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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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<S> <C>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 0-18554
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GENZYME DEVELOPMENT PARTNERS, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-3065192
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE KENDALL SQUARE
CAMBRIDGE, MASSACHUSETTS 02139-1562
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(617) 252-7500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
CLASS A LIMITED PARTNERSHIP INTERESTS
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
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NOTE REGARDING REFERENCES
Throughout this report, the words "we," "us" and "our" to refer to Genzyme
Development Partners, L.P. In addition, we refer to:
- Genzyme Corporation as "Genzyme;"
- Genzyme Development Corp. II as "our general partner;" and
- Genzyme Ventures II, our joint venture with Genzyme, as "our joint
venture."
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements, including statements
concerning our:
- expected future revenues, operations and expenditures;
- projected timetables for the preclinical and clinical development of,
regulatory submissions and approvals for, and market introduction of our
products;
- estimates of the potential markets for our products;
- sales and marketing plans;
- assessments of competitors and potential competitors;
- estimates of the capacity of manufacturing and other facilities to support
our products; and
- the intention of Genzyme to fund our general and administrative expenses,
and research and development programs.
These forward-looking statements represent the expectations of our general
partner as of the filing date of this Form 10-K. Our actual results could differ
materially from those anticipated by the forward-looking statements due to a
number of factors, including:
- whether Genzyme exercises its rights to purchase the outstanding limited
partnership interests during the second half of 2000;
- our ability to complete successfully preclinical and clinical development
and obtain timely regulatory approval for our products;
- our ability to obtain and maintain adequate patent and other proprietary
rights protection for our products;
- the content and timing of decisions made by the FDA and other agencies
regarding our products and the indications for which our products may be
approved;
- the actual size and characteristics of markets to be addressed by our
products;
- market acceptance of our products;
- our ability to obtain reimbursement for our products;
- the accuracy of our information concerning the products and resources of
competitors and potential competitors;
- funding of our general and administrative expenses and continued funding
of our research and development programs by Genzyme; and
- the risks and uncertainties described under the caption "Factors Affecting
Future Operating Results" under Item 7., "Management's Discussion and
Analysis of Financial Condition and Results of Operations" set forth in
this Form 10-K.
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NOTE REGARDING INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows us to disclose important
information to you by referring you to other documents that we have filed with
the SEC. The information that we refer you to is "incorporated by reference"
into this report. Please read that information.
NOTE REGARDING TRADEMARKS
Genzyme-Registered Trademark-, Sepra Film-Registered Trademark- and
Sepragel-Registered Trademark- are registered trademarks of Genzyme. CV
Seprafilm-TM-, Sepracoat-TM-, Sepramesh-TM- and SepraPak-TM- are trademarks of
Genzyme. Genzyme(SM) is a service mark of Genzyme.
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TABLE OF CONTENTS
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PAGE
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<S> <C> <C>
PART I
ITEM 1. BUSINESS.................................................... 3
General..................................................... 3
The Sepra Products Portfolio................................ 3
Manufacturing............................................... 4
Marketing................................................... 5
Competition................................................. 5
Relationship with Genzyme................................... 6
Patents and Proprietary Technology.......................... 7
Government Regulation....................................... 7
Research and Development Costs.............................. 8
Employees................................................... 8
ITEM 2. PROPERTIES.................................................. 8
ITEM 3. LEGAL PROCEEDINGS........................................... 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE............................. 8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 9
ITEM 6. SELECTED FINANCIAL DATA..................................... 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 10
ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... 16
ITEM 8. FINANCIAL STATEMENTS........................................ 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 29
ITEM 11. EXECUTIVE COMPENSATION...................................... 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K......................................................... 30
14(a)(1) Financial Statements............................... 31
14(a)(2) Financial Statement Schedules...................... 31
14(a)(3) Exhibits........................................... 31
14(b) Reports on Form 8-K................................... 31
14(c) Exhibits.............................................. 32
</TABLE>
2
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PART I
ITEM 1. BUSINESS
GENERAL
We were formed in 1989 as a Delaware limited partnership to develop, produce
and derive income from the sale of products that we refer to as the Sepra
products in the United States and Canada. The Sepra products are, generally,
products that:
- are based in whole or in part on hyaluronic acid, which is a naturally
occurring substance that protects tissue and organs;
- are used in human clinical trials or human surgical procedures (other than
ophthalmic surgery); and
- have the effect of reducing the incidence or severity of adhesions (scar
tissue).
Tissues and organs are unavoidably damaged during surgery, both directly as a
result of cutting, suturing and cauterization and indirectly as a result of
handling and drying due to exposure. At the site of damage, tissues or organs
that normally should remain separated often become connected by fibrous scar
tissue called adhesions. Adhesions generally form within the first few days
following surgery. Studies have shown that over 90% of patients develop
adhesions after abdominal and pelvic surgery. Postoperative adhesions can cause
significant complications such as bowel obstruction following abdominal surgery,
infertility and pain following gynecological surgery, and restricted limb motion
following musculoskeletal surgery. Adhesions also can increase the complexity,
duration and risk of subsequent surgery.
Genzyme develops the Sepra products on our behalf. We formed a joint venture
called Genzyme Ventures II with Genzyme to manufacture and market the Sepra
products in the United States and Canada. Genzyme markets the Sepra products on
behalf of our joint venture.
