pharmaceuticals, Inc.
and related financing expectations;
- expected composition of the merger consideration for both acquisitions;
- expected timing of the proposed acquisitions;
- expected completion of the disposition of our ownership interest in ATIII
LLC;
- our intention to exercise our option to purchase the limited partnership
interests in Genzyme Development Partners, L.P.;
- expected future revenues, operations and expenditures; and
- projected cash needs.
These statements are based upon the current assumptions of our management
and are only expectations of future results. These statements are subject to
risks and uncertainties, and our actual results may differ significantly from
those that are described in this report on Form 10-Q. These risks and
uncertainties include:
- our ability to successfully complete preclinical and clinical development
of our products and services;
- our ability to manufacture sufficient amounts of our products for
development and commercialization activities;
- our ability to obtain and maintain adequate patent and other proprietary
rights protection of our products and services;
- the content and timing of decisions made by the United States Food and
Drug Administration and other regulatory agencies;
- the accuracy of our estimates of the size and characteristics of the
markets to be addressed by our products and services;
- market acceptance of our products and services;
- our ability to obtain reimbursement for our products and services from
third-party payers and the extent of such coverage, if available;
- our ability to establish and maintain licenses, strategic collaborations
and distribution arrangements;
- the continued funding of our joint ventures;
- the accuracy of our information regarding the products and resources of
our competitors and potential competitors;
- the likelihood that the regulatory and stockholder approvals required to
create a new division and to complete the acquisitions of Biomatrix and
GelTex will be obtained and the other closing conditions for the mergers
will be satisfied or waived;
- conditions in financial markets relevant to the proposed mergers and
exchange of Genzyme tracking stock;
i
<PAGE>
- the operational integration and the other risks generally associated with
mergers and exchanges of stock; and
- the likelihood of receipt of requisite approvals for the disposition of
our ownership interest in ATIII LLC and our ability to successfully
negotiate definitive agreements for the transaction.
For a further description of these risks and other uncertainties, we
encourage you to carefully read the sections entitled "Risk Factors" in our
final joint proxy statement/prospectus dated November 3, 2000 filed with the
Securities and Exchange Commission ("SEC") on November 6, 2000 in connection
with the acquisition of Biomatrix and our final joint proxy statement/prospectus
dated November 9, 2000 filed with the SEC on November 13, 2000 in connection
with the acquisition of GelTex. In addition, you should carefully read
Exhibit 99.2, "Factors Affecting Future Operating Results," to our Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, as amended (our "1999
Form 10-K").
NOTE REGARDING REFERENCES TO GENZYME DIVISIONS AND SERIES OF STOCK
Throughout this Form 10-Q, the words "we," "us," "our" and "Genzyme" refer
to Genzyme Corporation and all of its operating divisions taken as a whole, and
"our board of directors" refers to the board of directors of Genzyme
Corporation. In addition, we refer to our four operating divisions as follows:
- Genzyme General Division = "Genzyme General;"
- Genzyme Molecular Oncology Division = "Genzyme Molecular Oncology;"
- Genzyme Surgical Products Division = "Genzyme Surgical Products;" and
- Genzyme Tissue Repair Division = "Genzyme Tissue Repair."
We currently have four designated series of common stock. Each of these
series is intended to reflect the value and track the performance of one of our
divisions. We refer to each series of common stock as follows:
- Genzyme General Division Common Stock = "Genzyme General Stock;"
- Genzyme Molecular Oncology Division Common Stock = "Molecular Oncology
Stock;"
- Genzyme Surgical Products Division Common Stock = "Surgical Products
Stock;" and
- Genzyme Tissue Repair Division Common Stock = "Tissue Repair Stock."
Holders of Genzyme General Stock, Molecular Oncology Stock, Surgical Products
Stock and Tissue Repair Stock are stockholders of Genzyme Corporation and are
subject to all of the risks and uncertainties of Genzyme Corporation described
in Exhibit 99.2 to our 1999 Form 10-K and our other filings with the SEC.
NOTE REGARDING INCORPORATION BY REFERENCE
The SEC allows us to disclose important information to you by referring you
to other documents we have filed with the SEC. The information that we refer you
to is "incorporated by reference" into this Form 10-Q. Please read that
information.
NOTE REGARDING TRADEMARKS
GENZYME-REGISTERED TRADEMARK-, CEREZYME-REGISTERED TRADEMARK-,
CEREDASE-REGISTERED TRADEMARK-, THYROGEN-REGISTERED TRADEMARK-, SEPRA
FILM-REGISTERED TRADEMARK-, CARTICEL-REGISTERED TRADEMARK- and
SNOWDEN-PENCER-REGISTERED TRADEMARK- are registered trademarks of Genzyme.
FABRAZYME-TM-, SAGE-TM-, SEPRAMESH-TM- and EPICEL-TM- are trademarks of Genzyme.
GENZYME-REGISTERED TRADEMARK- is a registered service mark of Genzyme.
RENAGEL-REGISTERED TRADEMARK- is a registered trademark of GelTex
Pharmaceuticals, Inc. NEUROCELL-TM--PD is a trademark of Diacrin, Inc.
ALDURAZYME-TM- is a trademark of BioMarin/Genzyme LLC.
FOCALSEAL-REGISTERED TRADEMARK--L is a registered trademark of Focal, Inc.
REPLAGAL-TM- is a trademark of Transkaryotic Therapies, Inc.
ii
<PAGE>
TABLE OF CONTENTS
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PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements................................ 1
GENZYME CORPORATION AND SUBSIDIARIES
Unaudited, Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2000 and
1999.................................................... 1
Consolidated Balance Sheets as of September 30, 2000
(unaudited) and
December 31, 1999....................................... 3
Unaudited, Consolidated Statements of Cash Flows for the
Nine Months Ended
September 30, 2000 and 1999............................. 4
Notes to Unaudited, Consolidated Financial Statements..... 5
GENZYME GENERAL
Unaudited, Combined Statements of Operations for the Three
and Nine Months Ended September 30, 2000 and 1999....... 17
Combined Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999....................... 18
Unaudited, Combined Statements of Cash Flows for the Nine
Months Ended
September 30, 2000 and 1999............................. 19
Notes to Unaudited, Combined Financial Statements......... 20
GENZYME MOLECULAR ONCOLOGY
Unaudited, Combined Statements of Operations for the Three
and Nine Months Ended September 30, 2000 and 1999....... 26
Combined Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999....................... 27
Unaudited, Combined Statements of Cash Flows for the Nine
Months Ended
September 30, 2000 and 1999............................. 28
Notes to Unaudited, Combined Financial Statements......... 29
GENZYME SURGICAL PRODUCTS
Unaudited, Combined Statements of Operations for the Three
and Nine Months Ended September 30, 2000 and 1999....... 31
Combined Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999....................... 32
Unaudited, Combined Statements of Cash Flows for the Nine
Months Ended
September 30, 2000 and 1999............................. 33
Notes to Unaudited, Combined Financial Statements......... 34
GENZYME TISSUE REPAIR
Unaudited, Combined Statements of Operations for the Three
and Nine Months Ended September 30, 2000 and 1999....... 37
Combined Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999....................... 38
Unaudited, Combined Statements of Cash Flows for the Nine
Months Ended
September 30, 2000 and 1999............................. 39
Notes to Unaudited, Combined Financial Statements......... 40
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 42
ITEM 3. Quantitative and Qualitative Analysis of Market
Risk...................................................... 77
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................... 78
ITEM 6. Exhibits and Reports on Form 8-K.................... 79
Signatures.................................................. 80
</TABLE>
iii
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net product sales......................................... $206,645 $170,215 $592,505 $499,790
Net service sales......................................... 19,967 19,952 62,280 58,481
Revenues from research and development contracts.......... 747 1,248 4,617 3,572
-------- -------- -------- --------
Total revenues.......................................... 227,359 191,415 659,402 561,843
-------- -------- -------- --------
Operating costs and expenses:
Cost of products sold..................................... 63,729 44,371 165,631 132,757
Cost of services sold..................................... 12,068 12,392 35,886 36,894
Selling, general and administrative....................... 66,379 58,648 195,358 183,951
Research and development (including research and
development related to contracts)....................... 39,678 35,925 123,954 109,632
Amortization of intangibles............................... 3,409 6,128 15,191 18,501
Charge for in-process technology.......................... -- 5,436 -- 5,436
-------- -------- -------- --------
Total operating costs and expenses...................... 185,263 162,900 536,020 487,171
-------- -------- -------- --------
Operating income............................................ 42,096 28,515 123,382 74,672
-------- -------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated affiliates........... (11,420) (10,407) (30,866) (29,507)
Investment income......................................... 12,758 9,404 33,333 26,692
Interest expense.......................................... (5,010) (5,922) (12,785) (17,010)
Minority interest......................................... 977 843 3,185 2,573
Gain on affiliate sale of stock........................... 2,419 1,164 22,689 1,770
Gain on sale of product line.............................. -- 518 -- 8,018
Gain on sale of equity securities......................... 8,544 -- 22,709 1,963
Charge for impaired investments........................... -- -- -- (5,487)
Other..................................................... (10) 58 5,185 101
-------- -------- -------- --------
Total other income (expenses)........................... 8,258 (4,342) 43,450 (10,887)
-------- -------- -------- --------
Income before income taxes.................................. 50,354 24,173 166,832 63,785
Provision for income taxes.................................. (15,933) (10,395) (51,101) (27,659)
-------- -------- -------- --------
Net income.................................................. $ 34,421 $ 13,778 $115,731 $ 36,126
======== ======== ======== ========
Comprehensive income, net of tax:
Net income................................................ $ 34,421 $ 13,778 $115,731 $ 36,126
-------- -------- -------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments................ (10,273) 6,463 (20,628) (7,349)
-------- -------- -------- --------
Unrealized gains (losses) on securities:
Unrealized gains on securities arising during the
period.............................................. 44,223 18,869 48,597 17,352
Reclassification adjustment for (gains) losses
included in net income.............................. -- -- (5,501) 1,945
-------- -------- -------- --------
Unrealized gains on securities, net................... 44,223 18,869 43,096 19,297
-------- -------- -------- --------
Other comprehensive income................................ 33,950 25,332 22,468 11,948
-------- -------- -------- --------
Comprehensive income........................................ $ 68,371 $ 39,110 $138,199 $ 48,074
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
1
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GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL STOCK:
Genzyme General net income......................... $ 50,973 $ 29,971 $160,272 $ 91,389
Genzyme Surgical Products net loss................. -- -- -- (27,523)
Tax benefit allocated from Genzyme Molecular
Oncology......................................... 2,021 2,016 5,558 6,326
Tax benefit allocated from Genzyme Surgical
Products......................................... 4,424 3,841 11,080 14,191
Tax benefit allocated from Genzyme Tissue Repair... 2,031 2,359 5,211 9,733
-------- -------- -------- --------
Net income allocated to Genzyme General Stock........ $ 59,449 $ 38,187 $182,121 $ 94,116
======== ======== ======== ========
Net income per share of Genzyme General Stock:
Basic............................................ $ 0.69 $ 0.46 $ 2.14 $ 1.14
======== ======== ======== ========
Diluted.......................................... $ 0.64 $ 0.43 $ 1.99 $ 1.09
======== ======== ======== ========
Weighted average shares outstanding:
Basic............................................ 86,380 83,621 85,277 82,741
======== ======== ======== ========
Diluted.......................................... 97,074 94,331 95,614 93,196
======== ======== ======== ========
ALLOCATED TO MOLECULAR ONCOLOGY STOCK:
Net loss........................................... $ (5,504) $ (7,559) $(17,924) $(22,777)
======== ======== ======== ========
Net loss per share of Molecular Oncology Stock--
basic and diluted................................ $ (0.37) $ (0.60) $ (1.28) $ (1.80)
======== ======== ======== ========
Weighted average shares outstanding................ 14,884 12,682 14,002 12,672
======== ======== ======== ========
ALLOCATED TO SURGICAL PRODUCTS STOCK:
Net loss........................................... $(13,936) $(10,953) $(34,346) $(11,833)
======== ======== ======== ========
Net loss per share of Surgical Products Stock--
basic and diluted................................ $ (0.93) $ (0.74) $ (2.30) $ (0.80)
======== ======== ======== ========
Weighted average shares outstanding................ 14,959 14,835 14,907 14,835
======== ======== ======== ========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss........................................... $ (5,588) $ (6,148) $(14,590) $(24,146)
======== ======== ======== ========
Net loss per share of Tissue Repair Stock--
basic and diluted................................ $ (0.19) $ (0.25) $ (0.51) $ (1.05)
======== ======== ======== ========
Weighted average shares outstanding................ 28,795 24,275 28,664 22,995
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
2
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 215,568 $ 130,156
Short-term investments.................................... 164,927 255,846
Accounts receivable, net.................................. 183,779 166,803
Inventories............................................... 123,878 117,269
Prepaid expenses and other current assets................. 29,169 18,918
Deferred tax assets--current.............................. 41,441 41,195
---------- ----------
Total current assets.................................... 758,762 730,187
Property, plant and equipment, net.......................... 400,630 383,181
Long-term investments....................................... 427,805 266,988
Notes receivable--related party............................. 10,175 6,603
Intangibles, net............................................ 237,343 253,153
Deferred tax asset--noncurrent.............................. -- 18,631
Investment in equity securities............................. 186,883 97,859
Other....................................................... 54,948 30,680
---------- ----------
Total assets............................................ $2,076,546 $1,787,282
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 23,262 $ 27,853
Accrued expenses.......................................... 95,541 73,359
Income taxes payable...................................... 51,778 27,946
Deferred revenue.......................................... 4,840 3,700
Current portion of long-term debt and capital lease
obligations............................................. 128 5,080
---------- ----------
Total current liabilities............................... 175,549 137,938
Long-term debt and capital lease obligations................ 18,272 18,000
Convertible notes and debentures, net....................... 273,415 272,622
Deferred tax liability...................................... 7,329 --
Other noncurrent liabilities................................ 2,904 2,330
---------- ----------
Total liabilities....................................... 477,469 430,890
---------- ----------
Stockholders' equity:
Genzyme General Stock, $0.01 par value.................... 867 842
Molecular Oncology Stock, $0.01 par value................. 153 134
Surgical Products Stock, $0.01 par value.................. 150 148
Tissue Repair Stock, $0.01 par value...................... 289 285
Treasury Stock--Genzyme General Stock--at cost............ (901) (901)
Additional paid-in capital--Genzyme General Stock......... 524,979 635,996
Additional paid-in capital--Molecular Oncology Stock...... 105,059 67,672
Additional paid-in capital--Surgical Products Stock....... 543,197 376,123
Additional paid-in capital--Tissue Repair Stock........... 228,095 217,103
Retained earnings......................................... 172,933 57,202
Accumulated other comprehensive income.................... 24,256 1,788
---------- ----------
Total stockholders' equity.............................. 1,599,077 1,356,392
---------- ----------
Total liabilities and stockholders' equity.............. $2,076,546 $1,787,282
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
3
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 115,731 $ 36,126
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization........................... 45,374 48,706
Provision for bad debts................................. 5,574 10,944
Note received from related party and related accrued
interest.............................................. (10,175) --
Equity in net loss of unconsolidated affiliates......... 30,866 29,507
Minority interest in net loss of subsidiary............. (3,185) (2,573)
Gain on affiliate sale of stock......................... (22,689) (1,770)
Gain on sale of product line............................ -- (8,018)
Gain on sale of equity securities....................... (22,709) (1,963)
Charge for impaired investment.......................... -- 5,487
Charge for purchase of in-process research and
development........................................... -- 5,436
Deferred income tax expense (benefit), net.............. 4,668 (1,986)
Other................................................... 2,224 1,730
Increase (decrease) in cash from working capital
changes:
Accounts receivable................................... (30,053) (3,486)
Inventories........................................... (15,185) (10,752)
Prepaid expenses and other current assets............. (1,970) 9,653
Accounts payable, accrued expenses, income taxes
payable and
deferred revenue.................................... 19,109 16,495
--------- ---------
Net cash provided by operating activities........... 117,580 133,536
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................. (498,916) (357,248)
Sales and maturities of investments....................... 433,150 368,162
Proceeds from sale of equity securities................... 15,773 11,090
Investments in unconsolidated affiliates.................. (5,000) (13,700)
Acquisitions, net of acquired cash and assumed
liabilities............................................. (342) (6,500)
Purchase of property, plant and equipment................. (52,263) (35,602)
Proceeds from sale of product line........................ -- 5,000
Investment in joint ventures.............................. (19,639) (32,507)
Repayment of notes receivable............................. -- 8,360
Sale of equipment......................................... -- 188
Other..................................................... (1,521) 1,179
--------- ---------
Net cash used in investing activities............... (128,758) (51,578)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 104,122 56,432
Payments of debt and capital lease obligations............ (5,000) (3,669)
Other..................................................... 1,276 3,320
--------- ---------
Net cash provided by financing activities........... 100,398 56,083
--------- ---------
Effect of exchange rate changes on cash..................... (3,808) (2,890)
--------- ---------
Increase in cash and cash equivalents....................... 85,412 135,151
Cash and cash equivalents at beginning of period............ 130,156 118,612
--------- ---------
Cash and cash equivalents at end of period.................. $ 215,568 $ 253,763
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
4
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Our unaudited, consolidated financial statements for each period include the
balance sheets, results of operations and cash flows of each of our divisions
and corporate operations taken as a whole. We eliminate all significant
intracompany items and transactions in consolidation. We prepared our unaudited,
consolidated financial statements following the requirements of the SEC for
interim reporting. As permitted under those rules, certain footnotes or other
financial information that are normally required by generally accepted
accounting principles can be condensed or omitted. We have reclassified certain
1999 data to conform with our 2000 presentation.
These financial statements include all normal and recurring adjustments that
we consider necessary for the fair presentation of our financial position and
operating results. Since these are interim financial statements, you should also
read the financial statements and notes included in our 1999 Form 10-K.
Revenues, expenses, assets and liabilities can vary from quarter to quarter.
Therefore, the results and trends in these interim financial statements may not
be indicative of the results for future periods.
2. INVENTORIES (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials....................................... $ 44,864 $ 39,958
Work-in-process..................................... 43,104 44,559
Finished products................................... 35,910 32,752
-------- --------
Total........................................... $123,878 $117,269
======== ========
</TABLE>
3. INVESTMENT IN FOCAL, INC.
In April 2000, Focal, Inc. exercised its first option under the stock
purchase agreement between Genzyme and Focal. As required by the terms of this
agreement, we purchased $5.0 million of Focal common stock at a price of $8.14
per share. We have allocated these shares to Genzyme Surgical Products. We are
committed, at Focal's option, to make future additional equity investments of up
to $10.0 million subject to certain conditions.
4. OFFERING OF MOLECULAR ONCOLOGY STOCK
Pursuant to a prospectus filed under Rule 424 of the Securities Act of 1933,
as amended, in July 2000 we sold 1,607,400 shares of Molecular Oncology Stock to
a limited number of purchasers at a price of $12.91 per share. We received
approximately $20.7 million of net proceeds from the offering, which we
allocated to Genzyme Molecular Oncology. The proceeds of this offering will be
used primarily to fund Genzyme Molecular Oncology's research, preclinical and
clinical development programs, and for its working capital and general business
purposes.
5. INTERDIVISIONAL FINANCING ARRANGEMENTS
GENZYME MOLECULAR ONCOLOGY
In April 2000, Genzyme Molecular Oncology drew $15.0 million of cash under
its interdivisional financing arrangement with Genzyme General in exchange for
676,254 Genzyme Molecular Oncology designated shares. As required by our
charter, the number of Genzyme Molecular Oncology designated
5
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INTERDIVISIONAL FINANCING ARRANGEMENTS (CONTINUED)
shares was determined using the average closing price of Molecular Oncology
Stock for the 20 trading days beginning on the 30th trading day before the draw.
Genzyme Molecular Oncology designated shares are authorized shares of Molecular
Oncology Stock that are not issued and outstanding, but which our board of
directors may issue, sell, or distribute without allocating the proceeds to
Genzyme Molecular Oncology.
GENZYME TISSUE REPAIR
In March 2000, Genzyme Tissue Repair made a $5.0 million draw under its
interdivisional financing arrangement with Genzyme General in exchange for
765,169 Genzyme Tissue Repair designated shares. In September 2000, Genzyme
Tissue Repair made another draw of $5.0 million under this arrangement in
exchange for 927,488 Genzyme Tissue Repair designated shares. As required by our
charter, the number of Genzyme Tissue Repair designated shares was determined
using the average closing price of Tissue Repair Stock for the 20 trading days
beginning on the 30th trading day before the draw. Genzyme Tissue Repair
designated shares are authorized shares of Tissue Repair Stock that are not
issued and outstanding, but which our board of directors may issue, sell, or
distribute without allocating the proceeds to Genzyme Tissue Repair.
6. LICENSE AND STRATEGIC ALLIANCE AGREEMENTS
SYNPAC
In March 2000, Genzyme General recorded $19.5 million as research and
development expense, representing the initial amounts payable to Synpac (North
Carolina), Inc. under a license granted by Synpac to us to develop and
commercialize a human alpha-glucosidase enzyme replacement therapy for Pompe
disease, produced using a Chinese hamster ovary cell line. In connection with
this license, Genzyme General will pay Synpac certain amounts upon the
achievement of certain development and commercialization milestones. Genzyme
General will also pay Synpac royalties for a specified period of time based on
certain percentages of sales.
PHARMING
In June 2000, we entered into a strategic alliance agreement with Pharming
Group N.V. to share in the development and funding for the commercialization of
a human alpha-glucosidase enzyme replacement therapy. Under the agreement,
Pharming paid us $250,000 in cash and issued us a $10.0 million 7% Convertible
Senior Note due June 1, 2004. This consideration was a reimbursement for 50% of
the amounts Genzyme previously paid to Synpac for product development and
technology fees and expenses. Accordingly, Genzyme recorded the $10.3 million as
a reduction to research and development expense during the three months ended
June 30, 2000.
The note issued by Pharming is convertible at any time at our option into
fully paid and nonassessable ordinary shares of Pharming. We have allocated our
interest in this note to Genzyme General and have classified it as a long-term,
related party note receivable as of September 30, 2000.
CAMBRIDGE ANTIBODY TECHNOLOGY
In September 2000, we entered into a strategic alliance with an affiliate of
Cambridge Antibody Technology Limited to develop and commercialize human
monoclonal antibodies directed against
6
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LICENSE AND STRATEGIC ALLIANCE AGREEMENTS (CONTINUED)
TGF-beta for all clinical indications other than ophthalmology. Concurrently, we
agreed to make a $20.0 million equity investment in the ordinary shares of
Cambridge Antibody Technology Group plc at a price of L44.59 per share, which
was a 15% premium over the average market price for the shares for the 20
business days preceding the date of the agreement. In the three month period
ended September 30, 2000, we recorded the value of the premium as a charge to
research and development expense in our statement of operations. We have
allocated our TGF-beta program and our investment in Cambridge Antibody
Technology to Genzyme General.