THE SEPRA PRODUCTS PORTFOLIO
The following table includes a summary of the current status of the Sepra
products. The first product, Sepra Film-Registered Trademark- bioresorbable
membrane, was approved by the FDA in August 1996 for use in open abdominal and
pelvic surgery. Genzyme launched Sepra Film-Registered Trademark- bioresorbable
membrane broadly in the United States during the fourth quarter of 1996 on
behalf of our joint venture.
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS
- --------------------------------- ---------------------------- --------------------------------------------------
<S> <C> <C>
SEPRA Abdominal/pelvic surgery Marketed in the U.S. since 1996; approved in the
FILM(-REGISTERED TRADEMARK-) U.S. and Europe in 1996, in Canada and Israel in
BIORESORBABLE MEMBRANE 1997, in Japan in 1998, and in several other
countries
SEPRA Small bowel obstructions Phase IV clinical trial ongoing
FILM(-REGISTERED TRADEMARK-)
BIORESORBABLE MEMBRANE
SEPRA Abdominal/pelvic surgery Marketed in Europe since 1999
FILM(-REGISTERED TRADEMARK-) II
ADHESION BARRIER
CV SEPRAFILM-TM- CARDIOVASCULAR Open-heart surgery Approved in Europe in 1999; safety phase of a
ADHESION BARRIER clinical trial in the U.S. completed
SEPRAMESH-TM- PRODUCT Hernia repair Received 510(k) clearance in 2000
SEPRACOAT-TM- COATING SOLUTION Open surgery Marketed in Europe since 1996
SEPRAPAK-TM- PRODUCT Sinus packing Listed with the FDA
SEPRAGEL(-REGISTERED TRADEMARK-) Open and laproscopic surgery In development
BIORESORBABLE GEL
</TABLE>
3
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SEPRA FILM-REGISTERED TRADEMARK- BIORESORBABLE MEMBRANE
Sepra Film-Registered Trademark- bioresorbable membrane is a solid form of
modified hyaluronic acid that is used to separate and protect tissues and organs
that have been damaged during abdominal and pelvic surgery. It is the only
product approved by the FDA that is clinically proven to reduce the incidence,
extent and severity of postsurgical adhesions in the abdomen and pelvis. To
build further clinical evidence of the effectiveness of Sepra
Film-Registered Trademark- bioresorbable membrane, Genzyme has initiated a
25-center, 1,700-patient Phase IV clinical trial to test the ability of the
Sepra Film-Registered Trademark- product to reduce the incidence of bowel
obstructions. The study will track patient outcomes for two years after surgery.
SEPRA FILM-REGISTERED TRADEMARK- II ADHESION BARRIER
Sepra Film-Registered Trademark- II adhesion barrier is a modified form of
Sepra Film-Registered Trademark- bioresorbable membrane designed to have
increased plasticity and, thus, improved handling and overall ease of use. Sepra
Film-Registered Trademark- II adhesion barrier currently is marketed in Europe
for use in open and laproscopic surgery to reduce the incidence of postoperative
abdominal and pelvic adhesions.
CV SEPRAFILM-TM- CARDIOVASCULAR ADHESION BARRIER
Genzyme also is developing CV Seprafilm-TM- cardiovascular adhesion barrier
for use in open-heart surgery. The product received European CE Mark approval
for use in reducing the incidence of adhesions following cardiac surgery in the
first quarter of 1999. Genzyme has completed the safety phase of a clinical
trial of the CV Seprafilm-TM- product in the United States in infants undergoing
multi-stage procedures for repair of congenital heart defects. Genzyme is using
the CV Seprafilm-TM- product at the first operation and evaluating adhesion
formation at the second operation, which is generally scheduled four to six
months later. Genzyme is working with the FDA to develop a clinical strategy
that may allow for approval of use in both adult and pediatric cardiac surgery.
SEPRACOAT-TM- COATING SOLUTION
Sepracoat-TM- coating solution is a liquid formulation of hyaluronic acid.
Genzyme currently markets the Sepracoat-TM- product in Europe.
THE SEPRAMESH-TM- PRODUCT
Genzyme has developed the Sepramesh-TM- product, a mesh product that is
coated with modified sodium hyaluronate foam for use in hernia repairs and other
soft tissue repairs such as bladder neck suspensions. In 2000, Genzyme received
510(k) marketing clearance from the FDA for the Sepramesh-TM- product for use in
hernia repairs.
SEPRAGEL-REGISTERED TRADEMARK- BIORESORBABLE GEL
Genzyme is developing Sepragel-Registered Trademark- bioresorbable gel, a
gel-based antiadhesion product intended to be used in laparoscopic procedures
and on tissue surfaces in open surgery that are inaccessible to Sepra
Film-Registered Trademark- bioresorbable membrane.
NEW SEPRA INDICATIONS
Genzyme believes that its antiadhesion technologies will have applications
beyond general and gynecological surgery, and is currently developing
antiadhesion products for other surgical applications.
MANUFACTURING
Genzyme manufactures the raw material from which the Sepra products are
produced on behalf of our joint venture and for its own use. Genzyme
manufactures the material at its facilities in the United Kingdom and ships the
material to the United States for finishing, testing, packaging and labeling.