7. GAIN ON AFFILIATE SALE OF STOCK
In February 2000, Genzyme Transgenics Corporation, an unconsolidated
affiliate, completed an offering of 3.5 million shares of Genzyme Transgenics
common stock, resulting in net proceeds to Genzyme Transgenics of $75.2 million
(after the exercise of the underwriter's overallotment option). In accordance
with our policy pertaining to affiliate sales of stock, we recognized a gain of
$20.3 million and recorded a net deferred tax expense of $3.9 million for the
three months ended March 31, 2000. The deferred tax expense is net of a
$3.4 million credit for the reversal of a valuation allowance on a deferred tax
asset. In September 2000, we recorded an additional gain of $2.4 million on our
investment in Genzyme Transgenics as a result of the issuance of additional
shares of common stock by Genzyme Transgenics.
8. GAINS (LOSSES) ON SALE OF EQUITY SECURITIES
In June 2000, Genzyme General recorded a gain of $5.5 million upon the sale
of a portion of its investment in Genzyme Transgenics common stock. During the
second quarter of 2000, the tax effect of this gain was fully offset by the
reversal of a $1.9 million valuation allowance related to previously recognized
capital losses. In the third quarter of 2000, we recorded a gain of
$10.9 million upon the sale of a portion of our investment in Genzyme
Transgenics common stock. As of September 30, 2000 our ownership interest in
Genzyme Transgenics was approximately 26%.
On June 1, 2000, Celtrix Pharmaceuticals, Inc. was acquired by Insmed Inc.
upon which our shares of Celtrix common stock were exchanged on a 1-for-1 basis
for shares of Insmed common stock. On the date of exchange, we recognized a
$7.6 million realized gain on the exchange of shares.
9. SETTLEMENT OF LAWSUIT
In April 2000, we received net proceeds of approximately $5.1 million in
connection with the settlement of a lawsuit, which we recorded as other income
in our unaudited, consolidated statements of operations for the nine months
ended September 30, 2000. The lawsuit, initiated in 1993, pertained to insurance
coverage for an accidental spill of Ceredase-Registered Trademark- enzyme at a
fill facility operated by a contractor to Genzyme. We allocated the net proceeds
of the settlement of this lawsuit to Genzyme General.
7
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. TAX PROVISION
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes............ $(15,933) $(10,395) 53% $(51,101) $(27,659) 85%
Tax rate.............................. 32% 43% 31% 43%
</TABLE>
Our tax rates for both periods vary from the U.S. statutory tax rate as a
result of our:
- provision for state income taxes;
- use of a foreign sales corporation;
- nondeductible amortization of intangibles;
- use of tax credits; and
- share of losses of unconsolidated affiliates.
In the nine months ended September 30, 2000, we reversed valuation
allowances totaling $5.3 million, which reduced our tax rate for the period by
4.9%.
11. NET INCOME (LOSS) PER SHARE
The following table sets forth our computation of basic and diluted earnings
per share:
GENZYME GENERAL STOCK:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Genzyme General net income............................ $50,973 $29,971 $160,272 $ 91,389
Genzyme Surgical Products net loss (1)................ -- -- -- (27,523)
Tax benefit allocated from Genzyme Molecular
Oncology............................................ 2,021 2,016 5,558 6,326
Tax benefit allocated from Genzyme Surgical
Products............................................ 4,424 3,841 11,080 14,191
Tax benefit allocated from Genzyme Tissue Repair...... 2,031 2,359 5,211 9,733
------- ------- -------- --------
Net income allocated to Genzyme General
Stock--basic...................................... 59,449 38,187 182,121 94,116
Effect of dilutive securities (net of tax):
5 1/4% convertible subordinated notes:
Interest expense.................................. 2,285 2,259 6,643 6,208
Amortization of debt discount and offering costs
(2)............................................. 161 161 472 443
5% convertible subordinated debentures:
Interest expense.................................. 181 183 531 502
Amortization of debt offering costs (3)........... 30 30 90 83
------- ------- -------- --------
Net income allocated to Genzyme General
Stock--diluted...................................... $62,106 $40,820 $189,857 $101,352
======= ======= ======== ========
Shares used in computing net income per common share--
basic............................................... 86,380 83,621 85,277 82,741
------- ------- -------- --------
Effective of dilutive securities:
Employee and director stock options................. 3,751 3,743 3,394 3,485
</TABLE>
8
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. NET INCOME (LOSS) PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Warrants............................................ -- 24 -- 27
5 1/4% convertible subordinated notes............... 6,313 6,313 6,313 6,313
5% convertible subordinated debentures.............. 630 630 630 630
------- ------- -------- --------
Dilutive potential common shares (4).............. 10,694 10,710 10,337 10,455
======= ======= ======== ========
Shares used in computing net income per common share--
diluted (4)......................................... 97,074 94,331 95,614 93,196
======= ======= ======== ========
Net income per share of Genzyme General Stock:
Basic............................................... $ 0.69 $ 0.46 $ 2.14 $ 1.14
======= ======= ======== ========
Diluted (4)......................................... $ 0.64 $ 0.43 $ 1.99 $ 1.09
======= ======= ======== ========
</TABLE>
9
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. NET INCOME (LOSS) PER SHARE (CONTINUED)
------------------------
(1) We created Genzyme Surgical Products on June 28, 1999. Prior to this date,
the operations of Genzyme Surgical Products were included in the operations
allocated to Genzyme General and, therefore, in the calculation of net
income allocated to Genzyme General Stock.
(2) We are amortizing the debt discount and offering costs of approximately
$7.0 million over the term of these notes, which mature in June 2005.
(3) We are amortizing the debt offering costs of approximately $0.9 million over
the term of these debentures, which mature in August 2003.
(4) We did not include the securities described in the following table in the
computation of Genzyme General's diluted earnings per share because these
securities had an exercise price greater than the average market price of
Genzyme General Stock during the relevant periods:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total shares of Genzyme General Stock issuable
for options.................................... 50 1,680 2,210 1,648
== ===== ===== =====
</TABLE>
MOLECULAR ONCOLOGY STOCK:
In accounting for the acquisition of PharmaGenics, Inc. in June 1997, we
recorded a valuation allowance against a $2.9 million tax asset related to
acquired net operating losses due to the application of our policy of accounting
for income taxes at the divisional level as if each division were a separate
taxpayer. As a result, we recorded and allocated to Genzyme Molecular Oncology
an additional $2.9 million of goodwill that was not recorded at the consolidated
level. The amortization of this goodwill increases the loss allocated to Genzyme
Molecular Oncology and, therefore, the loss allocated to Molecular Oncology
Stock. This goodwill was fully amortized in the second quarter of 2000.
For all periods presented, basic and diluted net loss per share of Molecular
Oncology Stock are the same. We did not include the securities described in the
following table in the computation of
10
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. NET INCOME (LOSS) PER SHARE (CONTINUED)
Molecular Oncology Stock diluted net loss per share for each period because
these securities would have an anti-dilutive effect due to the net loss
allocated to Molecular Oncology Stock.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Shares of Molecular Oncology Stock issuable for options..... 1,083 1,618 783 1,592
Warrants to purchase Molecular Oncology Stock............... 10 10 10 10
Shares of Molecular Oncology Stock issuable upon conversion
of the 5 1/4% convertible subordinated notes.............. 682 682 682 682
Genzyme Molecular Oncology designated shares................ 1,318 728 1,318 728
----- ----- ----- -----
Total shares excluded from the calculation of diluted net
loss per share of Molecular Oncology Stock................ 3,093 3,038 2,793 3,012
===== ===== ===== =====
</TABLE>
SURGICAL PRODUCTS STOCK:
We created Genzyme Surgical Products on June 28, 1999. Prior to this date,
the operations of Genzyme Surgical Products were included in the operations
allocated to Genzyme General and, therefore, in the net income allocated to
Genzyme General Stock. Net loss per share data of Surgical Products Stock is
calculated using the net loss allocated to Genzyme Surgical Products for the
period June 28, 1999 through September 30, 1999 and weighted average shares
outstanding during the same period.
Basic and diluted net loss per share of Surgical Products Stock is the same.
We did not include the securities described in the following table in the
computation of Surgical Products Stock diluted net loss per share for each
period because these securities would have an anti-dilutive effect due to the
net loss allocated to Surgical Products Stock:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Shares of Surgical Products Stock issuable for options...... 628 -- 526 --
Shares of Surgical Products Stock issuable upon conversion
of the 5 1/4% convertible subordinated notes.............. 1,130 1,130 1,130 1,130
Genzyme Surgical Products designated shares (1)............. 35 -- 35 --
----- ----- ----- -----
Total shares excluded from the calculation of diluted net
loss per share of Surgical Products Stock................. 1,793 1,130 1,691 1,130
===== ===== ===== =====
</TABLE>
------------------------
(1) Genzyme Surgical Products designated shares are authorized shares of
Surgical Products Stock that are not issued and outstanding, but which our
board or directors may issue, sell, or distribute without allocating the
proceeds to Genzyme Surgical Products.
11
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. NET INCOME (LOSS) PER SHARE (CONTINUED)
TISSUE REPAIR STOCK:
For all periods presented, basic and diluted net loss per share of Tissue
Repair Stock is the same. We did not include the securities described in the
following table in the computation of Tissue Repair Stock diluted net loss per
share for each period because these securities would have an anti-dilutive
effect due to the net loss allocated to Tissue Repair Stock:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Shares of Tissue Repair Stock issuable for options.......... 2,866 4,198 2,843 3,917
Shares of Tissue Repair Stock issuable upon conversion of 5%
convertible subordinated note (1)......................... -- 3,445 -- 3,445
Genzyme Tissue Repair designated shares..................... 3,845 2,260 3,845 2,260
----- ----- ----- -----
Total shares excluded from the calculation of diluted net
loss per share of Tissue Repair Stock..................... 6,711 9,903 6,688 9,622
===== ===== ===== =====
</TABLE>
------------------------
(1) The conversion of Genzyme Tissue Repair's 5% convertible subordinated note
was completed in the fourth quarter of 1999.
12. SEGMENT REPORTING
We present segment information in a manner consistent with the method we use
to report this information to our management. We have five reportable segments:
- Therapeutics, which develops, manufactures and distributes human
therapeutic products for significant unmet medical needs. The business
derives substantially all of its revenue from sales of
Cerezyme-Registered Trademark- enzyme;
- Diagnostic Products, which provides diagnostic products to niche markets
with a focus on IN VITRO diagnostics;
- Genzyme Molecular Oncology, which is developing cancer products, with a
focus on therapeutic vaccines and angiogenesis inhibitors;
- Genzyme Surgical Products, which develops, manufactures and markets
surgical products for cardiovascular surgery and general surgery; and
- Genzyme Tissue Repair, which develops and markets biological products for
orthopedic injuries, such as cartilage repair, and severe burns.
12
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SEGMENT REPORTING (CONTINUED)
Information concerning the operations in these reportable segments is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Genzyme General:
Therapeutics.................................... $153,840 $123,492 $436,220 $357,756
Diagnostic Products............................. 15,824 14,286 46,601 43,933
Other........................................... 22,343 19,364 66,191 59,274
Eliminations/Adjustments (1).................... 158 527 473 1,677
-------- -------- -------- --------
Total Genzyme General......................... 192,165 157,669 549,485 462,640
Genzyme Molecular Oncology........................ 635 709 4,153 3,455
Genzyme Surgical Products......................... 29,754 27,385 88,805 81,419
Genzyme Tissue Repair............................. 4,853 5,682 17,007 14,370
Eliminations/Adjustments (2)...................... (48) (30) (48) (41)
-------- -------- -------- --------
Total......................................... $227,359 $191,415 $659,402 $561,843
======== ======== ======== ========
Net income (loss):
Net income (loss) allocated to Genzyme General
Stock:
Division net income (loss)--Genzyme General:
Therapeutics.................................. $ 43,050 $ 32,556 $126,565 $ 99,337
Diagnostic Products........................... 865 1,063 2,395 3,263
Other......................................... (260) (2,630) (1,056) (3,958)
Eliminations/Adjustments (3).................. 7,318 (1,018) 32,368 (7,253)
-------- -------- -------- --------
Net income for Genzyme General.................. 50,973 29,971 160,272 91,389
Genzyme Surgical Products net loss (4).......... -- -- -- (27,523)
Tax benefits allocated from other Genzyme
divisions..................................... 8,476 8,216 21,849 30,250
-------- -------- -------- --------
Net income allocated to Genzyme General Stock..... 59,449 38,187 182,121 94,116
Net loss allocated to Molecular Oncology Stock.... (5,504) (7,559) (17,924) (22,777)
Net loss allocated to Surgical Products Stock..... (13,936) (10,953) (34,346) (11,833)
Net loss allocated to Tissue Repair Stock......... (5,588) (6,148) (14,590) (24,146)
Eliminations/Adjustments (5)...................... -- 251 470 766
-------- -------- -------- --------
Total........................................... $ 34,421 $ 13,778 $115,731 $ 36,126
======== ======== ======== ========
</TABLE>
------------------------
(1) Includes primarily amounts related to Genzyme General's corporate research
and development and administrative activities that we do not specifically
allocate to a particular segment of Genzyme General.
(2) Represents the elimination of inter-divisional revenue.
(3) Includes primarily amounts related to Genzyme General's corporate research
and development and administrative activities that we do not specifically
allocate to a particular segment of Genzyme
13
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SEGMENT REPORTING (CONTINUED)
General. The nine months ended September 30, 2000 includes a gain of
$20.3 million relating to a public offering of common shares by Genzyme
Transgenics. (See Note 7., "Gain on Affiliate Sale of Stock," above.) In
addition, the three and nine months ended September 30, 2000 include net
realized gains of $8.5 million and $22.7 million, respectively, resulting
from the sale of a portion of our investments in equity securities (See
Note 8., "Gains (Losses) on Sale of Equity Securities" above.)
(4) Represents losses incurred by Genzyme Surgical Products prior to June 28,
1999. Prior to this date, the operations of Genzyme Surgical Products were
included in the operations allocated to Genzyme General and, therefore, in
the net income allocated to Genzyme General Stock.
(5) Consists primarily of a difference in amortization due to $2.9 million of
additional goodwill associated with the PharmaGenics Inc. acquisition
carried at the Genzyme Molecular Oncology level as compared to amounts
carried at the consolidated level and other adjustments related to our
corporate activities that we do not specifically allocate to a particular
segment. The difference in the amortization results from the application of
our policy to account for income taxes at the divisional level as if each
division were a separate taxpayer.
There has been no material change in segment assets since December 31, 1999.
13. ACQUISITION OF BIOMATRIX, INC. AND FORMATION OF GENZYME BIOSURGERY
In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
completion of the merger, we will form a new operating division called Genzyme
Biosurgery and create a new series of common stock that is intended to reflect
its value and track its performance which we will refer to as "Biosurgery
Stock". We will hold a special meeting of our shareholders on December 15, 2000
at which holders of each of our four series of tracking stock will be asked to
approve a charter amendment creating Biosurgery Stock as a new series of
tracking stock of Genzyme, and eliminating Tissue Repair Stock and Surgical
Products Stock.
In connection with the merger, and upon Genzyme shareholder approval, the
assets and liabilities allocated to Genzyme Surgical Products and Genzyme Tissue
Repair will be re-allocated to Genzyme Biosurgery and shares of Surgical
Products Stock and Tissue Repair Stock will be exchanged for Biosurgery Stock.
Holders of Surgical Products Stock will receive 0.6060 share of Biosurgery Stock
in exchange for each share of Surgical Products Stock they hold and holders of
Tissue Repair Stock will receive 0.3352 share of Biosurgery Stock in exchange
for each share of Tissue Repair Stock they hold. We will account for the
combination of Genzyme Surgical Products and Genzyme Tissue Repair using the
historical basis for each division because the combination of these two
divisions is considered a re-allocation of assets and liabilities within
Genzyme.
We will account for the acquisition of Biomatrix as a purchase. Biomatrix
stockholders will receive $37.00 in cash, one share of Biosurgery Stock, or a
combination of cash and stock for each share of Biomatrix stock they hold. The
merger agreement provides that we will pay cash for up to 28.38% of the
outstanding shares of Biomatrix common stock that receive merger consideration,
or up to approximately $245.0 million.
The acquisition is subject to:
- approval by Biomatrix's shareholders;
14
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. ACQUISITION OF BIOMATRIX, INC. AND FORMATION OF GENZYME BIOSURGERY
(CONTINUED)
- approval by our shareholders, including separate approval by the holders
of shares of Surgical Products Stock and Tissue Repair Stock; and
- other customary closing conditions.
For more information about the merger and the merger consideration, we
encourage you to carefully read the final joint proxy statement/prospectus dated
November 3, 2000, which we filed with the SEC on November 6, 2000.
14. ACQUISITION OF GELTEX PHARMACEUTICALS, INC.
On September 11, 2000, we entered into an agreement to acquire GelTex
Pharmaceuticals, Inc. In connection with the merger, GelTex shareholders will
receive 0.7272 of a share of Genzyme General Stock or $47.50 in cash for each
GelTex share owned, subject to proration to maintain the cash portion of the
consideration at 50%, approximately $509.4 million. We will account for the
merger as a purchase. The merger, which we expect to close by the end of 2000,
is subject to:
- approval by GelTex's shareholders;
- clearance under federal antitrust laws; and
- other customary closing conditions.
For more information about the merger and the merger consideration, we
encourage you to carefully read the final proxy statement/prospectus for the
merger dated November 9, 2000, which we filed with the SEC on November 13, 2000.
15. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133, as amended by SFAS 137 and
SFAS 138, is effective for our fiscal year beginning January 1, 2001. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that we recognize all derivative instruments as
either assets or liabilities in our balance sheet and measure those instruments
at fair value. We are currently assessing the effects of adopting SFAS 133, as
amended, and have not yet made a determination of the impact SFAS 133 will have
on our consolidated results of operations and financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101") which summarizes the staff's
view in applying generally accepted accounting principles to selected revenue
recognition issues. SAB 101 will be effective in the fourth quarter of 2000. We
are currently evaluating the guidance provided in SAB 101 and do not expect its
application to have a material effect on our financial statements.
16. SUBSEQUENT EVENTS
PURDUE PHARMA
In October 2000, we entered into an arrangement with Purdue Pharma L.P.
relating to the discovery and development of cancer antigens. Under this
arrangement, we received approximately
15
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
$12 million in cash, in the form of an up-front fee, research funding and an
equity investment, and will receive approximately $9 million in committed
research funding over the next three years. The equity portion of this
arrangement provided for two affiliates of Purdue Pharma to purchase an
aggregate of 532,066 shares of Molecular Oncology Stock at a premium to the
market price for those shares. We allocate our antigen discovery program to
Genzyme Molecular Oncology.
ATIII LLC
In November 2000, we entered into a non-binding letter of intent with
Genzyme Transgenics pursuant to which Genzyme Transgenics will acquire our
rights in Europe and the Americas for recombinant human antithrombin III. We
currently hold these rights through our 50% ownership interest in ATIII LLC, the
joint venture we formed with Genzyme Transgenics in 1998. Our 50% ownership
interest is currently allocated to Genzyme General. Our board of directors and
the board of directors of Genzyme Transgenics have to approve the transaction in
order for the transfer of rights to occur. The transaction is also subject to
the companies' ability to successfully negotiate definitive agreements and other
customary closing conditions. We expect to complete this transaction by the end
of 2000.
16
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net product sales......................................... $176,891 $142,860 $503,700 $418,401
Net service sales......................................... 15,115 14,270 45,296 42,696
Revenues from research and development contracts:
Related parties......................................... -- 350 245 1,262
Other................................................... 159 189 244 281
-------- -------- -------- --------
Total revenues........................................ 192,165 157,669 549,485 462,640
-------- -------- -------- --------
Operating costs and expenses:
Cost of products sold..................................... 45,190 27,603 114,461 82,706
Cost of services sold..................................... 9,165 8,834 26,937 26,622
Selling, general and administrative....................... 41,780 36,388 122,974 114,446
Research and development (including research and
development related to contracts)....................... 25,567 22,884 83,701 68,896
Amortization of intangibles............................... 1,983 1,978 5,962 6,081
Charge for in-process technology.......................... -- 5,436 -- 5,436
-------- -------- -------- --------
Total operating costs and expenses...................... 123,685 103,123 354,035 304,187
-------- -------- -------- --------
Operating income............................................ 68,480 54,546 195,450 158,453
-------- -------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated affiliates........... (11,420) (9,352) (30,866) (24,077)
Investment income......................................... 11,072 6,970 27,798 23,713
Interest expense.......................................... (4,647) (5,445) (11,639) (15,631)
Minority interest......................................... 977 843 3,185 2,573
Gain on affiliate sale of stock........................... 2,419 1,164 22,689 1,770
Gain on sale of product line.............................. -- 518 -- 8,018
Gain on sale of equity securities......................... 8,544 -- 22,709 1,963
Charge for impaired investment............................ -- -- -- (5,487)
Other..................................................... (43) -- 5,110 --
-------- -------- -------- --------
Total other income (expenses)........................... 6,902 (5,302) 38,986 (7,158)
-------- -------- -------- --------
Income before income taxes.................................. 75,382 49,244 234,436 151,295
Provision for income taxes.................................. (24,409) (19,273) (74,164) (59,906)
-------- -------- -------- --------
Division net income......................................... $ 50,973 $ 29,971 $160,272 $ 91,389
======== ======== ======== ========
Comprehensive income, net of tax:
Division net income....................................... $ 50,973 $ 29,971 $160,272 $ 91,389
-------- -------- -------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments................ (10,340) 6,463 (20,737) (7,349)
-------- -------- -------- --------
Unrealized gains (losses) on securities:
Unrealized gains arising during the period............ 44,394 18,871 51,179 17,982
Reclassification adjustment for (gains) losses
included in division net income..................... -- -- (5,501) 1,945
-------- -------- -------- --------
Unrealized gains on securities, net..................... 44,394 18,871 45,678 19,927
-------- -------- -------- --------
Other comprehensive income................................ 34,054 25,334 24,941 12,578
-------- -------- -------- --------
Comprehensive income........................................ $ 85,027 $ 55,305 $185,213 $103,967
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
17
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 176,316 $ 94,523
Short-term investments.................................... 100,288 214,240
Accounts receivable, net.................................. 157,931 141,949
Inventories............................................... 83,621 84,384
Prepaid expenses and other current assets................. 26,728 17,632
Due from Genzyme Molecular Oncology....................... 4,088 3,793
Due from Genzyme Surgical Products........................ 9,226 6,406
Due from Genzyme Tissue Repair............................ 1,272 683
Deferred tax asset--current............................... 41,441 41,195
---------- ----------
Total current assets.................................... 600,911 604,805
Property, plant and equipment, net.......................... 380,474 362,548
Long-term investments....................................... 415,301 205,142
Notes receivable--related party............................. 10,175 6,603
Intangibles, net............................................ 68,938 75,370
Deferred tax assets--noncurrent............................. -- 19,844
Investment in equity securities............................. 186,883 94,719
Other....................................................... 46,544 30,552
---------- ----------
Total assets............................................ $1,709,226 $1,399,583
========== ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $ 17,648 $ 23,229
Accrued expenses.......................................... 80,406 62,514
Income taxes payable...................................... 51,778 27,946
Deferred revenue.......................................... 4,404 3,475
Current portion of long-term debt and capital lease
obligations............................................. 23 80
---------- ----------
Total current liabilities............................... 154,259 117,244
Long-term debt and capital lease obligations................ 62 --
Convertible subordinated notes and debentures............... 273,415 272,622
Deferred tax liability...................................... 8,797 --
Other....................................................... 2,789 2,103
---------- ----------
Total liabilities....................................... 439,322 391,969
Division equity............................................. 1,269,904 1,007,614
---------- ----------
Total liabilities and division equity................... $1,709,226 $1,399,583
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
18
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Division net income....................................... $ 160,272 $ 91,389
Reconciliation of division net income to net cash provided
by operating activities:
Depreciation and amortization........................... 32,834 33,553
Provision for bad debts................................. 5,303 10,683
Note received from related party and related accrued
interest............................................... (10,175) --
Equity in net loss of unconsolidated affiliates......... 30,866 24,077
Minority interest in net loss of subsidiary............. (3,185) (2,573)
Gain on affiliate sale of stock......................... (22,689) (1,770)
Gain on sale of product line............................ -- (8,018)
Gain on sale of equity securities....................... (22,709) (1,963)
Charge for impaired investment.......................... -- 5,487
Charge for in-process research and development.......... -- 5,436
Deferred income tax expense............................. 5,882 --
Other................................................... 722 763
Increase (decrease) in cash from working capital
changes:
Accounts receivable................................... (28,776) (6,289)
Inventories........................................... (7,813) (1,939)
Prepaid expenses and other current assets............. (813) 7,839
Due from other Genzyme divisions...................... (3,839) (12,494)
Accounts payable, accrued expenses, income taxes
payable and deferred revenue......................... 35,600 44,110
--------- ---------
Net cash provided by operating activities............. 171,480 188,291
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................. (389,549) (342,087)
Sales and maturities of investments....................... 298,344 342,010
Proceeds from sale of equity securities................... 15,773 11,090
Purchase of property, plant and equipment................. (49,973) (32,598)
Acquisitions, net of acquired cash and assumed
liabilities............................................. (342) (6,500)
Investments in unconsolidated affiliates.................. -- (13,700)
Investments in joint ventures............................. (19,639) (28,912)
Repayment of notes receivable............................. -- 8,360
Proceeds from sale of product line........................ -- 5,000
Other..................................................... 3,161 915
--------- ---------
Net cash used in investing activities................. (142,225) (56,422)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Allocated proceeds from issuance of Genzyme General
Stock................................................... 80,064 55,537
Payments of debt and capital lease obligations............ -- (3,525)
Net cash allocated to Genzyme Surgical Products........... -- (50,827)
Net cash allocated to Genzyme Tissue Repair............... (24,910) (29,984)
Other..................................................... 1,276 3,444
--------- ---------
Net cash provided by (used in) financing activities... 56,430 (25,355)
--------- ---------
Effect of exchange rate changes on cash..................... (3,892) (2,890)
--------- ---------
Increase in cash and cash equivalents....................... 81,793 103,624
Cash and cash equivalents at beginning of period............ 94,523 100,012
--------- ---------
Cash and cash equivalents at end of period.................. $ 176,316 $ 203,636
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
19
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited, combined financial statements of Genzyme General for each
period include the balance sheets, results of operations and cash flows of the
businesses we allocate to Genzyme General. We also allocate a portion of our
corporate operations to Genzyme General using methods described in our
allocation policy included in Exhibit 99.1 to our 1999 Form 10-K. These combined
financial statements are prepared using amounts included in our consolidated
financial statements included in this Form 10-Q. We prepared these unaudited,
combined financial statements for Genzyme General following the requirements of
the SEC for interim reporting. As permitted under those rules, certain footnotes
or other financial information that are normally required by generally accepted
accounting principles can be condensed or omitted. We have reclassified certain
1999 data to conform with our 2000 presentation.
These financial statements include all normal and recurring adjustments that
we consider necessary for the fair presentation of Genzyme General's financial
position and operating results. Since these are interim financial statements,
you should also read the financial statements and notes for Genzyme General
included in our 1999 Form 10-K. Revenues, expenses, assets and liabilities can
vary from quarter to quarter. Therefore, the results and trends in these interim
financial statements may not be indicative of the results for future periods.
We established Genzyme Surgical Products as a separate division of Genzyme
in June 1999. The business of Genzyme Surgical Products previously operated as a
business unit of Genzyme General. These unaudited, combined financial statements
reflect the allocated financial position, results of operations and cash flows
of Genzyme General as if Genzyme Surgical Products had been accounted for as a
separate division of Genzyme for all periods presented.
2. INVENTORIES (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials....................................... $23,770 $24,057
Work-in-process..................................... 38,918 40,592
Finished products................................... 20,933 19,735
------- -------
Total........................................... $83,621 $84,384
======= =======
</TABLE>
3. INTERDIVISIONAL FINANCING ARRANGEMENTS
GENZYME MOLECULAR ONCOLOGY
In April 2000, Genzyme Molecular Oncology drew $15.0 million of cash under
its interdivisional financing arrangement with Genzyme General in exchange for
676,254 Genzyme Molecular Oncology designated shares. As required by our
charter, the number of Genzyme Molecular Oncology designated shares was
determined using the average closing price of Molecular Oncology Stock for the
20 trading days beginning on the 30th trading day before the draw. As of
September 30, 2000, $15.0 million remained available to Genzyme Molecular
Oncology under this arrangement.
20
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. INTERDIVISIONAL FINANCING ARRANGEMENTS (CONTINUED)
GENZYME TISSUE REPAIR
In March 2000, Genzyme Tissue Repair made a $5.0 million draw under its
interdivisional financing arrangement with Genzyme General in exchange for
765,169 Genzyme Tissue Repair designated shares. In September 2000, Genzyme
Tissue Repair made a subsequent draw of $5.0 million under this interdivisional
financing arrangement in exchange for 927,488 Genzyme Tissue Repair designated
shares. As required by our charter, the number of Genzyme Tissue Repair
designated shares was determined using the average closing price of Tissue
Repair Stock for the 20 trading days beginning on the 30th trading day before
the draw. As of September 30, 2000, $10.0 million remained available to Genzyme
Tissue Repair under this arrangement.
4. LICENSE AND STRATEGIC ALLIANCE AGREEMENTS
SYNPAC
In March 2000, Genzyme General recorded $19.5 million as research and
development expense, representing the initial amounts payable to Synpac (North
Carolina), Inc. under a license granted by Synpac to us to develop and
commercialize a human alpha-glucosidase enzyme replacement therapy for Pompe
disease produced using a Chinese hamster ovary cell line. In connection with
this license, Genzyme General will pay Synpac certain amounts upon the
achievement of certain development and commercialization milestones. Genzyme
General will also pay Synpac royalties for a specified period of time based on
certain percentages of sales.
PHARMING
In June 2000, we entered into a strategic alliance agreement with Pharming
Group N.V. to share in the development and funding for the commercialization of
a human alpha-glucosidase enzyme replacement therapy. Under the agreement,
Pharming paid us $250,000 in cash and issued us a $10.0 million 7% Convertible
Senior Note due June 1, 2004. This consideration was a reimbursement for 50% of
the amounts Genzyme previously paid to Synpac for product development and
technology fees and expenses. Accordingly, Genzyme recorded the $10.3 million as
a reduction to research and development expense during the three months ended
June 30, 2000.
The note issued by Pharming is convertible at any time at our option into
fully paid and nonassessable ordinary shares of Pharming. We have allocated our
interest in this note to Genzyme General and have classified it as a long-term,
related party note receivable as of September 30, 2000.
CAMBRIDGE ANTIBODY TECHNOLOGY
In September 2000, we entered into a strategic alliance with an affiliate of
Cambridge Antibody Technology Limited to develop and commercialize human
monoclonal antibodies directed against TGF-beta for all clinical indications
other than ophthalmology. Concurrently, we agreed to make a $20.0 million equity
investment in the ordinary shares of Cambridge Antibody Technology Group plc at
a price of L44.59 per share, which was a 15% premium over the average market
price for the shares for the 20 business days preceding the date of the
agreement. In the three month period ended September 30, 2000, we recorded the
value of the premium as a charge to research and development
21
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. LICENSE AND STRATEGIC ALLIANCE AGREEMENTS (CONTINUED)
expense in our statement of operations. We have allocated our TGF-beta program
and our investment in Cambridge Antibody Technology to Genzyme General.
5. GAIN ON AFFILIATE SALE OF STOCK
In February 2000, Genzyme Transgenics Corporation, an unconsolidated
affiliate, completed an offering of 3.5 million shares of Genzyme Transgenics
common stock, resulting in net proceeds to Genzyme Transgenics of $75.2 million
(after the exercise of the underwriter's overallotment option). In accordance
with our policy pertaining to affiliate sales of stock, we recognized a gain of
$20.3 million and recorded a net deferred tax expense of $3.9 million for the
three months ended March 31, 2000. The deferred tax expense is net of a
$3.4 million credit for the reversal of a valuation allowance on a deferred tax
asset. In September 2000, we recorded an additional gain of $2.4 million on our
investment in Genzyme Transgenics as a result of the issuance of additional
shares of common stock by Genzyme Transgenics.
6. GAINS (LOSSES) ON SALE OF EQUITY SECURITIES
In June 2000, Genzyme General recorded a gain of $5.5 million upon the sale
of a portion of our investment in Genzyme Transgenics common stock. During the
second quarter of 2000, the tax effect of this gain was fully offset by the
reversal of a $1.9 million valuation allowance related to previously recognized
capital losses. In the third quarter of 2000, we recorded a gain of
$10.9 million upon the sale of a portion of our investment in Genzyme
Transgenics common stock. As of September 30, 2000 our ownership interest in
Genzyme Transgenics was approximately 26%.
On June 1, 2000, Celtrix Pharmaceuticals, Inc. was acquired by Insmed Inc.
upon which our shares of Celtrix common stock were exchanged on a 1-for-1 basis
for shares of Insmed common stock. On the date of exchange, Genzyme General
recognized a $7.6 million realized gain on the exchange of shares.
7. SETTLEMENT OF LAWSUIT
In April 2000, we received net proceeds of approximately $5.1 million in
connection with the settlement of a lawsuit. We allocated these proceeds to
Genzyme General and recorded them as other income in Genzyme General's
unaudited, combined statements of operations for the nine months ended
September 30, 2000. The lawsuit, initiated in 1993, pertained to insurance
coverage for an accidental spill of Ceredase-Registered Trademark- enzyme at a
fill facility operated by a contractor to Genzyme General.
8. TAX PROVISION
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes............... $(24,409) $(19,273) 27% $(74,164) $(59,906) 24%
Effective tax rate....................... 32% 39% 32% 40%
</TABLE>
22
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. TAX PROVISION (CONTINUED)
Genzyme General's tax rates for both periods vary from the U.S. statutory
tax rate as a result of its:
- provision for state income taxes;
- use of a foreign sales corporation;
- nondeductible amortization of intangibles;
- use of tax credits; and
- share of losses of unconsolidated affiliates.
In the nine months ended September 30, 2000, we reversed valuation
allowances totaling $5.3 million, which reduced Genzyme General's tax rate for
the period by 3.5%.
9. SEGMENT REPORTING
We present segment information in a manner consistent with the method we use
to report this information to our management. Genzyme General has two reportable
segments:
- Therapeutics, which develops, manufactures and distributes human
therapeutic products for significant unmet medical needs. The business
derives substantially all of its revenue from sales of
Cerezyme-Registered Trademark- enzyme; and
- Diagnostic Products, which provides diagnostic products to niche markets
with a focus on IN VITRO diagnostics.
23
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. SEGMENT REPORTING (CONTINUED)
Information concerning the operations in these reportable segments is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Therapeutics...................................... $153,840 $123,492 $436,220 $357,756
Diagnostic Products............................... 15,824 14,286 46,601 43,933
Other............................................. 22,343 19,364 66,191 59,274
Eliminations/Adjustments (1)...................... 158 527 473 1,677
-------- -------- -------- --------
Total........................................... $192,165 $157,669 $549,485 $462,640
======== ======== ======== ========
Division net income:
Therapeutics...................................... $ 43,050 $ 32,556 $126,565 $ 99,337
Diagnostic Products............................... 865 1,063 2,395 3,263
Other............................................. (260) (2,630) (1,056) (3,958)
Eliminations/Adjustments (1)...................... 7,318 (1,018) 32,368 (7,253)
-------- -------- -------- --------
Total........................................... $ 50,973 $ 29,971 $160,272 $ 91,389
======== ======== ======== ========
</TABLE>
------------------------
(1) Includes primarily amounts related to Genzyme General's corporate research
and development and administrative activities that we do not specifically
allocate to a particular segment of Genzyme General. Division net income for
the nine months ended September 30, 2000 also includes a gain of
$20.3 million relating to a public offering of common shares by Genzyme
Transgenics, (See Note 5., "Gain on Affiliate Sale of Stock" above.) In
addition, the three and nine months ended September 30, 2000 include
$8.5 million and $22.7 million, respectively, of net gains resulting from
the sale of a portion of our investments in equity securities (See Note 6.,
"Gains (Losses) on Sale of Equity Securities" above.)
There has been no material change in segment assets since December 31, 1999.
24
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. ACQUISITION OF GELTEX PHARMACEUTICALS, INC.
On September 11, 2000, we entered into an agreement to acquire GelTex
Pharmaceuticals, Inc. In connection with the merger, GelTex shareholders will
receive 0.7272 of a share of Genzyme General Stock or $47.50 in cash for each
GelTex share owned, subject to proration to maintain the cash portion of the
consideration at 50%, approximately $509.4 million. We will account for the
merger as a purchase. The merger, which we expect to close by the end of 2000,
is subject to:
- approval by GelTex's shareholders;
- clearance under federal antitrust laws; and
- other customary closing conditions.
For more information about the merger and the merger consideration, we
encourage you to carefully read the final proxy statement/prospectus for the
merger dated November 9, 2000, which we filed with the SEC on November 13, 2000.
11. NEW ACCOUNTING PRONOUNCEMENTS
We have included information regarding the impact that recently issued
accounting standards will have on our financial statements in Note 15., "New
Accounting Pronouncements," to our unaudited, consolidated financial statements,
which we incorporate into this note.
12. SUBSEQUENT EVENTS
ATIII LLC
In November 2000, we entered into a non-binding letter of intent with
Genzyme Transgenics pursuant to which Genzyme Transgenics will acquire our
rights in Europe and the Americas for recombinant human antithrombin III. We
currently hold these rights through our 50% ownership interest in ATIII LLC, the
joint venture we formed with Genzyme Transgenics in 1998. Our 50% ownership
interest is currently allocated to Genzyme General. Our board of directors and
the board of directors of Genzyme Transgenics have to approve the transaction in
order for the transfer of rights to occur. The transaction is also subject to
the companies' ability to successfully negotiate definitive agreements and other
customary closing conditions. We expect to complete this transaction by the end
of 2000.
25
<PAGE>
GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Royalty and licensing revenue...................... $ 635 $ 709 $ 4,153 $ 1,448
Revenue from research and development contracts--
related party.................................... -- -- -- 496
Service revenue.................................... -- -- -- 1,500
Service revenue--related party..................... -- -- -- 11
------- ------- -------- --------
Total revenues................................... 635 709 4,153 3,455
------- ------- -------- --------
Operating costs and expenses:
Cost of research and development, royalty and
licensing revenue................................ 104 62 299 568
Cost of service revenues........................... -- -- -- 506
Selling, general and administrative................ 1,311 1,168 4,289 4,205
Research and development........................... 5,120 3,815 13,772 12,448
Amortization of intangibles........................ -- 2,956 5,420 8,869
------- ------- -------- --------
Total operating costs and expenses............... 6,535 8,001 23,780 26,596
------- ------- -------- --------
Operating loss....................................... (5,900) (7,292) (19,627) (23,141)
------- ------- -------- --------
Other income (expenses):
Equity in net loss of joint venture................ -- (1,023) -- (2,030)
Investment income.................................. 412 99 662 416
Interest expense................................... (16) (5) (173) (8)
------- ------- -------- --------
Total other income (expense)..................... 396 (929) 489 (1,622)
------- ------- -------- --------
Loss before income taxes............................. (5,504) (8,221) (19,138) (24,763)
Tax benefit.......................................... -- 662 1,214 1,986
------- ------- -------- --------
Division net loss.................................... $(5,504) $(7,559) $(17,924) $(22,777)
======= ======= ======== ========
Comprehensive loss, net of tax:
Division net loss.................................. $(5,504) $(7,559) $(17,924) $(22,777)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities arising
during the period.............................. -- -- -- --
------- ------- -------- --------
Comprehensive loss................................... $(5,504) $(7,559) $(17,924) $(22,777)
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
26
<PAGE>
GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,763 $ 3,587
Short term investments.................................... 15,852 --
Accounts receivable....................................... 142 --
Prepaid expenses and other current assets................. 271 218
------- -------
Total current assets.................................... 24,028 3,805
Equipment, net.............................................. 667 467
Intangibles, net............................................ -- 5,420
------- -------
Total assets............................................ $24,695 $ 9,692
======= =======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accrued expenses.......................................... $ 1,589 $ 676
Due to Genzyme General.................................... 4,088 3,793
Deferred revenue.......................................... 436 225
Current portion of long-term debt and capital lease
obligation.............................................. 105 5,000
------- -------
Total current liabilities............................... 6,218 9,694
Deferred tax liability.................................... -- 1,213
Long-term capital lease obligations....................... 210 --
------- -------
Total liabilities....................................... 6,428 10,907
Division equity............................................. 18,267 (1,215)
------- -------
Total liabilities and division equity....................... $24,695 $ 9,692
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
27
<PAGE>
GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Division net loss......................................... $(17,924) $(22,777)
Reconciliation of division net loss to net cash used in
operating activities:
Depreciation and amortization........................... 5,536 9,063
Equity in net loss of joint venture..................... -- 2,030
Deferred tax benefit.................................... (1,214) (1,986)
Other................................................... (291) (34)
Increase (decrease) in cash from working capital
changes:
Accounts receivable................................... (142) 5,675
Prepaid expenses and other current assets............. (53) 49
Accrued expenses, payable to joint venture, deferred
revenue............................................. 1,124 (923)
Due to Genzyme General................................ 295 (1,600)
-------- --------
Net cash used in operating activities............... (12,669) (10,503)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................. (25,283) --
Sales and maturities of investments....................... 9,722 1,022
Acquisitions of equipment................................. -- (43)
Sale of equipment......................................... -- 188
-------- --------
Net cash provided by (used in) investing
activities........................................ (15,561) 1,167
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Allocated proceeds from issuance of Molecular Oncology
Stock................................................... 22,406 155
Repayments of debt........................................ (5,000) --
Net cash allocated from Genzyme General................... 15,000 --
Other..................................................... -- (2)
-------- --------
Net cash provided by financing activities........... 32,406 153
-------- --------
Increase (decrease) in cash and cash equivalents............ 4,176 (9,183)
Cash and cash equivalents at beginning of period............ 3,587 10,868
-------- --------
Cash and cash equivalents at end of period.................. $ 7,763 $ 1,685
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
28
<PAGE>
GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited, combined financial statements of Genzyme Molecular Oncology
for each period include the balance sheets, results of operations and cash flows
of the businesses we allocate to Genzyme Molecular Oncology. We also allocate a
portion of our corporate operations to Genzyme Molecular Oncology using methods
described in our allocation policy included in Exhibit 99.1 to our 1999
Form 10-K. These combined financial statements are prepared using amounts
included in this Form 10-Q. We prepared these unaudited, combined financial
statements for Genzyme Molecular Oncology following the requirements of the SEC
for interim reporting. As permitted under those rules, certain footnotes or
other financial information that are normally required by generally accepted
accounting principles can be condensed or omitted. We have reclassified certain
1999 data to conform to the 2000 presentation.
These financial statements include all normal and recurring adjustments that
are considered necessary for the fair presentation of Genzyme Molecular
Oncology's financial position and operating results. Since these are interim
financial statements, you should also read the financial statements and notes
for Genzyme Molecular Oncology included in our 1999 Form 10-K. Revenues,
expenses, assets and liabilities can vary from quarter to quarter. Therefore,
the results and trends in these interim financial statements may not be
indicative of results for future periods.
2. OFFERING OF MOLECULAR ONCOLOGY STOCK
Pursuant to a prospectus filed under Rule 424 of the Securities Act of 1933,
as amended, in July 2000 we sold 1,607,400 shares of Molecular Oncology Stock to
a limited number of purchasers at a price of $12.91 per share. We received
approximately $20.7 million of net proceeds from the offering, which we
allocated to Genzyme Molecular Oncology. The proceeds of this offering will be
used primarily to fund Genzyme Molecular Oncology's research, preclinical and
clinical development programs, and for its working capital and general corporate
purposes.
3. INTERDIVISIONAL FINANCING ARRANGEMENT
In April 2000, Genzyme Molecular Oncology drew $15.0 million of cash under
its interdivisional financing arrangement with Genzyme General in exchange for
676,254 Genzyme Molecular Oncology designated shares. As required by our
charter, the number of Genzyme Molecular Oncology designated shares was
determined using the average closing price of Molecular Oncology Stock for the
20 trading days beginning on the 30th trading day before the draw. These funds
will be used primarily to fund research, preclinical and clinical development
programs, and for working capital and general corporate purposes. As of
September 30, 2000, $15.0 million remained available to Genzyme Molecular
Oncology under this arrangement.
4. NEW ACCOUNTING PRONOUNCEMENTS
We have included information regarding the impact that recently issued
accounting standards will have on our financial statements in Note 15., "New
Accounting Pronouncements," to our unaudited, consolidated financial statements,
which we incorporate by reference into this note.
29
<PAGE>
GENZYME MOLECULAR ONCOLOGY
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. SUBSEQUENT EVENT
PURDUE PHARMA
In October 2000, we entered into an arrangement with Purdue Pharma L.P.
relating to the discovery and development of cancer antigens. Under this
arrangement, we received approximately $12 million in cash, in the form of an
up-front fee, research funding and an equity investment, and will receive
approximately $9 million in committed research funding over the next three
years. The equity portion of this arrangement provided for two affiliates of
Purdue Pharma to purchase an aggregate of 532,066 shares of Molecular Oncology
Stock at a premium to the market price for those shares. We allocate our antigen
discovery program to Genzyme Molecular Oncology.