4
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Genzyme believes that its facilities have adequate capacity to meet its
worldwide market requirements for this starting material during the foreseeable
future. Genzyme produces Sepra Film-Registered Trademark- bioresorbable
membrane, Sepra Film-Registered Trademark- II adhesion barrier and CV
Seprafilm-TM- cardiovascular adhesion barrier at its manufacturing facilities in
Framingham, Massachusetts. It engaged a third party to provide the final
finishing and sterile filling for Sepracoat-TM- coating solution on a commercial
scale for European sales. During 1995, validation runs required for the Sepra
Film-Registered Trademark- bioresorbable membrane and Sepracoat-TM- coating
solution Pre-Market Approval applications were completed by Genzyme and the
contractor, and the FDA inspected Genzyme's Sepra Film-Registered Trademark-
facilities. Genzyme's manufacturing plants in the United States and the United
Kingdom, together with those of the third-party contractor, have been approved
by the FDA and received ISO 9000 certification in 1996 to manufacture Sepra
Film-Registered Trademark- bioresorbable membrane and Sepracoat-TM- coating
solution. Genzyme intends to complete the manufacture of the Sepramesh-TM-
product at its facilities in Fall River, Massachusetts.
MARKETING
The Sepra products are purchased primarily by hospitals as surgical
supplies. Accordingly, Genzyme believes that successful initial market
penetration and subsequent maintenance of market share for the Sepra products
require a specialized hospital-based sales force. Genzyme has deployed a sales
force to accelerate market introduction of the Sepra products in the United
States and Europe. Its sales force markets products directly to cardiovascular,
general and gynecologic surgeons and hospital purchasing departments throughout
the United States and Europe.
Colorectal surgery is the most significant market for Sepra
Film-Registered Trademark- bioresorbable membrane because postsurgical adhesions
frequently cause complications after this type of procedure. Therefore,
Genzyme's sales force focuses on the 1,000 board-certified colorectal surgeons
in the United States. Genzyme sells the Sepra products in Germany, Austria,
Switzerland and Luxembourg through a distributor. Genzyme also makes substantial
efforts to educate surgeons and hospital administrators of the desirability of
reducing the incidence and extent of postoperative adhesions and the benefits of
antiadhesion products. Genzyme believes that these educational efforts are
necessary in order for the Sepra products to penetrate target markets and gain
broad market acceptance. We cannot guarantee that Genzyme's commercialization
strategy for the Sepra products will be successful.
COMPETITION
Genzyme believes that its expertise in developing proprietary fermentation
processes and its access to proprietary strains of micro-organisms used in its
hyaluronic acid production process will give it a competitive advantage in the
marketing of the Sepra products. The Sepra products may face significant
competition, however, from other products based on hyaluronic acid as well as
from other products and changes in surgical techniques that may make the use of
hyaluronic acid unnecessary. Genzyme believes that the principal factor that
will affect competition in this area is acceptance of the product by surgeons,
which depends, in large part, upon product performance, safety and price.
Sepra Film-Registered Trademark- bioresorbable membrane does not have
significant direct competition in the colorectal surgery market. Ethicon markets
Interceed-Registered Trademark-, an antiadhesion barrier that may have
properties similar to the Sepra Film-Registered Trademark- product, but is
indicated only for selected gynecological indications.
Interceed-Registered Trademark- has been shown to lose its antiadhesion
properties in the presence of blood. Lifecore Biomedical, Inc. and Ethicon's
Intergel-TM- product, a gel-based antiadhesion product, is marketed in Europe.
Gliatech, Inc. currently markets Adcon-L for the prevention of adhesions
following lumbar surgery. It has also initiated clinical trials of Adcon-A and
Adcon-P, which are designed to limit adhesions after abdominal and pelvic
surgery. Life Medical Sciences, Inc. is developing REPEL for gynecological
surgery and REPEL-CV for cardiovascular surgery. These adhesion barrier
membranes are in early clinical trials.
5
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RELATIONSHIP WITH GENZYME
We have included a summary of our relationship with Genzyme and our joint
venture below. You can read a more detailed summary of our agreements in
Note C., "Agreements with Genzyme Corporation," to our financial statements
included in Item 8 of this Form 10-K, which we are incorporating into this
discussion by reference.
Genzyme develops and produces the Sepra products for us. We were required to
reimburse Genzyme for the costs related to the development of the Sepra products
as long as we had funds. Our funds were fully spent as of the first quarter of
1994. Although Genzyme is not required to fund on-going research and development
programs for the Sepra products, it currently intends to fund the programs in
2000 on a level consistent with previous years and with the 2000 budget for the
programs. In addition, Genzyme currently intends to fund any administrative
expenses in excess of our available cash in 2000.
Genzyme has the exclusive right to sell Sepra products outside of the United
States and Canada for its own benefit. However, Genzyme currently must pay us a
6% royalty on net revenues from the sale of Sepra products in Europe. We do not
share in proceeds from sales of Sepra products outside of the United States and
Europe.