30
<PAGE>
GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues....................................... $ 29,754 $ 27,385 $ 88,805 $ 81,419
-------- -------- -------- --------
Operating costs and expenses:
Cost of products sold.............................. 18,539 16,798 51,170 50,081
Selling, general and administrative................ 17,772 15,114 51,214 46,893
Research and development........................... 7,215 7,131 21,187 21,716
Amortization of intangibles........................ 1,426 1,445 4,279 4,306
-------- -------- -------- --------
Total operating costs and expenses............... 44,952 40,488 127,850 122,996
-------- -------- -------- --------
Operating loss....................................... (15,198) (13,103) (39,045) (41,577)
-------- -------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated affiliates.... -- (32) -- (32)
Investment income.................................. 1,228 2,125 4,619 2,188
Interest expense................................... -- (1) (1) (36)
Other.............................................. 34 58 81 101
-------- -------- -------- --------
Total other income (expenses).................... 1,262 2,150 4,699 2,221
-------- -------- -------- --------
Division net loss.................................... $(13,936) $(10,953) $(34,346) $(39,356)
======== ======== ======== ========
Comprehensive loss, net of tax:
Division net loss.................................. $(13,936) $(10,953) $(34,346) $(39,356)
-------- -------- -------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments......... 62 -- 93 --
Unrealized losses on securities arising during
the period..................................... (268) (2) (4,050) (630)
-------- -------- -------- --------
Other comprehensive loss........................... (206) (2) (3,957) (630)
-------- -------- -------- --------
Comprehensive loss................................... $(14,142) $(10,955) $(38,303) $(39,986)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
31
<PAGE>
GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 25,898 $ 22,673
Short-term investments.................................... 48,787 41,606
Accounts receivable, net.................................. 20,892 19,886
Inventories............................................... 37,990 30,491
Prepaid expenses and other current assets................. 1,853 815
-------- --------
Total current assets.................................... 135,420 115,471
Property, plant and equipment, net.......................... 17,621 17,621
Long-term investments....................................... 12,504 61,846
Intangibles, net............................................ 168,405 172,833
Investment in equity securities............................. 3,651 3,140
Acquisition costs........................................... 4,405 --
Other....................................................... 245 13
-------- --------
Total assets............................................ $342,251 $370,924
======== ========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,145 $ 3,562
Accrued expenses.......................................... 11,409 7,038
Due to Genzyme General.................................... 9,226 6,406
-------- --------
Total current liabilities............................... 25,780 17,006
Division equity............................................. 316,471 353,918
-------- --------
Total liabilities and division equity................... $342,251 $370,924
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
32
<PAGE>
GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Division net loss......................................... $(34,346) $(39,356)
Reconciliation of division net loss to net cash used in
operating activities:
Depreciation and amortization........................... 6,707 5,860
Provision for bad debts................................. 223 250
Other................................................... 1,615 1,033
Increase (decrease) in cash from working capital
changes:
Accounts receivable................................... (1,229) (1,227)
Inventories........................................... (7,499) (9,063)
Prepaid expenses and other current assets............. (1,038) 1,105
Accounts payable and accrued expenses................. 5,954 2,928
Due to Genzyme General................................ 2,820 13,676
-------- --------
Net cash used in operating activities............... (26,793) (24,794)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................. (84,084) (15,161)
Sales and maturities of investments....................... 125,084 25,130
Purchase of equity securities............................. (5,000) --
Purchase of plant and equipment........................... (2,236) (2,313)
Acquisition costs......................................... (4,405) --
Other..................................................... (290) 230
-------- --------
Net cash provided by investing activities........... 29,069 7,886
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Allocated proceeds from issuance of Surgical Products
Stock................................................... 856 --
Net cash allocated from Genzyme General................... -- 50,827
Other..................................................... -- (10)
-------- --------
Net cash provided by financing activities........... 856 50,817
Effect of exchange rate changes on cash..................... 93 --
-------- --------
Increase in cash and cash equivalents....................... 3,225 33,909
Cash and cash equivalents at beginning of period............ 22,673 --
-------- --------
Cash and cash equivalents at end of period.................. $ 25,898 $ 33,909
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
33
<PAGE>
GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
We established Genzyme Surgical Products as a separate division of Genzyme
in June 1999. The business of Genzyme Surgical Products previously operated as a
business unit of Genzyme General. These unaudited, combined financial statements
reflect the allocated financial position, results of operations and cash flows
of Genzyme Surgical Products as if it had been accounted for as a separate
division of Genzyme for all periods presented.
The unaudited, combined financial statements of Genzyme Surgical Products
for each period include the balance sheets, results of operations and cash flows
of the businesses we allocate to Genzyme Surgical Products. We also allocate a
portion of our corporate operations to Genzyme Surgical Products using methods
described in our allocation policy included in Exhibit 99.1 to our 1999
Form 10-K. These combined financial statements are prepared using amounts
included in our consolidated financial statements included in this Form 10-Q. We
prepared these unaudited, combined financial statements for Genzyme Surgical
Products following the requirements of the SEC for interim reporting. As
permitted under those rules, certain footnotes or other financial information
that are normally required by generally accepted accounting principles can be
condensed or omitted. We have reclassified certain 1999 data to conform to our
2000 presentation.
These financial statements include all normal and recurring adjustments that
we consider necessary for the fair presentation of Genzyme Surgical Products'
financial position and operating results. Since these are interim financial
statements, you should also read the financial statements and notes for Genzyme
Surgical Products included in our 1999 Form 10-K. Revenues, expenses, assets and
liabilities can vary from quarter to quarter. Therefore, the results and trends
in these interim financial statements may not be indicative of results for
future periods.
2. INVENTORIES (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials....................................... $20,730 $15,473
Work-in-process..................................... 2,292 2,029
Finished products................................... 14,968 12,989
------- -------
Total........................................... $37,990 $30,491
======= =======
</TABLE>
3. INVESTMENT IN FOCAL, INC.
In April 2000, Focal Inc. exercised its first option under the stock
purchase agreement between Genzyme and Focal. As required by the terms of this
agreement, Genzyme purchased $5.0 million of Focal common stock at a price of
$8.14 per share. We have allocated these shares to Genzyme Surgical Products. We
are committed, at Focal's option, to make future additional equity investments
of up to $10.0 million subject to certain conditions.
34
<PAGE>
GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. SEGMENT INFORMATION
We present segment information in a manner consistent with the method we use
to report this information to our management. Genzyme Surgical Products has two
reportable segments:
- Cardiovascular Surgery, which includes chest drainage and fluid management
systems, a lung sealant product for thoracic surgery, and instruments and
closures used in coronary artery bypass, valve replacement, and other
cardiothoracic surgeries; and
- General Surgery, which includes surgical instruments for general surgery,
and Sepra Film-Registered Trademark- bioresorbable membrane and other
biomaterials to limit post-surgical adhesions.
Information concerning the operations in these reportable segments is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED, AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Cardiovascular Surgery................ $18,803 $19,552 $58,239 $56,985
General Surgery....................... 8,136 5,811 22,497 17,946
Other................................. 2,815 2,022 8,069 6,488
------- ------- ------- -------
Total............................... $29,754 $27,385 $88,805 $81,419
======= ======= ======= =======
Gross Profit:
Cardiovascular Surgery................ $ 6,773 $ 8,094 $23,493 $23,128
General Surgery....................... 3,492 1,795 10,021 6,285
Other................................. 950 698 4,121 1,925
------- ------- ------- -------
Total............................... $11,215 $10,587 $37,635 $31,338
======= ======= ======= =======
</TABLE>
The other category includes amounts attributable primarily to our products
for plastic surgery and products sold to original equipment manufacturers.
There has been no material change in segment assets since December 31, 1999.
5. ACQUISITION OF BIOMATRIX, INC. AND FORMATION OF GENZYME BIOSURGERY
In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
completion of the merger, we will form a new operating division called Genzyme
Biosurgery and create a new series of common stock that is intended to reflect
its value and track its performance which we will refer to as "Biosurgery
Stock". We will hold a special meeting of our shareholders on December 15, 2000
at which holders of each of our four series of tracking stock will be asked to
approve a charter amendment creating Biosurgery Stock as a new series of
tracking stock of Genzyme, and eliminating Tissue Repair Stock and Surgical
Products Stock.
In connection with the merger, and upon Genzyme shareholder approval, the
assets and liabilities allocated to Genzyme Surgical Products and Genzyme Tissue
Repair will be re-allocated to Genzyme Biosurgery and shares of Surgical
Products Stock and Tissue Repair Stock will be exchanged for Biosurgery Stock.
Holders of Surgical Products Stock will receive 0.6060 share of Biosurgery Stock
in
35
<PAGE>
GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITION OF BIOMATRIX, INC. AND FORMATION OF GENZYME BIOSURGERY
(CONTINUED)
exchange for each share of Surgical Products Stock they hold and holders of
Tissue Repair Stock will receive 0.3352 share of Biosurgery Stock in exchange
for each share of Tissue Repair Stock they hold. We will account for the
combination of Genzyme Surgical Products and Genzyme Tissue Repair using the
historical basis for each division because the combination of these two
divisions is considered a re-allocation of assets and liabilities within
Genzyme.
We will account for the acquisition of Biomatrix as a purchase. Biomatrix
stockholders will receive $37.00 in cash, one share of Biosurgery Stock, or a
combination of cash and stock for each share of Biomatrix stock they hold. The
merger agreement provides that we will pay cash for up to 28.38% of the
outstanding shares of Biomatrix common stock that receive merger consideration,
or up to approximately $245.0 million.
The acquisition is subject to:
- approval by Biomatrix's shareholders;
- approval by our shareholders, including separate approval by the holders
of shares of Surgical Products Stock and Tissue Repair Stock; and
- other customary closing conditions.
For more information about the merger and the merger consideration, we
encourage you to carefully read the final joint proxy statement/prospectus dated
November 3, 2000, which we filed with the SEC on November 6, 2000.
6. NEW ACCOUNTING PRONOUNCEMENTS
We have included information regarding the impact that recently issued
accounting standards will have on our financial statements in Note 15, "New
Accounting Pronouncements," to our unaudited, consolidated financial statements,
which we incorporate by reference into this note.
36
<PAGE>
GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues......................................... $ 4,853 $ 5,682 $ 17,007 $ 14,370
------- ------- -------- --------
Operating costs and expenses:
Cost of services sold................................ 2,903 3,558 8,949 9,777
Selling, general and administrative.................. 5,516 5,978 16,881 18,407
Research and development............................. 1,720 2,033 5,043 6,004
------- ------- -------- --------
Total operating costs and expenses................. 10,139 11,569 30,873 34,188
------- ------- -------- --------
Operating loss......................................... (5,286) (5,887) (13,866) (19,818)
------- ------- -------- --------
Other income (expenses):
Equity in net loss of joint venture.................. -- -- -- (3,368)
Investment income.................................... 46 210 254 375
Interest expense..................................... (347) (471) (972) (1,335)
Other................................................ (1) -- (6) --
------- ------- -------- --------
Total other income (expenses)...................... (302) (261) (724) (4,328)
------- ------- -------- --------
Division net loss...................................... $(5,588) $(6,148) $(14,590) $(24,146)
======= ======= ======== ========
Comprehensive loss, net of tax:
Division net loss.................................... $(5,588) $(6,148) $(14,590) $(24,146)
------- ------- -------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments........... 5 -- 16 --
------- ------- -------- --------
Other comprehensive income........................... 5 -- 16 --
------- ------- -------- --------
Comprehensive loss..................................... $(5,583) $(6,148) $(14,574) $(24,146)
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
37
<PAGE>
GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,591 $ 9,373
Accounts receivable, net.................................. 4,814 4,968
Inventories............................................... 2,267 2,394
Other current assets...................................... 317 253
------- -------
Total current assets.................................... 12,989 16,988
Property, plant and equipment, net.......................... 1,868 2,545
Other....................................................... 103 115
------- -------
Total assets............................................ $14,960 $19,648
======= =======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $ 469 $ 1,062
Accrued expenses.......................................... 2,137 3,131
Due to Genzyme General.................................... 1,272 683
------- -------
Total current liabilities............................... 3,878 4,876
Long-term debt.............................................. 18,000 18,000
Other....................................................... 115 227
------- -------
Total liabilities....................................... 21,993 23,103
Division equity............................................. (7,033) (3,455)
------- -------
Total liabilities and division equity................... $14,960 $19,648
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
38
<PAGE>
GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED, AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Division net loss......................................... $(14,590) $(24,146)
Reconciliation of division net loss to net cash used in
operating activities:
Depreciation and amortization........................... 767 985
Provision for bad debts................................. 48 11
Equity in net loss of joint venture..................... -- 3,368
Other................................................... 178 --
Increase (decrease) in cash from working capital
changes:
Accounts receivable................................... 94 (1,645)
Inventories........................................... 127 250
Other current assets.................................. (66) 660
Accounts payable and accrued expenses................. (1,720) 641
Due to Genzyme General................................ 724 418
-------- --------
Net cash used in operating activities............... (14,438) (19,458)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint venture............................... -- (3,595)
Purchase of equipment..................................... (54) (648)
Other..................................................... 13 34
-------- --------
Net cash used in investing activities............... (41) (4,209)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Allocated proceeds from issuance of Tissue Repair Stock,
net..................................................... 796 740
Payments of debt and capital lease obligations............ -- (144)
Cash allocated from Genzyme General....................... 9,910 29,984
Other..................................................... -- (112)
-------- --------
Net cash provided by financing activities........... 10,706 30,468
-------- --------
Effect of exchange rate changes on cash..................... (9) --
-------- --------
Increase (decrease) in cash and cash equivalents............ (3,782) 6,801
Cash and cash equivalents at beginning of period............ 9,373 7,732
-------- --------
Cash and cash equivalents at end of period.................. $ 5,591 $ 14,533
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, combined
financial statements.
39
<PAGE>
GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited, combined financial statements of Genzyme Tissue Repair for
each period include the balance sheets, results of operations and cash flows of
the businesses we allocate to Genzyme Tissue Repair. We also allocate a portion
of our corporate operations to Genzyme Tissue Repair using methods described in
our allocation policy included in Exhibit 99.1 to our 1999 Form 10-K. These
combined financial statements are prepared using amounts included in our
consolidated financial statements included in this Form 10-Q. We prepared these
unaudited, combined financial statements for Genzyme Tissue Repair following the
requirements of the SEC for interim reporting. As permitted under those rules,
certain footnotes or other financial information that are normally required by
generally accepted accounting principles can be condensed or omitted.
These financial statements include all normal and recurring adjustments that
we consider necessary for the fair presentation of Genzyme Tissue Repair's
financial position and operating results. Since these are interim financial
statements, you should also read the financial statements and notes for Genzyme
Tissue Repair included in our 1999 Form 10-K. Revenues, expenses, assets and
liabilities can vary from quarter to quarter. Therefore, the results and trends
in these interim statements may not be indicative of the results for future
periods.
2. INVENTORIES (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials....................................... $ 363 $ 428
Work-in-process..................................... 1,894 1,938
Finished goods...................................... 10 28
------ ------
Total............................................. $2,267 $2,394
====== ======
</TABLE>
3. DIACRIN JOINT VENTURE
In May 1999, we re-allocated our ownership interest in Diacrin/Genzyme LLC,
our joint venture with Diacrin, Inc. to develop and commercialize products using
porcine fetal cells for the treatment of Parkinson's and Huntington's diseases,
from Genzyme Tissue Repair to Genzyme General in exchange for $25.0 million in
cash. In connection with the re-allocation, it was agreed that Genzyme Tissue
Repair would be required to pay to Genzyme General $20.0 million plus accrued
interest at an annual rate of 13.5% if the joint venture had not initiated a
phase 3 clinical trial of NeuroCell-TM--PD by December 31, 2000. In
October 2000, our board of directors extended the milestone timeline to initiate
a phase 3 clinical trial of NeuroCell-TM--PD from December 31, 2000 to June 30,
2001. The milestone date and related financial obligation were extended to
enable the companies to extend the current blinded phase 2 clinical trial to
18 months from 12 months and allow investigators time to complete and review the
results of the trial. If the milestone is not met, any required refund may be
paid to Genzyme General in cash, Genzyme Tissue Repair designated shares, or a
combination of both, at Genzyme Tissue Repair's option.
4. INTERDIVISIONAL FINANCING ARRANGEMENT
In March 2000, Genzyme Tissue Repair made a $5.0 million draw under its
interdivisional financing arrangement with Genzyme General in exchange for
765,169 Genzyme Tissue Repair
40
<PAGE>
GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION
NOTES TO UNAUDITED, COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. INTERDIVISIONAL FINANCING ARRANGEMENT (CONTINUED)
designated shares. In September 2000, Genzyme Tissue Repair made a subsequent
draw of $5.0 million under this interdivisional financing arrangement in
exchange for 927,488 Genzyme Tissue Repair designated shares. As required by our
charter, the number of Genzyme Tissue Repair designated shares was determined
using the average closing price of Tissue Repair Stock for the 20 trading days
beginning on the 30th trading day before each draw. The funds will be used for
Genzyme Tissue Repair's operating needs. As of September 30, 2000,
$10.0 million remained available to Genzyme Tissue Repair under this
arrangement.
5. ACQUISITION OF BIOMATRIX, INC. AND FORMATION OF GENZYME BIOSURGERY
In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
completion of the merger, we will form a new operating division called Genzyme
Biosurgery and create a new series of common stock that is intended to reflect
its value and track its performance which we will refer to as "Biosurgery
Stock". We will hold a special meeting of our shareholders on December 15, 2000
at which holders of each of our series of four tracking stock will be asked to
approve a charter amendment creating Biosurgery Stock as a new series of
tracking stock of Genzyme, and eliminating Tissue Repair Stock and Surgical
Products Stock.
In connection with the merger, and upon Genzyme shareholder approval, the
assets and liabilities allocated to Genzyme Surgical Products and Genzyme Tissue
Repair will be re-allocated to Genzyme Biosurgery and shares of Surgical
Products Stock and Tissue Repair Stock will be exchanged for Biosurgery Stock.
Holders of Surgical Products Stock will receive 0.6060 share of Biosurgery Stock
in exchange for each share of Surgical Products Stock they hold and holders of
Tissue Repair Stock will receive 0.3352 share of Biosurgery Stock in exchange
for each share of Tissue Repair Stock they hold. We will account for the
combination of Genzyme Surgical Products and Genzyme Tissue Repair using the
historical basis for each division because the combination of these two
divisions is considered a re-allocation of assets and liabilities within
Genzyme.
We will account for the acquisition of Biomatrix as a purchase. Biomatrix
stockholders will receive $37.00 in cash, one share of Biosurgery Stock, or a
combination of cash and stock for each share of Biomatrix stock they hold. The
merger agreement provides that we will pay cash for up to 28.38% of the
outstanding shares of Biomatrix common stock that receive merger consideration,
or up to approximately $245.0 million.
The acquisition is subject to:
- approval by Biomatrix's shareholders;
- approval by our shareholders, including separate approval by the holders
of shares of Surgical Products Stock and Tissue Repair Stock; and
- other customary closing conditions.
For more information about the merger and the merger consideration, we
encourage you to carefully read the final joint proxy statement/prospectus dated
November 3, 2000, which we filed with the SEC on November 6, 2000.
6. NEW ACCOUNTING PRONOUNCEMENTS
We have included information regarding the impact that recently issued
accounting standards will have on our financial statements in Note 15., "New
Accounting Pronouncements," to our unaudited, consolidated financial statements,
which we incorporate by reference into this note.
41
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion contains forward-looking statements. These forward-looking
statements represent the expectations of our management as of the filing date of
this report. Actual results could differ materially from those anticipated by
the forward-looking statements due to the risks and uncertainties described in
this Form 10-Q under the heading "Note Regarding Forward-Looking Statements" and
in Exhibit 99.2, "Factors Affecting Future Operating Results," to our 1999
Form 10-K. You should consider carefully each of these risks and uncertainties
in evaluating our financial condition and results of operations.
We are a biotechnology company that develops innovative products and
services for significant unmet medical needs. We have four operating divisions:
- Genzyme General, which develops and markets:
- therapeutic products, with an expanding focus on products to treat
patients suffering from lysosomal storage disorders and other specialty
therapeutics;
- diagnostic products, with a focus on IN VITRO diagnostics; and
- other products and services, such as genetic testing services and lipids
and peptides for drug delivery.
- Genzyme Molecular Oncology, which is developing cancer products, with a
focus on therapeutic vaccines and angiogenesis inhibitors;
- Genzyme Surgical Products, which develops, manufactures and markets
surgical products for cardiovascular surgery and general surgery; and
- Genzyme Tissue Repair, which develops and markets biological products for
orthopedic injuries, such as cartilage damage, and severe burns.
In June 1997, we formed Genzyme Molecular Oncology as a separate division of
Genzyme by acquiring PharmaGenics, Inc. and combining it with several of our
ongoing programs in the field of oncology.
In June 1999, we established Genzyme Surgical Products as a separate
division of Genzyme. The business of Genzyme Surgical Products previously
operated as a business unit of Genzyme General. The discussion that follows
reflects the results of operations as if Genzyme Surgical Products had existed
as a separate division of Genzyme for all periods presented.
The greater segregation of assets, liabilities and earnings (losses)
resulting from the creation of Genzyme Molecular Oncology and Genzyme Surgical
Products is a trend that we do not expect to continue. As discussed below,
Genzyme Surgical Products and Genzyme Tissue Repair will be combined into
Genzyme Biosurgery upon the completion of the Biomatrix acquisition, reducing
the segregation of assets among our divisions and reducing the number of series
of our common stock outstanding. As market or competitive conditions warrant, we
may create new series of tracking stock or change our earnings allocation
methodology. However, at the present time, we have no plans to do so.
We have four series of common stock--Genzyme General Stock, Molecular
Oncology Stock, Surgical Products Stock and Tissue Repair Stock--which we refer
to as "tracking stock." Unlike typical common stock, each of our tracking stocks
is designed to track the financial performance of a specific subset of our
business operations and its allocated assets, rather than operations and assets
of our entire company. The chief mechanisms intended to cause each tracking
stock to "track" the financial
42
<PAGE>
performance of each division are provisions in our charter governing dividends
and distributions. Under these provisions, our charter:
- factors the assets and liabilities and income or losses attributable to a
division into the determination of the amount available to pay dividends
on the associated tracking stock; and
- requires us to exchange, redeem or distribute a dividend to the holders of
Molecular Oncology Stock, Surgical Products Stock, or Tissue Repair Stock
if all or substantially all of the assets allocated to those corresponding
divisions are sold to a third party (a dividend or redemption payment must
equal in value the net after-tax proceeds from the sale; an exchange must
be for Genzyme General Stock at a 10% premium to the exchanged stock's
average market price following the announcement of the sale).
To determine earnings per share, we allocate Genzyme's earnings to each
series of our common stock based on the earnings attributable to that series of
stock. The earnings attributable to each series of stock is defined in our
charter as the net income or loss of the corresponding division determined in
accordance with generally accepted accounting principles and as adjusted for tax
benefits allocated to or from the division in accordance with our management and
accounting policies. Our charter also requires that all income and expenses of
Genzyme be allocated among the divisions in a reasonable and consistent manner.
However, subject to fiduciary duties, our board of directors can, at its
discretion, change the methods of allocating earnings to each series of common
stock. We intend to allocate earnings using our current methods for the
foreseeable future. Our board of directors has also adopted accounting policies
relating to the management of our operating divisions. These policies are set
forth in Exhibit 99.1 to our 1999 Form 10-K.
Because the earnings allocated to each series of stock are based on the
income or losses attributable to each corresponding division, we include
financial statements and management's discussion and analysis of Genzyme
Corporation and of each division to aid investors in evaluating Genzyme's
performance and the performance of each of its divisions.
While each tracking stock is designed to reflect a division's performance,
it is common stock of Genzyme Corporation and not of a division; each division
is not a company or legal entity, and therefore, cannot issue stock.
Consequently, holders of a series of tracking stock have no specific rights to
assets allocated to the corresponding division. Genzyme Corporation continues to
hold title to all of the assets allocated to each division and is responsible
for all of its liabilities, regardless of what we deem for financial statement
presentation purposes as allocated to any division. Holders of each tracking
stock, as common stockholders, are therefore subject to the risks of investing
in the businesses, assets and liabilities of Genzyme as a whole. For instance,
the assets allocated to each division are subject to company-wide claims of
creditors, product liability plaintiffs and stockholder litigation. Also, in the
event of a Genzyme liquidation, insolvency or similar event, holders of each
tracking stock would only have the rights of common stockholders in the combined
assets of Genzyme.
We provide separate financial statements for each of our divisions as well
as consolidated financial statements that include the consolidated results of
each of our divisions and our corporate operations taken as a whole. These
financial statements are prepared in accordance with generally accepted
accounting principles. You should read this discussion and analysis of our
financial position and results of operations in conjunction with those
unaudited, consolidated financial statements and related notes, which are
included in this report.
In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
completion of the merger, we will form a new operating division, and the assets
and liabilities allocated to Genzyme Surgical Products and Genzyme Tissue Repair
will be re-allocated to that new division. For more information, you should read
the section entitled "Liquidity and Capital Resources" below.
43
<PAGE>
A. RESULTS OF OPERATIONS
GENZYME CORPORATION
The components of our consolidated statements of operations are described in
the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......................... $227,359 $191,415 19% $659,402 $561,843 17%
-------- -------- -------- --------
Cost of products and services sold...... 75,797 56,763 34% 201,517 169,651 19%
Selling, general and administrative..... 66,379 58,648 13% 195,358 183,951 6%
Research and development (including
research and development expenses
related to contracts)................. 39,678 35,925 10% 123,954 109,632 13%
Amortization of intangibles............. 3,409 6,128 (44%) 15,191 18,501 (18%)
Purchase of in-process research and
development........................... -- 5,436 (100%) -- 5,436 (100%)
-------- -------- -------- --------
Total operating costs and expenses.... 185,263 162,900 14% 536,020 487,171 10%
-------- -------- -------- --------
Operating income........................ 42,096 28,515 48% 123,382 74,672 65%
Other income (expenses), net............ 8,258 (4,342) 290% 43,450 (10,887) 499%
-------- -------- -------- --------
Income before income taxes.............. 50,354 24,173 108% 166,832 63,785 162%
Provision for income taxes.............. (15,933) (10,395) 53% (51,101) (27,659) 85%
-------- -------- -------- --------
Net income.............................. $ 34,421 $ 13,778 150% $115,731 $ 36,126 220%
======== ======== ======== ========
</TABLE>
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Product revenue......................... $206,645 $170,215 21% $592,505 $499,790 19%
Service revenue......................... 19,967 19,952 0% 62,280 58,481 6%
-------- -------- -------- --------
Total product and service revenue..... 226,612 190,167 19% 654,785 558,271 17%
-------- -------- -------- --------
Research and development revenue........ 747 1,248 (40%) 4,617 3,572 29%
-------- -------- -------- --------
Total revenues........................ $227,359 $191,415 19% $659,402 $561,843 17%
======== ======== ======== ========
</TABLE>
44
<PAGE>
PRODUCT REVENUE:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Genzyme General:
Therapeutics:
Cerezyme-Registered Trademark-/Ceredase-Registered Trademark-
enzyme............................ $136,744 $121,058 13% $400,203 $351,716 14%
Renagel-Registered Trademark-
phosphate binder.................. 13,814 -- 100% 24,032 -- 100%
Thyrogen-Registered Trademark-
hormone........................... 3,282 2,434 35% 10,149 6,040 68%
Other therapeutic products.......... -- -- 0% 1,836 -- 100%
-------- -------- -------- --------
Total Therapeutics................ 153,840 123,492 25% 436,220 357,756 22%
Diagnostic Products................... 15,824 14,287 11% 46,601 43,933 6%
Other................................. 7,227 5,081 42% 20,879 16,712 25%
-------- -------- -------- --------
Total product revenue--Genzyme
General........................... 176,891 142,860 24% 503,700 418,401 20%
Genzyme Surgical Products:
Cardiovascular........................ 18,804 19,552 (4%) 58,240 56,985 2%
General Surgery....................... 8,136 5,811 40% 22,497 17,946 25%
Other................................. 2,814 1,992 41% 8,068 6,458 25%
-------- -------- -------- --------
Total product revenue--Genzyme
Surgical Products................. 29,754 27,355 9% 88,805 81,389 9%
-------- -------- -------- --------
Total product revenue................... $206,645 $170,215 21% $592,505 $499,790 19%
======== ======== ======== ========
</TABLE>
We derive product revenue from sales by Genzyme General of therapeutic and
diagnostic products and sales by Genzyme Surgical Products of cardiovascular and
general surgery products. Our increase in product revenue during both periods is
partly due to increased sales of Cerezyme-Registered Trademark- enzyme, which is
a therapy for the treatment of Gaucher disease. The increase in sales of
Cerezyme-Registered Trademark- enzyme is attributable to our identification of
new Gaucher disease patients throughout the world and strong international
sales. We also sell Ceredase-Registered Trademark- enzyme for the treatment of
Gaucher disease, but we have successfully converted virtually all Gaucher
disease patients to a treatment regimen using Cerezyme-Registered Trademark-
enzyme.
Our results of operations are highly dependent on sales of
Cerezyme-Registered Trademark- enzyme, and a reduction in revenue from sales of
this product would adversely affect our results of operations.
The following table provides information regarding the change in sales of
our Gaucher disease therapies as a percentage of total product revenue during
both periods.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
% of total product revenue......................... 66% 71% 68% 70%
</TABLE>
Genzyme General began recording revenues from Renagel-Registered Trademark-
phosphate binder (sevelamer hydrochloride) during the second quarter of 2000
under an amended distribution arrangement with its joint venture partner, GelTex
Pharmaceuticals, Inc. Revenues from Renagel-Registered Trademark- phosphate
binder were previously recorded by the joint venture.
Renagel-Registered Trademark- phosphate binder is used to reduce serum
phosphorus levels in patients with end-stage renal disease on dialysis. Sales of
Renagel-Registered Trademark- phosphate
45
<PAGE>
binder include sales of the new tablet formulation, which was launched in the
United States in September 2000.
Sales of Thyrogen-Registered Trademark- hormone, which is an adjunctive
diagnostic tool for well differentiated thyroid cancer, increased in the three
and nine months ended September 30, 2000 due to increased market penetration. We
commenced commercial sales of Thyrogen-Registered Trademark- hormone in
January 1999.
Diagnostic products revenue within Genzyme General increased during both
periods due primarily to increased sales of HDL and LDL cholesterol testing
products, despite the sale of our bioreagent and ELISA product lines in
July 1999. Diagnostic product revenue includes royalties on product sales by
Techne Corporation's biotechnology group.
Genzyme Surgical Products cardiovascular surgery products include chest
drainage and fluid management systems, a lung sealant product for thoracic
surgery and surgical closures, biomaterials, and instruments for conventional
and minimally invasive cardiac surgery. The decrease in cardiovascular surgery
products revenue for the three months ended September 30, 2000 as compared to
the same period in 1999 was primarily due to seasonal fluctuations, the impact
of the strong dollar in Europe and competitive pricing pressures in the chest
drainage market. These factors were offset in part by the launch of the Focal
Seal-Registered Trademark--L lung sealant and by continued growth in the
minimally invasive cardiac surgery product line. Cardiovascular surgery products
revenue increased during the nine months ended September 30, 2000 as compared to
the same period in 1999 primarily due to increased sales of instruments for
minimally invasive cardiac surgery.
Genzyme Surgical Products also experienced an increase in general surgery
products revenue for both periods, which is due primarily to an increase in
sales of Sepra Film-Registered Trademark- bioresorbable membrane and
Sepramesh-TM- biosurgical composite. Sales of Sepra products, which are our line
of hyaluronic acid-based products and product candidates designed to limit
post-surgical adhesions, for the three months ended September 30, 2000 were
$4.9 million compared to $3.0 million in the same period in 1999. Sales of Sepra
products for the nine months ended September 30, 2000 were $13.2 million,
compared to $9.4 million in the same period of 1999. An increase in general
surgery instrument sales also contributed to the overall increase in general
surgery product revenue.
SERVICE REVENUE:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Genzyme General:
Genetic testing........................... $15,115 $14,270 6% $45,296 $42,696 6%
------- ------- ------- -------
Genzyme Molecular Oncology:
Genomics and gene expression.............. -- -- --% -- 1,500 (100%)
------- ------- ------- -------
Genzyme Tissue Repair:
Carticel-Registered Trademark-
chondrocytes............................ 4,021 3,619 11% 13,130 10,359 27%
Epicel-TM- skin grafts.................... 831 2,063 (60%) 3,854 3,926 (2%)
------- ------- ------- -------
Total service revenue--Genzyme Tissue
Repair................................ 4,852 5,682 15% 16,984 14,285 19%
------- ------- ------- -------
Total service revenue....................... $19,967 $19,952 0% $62,280 $58,481 6%
======= ======= ======= =======
</TABLE>
Our service revenues remained relatively stable for the three months ended
September 30, 2000 when compared to the same period in 1999 as an increase in
genetic testing service revenue and an
46
<PAGE>
increase in sales of Carticel-Registered Trademark- chondrocytes for the
treatment of cartilage damage were substantially offset by a decrease in sales
of Epicel-TM- skin grafts. The increase in genetic testing service revenue is a
result of growth in sales of our DNA and cancer testing services. The increase
in sales of Carticel-Registered Trademark- chondrocytes is a result of continued
increases in the number of patients treated as well as an increase in the number
of insurance reimbursement approvals.
During the nine months ended September 30, 2000, our service revenue
increased as compared to the same period of 1999 as a result of increases in
sales of Carticel-Registered Trademark- chondrocytes as well as increased
revenue from genetic testing as discussed above. These increases were partially
offset by a decrease in Epicel-TM- skin grafts as discussed above and a decrease
in genomics service revenue. Revenue from Epicel-TM- skin grafts varies widely
from quarter to quarter depending on the number of patients requiring severe
burn care. The decrease in genomics service revenue in the nine months ended
September 30, 2000 is a result of a planned shift in genomics business focus
from one in which Genzyme Molecular Oncology provides services to third parties
to one in which it grants licenses under SAGE-TM- gene expression technology.
RESEARCH AND DEVELOPMENT REVENUE:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Genzyme General.................................. $159 $ 539 (71%) $ 489 $1,543 (68%)
Genzyme Molecular Oncology....................... 587 709 (17%) 4,105 1,944 111%
Genzyme Tissue Repair............................ 1 -- 100% 23 85 (73%)
---- ------ ------ ------
Total research and development revenue......... $747 $1,248 (40%) $4,617 $3,572 29%
==== ====== ====== ======
</TABLE>
Our research and development revenue decreased during the three months ended
September 30, 2000 as compared to the same period in 1999 primarily due to a
reduction in revenue related to research and development efforts we conducted on
behalf of Genzyme Transgenics Corporation and the absence of revenue related to
StressGen/Genzyme LLC, our joint venture with StressGen Biotechnologies
Corporation and the Canadian Medical Discoveries Fund, Inc. to develop stress
gene therapies for the treatment of cancer which was dissolved at the end of
1999. Research and development revenues for both periods of 1999 include work
performed by Genzyme Molecular Oncology on behalf of this joint venture for
which there was no comparable amount in the same periods of 2000.
Research and development revenues for the nine months ended September 30,
2000 increased when compared to the same period in 1999 as a result of various
increases in royalty and licensing revenue. Royalty and licensing revenue
increased as a result of a license of diagnostic rights, an increase in SAGE-TM-
gene expression technology, and a $2.0 million development milestone payment
received from Schering-Plough Corporation in connection with the advancement by
Schering-Plough Corporation of the p53 tumor suppressor gene in ovarian cancer
clinical trials.
47
<PAGE>
INTERNATIONAL PRODUCT AND SERVICE SALES:
A substantial portion of our revenue is generated outside of the United
States, as described in the following table. Most of these revenues are
attributable to sales of Cerezyme-Registered Trademark- enzyme.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
-------------------- (DECREASE) -------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
International product and service
revenue......................... $89,297 $74,929 19% $264,484 $224,129 18%
% of total product and service
revenue......................... 39% 39% 40% 40%
</TABLE>
MARGINS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Product margin.......................... $142,916 $125,844 14% $426,874 $367,033 16%
% of product revenue.................... 69% 74% 72% 73%
Service margin.......................... 7,899 7,560 4% 26,394 21,587 22%
% of service revenue.................... 40% 38% 42% 37%
Total gross margin...................... $150,815 $133,404 13% $453,268 $388,620 17%
% of total product and service
revenue............................... 67% 70% 69% 70%
</TABLE>
We provide a broad range of health care products and services. As a result,
our gross margins vary significantly based on the category of product or
service. Sales of therapeutic products, including Cerezyme-Registered Trademark-
enzyme, result in higher margins than sales of surgical and diagnostic products.
Our service margin increased during both periods. These increases are
attributable to:
- an increase in sales of DNA and cancer testing services;
- increased sales of Carticel-Registered Trademark- chondrocytes; and
- a reduction in fixed costs, materials and production costs for
Carticel-Registered Trademark- chondrocytes and Epicel-TM- skin grafts.
The increases were partially offset, however, by the reduction in revenue
from our genomics services business.
OPERATING EXPENSE
The increase in selling, general and administrative expenses in both periods
is related to:
- increased staffing to support the growth in several of Genzyme General's
product lines;
- increased expenditures to support the increased sales of
Cerezyme-Registered Trademark- enzyme and Thyrogen-Registered Trademark-
hormone;
- increased spending for marketing of Genzyme Surgical Products'
cardiovascular products, particularly the minimally invasive cardiac
surgery instrument line; and
- for the nine months ended September 30, 2000, $0.4 million of legal and
audit fees related to the registration of a secondary offering of shares
of Molecular Oncology Stock which was subsequently withdrawn.
48
<PAGE>
The increase in selling, general and administrative expenses were partially
offset in both periods by the efforts of Genzyme Tissue Repair to streamline its
operations.
The increase in research and development expense for the three and nine
months ended September 30, 2000 as compared to the same period last year is a
result of the following:
- a charge of $19.5 million during the first quarter of 2000 for the initial
amounts paid to Synpac under a license agreement granted by Synpac to
Genzyme to develop and commercialize a human alpha-glucosidase enzyme
replacement therapy for Pompe disease, offset in part by a $10.3 million
research and development reimbursement received from Pharming;
- increased spending on our program to develop Fabrazyme-TM- enzyme for the
treatment of Fabry disease;
- increased costs in connection with the operations of ATIII LLC, our joint
venture with Genzyme Transgenics for the development and commercialization
of recombinant human transgenic antithrombin III, whose results we
consolidate;
- a charge of $2.0 million in the third quarter of 2000 due to Genzyme
General making an equity investment at a 15% premium to the market price
in shares of Cambridge Antibody Technology Group plc concurrently with
entry into a broad strategic alliance between the companies to develop and
commercialize human monoclonal antibodies directed against TGF-beta. The
portion of this equity investment which was above the market price was
recorded by Genzyme General as research and development expense;
- increased spending in our cell and gene therapy programs;
- increased spending associated with the cancer vaccine clinical trials and
antigen discovery research programs;
- an increase in the number of research personnel and related expenses
required to support our immunotherapy and antiangiogenesis programs; and
- offset by decreased spending resulting from the termination of our
TGF-beta program and other research and development programs allocated to
Genzyme Tissue Repair.
OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Equity in net loss of unconsolidated
affiliates............................. $(11,420) $(10,407) 10% $(30,866) $(29,507) 5%
Investment income........................ 12,758 9,404 36% 33,333 26,692 25%
Interest expense......................... (5,010) (5,922) (15%) (12,785) (17,010) (25%)
Minority interest........................ 977 843 16% 3,185 2,573 24%
Gain on affiliate sale of stock.......... 2,419 1,164 108% 22,689 1,770 1,182%
Gain on sale of product line............. -- 518 (100%) -- 8,018 (100%)
Gain on sale of equity securities........ 8,544 -- 100% 22,709 1,963 1,057%
Charge for impaired investment........... -- -- --% -- (5,487) (100%)
Other.................................... (10) 58 (117%) 5,185 101 5,034%
-------- -------- -------- --------
Total other income (expenses).......... $ 8,258 $ (4,342) 290% $ 43,450 $(10,887) 499%
======== ======== ======== ========
</TABLE>
49
<PAGE>
EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATES:
We currently own approximately 28% of the common stock of Genzyme
Transgenics. We record in net loss of unconsolidated affiliates our portion of
their results. We also record the results of the following joint ventures and
strategic alliances in net loss of unconsolidated affiliates:
<TABLE>
<CAPTION>
JOINT VENTURE/
STRATEGIC ALLIANCE PARTNER(S) EFFECTIVE DATE PRODUCT/INDICATION GENZYME DIVISION
------------------------------- ------------------------ -------------- ------------------------ ------------------
<S> <C> <C> <C> <C>
RenaGel LLC GelTex June 1997 Renagel-Registered Trademark- Genzyme General
Pharmaceuticals, Inc. phosphate binder for the
reduction of serum
phosphorus in patients
with end-stage renal
disease on hemodialysis
BioMarin/Genzyme LLC BioMarin September 1998 Alpha-L-iduronidase for Genzyme General
Pharmaceutical Inc. the treatment of
mucopolysaccharidosis-I
Pharming/Genzyme LLC Pharming Group N.V. October 1998 Transgenically-produced Genzyme General
human alpha-glucosidase
for the treatment of
Pompe disease
Genzyme/Pharming Alliance LLC Pharming Group N.V. June 2000 Human alpha-glucosidase Genzyme General
enzyme replacement
therapy for Pompe
disease produced using a
CHO cell line
Diacrin/Genzyme LLC Diacrin, Inc. October 1996 Products using porcine Genzyme Tissue
fetal cells for the Repair (until
treatment of Parkinson's May 1999);
and Huntington's Genzyme General
diseases (after May 1999)
StressGen/Genzyme LLC StressGen July 1997 Stress gene therapies Genzyme Molecular
Biotechnologies Ltd.; for the treatment of Oncology
Canadian Medical cancer
Discoveries Fund, Inc.
(until October 1999)
</TABLE>
Our equity in net loss of unconsolidated affiliates increased in both
periods as a result of:
- increased losses from RenaGel LLC;
- increased losses from BioMarin/Genzyme LLC;
- increased losses from Diacrin/Genzyme LLC; and
- increased losses from Genzyme Transgenics.
These increases were offset in part by decreased losses from
Pharming/Genzyme LLC and the absence of losses from StressGen/Genzyme LLC, which
was dissolved in the fourth quarter of 1999.
INVESTMENT INCOME:
Investment income increased during both periods of 2000 due to higher
average cash and investment balances.
INTEREST EXPENSE:
Our interest expense decreased during both periods of 2000 as a result of
our repayment in November 1999 of $82.0 million outstanding under our revolving
credit facility.
50
<PAGE>
MINORITY INTEREST:
Due to our combined direct and indirect ownership interest in ATIII LLC, we
consolidate the results of ATIII LLC and record Genzyme Transgenics' portion of
the losses of that joint venture as minority interest. Minority interest for
both periods increased due to increased losses incurred by ATIII LLC.
GAIN ON AFFILIATE SALE OF STOCK:
In February 2000, Genzyme Transgenics, an unconsolidated affiliate,
completed an offering of 3.5 million shares of Genzyme Transgenics common stock,
resulting in net proceeds to Genzyme Transgenics of $75.2 million (after the
exercise of the underwriter's overallotment option). In accordance with our
policy pertaining to affiliate sales of stock, we recognized a gain of
$20.3 million and recorded a net deferred tax expense of $3.9 million for the
three months ended March 31, 2000. The deferred tax expense is net of a
$3.4 million credit for the reversal of the valuation allowance on a deferred
tax asset. In September 2000, we recorded an additional gain of $2.4 million on
our investment in Genzyme Transgenics as a result of the issuance of additional
shares of common stock by Genzyme Transgenics.
GAIN ON SALE OF PRODUCT LINE:
In June 1999, we recorded a gain of $7.5 million representing the payment of
a note receivable that we received as partial consideration for the sale of
Genetic Design, Inc. in 1996. We had previously fully reserved the amount of
this note because we considered the repayment of the note to be uncertain.
GAINS (LOSSES) ON SALE OF EQUITY SECURITIES:
In June 2000, we recorded a gain of $5.5 million upon the sale of a portion
of our investment in Genzyme Transgenics common stock. During the second quarter
of 2000, the tax effect of this gain was fully offset by the reversal of a
$1.9 million valuation allowance related to previously recognized capital
losses. In the third quarter of 2000, we recorded a gain of $10.9 million upon
the sale of a portion of our investment in Genzyme Transgenics common stock. As
of September 30, 2000 our ownership interest in Genzyme Transgenics was
approximately 26%.
On June 1, 2000, Celtrix Pharmaceuticals, Inc. was acquired by Insmed Inc.
upon which our shares of Celtrix common stock were exchanged on a 1-for-1 basis
for shares of Insmed common stock. On the date of the exchange, we recognized a
$7.6 million gain on the exchange of shares.
CHARGE FOR IMPAIRED INVESTMENT:
In June 1999, we recorded a $5.5 million charge in connection with a
strategic investment in a collaborator's common stock because we considered the
decline in the value of that stock to be other than temporary. In connection
with this assessment, we concluded that substantial evidence existed that the
value of the investment would recover to at least its cost. This included
continued positive progress in the issuer's scientific programs, ongoing
activity in our collaborations with the issuer, and a lack of any substantial
company-specific adverse events causing the declines in value. However, given
the significance and duration of the decline as of the end of the applicable
quarter, we concluded that it was unclear over what period such price recovery
would take place and that, accordingly, the positive evidence suggesting that
the investment would recover to at least our purchase price was not sufficient
to overcome the presumption that the current market price was the best indicator
of the value of these investments.
51
<PAGE>
OTHER:
In April 2000, we received net proceeds of approximately $5.1 million in
connection with the settlement of a lawsuit. The lawsuit, initiated in 1993,
pertained to insurance coverage for an accidental spill of
Ceredase-Registered Trademark- enzyme at a fill facility operated by a
contractor to Genzyme. We allocated the net proceeds from the settlement of this
lawsuit to Genzyme General.
TAX PROVISION:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
-------------------- (DECREASE) -------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes........... $(15,933) $(10,395) 53% $(51,101) $(27,659) 85%
Tax rate............................. 32% 43% 31% 43%
</TABLE>
Our tax rates for both periods vary from the U.S. statutory tax rate as a
result of our:
- provision for state income taxes;
- use of a foreign sales corporation;
- nondeductible amortization of intangibles;
- use of tax credits; and
- share of losses of unconsolidated affiliates.
In the nine months ended September 30, 2000, we reversed valuation
allowances totaling $5.3 million, which reduced our tax rate for the period by
4.9%.