We formed our joint venture with Genzyme to make and sell Sepra products in
the United States and Canada. Genzyme has the exclusive right to sell the Sepra
products in the United States and Canada on behalf of our joint venture. Genzyme
currently funds the joint venture's cash needs. Once annual revenues from sales
in the United States and Canada exceed $25 million, Genzyme will be reimbursed
for general and administrative support through a quarterly commission equal to
10% of our joint venture's revenues for each quarter. For financial accounting
purposes, Genzyme currently consolidates 100% of the losses of our joint venture
funded by Genzyme's non-interest bearing loans or capital contributions. The
first $5.6 million of net profits of our joint venture will be allocated to us,
and the next $8.4 million will be allocated to Genzyme. Afterward, 60% of the
net profits will be allocated to Genzyme and 40% to us.
Genzyme has an option to purchase our limited partnership interests for an
advance payment of approximately $26 million and the royalties described below.
Genzyme can elect to make the exercise payment in cash, shares of its Genzyme
common stock or a combination of the two. If Genzyme exercises the option, it
also will have to make royalty payments to our limited partners for ten years
equal to:
- 10% of net revenues from Sepra product sales in the United States and
Canada;
- 6% of net revenues from Sepra product sales in Europe to the extent
necessary to meet certain projected distributions;
- 5% of net revenues from sales in the United States and Canada of products
that are used in human clinical trials or human surgical procedures (other
than ophthalmic surgery) and compete with our products; and
- 3% of net revenues of sales of such competitive products in Europe to the
extent necessary to meet the certain projected distributions.
If Genzyme elects to exercise the option, beginning six years after the
calendar quarter in which Genzyme makes the advance payment, its royalty
payments in any year to our limited partners will be reduced by up to 30% of the
amount which our limited partners would otherwise have received until Genzyme
recoups the amount of the advance payment Genzyme made to the limited partners.
Genzyme's option to purchase the limited partnership interests is
exercisable from August 31, 2000 through November 29, 2000. However, the
commencement date may be accelerated to the last day of
6
<PAGE>
the first month in which we have received distributions from our joint venture
in an aggregate amount of at least $5.5 million. The purchase option would
terminate upon:
- Genzyme's bankruptcy or cessation of operations, or the seizure or
attachment of a substantial part of Genzyme's assets; or
- the dissolution of our joint venture at our election if Genzyme fails to
supply us with sufficient quantities of the Sepra products to meet our
requirements, or fails to reasonably satisfy us that it is capable of
manufacturing the quantities of the Sepra products we require.
If Genzyme does not exercise the purchase option, we will have the right to
sell, license or otherwise transfer the license Genzyme granted to us under a
Cross License Agreement, subject to Genzyme's existing rights. Genzyme will
continue to have an interest in our revenues as long as one of its affiliates is
our general partner. Genzyme and we will have the right to dissolve our joint
venture upon 90 days advance notice after one year has passed from the date the
purchase option expired. Our joint venture also will be dissolved if we sell,
license or otherwise dispose of all or a substantial part of the technology
owned or licensed to us. The license we granted to Genzyme under the Cross
License Agreement would continue in full force and effect. Genzyme's current
obligation to make royalty payments to us on European sales of the Sepra
products and competitive products would continue until December 31, 2019.
Genzyme's obligation to pay a royalty on competitive products sold in the United
States and Canada would continue for five years after it elected not to exercise
the purchase option.
PATENTS AND PROPRIETARY TECHNOLOGY
Genzyme has granted us an exclusive license to all of its patents and
know-how necessary or materially useful in the manufacture, use and sale of the
Sepra products in the United States and Canada for use in human clinical trials
and human surgical procedures (other than opthalmic surgery). Genzyme has also
granted us an exclusive sublicense to all third party licenses held by Genzyme
for use in that field and that territory.
Through the exclusive license from Genzyme, we have rights to issued United
States patents and pending United States patent applications covering modified
hyaluronic acid compositions. Under this license, we also have rights to issued
United States patents and pending United States patent applications that cover
methods for using native hyaluronic acid solutions to coat body tissues prior to
surgical manipulation.
Various formulations and uses of hyaluronic acid have been the subject of
numerous issued United States patents, one of which previously was
unsuccessfully asserted against Genzyme. We cannot guarantee that no other
patent will be asserted against us or Genzyme, or that additional patents
concerning hyaluronic acid will not be allowed or issued in the future which
would require us to obtain licenses to make, use or sell the Sepra products. We
also cannot guarantee the availability and cost of such licenses.
GOVERNMENT REGULATION
The Sepra products are classified as devices and require FDA approval prior
to marketing in the United States. Devices are classified as Class I, II or III,
depending upon the information available to assure their safety and
effectiveness. In general, Class I and Class II devices are devices whose safety
and effectiveness can reasonably be assured through general or specific
controls, respectively. Class III devices are life sustaining, life supporting
or implantable devices or new devices which have been found not to be
substantially equivalent to legally marketed devices. The approval process for
Class III devices, such as Sepra Film-Registered Trademark- bioresorbable
membrane, is the most rigorous.
The steps required for approval of a Class III device include:
- preclinical laboratory tests and IN VITRO and IN VIVO preclinical studies;
7
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- the submission to the FDA and approval of an Investigational Device
Exemption application to allow initiation of clinical testing;
- human clinical studies to prove safety and effectiveness of the device;
- the submission of a Pre-Marketing Application; and
- the approval by the FDA of the Pre-Marketing Application.