EARNINGS ALLOCATIONS
Genzyme allocates its earnings to each of our series of common stock based
on the earnings attributable to that series of stock. The earnings attributable
to each series of stock is defined in our charter as the net income or loss of
the corresponding division determined in accordance with generally accepted
accounting principles and as adjusted for tax benefits allocated to or from the
division in accordance with our management and accounting policies. The earnings
allocated to each series of common stock are indicated in the table below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Earnings allocated to:
Genzyme General Stock.............................. $ 59,449 $ 38,187 $182,121 $ 94,116
Molecular Oncology Stock........................... (5,504) (7,559) (17,924) (22,777)
Surgical Products Stock............................ (13,936) (10,953) (34,346) (11,833)
Tissue Repair Stock................................ (5,588) (6,148) (14,590) (24,146)
</TABLE>
In connection with the creation of Genzyme Surgical Products as a separate
division and the distribution of Surgical Products Stock on June 28, 1999, we
modified the way by which we allocate income and losses to our series of stock.
Through June 27, 1999, the operations of Genzyme Surgical Products were
included in Genzyme General, and the losses of Genzyme Surgical Products were
allocated to Genzyme General Stock. Since June 28, 1999, the losses of Genzyme
Surgical Products have not been included in the determination of income
allocated to Genzyme General Stock. This change in the methodology of allocating
income or losses has resulted in an increase in the income allocated to Genzyme
General Stock that is not due to
52
<PAGE>
operational changes or new business. Subsequent to the creation of Genzyme
Surgical Products, pursuant to our management and accounting policies, tax
benefits generated by Genzyme Surgical Products continued to be allocated to
Genzyme General Stock.
From January 1, 1999 through June 27, 1999, the net loss of Genzyme Surgical
Products of $27.5 million was allocated to Genzyme General Stock. From June 28,
1999 through September 30, 1999, the net loss of Genzyme Surgical Products of
$11.8 million was allocated to Surgical Products Stock and excluded from income
allocated to Genzyme General Stock. As a result of this change in allocation
methodology, income allocated to Genzyme General Stock for the nine months ended
September 30, 1999 was $11.8 million (or 14%) higher than what would have been
allocated had Genzyme Surgical Products remained a part of Genzyme General.
If the shares of Surgical Products Stock initially issued on June 28, 1999
were assumed to be outstanding since January 1, 1999, net income allocated to
Genzyme General Stock, net loss allocated to Surgical Products Stock and
weighted average shares outstanding would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
-------------------
(AMOUNTS IN
THOUSANDS)
<S> <C>
Genzyme General:
Net income allocated to Genzyme General Stock............ $121,639
Weighted average shares outstanding:
Basic.................................................. 82,741
Diluted................................................ 93,196
Genzyme Surgical Products:
Net loss allocated to Surgical Products Stock............ $(39,356)
Weighted average shares outstanding--basic and diluted... 14,800
</TABLE>
As noted above, the tax benefits associated with the losses of Genzyme
Surgical Products that amounted to $4.1 million for the period from June 28,
1999 to September 30, 1999 continued to be allocated to Genzyme General Stock.
Our management and accounting policies provide that if, as of the end of any
fiscal quarter, a division can not 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 other divisions in proportion to
their taxable income without any compensating payments or allocation to the
division generating the benefit. Tax benefits allocated to Genzyme General,
which are included in earnings attributable to Genzyme General Stock, are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax benefits allocated from:
Genzyme Molecular Oncology.............................. $2,021 $2,016 $ 5,558 $ 6,326
Genzyme Surgical Products............................... 4,424 3,841 11,080 14,191
Genzyme Tissue Repair................................... 2,031 2,359 5,211 9,733
------ ------ ------- -------
Total............................................... $8,476 $8,216 $21,849 $30,250
====== ====== ======= =======
Total tax benefits allocated from other Genzyme divisions
as a percent of earnings allocated to Genzyme General
Stock................................................... 14% 22% 12% 32%
</TABLE>
The amount of tax benefits allocated to Genzyme General fluctuate based on
the results of Genzyme Molecular Oncology, Genzyme Surgical Products and Genzyme
Tissue Repair. If the losses of those divisions decline, as they are expected
to, then the tax benefits allocated to Genzyme General will also decline.
53
<PAGE>
GENZYME GENERAL
The components of Genzyme General's combined statements of operations are
described in the following table:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues........................ $192,165 $157,669 22% $549,485 $462,640 19%
-------- -------- -------- --------
Cost of products and services sold.... 54,355 36,437 49% 141,398 109,328 29%
Selling, general and administrative... 41,780 36,388 15% 122,974 114,446 7%
Research and development.............. 25,567 22,884 12% 83,701 68,896 21%
Amortization of intangibles........... 1,983 1,978 0% 5,962 6,081 (2%)
Charge for in-process technology...... -- 5,436 (100%) -- 5,436 (100%)
-------- -------- -------- --------
Total operating costs and
expenses.......................... 123,685 103,123 20% 354,035 304,187 16%
-------- -------- -------- --------
Operating income...................... 68,480 54,546 26% 195,450 158,453 23%
Other income (expense), net........... 6,902 (5,302) 230% 38,986 (7,158) 645%
-------- -------- -------- --------
Income before income taxes............ 75,382 49,244 53% 234,436 151,295 55%
Provision for income taxes............ (24,409) (19,273) 27% (74,164) (59,906) 24%
-------- -------- -------- --------
Division net income................... $ 50,973 $ 29,971 70% $160,272 $ 91,389 75%
======== ======== ======== ========
</TABLE>
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Product revenue....................... $176,891 $142,860 24% $503,700 $418,401 20%
Service revenue....................... 15,115 14,270 6% 45,296 42,696 6%
-------- -------- -------- --------
Total product and service revenue... 192,006 157,130 22% 548,996 461,097 19%
-------- -------- -------- --------
Research and development revenue...... 159 539 (71%) 489 1,543 (68%)
-------- -------- -------- --------
Total revenues...................... $192,165 $157,669 22% $549,485 $462,640 19%
======== ======== ======== ========
</TABLE>
54
<PAGE>
The following table sets forth product and service revenues on a segment
basis:
PRODUCT REVENUE:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Product revenue:
Therapeutics:
Cerezyme-Registered Trademark-/Ceredase-Registered Trademark-
enzyme.......................... $136,744 $121,058 13% $400,203 $351,716 14%
Renagel-Registered Trademark-
phosphate binder................ 13,814 -- 100% 24,032 -- 100%
Thyrogen-Registered Trademark-
hormone......................... 3,282 2,434 35% 10,149 6,040 68%
Other therapeutic products........ -- -- 0% 1,836 -- 100%
-------- -------- -------- --------
Total Therapeutics.............. 153,840 123,492 25% 436,220 357,756 22%
Diagnostic Products................. 15,824 14,287 11% 46,601 43,933 6%
Other............................... 7,227 5,081 42% 20,879 16,712 25%
-------- -------- -------- --------
Total product revenue............. 176,891 142,860 24% 503,700 418,401 20%
Service revenue:
Other............................... 15,115 14,270 6% 45,296 42,696 6%
-------- -------- -------- --------
Total product and service revenue..... $192,006 $157,130 22% $548,996 $461,097 19%
======== ======== ======== ========
</TABLE>
THERAPEUTICS:
Genzyme General's increase in product revenue during both periods is partly
due to increased sales of Cerezyme-Registered Trademark- enzyme, which is
attributable to its identification of new Gaucher disease patients throughout
the world and strong international sales. Genzyme General also sells
Ceredase-Registered Trademark- enzyme for the treatment of Gaucher disease, but
it has successfully converted virtually all Gaucher disease patients to a
treatment regimen using Cerezyme-Registered Trademark- enzyme.
Genzyme General's results of operations are highly dependent on sales of
Cerezyme-Registered Trademark- enzyme and a reduction in revenue from sales of
this product would adversely affect its results of operations.
The following table provides information regarding the change in sales of
Genzyme General's Gaucher disease therapies as a percentage of total product
revenue during both periods.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
% of total product revenue.................... 77% 85% 79% 84%
</TABLE>
Genzyme General began recording revenues from Renagel-Registered Trademark-
phosphate binder (sevelamer hydrochloride) during the third quarter of 2000
under an amended distribution arrangement with its joint venture partner, GelTex
Pharmaceuticals, Inc. Revenues from Renagel-Registered Trademark- phosphate
binder were previously recorded by the joint venture.
Renagel-Registered Trademark- phosphate binder is used to reduce serum
phosphorus levels in patients with end-stage renal disease on dialysis. Sales of
Renagel-Registered Trademark- phosphate binder include sales of all new tablet
formulation, which was launched in the United States in September 2000.
Therapeutics revenues for both periods also include sales of
Thyrogen-Registered Trademark- hormone, which is an adjunctive diagnostic tool
for well differentiated thyroid cancer. Sales of Thyrogen-Registered Trademark-
hormone increased
55
<PAGE>
in the three and nine months ended September 30, 2000 due to increased market
penetration. We commenced commercial sales of Thyrogen-Registered Trademark-
hormone in January 1999.
DIAGNOSTIC PRODUCTS:
Diagnostic Products' revenues increased during both periods due primarily to
increased sales of HDL and LDL cholesterol testing products, despite the sale of
our bioreagent and ELISA product lines in July 1999. Product revenue for
Diagnostic Products includes royalties on product sales by Techne Corporation's
biotechnology group.
Diagnostic Products' service revenue increased during the period as a result
of growth in sales of our DNA and cancer testing services.
OTHER:
Other revenue for both periods includes:
- product revenue from sale of lipids and peptides for drug delivery; and
- genetic testing service revenue.
INTERNATIONAL PRODUCT AND SERVICE SALES:
A substantial portion of Genzyme General's revenue is generated outside of
the United States, as described in the following table. Most of these revenues
are attributable to sales of Cerezyme-Registered Trademark- enzyme.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
International product and service
revenue............................. $80,585 $65,963 22% $237,592 $197,011 21%
% of total product and service
revenue............................. 42% 42% 43% 43%
</TABLE>
MARGINS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Product margin...................... $131,701 $115,257 14% $389,239 $335,695 16%
% of product revenue................ 74% 81% 77% 80%
Service margin...................... 5,950 5,436 9% 18,359 16,074 14%
% of service revenue................ 39% 38% 41% 38%
Total gross margin.................. $137,651 $120,693 14% $407,598 $351,769 16%
% of total product and service
revenue........................... 72% 77% 74% 76%
</TABLE>
Genzyme General provides a broad range of healthcare products and services.
As a result, Genzyme General's gross margin varies significantly based on the
category of product or service. Sales of therapeutic products, including
Cerezyme-Registered Trademark- enzyme, result in higher margins than sales of
diagnostic products.
Our service margin increased during both periods as a result of increases in
sales of DNA and cancer testing services.
56
<PAGE>
OPERATING EXPENSE
The increase in selling, general and administrative expenses in both periods
is related to:
- increased staffing to support the growth in several of Genzyme General's
product lines; and
- increased expenditures to support the increased sales of
Cerezyme-Registered Trademark- enzyme and Thyrogen-Registered Trademark-
hormone.
The increase in research and development expense for the three and nine
months ended September 30, 2000 as compared to the same periods last year is a
result of the following:
- a charge of $19.5 million during the first quarter of 2000 for the initial
amounts payable to Synpac under a license agreement granted by Synpac to
Genzyme to develop and commercialize a human alpha-glucosidase enzyme
replacement therapy for Pompe disease, offset by a $10.3 million research
and development reimbursement from Pharming;
- a charge of $2.0 million in the third quarter of 2000 due to an equity
investment by Genzyme at a 15% premium to the market price in shares of
Cambridge Antibody Technology Group plc concurrently with entry into a
strategic alliance to develop and commercialize human monoclonal
antibodies directed against TGF-beta, the portion of this equity
investment above the market price was recorded by Genzyme General as
research and development expense;
- increased spending on our program to develop Fabrazyme-TM- enzyme for the
treatment of Fabry disease;
- increased costs in connection with the operations of ATIII LLC, a joint
venture with Genzyme Transgenics Corporation, whose results we
consolidate; and
- increased spending in our cell and gene therapy programs.
OTHER INCOME AND EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Equity in net loss of unconsolidated
affiliates.......................... $(11,420) $ (9,352) 22% $(30,866) $(24,077) 28%
Investment income..................... 11,072 6,970 59% 27,798 23,713 17%
Interest expense...................... (4,647) (5,445) (15%) (11,639) (15,631) (26%)
Minority interest..................... 977 843 16% 3,185 2,573 24%
Gain on affiliate sale of stock....... 2,419 1,164 108% 22,689 1,770 1182%
Gain on sale of product line.......... -- 518 (100%) -- 8,018 (100%)
Gain on sale of equity securities..... 8,544 -- 100% 22,709 1,963 1057%
Charge for impaired investment........ -- -- 0% -- (5,487) (100%)
Other................................. (43) -- (100%) 5,110 -- 100%
-------- -------- -------- --------
Total other income (expense)...... $ 6,902 $ (5,302) 230% $ 38,986 $ (7,158) 645%
======== ======== ======== ========
</TABLE>
EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATES:
Genzyme General records in equity in net loss of unconsolidated affiliates
its portion of the results of our joint ventures and strategic alliances with
GelTex, BioMarin Pharmaceutical Inc., Pharming and Diacrin, Inc. Genzyme General
also records a portion of the results of Genzyme Transgenics in equity in net
loss of unconsolidated affiliates.
57
<PAGE>
Genzyme General's equity in net loss of unconsolidated affiliates increased
in both periods as a result of:
- increased losses from RenaGel LLC, our joint venture with GelTex;
- increased losses from our joint venture with BioMarin to develop and
commercialize Aldurazyme-TM- enzyme for the treatment of
mucopolysaccharidosis-I;
- the addition of losses from Genzyme/Pharming Alliance LLC, our new
strategic alliance with Pharming;
- the reallocation of our joint venture with Diacrin from Genzyme Tissue
Repair to Genzyme General in May 1999; and
- increased losses from Genzyme Transgenics.
These increases were offset in part by decreased losses from
Pharming/Genzyme LLC.
INVESTMENT INCOME:
For the three and nine months ended September 30, 2000, investment income
increased as compared to the same period of 1999 due primarily to higher average
cash and investment balances.
INTEREST EXPENSE:
Genzyme General's interest expense decreased during both periods of 2000 as
a result of our repayment in November 1999 of $82.0 million outstanding under
our revolving credit facility, which had been allocated to Genzyme General.
MINORITY INTEREST:
Due to our combined direct and indirect ownership interest in ATIII LLC,
Genzyme General consolidates the results of ATIII LLC and records Genzyme
Transgenics' portion of the losses of that joint venture as minority interest.
Minority interest for both periods increased due to increased losses incurred by
ATIII LLC.
GAIN ON AFFILIATE SALE OF STOCK:
In February 2000, Genzyme Transgenics, an unconsolidated affiliate,
completed an offering of 3.5 million shares of Genzyme Transgenics common stock,
resulting in net proceeds to Genzyme Transgenics of $75.2 million (after the
exercise of the underwriter's overallotment option). In accordance with our
policy pertaining to affiliate sales of stock, we recognized a gain of
$20.3 million and recorded a net deferred tax expense of $3.9 million for the
three months ended March 31, 2000. The deferred tax expense is net of a
$3.4 million credit for the reversal of the valuation allowance on a deferred
tax asset. In September 2000, we recorded an additional gain of $2.4 million on
our investment in Genzyme Transgenics as a result of the issuance of additional
shares of common stock by Genzyme Transgenics.
GAIN ON SALE OF PRODUCT LINE OR BUSINESS:
In June 1999, Genzyme General recorded a gain of $7.5 million representing
the payment of a note receivable that it received as partial consideration for
the sale of Genetic Design, Inc. in 1996. Genzyme General had previously fully
reserved the amount of this note because it considered the repayment of the note
to be uncertain.
58
<PAGE>
GAINS (LOSSES) ON SALE OF EQUITY SECURITIES:
In June 2000, we recorded a gain of $5.5 million upon the sale of a portion
of our investment in Genzyme Transgenics common stock. During the second quarter
of 2000, the tax effect of this gain was fully offset by the reversal of a
$1.9 million valuation allowance related to previously recognized capital
losses. In the third quarter of 2000, we recorded a gain of $10.9 million upon
the sale of a portion of our investment in Genzyme Transgenics common stock. As
of September 30, 2000 our ownership interest in Genzyme Transgenics was
approximately 26%.
On June 1, 2000, Celtrix Pharmaceuticals, Inc. was acquired by Insmed Inc.
upon which our shares of Celtrix common stock were exchanged on a 1-for-1 basis
for shares of Insmed common stock. We recognized a $7.6 million gain upon this
exchange in the three months ended June 30, 2000.
CHARGE FOR IMPAIRED INVESTMENT:
In June 1999, Genzyme General recorded a $5.5 million charge in connection
with a strategic investment in a collaborator's common stock because it
considered the decline in the value of that stock to be other than temporary. In
connection with this assessment, we concluded that substantial evidence existed
that the value of the investment would recover to at least its cost. This
included continued positive progress in the issuer's scientific programs,
ongoing activity in our collaborations with the issuer, and a lack of any
substantial company-specific adverse events causing the declines in value.
However, given the significance and duration of the decline as of the end of the
applicable quarter, we concluded that it was unclear over what period such price
recovery would take place and that, accordingly, the positive evidence
suggesting that the investment would recover to at least our purchase price was
not sufficient to overcome the presumption that the current market price was the
best indicator of the value of these investments.
OTHER:
In April 2000, Genzyme General received net proceeds of approximately
$5.1 million in connection with the settlement of a lawsuit. The lawsuit,
initiated in 1993, pertained to insurance coverage for an accidental spill of
Ceredase-Registered Trademark- enzyme at a fill facility operated by a
contractor to Genzyme General.
TAX PROVISION AND ALLOCATED TAX BENEFITS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes........... $(24,409) $(19,273) 27% $(74,164) $(59,906) 24%
Effective tax rate................... 32% 39% 32% 40%
</TABLE>
Genzyme General's tax rates for both periods vary from the U.S. statutory
tax rate as a result of its:
- provision for state income taxes;
- use of a foreign sales corporation;
- nondeductible amortization of intangibles;
- use of tax credits; and
- share of losses of unconsolidated affiliates.
In the nine months ended September 30, 2000, we reversed valuation
allowances totaling $5.3 million, which reduced Genzyme General's tax rate for
the period by 3.5%.
59
<PAGE>
GENZYME MOLECULAR ONCOLOGY
The components of Genzyme Molecular Oncology's combined statements of
operations are described in the following table:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues........................... $ 635 $ 709 (10%) $ 4,153 $ 3,455 20%
------- ------- -------- --------
Cost of revenues......................... 104 62 68% 299 1,074 (72%)
Selling, general and administrative...... 1,311 1,168 12% 4,289 4,205 2%
Research and development................. 5,120 3,815 34% 13,772 12,448 11%
Amortization of intangibles.............. -- 2,956 (100%) 5,420 8,869 (39%)
------- ------- -------- --------
Total operating costs and expenses... 6,535 8,001 (18%) 23,780 26,596 (11%)
------- ------- -------- --------
Operating loss........................... (5,900) (7,292) (19%) (19,627) (23,141) (15%)
Other income (expenses), net............. 396 (929) 143% 489 (1,622) 130%
------- ------- -------- --------
Division net loss before taxes........... (5,504) (8,221) (33%) (19,138) (24,763) (23%)
Tax benefit.............................. -- 662 (100%) 1,214 1,986 (39%)
------- ------- -------- --------
Division net loss........................ $(5,504) $(7,559) (27%) $(17,924) $(22,777) (21%)
======= ======= ======== ========
</TABLE>
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Royalty and licensing revenue............ $ 635 $ 709 (10%) $ 4,153 $ 1,448 187%
Research and development revenue......... -- -- --% -- 496 (100%)
Service revenue.......................... -- -- --% -- 1,511 (100%)
------- ------- -------- --------
Total revenues....................... $ 635 $ 709 (10%) $ 4,153 $ 3,455 20%
======= ======= ======== ========
</TABLE>
Royalty and licensing revenue increased for the nine month period ended
September 30, 2000 as a result of various licenses of diagnostic rights to third
parties, a development milestone payment received from Schering-Plough
Corporation and the renewal of licenses under the SAGE-TM- gene expression
technology.
Our research and development revenue decreased during both periods as a
result of the dissolution of StressGen/Genzyme LLC in December 1999.
Service revenue decreased for the nine months ended September 30, 2000 as a
result of a planned shift in genomics business focus from one in which Genzyme
Molecular Oncology provides services to third parties to one in which it grants
licenses under the SAGE-TM- gene expression technology.
COST OF REVENUE
Genzyme Molecular Oncology's cost of revenue includes:
- services performed using the SAGE-TM- gene expression technology on behalf
of third parties;
- royalties paid to third parties; and
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- work performed on behalf of StressGen/Genzyme LLC in the three and nine
months ended September 30, 1999. There are no similar costs for work
performed on behalf of the joint venture in the same periods of 2000
because the joint venture was dissolved in the fourth quarter of 1999.
Cost of revenue decreased for both periods as a result of the dissolution of
StressGen/Genzyme LLC in December 1999 and a planned business reduction of
genomics services provided by Genzyme Molecular Oncology.
OPERATING EXPENSES
Genzyme Molecular Oncology's selling, general and administrative expenses
increased for the three months ended September 30, 2000 as compared to the
comparable period of 1999 primarily as a result of increased professional
service fees. Selling, general and administrative expenses for the nine months
ended September 30, 2000 increased slightly in comparison to the same period of
1999 due primarily to $0.4 million of audit and legal fees related to the
registration of a secondary offering which was subsequently withdrawn, which
were offset in part by reduced legal costs associated with the prosecution and
maintenance of its intellectual property portfolio.
The majority of Genzyme Molecular Oncology's research and development
expenses were directed toward its antigen discovery, immunotherapy and
anti-angiogenesis programs. Research and development expenses increased in the
three and nine months ended September 30, 2000 due to spending associated with
the cancer vaccine clinical trials and antigen discovery program.
AMORTIZATION OF INTANGIBLES
Genzyme Molecular Oncology's amortization of intangibles is attributable to
intangible assets acquired in connection with the acquisition of
PharmaGenics, Inc. in June 1997. These assets were fully amortized by the end of
the second quarter of 2000.
OTHER INCOME AND EXPENSE
Genzyme Molecular Oncology's other expenses decreased as a result of the
dissolution of StressGen/Genzyme LLC in December 1999.
GENZYME SURGICAL PRODUCTS
In June 1999, we established Genzyme Surgical Products as a separate
division of Genzyme. The business of Genzyme Surgical Products had previously
been accounted for as a business unit of Genzyme General. The products and
assets allocated to Genzyme Surgical Products consist primarily of:
- the products and assets we acquired upon the purchase of Deknatel Snowden
Pencer, Inc. in 1996;
- the Sepra products (our line of products and product candidates designed
to limit post-surgical adhesions);
- the Focal Seal-Registered Trademark--L product for lung sealing
distributed by Genzyme Surgical Products in North America; and
- our research and development programs in biomaterials and gene and cell
therapy for cardiovascular disease.
Genzyme General transferred $150.0 million in cash, cash equivalents,
investments and certain other assets and liabilities, to Genzyme Surgical
Products in connection with the creation of Genzyme
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Surgical Products as a separate division of Genzyme. The following discussion
reflects the results of operations of Genzyme Surgical Products as if it had
been accounted for as a separate division of Genzyme for all periods presented.