Typically, clinical testing of devices involves initial testing to evaluate
safety and feasibility and expanded trials to collect sufficient data to prove
safety and effectiveness. In addition, the procedures and the facilities used to
manufacture the device are subject to review and approval by the FDA.
A device (other than a Class III device) which is proven to be substantially
equivalent to a device marketed prior to May 28, 1976, when government
regulations for devices were first introduced, can be marketed after approval of
a 510(k) application rather than the filing of an Investigational Device
Exemption application and a Pre-Marketing Approval application. The 510(k)
application must contain a description of the device, its methods of manufacture
and quality control procedures and the results of testing to demonstrate that
the device is substantially equivalent to the device already marketed.
We believe that the data Genzyme submits to the FDA for the Sepra products
also should be sufficient to obtain marketing approval of the products from the
appropriate regulatory authorities in Canada after appropriate submission and
review in that country. Genzyme obtained approval to market Sepra
Film-Registered Trademark- bioresorbable membrane in Canada in this manner.
RESEARCH AND DEVELOPMENT COSTS
We spent approximately $7.8 million in 1999 on research and development
activities, all of which was funded by Genzyme.
EMPLOYEES
We do not have any employees. Our business is conducted under various
agreements with Genzyme. For a description of these agreements, you should read
Note C., "Agreements with Genzyme Corporation," to our financial statements
included in Item 8 of this Form 10-K, which we are incorporating into this
discussion by reference.
ITEM 2. PROPERTIES
We do not own or lease any properties. We conduct business at the facilities
of our general partner at One Kendall Square in Cambridge, Massachusetts. Under
our Development Agreement, Genzyme utilizes portions of its facilities in
Framingham and Cambridge, Massachusetts to conduct research and development
activities on our behalf. For a description of the Development Agreement, you
should read Note C., "Agreements with Genzyme Corporation," to our financial
statements included in Item 8 of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No public or other market exists or is expected to develop for ownership
interests in our partnership. Partnership interests are not transferable without
the consent of our general partner and satisfaction of other conditions
contained in Article 8 of the Agreement of Limited Partnership. There were
approximately 767 holders of record of Class A partnership interests and 1
holder of Class B partnership interests as of March 1, 2000.
There have been no cash distributions to the partners to date. Any
distributions in our future will be made by our general partner to all
participants in the partnership as soon as practicable after the end of each
fiscal quarter. These cash distributions will be made in proportion to each
partners' respective adjusted capital contributions, subject to certain
limitations as provided in the Agreement of Limited Partnership.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- --------- --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Royalty revenues............................. $ 189 $ 145 $ 51 $ 23 $ --
Costs and expenses:
Administrative expenses.................... 77 93 154 404 124
------ --------- --------- --------- -----
Operating income (loss)...................... 112 52 (103) (381) (124)
Other income (expenses):
Equity in net loss of joint venture........ -- (592) (908) (200) --
Investment income.......................... 7 3 25 29 38
------ --------- --------- --------- -----
Total other income (expenses)............ 7 (589) (883) (171) 38
------ --------- --------- --------- -----
Net income(loss)............................. $ 119 $ (537) $ (986) $ (552) $ (86)
====== ========= ========= ========= =====
Net income (loss) per partnership unit:
Limited partners--based on 737 units......... $ 160 $ 0 $ 0 $ (461) $(116)
====== ========= ========= ========= =====
General partner--based on 1 unit............. $1,193 $(537,000) $(986,000) $(212,000) $(860)
====== ========= ========= ========= =====
</TABLE>
There were no cash dividends paid.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $(100) $(219) $(274) $(196) $349
Total assets............................................. 77 187 631 159 466
Partners' capital (deficit).............................. (100) (219) 318 (196) 349
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion is a summary of what our general partner considers
to be the key factors affecting our results of operations, liquidity and capital
resources. Forward-looking statements contained in the following discussion
represent the expectations of our general partner as of the filing date of this
Form 10-K. Our actual results could differ materially from those anticipated by
the forward looking statements due to the risk and uncertainties described below
under the caption "Factors Affecting Future Operating Results." Partners and
potential investors should carefully consider these risks and uncertainties in
evaluating our financial condition and results of operations.
OVERVIEW
We were formed in 1989 as a Delaware limited partnership to develop, produce
and derive income from the sale of products that we refer to as the Sepra
products in the United States and Canada. The Sepra products are, generally,
products that:
- are based in whole or in part on hyaluronic acid, which is a naturally
occurring substance that protects tissue and organs;
- are used in human clinical trials or human surgical procedures (other than
ophthalmic surgery); and
- have the effect of reducing the incidence or severity of adhesions (scar
tissue).
Under the terms of our Cross License Agreement with Genzyme, we granted
Genzyme the exclusive right to sell Sepra products outside of the United States
for its own benefit. However, Genzyme currently must pay us a 6% royalty on net
revenues from the sale of Sepra products in Europe. We do not share in proceeds
from sales of Sepra products outside of North America and Europe. Genzyme began
selling the Sepra products in Europe in late 1995. These royalties are payable
to the extent necessary for us to pay projected distributions not otherwise
funded through sales of our products in the United States and Canada. In
addition to the 6% royalty on net European sales, we will also receive a 5%
royalty on sales by Genzyme of competitive products that are not based on
hyaluronic acid within the United States and Canada.