The components of Genzyme Surgical Products' combined statements of
operations are described in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues......................... $ 29,754 $ 27,385 9% $ 88,805 $ 81,419 9%
-------- -------- -------- --------
Cost of products sold.................. 18,539 16,798 10% 51,170 50,081 2%
Selling, general and administrative.... 17,772 15,114 18% 51,214 46,893 9%
Research and development............... 7,215 7,131 1% 21,187 21,716 (2%)
Amortization of intangibles............ 1,426 1,445 (1%) 4,279 4,306 (1%)
-------- -------- -------- --------
Total operating costs and
expenses......................... 44,952 40,488 11% 127,850 122,996 4%
-------- -------- -------- --------
Operating loss......................... (15,198) (13,103) 16% (39,045) (41,577) (6%)
Other income, net...................... 1,262 2,150 (41%) 4,699 2,221 112%
-------- -------- -------- --------
Division net loss...................... $(13,936) $(10,953) 27% $(34,346) $(39,356) (13%)
======== ======== ======== ========
</TABLE>
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Cardiovascular surgery products......... $18,804 $19,552 (4%) $58,240 $56,985 2%
General surgery products................ 8,136 5,811 40% 22,497 17,946 25%
Other products.......................... 2,814 2,022 39% 8,068 6,488 24%
------- ------- ------- -------
Total revenues...................... $29,754 $27,385 9% $88,805 $81,419 9%
======= ======= ======= =======
</TABLE>
Cardiovascular surgery products include chest drainage and fluid management
systems, a lung sealant product for thoracic surgery and surgical closures,
biomaterials, and instruments for conventional and minimally invasive cardiac
surgery. The decrease in cardiovascular surgery products revenue for the three
months ended September 30, 2000 when compared to the same period in 1999 was
primarily due to seasonal fluctuations, the impact of the strong dollar in
Europe and competitive pricing pressures in the chest drainage market. These
factors were offset in part by the launch of the Focal
Seal-Registered Trademark--L lung sealant and by continued growth in the
minimally invasive cardiac surgery instrument product line.
Cardiovascular surgery products revenue increased during the nine months
ended September 30, 2000 when compared to the same period in 1999 primarily due
to increased sales of instruments for minimally invasive cardiac surgery.
The increase in general surgery products revenue for both periods is due
primarily to the increase in sales of Sepra Film-Registered Trademark-
bioresorbable membrane and Sepramesh-TM- biosurgical composite. Sales of Sepra
products for the three months ended September 30, 2000 were $4.9 million
compared to $3.0 million in the same period in 1999. Sales of Sepra products for
the nine months ended September 30, 2000 were $13.2 million compared to
$9.4 million in the same period in 1999. An
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increase in general surgery instrument sales also contributed to the overall
increase in general surgery product revenue.
Other surgery product revenues consist of sales of Genzyme Surgical
Products' Snowden-Pencer-Registered Trademark- line of instruments for plastic
surgery and products sold to original equipment manufacturers, including
sutures. The increase in other surgery product revenues for both periods is
primarily due to an increase in products sold to original equipment
manufacturers as well as an increase in sales of instruments for plastic
surgery.
International revenue as a percentage of total sales for the three months
ended September 30, 2000 were 29% as compared to 28% in the same period of 1999.
International sales as a percentage of total sales for the nine months ended
September 30, 2000 and 1999 was 29% in each period.
MARGINS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Gross margins............................. $11,215 $10,587 6% $37,635 $31,338 20%
% of total revenues....................... 38% 39% 42% 38%
</TABLE>
Genzyme Surgical Products sells a broad range of products. As a result,
Genzyme Surgical Products' gross margins may vary significantly depending on the
particular market conditions of each product line.
Gross margin decreased slightly for the three months ended September 30,
2000 when compared to the same period in 1999 due to seasonal fluctuations in
product mix and a charge for a retirement-plan funding adjustment.
For the nine months ended September 30, 2000, gross margins increased when
compared to the nine months ended September 30, 1999 as a result of an increase
in sales volume, cost reduction initiatives and increased sales of higher margin
products, such as devices for minimally invasive cardiac surgery.
OPERATING EXPENSES
Genzyme Surgical Products' selling, general and administrative expenses
increased for the three months ended September 30, 2000 when compared to the
same period in 1999 due primarily to increased spending for marketing of the
cardiovascular products, including the launch of three new products for the
cardiothoracic market, and spending on certain employee retention programs and
non-operational items.
For the nine months ended September 30, 2000 selling, general and
administrative expenses increased when compared to the same period of 1999 as a
result of increased spending for marketing of the cardiovascular products,
particularly the minimally invasive cardiac surgery instrument line.
Genzyme Surgical Products' research and development expenses remained
relatively stable in the three months ended September 30, 2000 when compared to
the same period in 1999. Research and development expenses decreased in the nine
months ended September 30, 2000 when compared to the same period in 1999
primarily as a result of a $2.0 million milestone payment to a collaborator that
was recorded in the second quarter of 1999 for which there was no corresponding
amount in 2000. This was partially offset by an increase in research and
development expenses for Genzyme Surgical Products' gene therapy programs as
well as an increase in research and development spending for surgical
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instruments and devices during the nine months ended September 30, 2000 compared
to the same period in 1999.
OTHER INCOME AND EXPENSE
Other income and expenses decreased for the three months ended
September 30, 2000 as compared to the same period in 1999 due to a decrease in
investment income. Investment income decreased due to a higher average cash
balance in the third quarter of 1999.
The increase in other income and expenses in the nine months ended
September 30, 2000 as compared to the same period of 1999 is primarily due to an
increase in investment income. Investment income increased because Genzyme
Surgical Products had a higher average cash balance during the nine months ended
September 30, 2000 as a result of the allocation in June 1999 of $150.0 million
in cash and investments from Genzyme General to Genzyme Surgical Products.
GENZYME TISSUE REPAIR
The components of Genzyme Tissue Repair's combined statements of operations
are described in the following table:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues........................... $ 4,853 $ 5,682 (15%) $ 17,007 $ 14,370 18%
------- ------- -------- --------
Cost of services sold.................... 2,903 3,558 (18%) 8,949 9,777 (8%)
Selling, general and administrative...... 5,516 5,978 (8%) 16,881 18,407 (8%)
Research and development................. 1,720 2,033 (15%) 5,043 6,004 (16%)
------- ------- -------- --------
Total operating costs and expenses... 10,139 11,569 (12%) 30,873 34,188 (10%)
------- ------- -------- --------
Operating loss........................... (5,286) (5,887) (10%) (13,866) (19,818) (30%)
Other expenses, net...................... (302) (261) 16% (724) (4,328) (83%)
------- ------- -------- --------
Division net loss........................ $(5,588) $(6,148) (9%) $(14,590) $(24,146) (40%)
======= ======= ======== ========
</TABLE>
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Carticel-Registered Trademark-
chondrocytes.............................. $4,021 $3,619 11% $13,130 $10,359 27%
Epicel-TM- skin grafts...................... 831 2,063 (60%) 3,854 3,926 (2%)
Other....................................... 1 -- 100% 23 85 (73%)
------ ------ ------- -------
Total revenues.......................... $4,853 $5,682 (15%) $17,007 $14,370 18%
====== ====== ======= =======
</TABLE>
Genzyme Tissue Repair's service revenue decreased for the three months
ending September 30, 2000 as compared to the same period of 1999 as a result of
a decrease in sales of Epicel-TM- skin grafts. Revenue from Epicel-TM- skin
grafts varies widely from quarter to quarter depending on the number of patients
requiring severe burn care. For the nine months ended September 30, 2000,
service revenues as compared to the same period in 1999 were higher as a result
of increased sales of Carticel-Registered Trademark- chondrocytes.
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The increase in sales of Carticel-Registered Trademark- chondrocytes during
both periods is a result of continued increases in the numbers of patients
treated as well as an increase in the number of insurance reimbursement
approvals.
MARGINS
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total gross margin.......................... $1,950 $2,124 (8%) $8,058 $4,593 75%
% of total revenue.......................... 40% 37% 47% 32%
</TABLE>
Genzyme Tissue Repair's gross margin improved for the nine months ended
September 30, 2000 compared to the same period in 1999 as a result of:
- increased sales of Carticel-Registered Trademark- chondrocytes;
- a reduction in fixed costs, materials and production costs for
Carticel-Registered Trademark- chondrocytes and Epicel-TM- skin grafts;
and
- continued expense control efforts.
For the three months ended September 30, 2000 gross margin decreased as a
result of lower sales of Epicel-TM- skin grafts. Epicel revenues fluctuate from
quarter to quarter depending on the need for severe burn care.
OPERATING EXPENSES
Genzyme Tissue Repair's selling, general and administrative expenses
decreased in both the three and nine months ended September 30, 2000 as compared
to the same periods of 1999 as a result of its efforts to streamline its
operations. Genzyme Tissue Repair's research and development expenses decreased
in both periods due to the termination of its TGF-beta program and other
research and development programs.
OTHER INCOME AND EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, INCREASE/ SEPTEMBER 30, INCREASE/
------------------- (DECREASE) ------------------- (DECREASE)
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ---------- -------- -------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
Equity in net loss of joint venture............. $ -- $ -- --% $ -- $(3,368) (100%)
Investment income............................... 46 210 (78%) 254 375 (32%)
Interest expense................................ (347) (471) (26%) (972) (1,335) (27%)
Other........................................... (1) -- (100%) (6) -- (100%)
----- ----- ----- -------
Total other income (expense)................ $(302) $(261) 16% $(724) $(4,328) (83%)
===== ===== ===== =======
</TABLE>
For the nine months ended September 30, 2000, equity in net loss of joint
venture as compared to the same period in 1999 decreased as a result of the
reallocation of Genzyme's ownership interest in Diacrin/Genzyme LLC from Genzyme
Tissue Repair to Genzyme General in May 1999.
Investment income decreased in the three and nine months ended
September 30, 2000 as compared to the same periods of 1999 as a result of lower
average cash balances.
Interest expense decreased in both periods of 2000 as a result of the
completion of the conversion of Genzyme Tissue Repair's 5% convertible
subordinated note in the fourth quarter of 1999.
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B. LIQUIDITY AND CAPITAL RESOURCES
GENZYME CORPORATION
At September 30, 2000, we had cash, cash-equivalents, and short- and
long-term investments of $808.3 million, an increase of $155.3 million from
December 31, 1999.
We generated $117.6 million in cash from operations for the nine months
ended September 30, 2000.
Our investing activities utilized net cash of $128.8 million in the first
nine months of 2000 due to the following:
- the sale of a portion of investments in equity securities provided $15.8
million of cash, of which $14.9 million represented the net proceeds from
the sale of a portion of our investment in Genzyme Transgenics common
stock;
- net purchases of investments used $65.8 million of cash;
- $52.3 million was used to fund capital expenditures;
- $19.6 million was used to fund our investments in unconsolidated
affiliates;
- $5.0 million was used for the purchase of Focal, Inc. common stock as
required upon the exercise by Focal of its first option under the stock
purchase agreement between Genzyme and Focal. We are required, at Focal's
option, to make future additional equity investments of up to
$10.0 million subject to certain conditions.
During the nine months ended September 30, 2000, we received $83.4 million
in cash from exercises of stock options and the issuance of stock under our
employee stock purchase plan. We also received $20.7 million of net proceeds
from a directed public offering of shares of Molecular Oncology Stock in July
2000. During this period, we repaid $5.0 million in long-term debt.
In June 2000, we entered into a strategic alliance agreement with Pharming
Group N.V. to share in the development and funding for the commercialization of
a human alpha-glucosidase enzyme replacement therapy for Pompe disease. Under
the agreement, Pharming paid us $250,000 in cash and issued to us a
$10.0 million 7% Convertible Senior Note due June 1, 2004. This consideration
was a reimbursement for 50% of the amounts we previously paid to Synpac for
product development and technology fees and expenses. Accordingly, we recorded
the $10.3 million as a reduction to research and development expense during the
three months ended June 30, 2000. This note is convertible at any time at
Genzyme's option into fully paid and nonassessable ordinary shares of Pharming.
We have allocated our interest in this note to Genzyme General and have
classified it as a long-term, related party note receivable as of September 30,
2000.
In November 1999, we refinanced our $225.0 million revolving credit facility
with a $50.0 million revolving credit facility that matures in November 2000 and
a $100.0 million revolving credit facility that matures in November 2002. At
September 30, 2000, $18.0 million was outstanding under the credit facility that
matures in November 2002. We have allocated the $18.0 million of borrowings to
Genzyme Tissue Repair. We expect to terminate our existing credit facilities to
establish a new $500.0 million revolving credit facility. Under this new credit
facility, we intend to borrow approximately $200.0 million to finance in part
the cash portion of the Biomatrix merger consideration and $150.0 million to
finance in part the cash portion of the GelTex merger consideration. We will
allocate the $200.0 million in borrowings for the Biomatrix acquisition to
Genzyme Biosurgery in connection with its formation as a separate division of
Genzyme and the $150.0 million in borrowings for the GelTex acquisition to
Genzyme General.
Pursuant to a prospectus filed under Rule 424 of the Securities Act of 1933,
in July 2000, we sold 1,607,400 shares of Molecular Oncology Stock to a limited
number of purchasers at a price of $12.91 per share. We received approximately
$20.7 million of net proceeds from the offering, which we allocated to Genzyme
Molecular Oncology. The proceeds of this offering will be used primarily to fund
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Genzyme Molecular Oncology's research, preclinical and clinical development
programs, and for its working capital and general corporate purposes.
Except as noted above, we believe that our available cash, investments and
cash flow from operations will be sufficient to fund our planned operations and
capital requirements for the foreseeable future. Although we currently have
substantial cash resources and positive cash flow, we intend to use substantial
portions of our available cash for:
- product development and marketing;
- expanding facilities;
- working capital; and
- strategic business initiatives.
Our cash reserves may be further reduced to pay principal and interest on
the following debt:
- $21.2 million in principal under our 5% convertible subordinated
debentures, which are convertible into Genzyme General Stock; and
- $250.0 million in principal under our 5 1/4% convertible subordinated
notes, which are convertible into shares of Genzyme General Stock,
Molecular Oncology Stock and Surgical Products Stock.
If we use cash to pay or redeem all or a portion of this debt, including the
principal and interest due on it, our cash reserves will be diminished.
In addition, we expect to pay:
- approximately $245.0 million in cash to stockholders of Biomatrix in
connection with our acquisition of that company, as more fully described
below;
- approximately $509.4 million in cash to stockholders of GelTex in
connection with our acquisition of that company, as more fully described
below; and
- approximately $26.0 million in cash to the limited partners of Genzyme
Development Partners, L.P. if we exercise our option to purchase the
limited partnership interests in that partnership, which option may no
longer be exercised after November 28, 2000.
To satisfy these and other commitments, we will 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.
BIOMATRIX ACQUISITION
In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
completion of the merger, we will form a new operating division called Genzyme
Biosurgery and create a new series of common stock that is intended to reflect
its value and track its performance which we will refer to as "Biosurgery
Stock". We will hold a special meeting of our shareholders on December 15, 2000
at which holders of each of our four series of tracking stock will be asked to
approve a charter amendment creating Biosurgery Stock as a new series of
tracking stock of Genzyme, and eliminating Tissue Repair Stock and Surgical
Products Stock.
In connection with the merger, and upon Genzyme shareholder approval, the
assets and liabilities allocated to Genzyme Surgical Products and Genzyme Tissue
Repair will be re-allocated to Genzyme Biosurgery and shares of Surgical
Products Stock and Tissue Repair Stock will be exchanged for Biosurgery Stock.
Holders of Surgical Products Stock will receive 0.6060 share of Biosurgery Stock
in exchange for each share of Surgical Products Stock they hold and holders of
Tissue Repair Stock will receive 0.3352 share of Biosurgery Stock in exchange
for each share of Tissue Repair Stock they hold. We will account for the
combination of Genzyme Surgical Products and Genzyme Tissue Repair using the
historical basis for each division because the combination of these two
divisions is considered a re-allocation of assets and liabilities within
Genzyme.
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We will account for the acquisition of Biomatrix as a purchase. Biomatrix
stockholders will receive $37.00 in cash, one share of Biosurgery Stock, or a
combination of cash and stock for each share of Biomatrix stock they hold. The
merger agreement provides that we will pay cash for up to 28.38% of the
outstanding shares of Biomatrix common stock that receive merger consideration,
or up to approximately $245.0 million.
The acquisition is subject to:
- approval by Biomatrix's shareholders;
- approval by our shareholders, including separate approval by the holders
of shares of Surgical Products Stock and Tissue Repair Stock; and
- other customary closing conditions.
For more information about the merger and the merger consideration, we
encourage you to carefully read the final joint proxy statement/prospectus dated
November 3, 2000, which we filed with the SEC on November 6, 2000.
The acquisition is subject to:
- approval by Biomatrix's shareholders;
- approval by our shareholders, including separate approval by the holders
of shares of Surgical Products Stock and Tissue Repair Stock; and
- other customary closing conditions.
GELTEX ACQUISITION
On September 11, 2000, we entered into an agreement to acquire GelTex
Pharmaceuticals, Inc. In connection with the merger, GelTex shareholders will
receive 0.7272 of a share of Genzyme General Stock or $47.50 in cash for each
GelTex share owned, subject to proration to maintain the cash portion of the
consideration at 50 percent, approximately $509.4 million. We will account for
the merger as a purchase. The merger, which we expect to close by the end of
2000, is subject to:
- approval by GelTex's shareholders;
- clearance under federal antitrust laws; and
- other customary closing conditions.
For more information about the merger and the merger consideration, we
encourage you to carefully read the final proxy statement/prospectus for the
merger dated November 9, 2000, which we filed with the SEC on November 13, 2000.
EURO-THE NEW EUROPEAN CURRENCY
Since December 31, 1999, there have been no material changes related to our
outstanding derivatives and forward contracts, or any other material contracts
as a result of the euro conversion, nor have there been any material changes in
our competitive position as a result of the conversion. We incorporate our
disclosure related to the euro conversion set forth under the heading
"Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries'
Financial Condition and Results of Operations--Euro--the New European Currency"
in Exhibit 13.1 to our 1999 Form 10-K by reference into this discussion.
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<PAGE>
MARKET RISK
There have been no material changes in our market risk since December 31,
1999. We incorporate our disclosure related to our market risk set forth under
the heading "Management's Discussion and Analysis of Genzyme Corporation and
Subsidiaries' Financial Condition and Results of Operations--Market Risk" in
Exhibit 13.1 to our 1999 Form 10-K by reference into this discussion.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133, as amended by SFAS 137 and
SFAS 138, is effective for our fiscal year beginning January 1, 2001. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that we recognize all derivative instruments as
either assets or liabilities in our balance sheet and measure those instruments
at fair value. We are currently assessing the effects of adopting SFAS 133, as
amended, and have not yet made a determination of the impact SFAS 133 will have
on our consolidated results of operations and financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101. "Revenue
Recognition in Financial Statements" ("SAB 101") which summarizes the staff's
view in applying generally accepted accounting principles to selected revenue
recognition issues. SAB 101 will be effective in the fourth quarter of 2000.
We are currently evaluating the guidance provided in SAB 101 and do not
expect its application to have a material effect on our financial statements.
SUBSEQUENT EVENTS
PURDUE PHARMA
In October 2000, we entered into an arrangement with Purdue Pharma L.P.
relating to the discovery and development of cancer antigens. Under this
arrangement, we received approximately $12 million in cash, in the form of an
up-front fee, research funding and an equity investment, and will receive
approximately $9 million in committed research funding over the next three
years. The equity portion of this arrangement provided for two affiliates of
Purdue Pharma to purchase an aggregate of 532,066 shares of Molecular Oncology
Stock at a premium to the market price for those shares. We allocate our antigen
discovery program to Genzyme Molecular Oncology.
ATIII LLC
In November 2000, we entered into a non-binding letter of intent with
Genzyme Transgenics pursuant to which Genzyme Transgenics will acquire our
rights in Europe and the Americas for recombinant human antithrombin III. We
currently hold these rights through our 50% ownership interest in ATIII LLC, the
joint venture we formed with Genzyme Transgenics in 1998. Our 50% ownership
interest is currently allocated to Genzyme General. Our board of directors and
the board of directors of Genzyme Transgenics have to approve the transaction in
order for the transfer of rights to occur. The transaction is also subject to
the companies' ability to successfully negotiate definitive agreements and other
customary closing conditions. We expect to complete this transaction by the end
of 2000.
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GENZYME GENERAL
At September 30, 2000, Genzyme General had cash, cash-equivalents, and
short- and long-term investments of $691.9 million, an increase of
$178.0 million from December 31, 1999.
Genzyme General generated $171.5 million in cash from operations for the
nine months ended September 30, 2000.
Genzyme General's investing activities utilized $142.2 million for the nine
months ended September 30, 2000 due to the following:
- the sale of a portion of our investments in equity securities provided
$15.8 million of cash, of which $14.9 million represents the net proceeds
from the sale of a portion of our investment in Genzyme Transgenics common
stock;
- net purchases of investments used $91.2 million of cash;
- $50.0 million of cash was used to fund capital expenditures; and
- $19.6 million of cash was used to fund Genzyme General's investments in
joint ventures.
During the nine months ended September 30, 2000, Genzyme General was
allocated $80.1 million in cash from exercises of options to purchase shares of
Genzyme General Stock and the issuance of Genzyme General Stock under our
employee stock purchase plan.
In June 2000, we entered into a strategic alliance agreement with Pharming
Group N.V. to share in the development and funding for the commercialization of
a human alpha-glucosidase enzyme replacement therapy for Pompe disease. Under
the agreement, Pharming paid us $250,000 in cash and issued to us a
$10.0 million 7% Convertible Senior Note due June 1, 2004. This consideration
was a reimbursement for 50% of the amounts we previously paid to Synpac for
product development and technology fees and expenses. Accordingly, we recorded
the $10.3 million as a reduction to research and development expense during the
three months ended June 30, 2000. This note is convertible at any time at
Genzyme's option into fully paid and nonassessable ordinary shares of Pharming.
We have allocated our interest in this note to Genzyme General and have
classified it as a long-term, related party note receivable as of September 30,
2000.
Genzyme General, together with our other operating divisions, has access to
Genzyme's revolving credit facilities. At September 30, 2000, $50.0 million was
available under a facility that matures in November 2000 and $82.0 million was
available under a facility that matures in November 2002. We expect to terminate
our existing credit facilities to establish a new $500.0 million revolving
credit facility. Under this new credit facility, we intend to borrow
approximately $200.0 million to finance in part the cash portion of the
Biomatrix merger consideration and $150.0 million to finance in part the cash
portion of the GelTex merger consideration. We will allocate the $200.0 million
in borrowings for the Biomatrix acquisition to Genzyme Biosurgery in connection
with its formation as a separate division of Genzyme and the $150.0 million in
borrowings for the GelTex acquisition to Genzyme General.
At December 31, 1999, $30.0 million of Genzyme General's cash was available
to Genzyme Molecular Oncology under its interdivisional financing arrangement
with Genzyme General. In April 2000, Genzyme Molecular Oncology drew
$15.0 million of cash under this arrangement in exchange for 676,254 Genzyme
Molecular Oncology designated shares. As of September 30, 2000, $15.0 million
remained available to Genzyme Molecular Oncology under this arrangement. For
information regarding the determination of the amount of Genzyme Molecular
Oncology designated shares authorized in connection with each draw under this
arrangement you should read the section entitled "Liquidity and Capital
Resources--Genzyme Corporation" above.