In August 1996, Genzyme received marketing approval from the FDA for our
first product, Sepra Film-Registered Trademark- bioresorbable membrane, and
commenced commercial sales of Sepra Film-Registered Trademark- bioresorbable
membrane in the United States on behalf of our joint venture, Genzyme Ventures
II (described below).
Genzyme has an option to purchase our limited partnership interests, which
is exercisable from August 31, 2000 through November 29, 2000. However, the
commencement date may be accelerated to the last day of the first month in which
we have received distributions from our joint venture in an aggregate amount of
at least $5.5 million.
RESULTS OF OPERATIONS--1999 AS COMPARED TO 1998 AND 1997
For the year ended December 31, 1999, our net income was $119,000 as
compared to net losses of $537,000 in 1998 and $986,000 in 1997. Our results for
1999 improved over our results for 1998, primarily because in 1999 our basis in
our joint venture was zero for the entire year and we therefore did not receive
an allocation of losses from our joint venture. In addition, our royalty
revenues for 1999 increased 30% in comparison to 1998. Our net loss for 1998
decreased in comparison to our net loss for 1997. This was due to a significant
increase in royalty revenues in 1998 resulting from Genzyme's increased
shipments of Sepra products in Europe due to the use of an additional European
distributor and a 35% reduction in the amount of losses allocated to us from our
joint venture (described below) in 1998.
10
<PAGE>
ROYALTY REVENUES
Under our Cross License Agreement with Genzyme, we earned royalty revenue of
$189,000 in 1999, $145,000 in 1998 and $51,000 in 1997 based on 6% of Genzyme's
net sales of the Sepra products in Europe. The increases in royalty revenue for
1999 and 1998 primarily were due to Genzyme's increased shipments of Sepra
products in Europe as described above.
ADMINISTRATIVE EXPENSES
Our administrative expenses were $77,000 in 1999, $93,000 in 1998 and
$154,000 in 1997. In 1999 and 1998, our administrative expenses consisted
primarily of professional service expenses, which declined slightly in 1999. Our
administrative expenses in 1997 consisted primarily of legal fees. Our legal
expenses have declined since 1997 because we are not involved in any pending
legal matters. Genzyme currently intends to fund our administrative expenses in
excess of our available cash in 2000.
RESEARCH AND DEVELOPMENT EXPENSES FUNDED BY GENZYME
Genzyme develops and produces the Sepra products for us. We were required to
reimburse Genzyme for the costs related to the development of the Sepra products
as long as we had funds. We did not pay any amounts to Genzyme for research and
development expenses to Genzyme during 1999, 1998 or 1997. Genzyme has funded
our research and development programs since the first quarter of 1994, when we
depleted all of the funds we had available for our research and development
programs. Genzyme spent approximately $9.0 million on our development programs
in 1999 as compared to $8.4 million in 1998, and $7.3 million in 1997. We are
not obligated to reimburse Genzyme for any of these amounts. Although Genzyme is
not required to fund on-going research and development programs for the Sepra
products, it currently intends to fund our programs through 2000 on a level
consistent with previous years and the 2000 budget for the programs.
EQUITY IN NET LOSS OF JOINT VENTURE
Our portion of the net losses of our joint venture decreased to $592,000 in
1998 from $908,000 in 1997 because we were limited in the amount of losses which
could be allocated to us due to our decreased basis in our joint venture. Our
capital balance in our joint venture was $592,000 at the beginning of 1998, and
we made no additional capital contributions that year. Our Amended and Restated
Joint Venture Agreement with Genzyme does not permit us to take an allocation of
losses in excess of the capital contributions we have made to our joint venture.
Therefore, in 1998, we were only eligible to receive a total allocation of
losses from our joint venture of $592,000. As of December 31, 1998, our basis in
our joint venture was zero. During 1999, we made no additional capital
contributions to our joint venture and our basis in our joint venture remained
zero. As a result, we were not eligible to receive an allocation of losses from
our joint venture in 1999 and 100% of the joint venture's losses were allocated
to Genzyme. We will not be eligible to receive an allocation of losses from our
joint venture until we make additional capital contributions to the joint
venture.
INVESTMENT INCOME
We earned investment income of $7,000 in 1999, $3,000 in 1998 and $25,000 in
1997. Our investment income increased slightly in 1999 as compared to 1998 due
to higher average cash balances during 1999.
NET INCOME (LOSS)
In 1999, our net income of $119,000 was allocated $118,000 to our limited
partners and $1,000 to our general partner as required by our Agreement of
Limited Partnership. In 1998 and 1997, our limited partners' shares of our net
losses exceeded the remaining capital of our limited partners. As a
11
<PAGE>
result, approximately $532,000 and $976,000 of our losses which would have been
attributable to our limited partners were re-allocated to our general partner
according to the terms of the Agreement of Limited Partnership.
FINANCIAL CONDITION
As of December 31, 1999, we had $18,000 in cash and cash equivalents
compared to $97,000 as of December 31, 1998. We used a portion of our available
cash and funds received from the collection of royalties to pay down our
existing balance owed to Genzyme for operating expenses paid by Genzyme on our
behalf. Our remaining cash is reserved for funding general and administrative
expenses.