At December 31, 1999, $20.0 million of Genzyme General's cash was available
to Genzyme Tissue Repair under its interdivisional financing arrangement with
Genzyme General. In March 2000,
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Genzyme Tissue Repair made a $5.0 million draw under this arrangement in
exchange for 765,169 Genzyme Tissue Repair designated shares. In
September 2000, Genzyme Tissue Repair made a subsequent draw of $5.0 million
under this interdivisional financing arrangement in exchange for 927,488 Genzyme
Tissue Repair designated shares. As of September 30, 2000, $10.0 million
remained available under this arrangement. For information regarding the
determination of the amount of Genzyme Tissue Repair designated shares
authorized in connection with each draw under this arrangement you should read
the section entitled "Liquidity and Capital Resources--Genzyme Corporation"
above.
We believe that Genzyme General's available cash, investments and cash flow
from operations will be sufficient to fund its planned operations and capital
requirements for the foreseeable future. Although Genzyme General currently has
substantial cash resources and positive cash flow, it intends to use substantial
portions of its available cash for:
- product development and marketing;
- expanding facilities;
- working capital; and
- strategic business initiatives.
Genzyme General's cash reserves may be further reduced to pay principal and
interest on the following debt that has been allocated to Genzyme General:
- $21.2 million in principal under our 5% convertible subordinated
debentures, which are convertible into shares of Genzyme General Stock;
and
- $250.0 in principal under our 5 1/4% convertible subordinated notes, which
are convertible into shares of Genzyme General Stock.
If Genzyme General uses cash to pay or redeem all or a portion of this debt,
including the principal and interest due on it, its cash reserves will be
diminished. In addition, Genzyme General's cash resources will be reduced to the
extent that the liabilities of Genzyme Molecular Oncology, Genzyme Surgical
Products or Genzyme Tissue Repair affect our consolidated results of operations.
On September 11, 2000, we entered into an agreement to acquire GelTex
Pharmaceuticals, Inc. In connection with the merger, GelTex shareholders will
receive 0.7272 of a share of Genzyme General Stock or $47.50 in cash for each
GelTex share owned, subject to proration to maintain the cash portion of the
consideration at 50%, approximately $509.4 million. We will account for the
merger as a purchase. The merger, which we expect to close by the end of 2000,
is subject to:
- approval by GelTex's shareholders;
- clearance under federal antitrust laws; and
- other customary closing conditions.
For more information about the merger and the merger consideration, we
encourage you to carefully read the final proxy statement/prospectus dated
November 9, 2000 for the merger, which we filed with the SEC on November 13,
2000.
To satisfy these and other commitments, we will have to obtain additional
financing for Genzyme General. 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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GENZYME MOLECULAR ONCOLOGY
At September 30, 2000, Genzyme Molecular Oncology had cash, cash equivalents
and short-term investments of $23.6 million, an increase of $20.0 million from
December 31, 1999. This increase is primarily attributable to the July 2000
offering of Molecular Oncology Stock discussed below.
During the first nine months of 2000, Genzyme Molecular Oncology used
$12.7 million in cash for operations. This is primarily due to Genzyme Molecular
Oncology's net loss for the nine months ended September 30, 2000.
Genzyme Molecular Oncology's investing activities in the first nine months
of 2000 used $25.3 million in cash to purchase investments and provided
$9.7 million from the sale and maturities of investments.
Financing activities provided cash of $32.4 million. This is primarily from
the $15.0 million draw in April 2000 from funds available to Genzyme Molecular
Oncology from Genzyme General discussed below and net proceeds of $20.7 million
from the July 2000 offering of Molecular Oncology Stock discussed below.
Offsetting these two items was a payment of $5.0 million to repay funds borrowed
in 1999 under Genzyme's revolving credit facility.
Genzyme Molecular Oncology, together with our other operating divisions, has
access to Genzyme's revolving credit facilities. At September 30, 2000,
$50.0 million was available under a facility that matures in November 2000 and
$82.0 million was available under a facility that matures in November 2002. We
expect to terminate our existing credit facilities to establish a new
$500.0 million revolving credit facility. Under this new credit facility, we
intend to borrow approximately $200.0 million to finance in part the cash
portion of the Biomatrix merger consideration and $150.0 million to finance in
part the cash portion of the GelTex merger consideration. We will allocate the
$200.0 million in borrowings for the Biomatrix acquisition to Genzyme Biosurgery
in connection with its formation as a separate division of Genzyme and the
$150.0 million in borrowings for the GelTex acquisition to Genzyme General.
At December 31, 1999, $30.0 million of Genzyme General's cash was available
to Genzyme Molecular Oncology under its interdivisional financing arrangement
with Genzyme General. In April 2000, Genzyme Molecular Oncology drew
$15.0 million of cash under this arrangement in exchange for 676,254 Genzyme
Molecular Oncology designated shares. As required by our charter, the number of
Genzyme Molecular Oncology designated shares was determined using the average
closing price for Molecular Oncology Stock for the 20 trading days beginning on
the 30th trading day before the draw. As of September 30, 2000, $15.0 million
was available to Genzyme Molecular Oncology under this arrangement. These funds
will be used primarily to fund research, preclinical and clinical development
programs, and for working capital and general corporate purposes.
Pursuant to a prospectus filed under Rule 424 of the Securities Act of 1933,
as amended, in July 2000, we sold 1,607,400 shares of Molecular Oncology Stock
to a limited number of purchasers at a price of $12.91 per share. We received
approximately $20.7 million of net proceeds from the offering, which we
allocated to Genzyme Molecular Oncology. The proceeds of this offering will be
used primarily to fund Genzyme Molecular Oncology's research, preclinical and
clinical development programs, and for its working capital and general corporate
purposes.
We anticipate that Genzyme Molecular Oncology's current cash resources,
together with amounts available from the following sources, will be sufficient
to fund its operations through the third quarter of 2002:
- revenues generated from license agreements;
- committed research funding from collaborators;
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- the $15.0 million remaining under the interdivisional financing
arrangement with Genzyme General; and
- our revolving credit facilities.
We expect Genzyme Molecular Oncology to have significant operating losses
for the next several years. Genzyme Molecular Oncology plans to spend
substantial amounts of funds on, among other things:
- research and development;
- pre-clinical and clinical testing; and
- pursuing regulatory approvals.
Genzyme Molecular Oncology's cash needs may differ from those planned as a
result of many factors, including the:
- results of research and development and clinical testing;
- achievement of milestones under existing licensing arrangements;
- ability to establish and maintain additional strategic alliances and
licensing arrangements;
- enforcement of patent and other intellectual property rights;
- market acceptance of novel approaches and therapies;
- development of competitive products and services;
- ability to satisfy regulatory requirements of the FDA and other government
authorities; and
- ability to become profitable;
Genzyme Molecular Oncology may require significant additional financing to
continue operations. We cannot guarantee that Genzyme Molecular Oncology will be
able to obtain any additional financing or find it on favorable terms. If
Genzyme Molecular Oncology has insufficient funds or is unable to raise
additional funds, it may delay, reduce or eliminate certain of its programs.
Genzyme Molecular Oncology may also have to give rights to third parties to
attempt to commercialize technologies or products that it would otherwise
commercialize itself.
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GENZYME SURGICAL PRODUCTS
At September 30, 2000, Genzyme Surgical Products had cash, cash equivalents,
and short- and long-term investments of $87.2 million, a decrease of
$38.9 million from December 31, 1999.
Genzyme Surgical Products used $26.8 million in cash for operations in the
first nine months of 2000. This is primarily due to Genzyme Surgical Products'
net loss of $34.3 million for the nine months ended September 30, 2000.
In June 1999, we allocated $150.0 million in cash, cash equivalents,
investments and certain other assets and liabilities from Genzyme General to
Genzyme Surgical Products in connection with the creation of Genzyme Surgical
Products as a separate division of Genzyme.
Genzyme Surgical Products' investing activities provided $29.1 million of
cash due to the following:
- net sales and maturities of investments provided $41.0 million of cash;
- $5.0 million of cash was used to purchase Focal, Inc. common stock as
described below; and
- $2.2 million of cash was used to fund capital expenditures.
In April 2000, Focal, Inc. exercised its first option under the stock
purchase agreement between Genzyme and Focal. As required by the terms of this
agreement, Genzyme purchased $5.0 million of Focal common stock, at a price of
$8.14 per share. We have allocated these shares to Genzyme Surgical Products. We
are committed, at Focal's option, to make additional future equity investments
of up to $10.0 million subject to certain conditions.
Genzyme Surgical Products, together with our other operating divisions, has
access to our revolving credit facilities. At September 30, 2000, $50.0 million
was available under a facility that matures in November 2000 and $77.0 million
was available under a facility that matures in November 2002. We expect to
terminate our existing credit facilities to establish a new $500.0 million
revolving credit facility. Under this new credit facility, we intend to borrow
approximately $200.0 million to finance in part the cash portion of the
Biomatrix merger consideration and $150.0 million to finance in part the cash
portion of the GelTex merger consideration. We will allocate the $200.0 million
in borrowings for the Biomatrix acquisition to Genzyme Biosurgery in connection
with its formation as a separate division of Genzyme and the $150.0 million in
borrowings for the GelTex acquisition to Genzyme General.
In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
completion of the merger, we will form a new operating division called Genzyme
Biosurgery and create a new series of common stock that is intended to reflect
its value and track its performance which we will refer to as "Biosurgery
Stock". We will hold a special meeting of our shareholders on December 15, 2000
at which holders of each of our four series of tracking stock will be asked to
approve a charter amendment creating Biosurgery Stock as a new series of
tracking stock of Genzyme, and eliminating Tissue Repair Stock and Surgical
Products Stock.
In connection with the merger, and upon Genzyme shareholder approval, the
assets and liabilities allocated to Genzyme Surgical Products and Genzyme Tissue
Repair will be re-allocated to Genzyme Biosurgery and shares of Surgical
Products Stock and Tissue Repair Stock will be exchanged for Biosurgery Stock.
Holders of Surgical Products Stock will receive 0.6060 share of Biosurgery Stock
in exchange for each share of Surgical Products Stock they hold and holders of
Tissue Repair Stock will receive 0.3352 share of Biosurgery Stock in exchange
for each share of Tissue Repair Stock they hold. We will account for the
combination of Genzyme Surgical Products and Genzyme Tissue Repair using the
historical basis for each division because the combination of these two
divisions is considered a re-allocation of assets and liabilities within
Genzyme.
We will account for the acquisition of Biomatrix as a purchase. Biomatrix
stockholders will receive $37.00 in cash, one share of Biosurgery Stock, or a
combination of cash and stock for each share of
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Biomatrix stock they hold. The merger agreement provides that we will pay cash
for up to 28.38% of the outstanding shares of Biomatrix common stock that
receive merger consideration, or up to approximately $245.0 million.
The acquisition is subject to:
- approval by Biomatrix's shareholders;
- approval by our shareholders, including separate approval by the holders
of shares of Surgical Products Stock and Tissue Repair Stock; and
- other customary closing conditions.
For more information about the merger and the merger consideration, we
encourage you to carefully read the final joint proxy statement/prospectus dated
November 3, 2000, which we filed with the SEC on November 6, 2000.
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;
- results of research and development efforts;
- the ability to establish and maintain strategic collaborations and
licensing arrangements for research and development programs;
- the achievement of milestones under strategic collaborations;
- the ability to establish and maintain additional distribution
arrangements;
- the enforcement of patent and other intellectual property rights;
- market acceptance of novel approaches and therapies;
- the development of competitive products; and
- the ability to satisfy regulatory requirements of the FDA and other
governmental authorities.
In addition, if we exercise our option to purchase the limited partnership
interests in Genzyme Development Partners, L.P. and use cash to pay all or a
portion of the approximately $26.0 million advance payment to the limited
partners, our cash resources will be diminished. The option is exercisable
during the 90-day period that began on August 31, 2000. Genzyme Development
Partners is a Delaware limited partnership that was formed in 1989 to develop,
produce and derive income from the sale of Sepra products. Its general partner
is a wholly-owned subsidiary of Genzyme.
GENZYME TISSUE REPAIR
At September 30, 2000, Genzyme Tissue Repair had cash and cash equivalents
of $5.6 million, a decrease of $3.8 million from December 31, 1999.
During the first nine months of 2000, Genzyme Tissue Repair used
$14.4 million of cash for operations. This is primarily due to Genzyme Tissue
Repair's net loss of $14.6 million during the period.
Financing activities provided Genzyme Tissue Repair with $10.7 million of
cash. This includes $10.0 million drawn by Genzyme Tissue Repair from funds
available from Genzyme General under an interdivisional financing arrangement
discussed below and the allocation of $0.7 million of cash from
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the exercise of options to purchase shares of Tissue Repair Stock and the
issuance of Tissue Repair Stock under an employee stock plan.
Genzyme Tissue Repair, together with our other operating divisions, has
access to our revolving credit facilities. At September 30, 2000, $50.0 million
was available under a facility that matures in November 2000 and $82.0 million
was available under a facility that matures in November 2002. We expect to
terminate our existing credit facilities to establish a new $500.0 million
revolving credit facility. Under this new credit facility, we intend to borrow
approximately $200.0 million to finance in part the cash portion of the
Biomatrix merger consideration and $150.0 million to finance in part the cash
portion of the GelTex merger consideration. We will allocate the $200.0 million
in borrowings for the Biomatrix acquisition to Genzyme Biosurgery in connection
with its formation as a separate division of Genzyme and the $150.0 million in
borrowings for the GelTex acquisition to Genzyme General.
At December 31, 1999, $20.0 million of Genzyme General's cash was available
to Genzyme Tissue Repair under its interdivisional financing arrangement with
Genzyme General. In March 2000, Genzyme Tissue Repair made a $5.0 million draw
under this arrangement in exchange for 765,169 Genzyme Tissue Repair designated
shares. In September 2000, Genzyme Tissue Repair made a subsequent draw of
$5.0 million under this interdivisional financing arrangement in exchange for
927,488 Genzyme Tissue Repair designated shares. As required by our charter, the
number of Genzyme Tissue Repair designated shares was determined using the
average closing price of Tissue Repair Stock for the 20 trading days beginning
on the 30th trading day before each draw. As of September 30, 2000,
$10.0 million was still available to Genzyme Tissue Repair under this
arrangement.
In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
completion of the merger, we will form a new operating division called Genzyme
Biosurgery and create a new series of common stock that is intended to reflect
its value and track its performance which we will refer to as "Biosurgery
Stock". We will hold a special meeting of our shareholders on December 15, 2000
at which holders of each of our four series of tracking stock will be asked to
approve a charter amendment creating Biosurgery Stock as a new tracking stock of
Genzyme, and eliminating Tissue Repair Stock and Surgical Products Stock.
In connection with the merger, and upon Genzyme shareholder approval, the
assets and liabilities allocated to Genzyme Surgical Products and Genzyme Tissue
Repair will be re-allocated to Genzyme Biosurgery and shares of Surgical
Products Stock and Tissue Repair Stock will be exchanged for Biosurgery Stock.
Holders of Surgical Products Stock will receive 0.6060 share of Biosurgery Stock
in exchange for each share of Surgical Products Stock they hold and holders of
Tissue Repair Stock will receive 0.3352 share of Biosurgery Stock in exchange
for each share of Tissue Repair Stock they hold. We will account for the
combination of Genzyme Surgical Products and Genzyme Tissue Repair using the
historical basis for each division because the combination of these two
divisions is considered a re-allocation of assets and liabilities within
Genzyme.
We will account for the acquisition of Biomatrix as a purchase. Biomatrix
stockholders will receive $37.00 in cash, one share of Biosurgery Stock, or a
combination of cash and stock for each share of Biomatrix stock they hold. The
merger agreement provides that we will pay cash for up to 28.38% of the
outstanding shares of Biomatrix common stock that receive merger consideration,
or up to approximately $245.0 million.
The acquisition is subject to:
- approval by Biomatrix's shareholders;
- approval by our shareholders, including separate approval by the holders
of shares of Surgical Products Stock and Tissue Repair Stock; and
- other customary closing conditions.
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For more information about the merger and the merger consideration, we
encourage you to carefully read the final joint proxy statement/prospectus dated
November 3, 2000, which we filed with the SEC on November 6, 2000.
We anticipate that Genzyme Tissue Repairs' current cash resources, together
with the $10.0 million that remains available under the interdivisional
financing arrangement from Genzyme General, will be sufficient to fund its
operations through the end of 2000.
Genzyme Tissue Repair's cash needs may differ from those planned as a result
of various factors, including the:
- ability to become profitable;
- the ability to satisfy regulatory requirements of the FDA and other
governmental authorities;
- results of research and development and clinical testing;
- the enforcement of patent and other intellectual property rights; and
- development of competitive products and services.
In addition, in 1999, Genzyme Tissue Repair received $25.0 million in cash
from Genzyme General in connection with the transfer of our interest in our
joint venture with Diacrin, Inc. from Genzyme Tissue Repair to Genzyme General.
If the joint venture does not initiate a phase 3 clinical trial of
NeuroCell-TM--PD by June 30, 2001, Genzyme Tissue Repair will be required to pay
to Genzyme General $20.0 million plus accrued interest at an annual rate of
13.5%. If a phase 3 clinical trial is initiated by June 30, 2001 but
NeuroCell-TM--PD does not receive final marketing approval from the FDA by
June 30, 2004, Genzyme Tissue Repair will be required to pay Genzyme General
$15.0 million plus accrued interest at an annual rate of 13.5%. Genzyme Tissue
Repair may repay these amounts in cash, Genzyme Tissue Repair designated shares,
or combination of both, at its option. If these milestones are not achieved, and
Genzyme Tissue Repair elects to repay Genzyme General in cash, its cash reserves
will be substantially diminished or depleted in their entirety. If Genzyme
Tissue Repair elects to repay Genzyme General in Genzyme Tissue Repair
designated shares, this would substantially dilute the rights of the holders of
Tissue Repair Stock and could significantly affect the market price of Tissue
Repair Stock.
Genzyme Tissue Repair will require substantial additional funds in order to
continue operations at current levels beyond 2000. We cannot guarantee that
Genzyme Tissue Repair will be able to obtain any additional financing or find it
on favorable terms. If Genzyme Tissue Repair has insufficient funds or is unable
to raise additional funds, it may be required to delay, scale back or eliminate
certain of its programs. Genzyme Tissue Repair may also have to give rights to
third parties to commercialize technologies or products that it would otherwise
commercialize itself.
ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK.
We are exposed to potential loss from financial market risks that may occur
as a result of changes in interest rates, equity prices and foreign exchange
rates. Our exposure to these risks has not materially changed since
December 31, 1999.
We incorporate by reference our disclosure related to market risk which is
set forth under the heading "Management's Discussion and Analysis of Genzyme
Corporation and Subsidiaries' Financial Condition and Results of
Operations--Market Risk" in Exhibit 13.1 to our 1999 Form 10-K.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On July 25, 2000, we filed a lawsuit seeking injunctive relief and damages
against Transkaryotic Therapies Inc. in the United States District Court in
Wilmington, Delaware for patent infringement by the manufacture and use of
Replagal-TM-, Transkaryotic Therapies' replacement therapy for Fabry disease.
The suit alleges infringement of U.S. patent No. 5,356,804, which is exclusively
licensed to Genzyme by Mount Sinai School of Medicine. The patent is directed to
methods of making alpha-galactosidase in mammalian cells, as well as the
genetically-engineered cells themselves. On September 19, 2000, Transkaryotic
Therapies filed a lawsuit against Genzyme and Mount Sinai in U.S. District Court
in Boston, Massachusetts seeking declaratory judgements that the manufacture,
use and sale of Replagal-TM- does not infringe the patent licensed by Genzyme
from Mount Sinai and that the Mount Sinai patent is invalid.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Articles of Organization of Genzyme, as amended. Filed
as Exhibit 1 to Genzyme's Current Report on Form 8-K filed with
the SEC on June 30, 2000, and incorporated herein by reference.
3.2 By-Laws of Genzyme, as amended. Filed as Exhibit 3.2 to Genzyme's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, and incorporated herein by reference.
10.1* Lease dated August 28, 2000 between Genzyme and Kendall Square,
LLC. Filed herewith.
10.2 Lease dated August 4, 2000 between Genzyme and Fafard Real Estate
and Development Corp. Filed herewith.
27 Financial Data Schedule for Genzyme for the nine months ended
September 30, 2000 (for EDGAR filing purposes only). Filed
herewith.
*Confidential treatment has been requested for deleted portions of Exhibit
10.1.
(b) Reports on Form 8-K
- On July 14, 2000, we filed a Current Report on Form 8-K for the purpose
of filing an opinion of counsel regarding the validity of 1,464,100
shares of Molecular Oncology Stock being offered to a limited number of
purchasers pursuant to a Registration Statement on form S-3.
- On July 19, 2000, we filed a Current Report on Form 8-K for the purpose
of filing an opinion of counsel regarding the validity of 1,607,400
shares of Molecular Oncology Stock being offered to a limited number of
purchasers pursuant to a Registration Statement on Form S-3.
- On September 12, 2000, we filed a Current Report on Form 8-K to
announce the execution of an Agreement and Plan of Merger, dated
September 11, 2000, between Genzyme Corporation, Titan Acquisition
Corp. and GelTex Pharmaceuticals, Inc., pursuant to which GelTex would
be merged with and into Titan Acquisition Corp, a wholly-owned
subsidiary of Genzyme.
- On September 13, 2000, we filed a Current Report on Form 8-K to
announce the execution of Amendment No. 2 to the Agreement and Plan of
Merger, as amended, dated March 6, 2000, between Genzyme Corporation,
Seagull Merger Corporation and Biomatrix, Inc., pursuant to which
Genzyme and Biomatrix agreed to extend the termination date of the
merger of Biomatrix with and into Seagull Merger Corporation
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GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
GENZYME CORPORATION
DATE: November 14, 2000 By: /s/ MICHAEL S. WYZGA
-----------------------------------------
Michael S. Wyzga
Senior Vice President Finance,
Chief Financial Officer,
Corporate Controller and
Chief Accounting Officer
</TABLE>
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GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 2000
EXHIBIT INDEX
<TABLE>
<C> <S>
3.1 Restated Articles of Organization of Genzyme, as amended.
Filed as Exhibit 1 to Genzyme's Current Report on Form 8-K
filed with the SEC on June 30, 2000, and incorporated herein
by reference.
3.2 By-Laws of Genzyme, as amended. Filed as Exhibit 3.2 to
Genzyme's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, and incorporated herein by
reference.
10.1* Lease dated August 28, 2000 between Genzyme and Kendall
Square, LLC. Filed herewith.
10.2 Lease dated August 4, 2000 between Genzyme and Fafard Real
Estate and Development Corp. Filed herewith.
27 Financial Data Schedule for Genzyme for the nine months
ended September 30, 2000 (for EDGAR filing purposes only).
Filed herewith.
</TABLE>
------------------------
* Confidential treatment has been requested for deleted portions of Exhibit
10.1.