In 1999, we determined that our unpaid partners' capital of $27,000 was
uncollectible and in December 1999, we wrote this balance off against our
general partners' equity in the partnership.
Our future profitability is entirely dependent upon our joint venture's
sales of the Sepra products. Our joint venture commenced operations following
receipt of FDA marketing approval of Sepra Film-Registered Trademark-
bioresorbable membrane in August 1996. Sepra Film-Registered Trademark-
bioresorbable membrane is the first Sepra Product to obtain FDA marketing
approval and was launched in the United States during the fourth quarter of
1996. Sepra Film-Registered Trademark- bioresorbable membrane is being marketed
in the United States and Canada by Genzyme on behalf of our joint venture. On
May 5, 1997, the General and Plastic Surgery Devices Panel of the FDA's Medical
Devices Advisory Committee recommended that Genzyme not be granted approval to
market Sepracoat-TM- coating solution for the reduction of adhesions in
abdominal and pelvic surgery. Genzyme subsequently withdrew the Pre-Market
Approval application for the Sepracoat-TM- product. In December 1997, Genzyme
decided to discontinue development of the Sepracoat-TM- product for the United
States market but continues to market Sepracoat-TM- coating solution in Europe.
As noted above, Genzyme has committed to fund our administrative expenses in
excess of our cash balance and the costs to continue development of the Sepra
products in 2000.
GENZYME VENTURES II--OUR JOINT VENTURE
We formed our joint venture with Genzyme to make and sell Sepra products in
the United States and Canada. Genzyme manufactures our Sepra products and has
the exclusive right to sell the Sepra products in the United States and Canada
on behalf of our joint venture. Genzyme currently funds the joint venture's cash
needs. Once annual revenues from sales in the United States and Canada exceed
$25 million, Genzyme will be reimbursed for general and administrative support
through a quarterly commission equal to 10% of our joint venture's revenues for
each quarter.
The first $5.6 million of net profits of our joint venture will be allocated
to us, and the next $8.4 million will be allocated to Genzyme. Afterward, 60% of
the net profits will be allocated to Genzyme and 40% to us.
The first $200,000 of the joint venture's losses were allocated to us and,
thereafter, the losses are allocated 40% to us and 60% Genzyme, except to the
extent that losses allocable to us would result in the allocation of these
losses to our general partner as a result of our limited partners' capital
account balance having been previously reduced to zero. In such an event, 100%
of the losses, in excess of the first $200,000, are allocated to Genzyme. For
financial statement purposes, Genzyme currently consolidates 100% of the losses
of our joint venture funded by Genzyme's non-interest bearing loans or capital
contributions. Our capital contributions to our joint venture and the
allocations of losses from our joint venture are as follows:
- In 1996, we contributed $0.2 million of cash to our joint venture and the
first $0.2 million losses were allocated to us, which reduced our capital
account to zero. The entire amount of the remaining $2.2 million of losses
from our joint venture for 1996 was allocated to Genzyme.
12
<PAGE>
- In 1997, Genzyme contributed $1.5 million to our partnership through our
general partner. We contributed $1.5 million of cash to our joint venture
and, because our capital account balance was positive, we were eligible to
receive 40%, or $0.9 million, of losses from our joint venture. The entire
amount of the remaining $1.4 million, or 60%, of the losses from our joint
venture for 1997 was allocated to Genzyme.
- In 1998, we did not make any additional capital contributions to our joint
venture and were only eligible to receive an allocation of losses from the
joint venture equal to our remaining capital balance of $0.6 million. The
entire amount of the remaining $4.2 million of the losses from our joint
venture for 1998 was allocated to Genzyme.
- In 1999, we did not make any additional capital contributions to our joint
venture and were not eligible to receive an allocation of losses from our
joint venture for 1999. All of the losses of our joint venture for 1999
were allocated to Genzyme.
We will not be eligible to receive an allocation of losses from our joint
venture until we make an additional capital contribution to the joint venture.
Our joint venture's revenues from sales of the Sepra products were
$6.8 million in 1999, $5.6 million in 1998 and $3.2 million in 1997. Our joint
venture incurred net losses of $0.4 million in 1999, $4.8 million in 1998 and
$2.3 million in 1997. These losses were primarily attributable to costs
associated with the introduction, selling and marketing of Sepra
Film-Registered Trademark- bioresorbable membrane to the healthcare marketplace.
FACTORS AFFECTING FUTURE OPERATING RESULTS
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL
BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS.
We will require substantial additional funds to complete the development and
clinical testing of the Sepra products. Genzyme has funded the research and
development programs for our Sepra products on an annual basis since the first
quarter of 1994, when we depleted all of the funds we had available to develop
our products. Genzyme currently intends to continue to provide this funding
through 2000. Genzyme also currently intends to fund our administrative expenses
in excess of our available cash through 2000. Genzyme is not obligated to
provide funding after 2000. If Genzyme stops funding our operations and
development programs, we cannot guarantee that we will be able to obtain any
additional financing or find it on favorable terms. If we have insufficient
funds or are unable to raise additional funds, we may delay, reduce or eliminate
all or some of our programs.
GENZYME HAS THE RIGHT TO PURCHASE OUR LIMITED PARTNERSHIP INTERESTS THIS
YEAR FOR A PREDETERMINED AMOUNT.
Under a Partnership Purchase Option Agreement, we granted Genzyme the option
to purchase our limited partnership interests during the 90-day period beginning
on August 31, 2000. The commencement date may be accelerated to the last day of
the month in which the aggregate distributions we receive from our joint venture
are equal to $5.5 million or more. If Genzyme exercises the option, each of our
limited partners will receive approximately $35,000 per partnership unit, in
cash, Genzyme common stock, or any combination of the two. Additionally, our
limited partners will receive quarterly royalty payments for a period of ten
years after the buyout date.
BECAUSE THE DEVELOPMENT OF OUR PRODUCTS INVOLVES A LENGTHY AND COMPLEX
PROCESS, IT IS UNCERTAIN WHETHER WE WILL BE ABLE TO COMMERCIALIZE ANY OF
OUR PRODUCTS CURRENTLY IN DEVELOPMENT.
In collaboration with Genzyme, we will need to:
- conduct substantial research and development activities;
13
<PAGE>
- undertake preclinical and clinical testing; and
- pursue regulatory approvals
of our Sepra products before they can be commercialized. We cannot guarantee
that our efforts will be successful. Clinical trials may not support the
effectiveness or safety of our products. We may encounter problems in clinical
trials that may lead us to delay or suspend the trials.
ANY MARKETABLE PRODUCTS WE MAY DEVELOP MAY NOT BE COMMERCIALLY SUCCESSFUL.
Successful commercialization of our Sepra products will depend on many
factors, including:
- the breadth of labeling claims allowed by the FDA and other regulatory
authorities;
- the response of surgeons to the data from clinical trials;
- market acceptance of our Sepra products;
- the ability of Genzyme and our joint venture to supply sufficient product
to meet market demand;
- the degree to which third-party reimbursement is available; and
- the number and relative effectiveness of competitive products in the
market.
We cannot guarantee that Genzyme will be able to successfully commercialize any
of our Sepra products.
GOVERNMENT REGULATION IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE
DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS.
Our ability to successfully satisfy regulatory requirements will
significantly determine our future success. We cannot guarantee that any
required regulatory approvals will be granted or that they will be granted on a
timely basis. The production and sale of healthcare products are highly
regulated. Most of the Sepra products will require additional FDA approval prior
to marketing in the United States. We cannot guarantee that we will obtain
approval or that the FDA will allow the labeling claims made for the Sepra
products or permit the marketing of these products for a broad range of
applications. In December 1997, Genzyme discontinued development of
Sepracoat-TM- coating solution for the U.S. market after an FDA advisory
committee recommended against approval of the product, but continues to market
Sepracoat-TM- coating solution in Europe. Genzyme may stop developing one or
more of the Sepra products if there is insufficient demand, or if it encounters
regulatory or developmental problems.
THE SEPRA PRODUCTS WILL NOT BE COMMERCIALLY SUCCESSFUL IF THE MARKET DOES
NOT APPRECIATE THE BENEFITS OF USING ANTIADHESION PRODUCTS AND USE THEM
REGULARLY.
The successful commercialization of the Sepra products will require us to
convince surgeons of the effectiveness of our Sepra products and the benefits of
antiadhesion products. We also need these surgeons to incorporate the products
as standard surgical practice in procedures where adhesions are a potential
postoperative complication. Substantial efforts to educate surgeons and hospital
administrators as to the benefits of these products will be required, however,
in order for the products to penetrate target markets and gain broad market
acceptance. We cannot guarantee that the Sepra products will gain market
acceptance.
COMPETITION FROM OTHER COMPANIES COULD HURT OUR PERFORMANCE.
Our Sepra products will face significant competition from other products
intended to reduce adhesions resulting from surgical trauma. Competitors in the
United States and elsewhere are numerous and include major pharmaceutical,
chemical and biotechnology companies, many of which
14
<PAGE>
have substantially greater capital resources, marketing experience, research and
development staffs and facilities than we do. These companies may succeed in
developing products that are more effective than any that we have or which we
may develop in the future. Our competitors may also be more successful than
Genzyme and our joint venture in producing and marketing these products.
EURO--THE NEW EUROPEAN CURRENCY
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the Euro and adopted the Euro as their common legal currency. The
Euro trades on currency exchanges and is available for non-cash transactions.
These participating countries now issue sovereign debt exclusively in Euros, and
have redenominated their outstanding sovereign debt. These countries no longer
control their own monetary policies by directing independent interest rates for
their legacy currencies. Instead, the authority to direct monetary policy,
including money supply and official interest rates for the Euro, is exercised by
the new European Central Bank.
The legacy currencies of these 11 countries are scheduled to remain legal
tender in those countries as denominations of the Euro until January 1, 2002.
Until that date, public and private parties may pay for goods and services using
either the Euro or the participating country's legacy currency on a "no
compulsion, no prohibition" basis.
All of our royalties to date have been royalties derived from Genzyme's sale
of our Sepra products in Europe. Genzyme has formed committees to address the
business implications of the Euro conversion, to communicate information about
the conversion throughout the organization, create global coordination among
functional areas and address specific accounting, treasury and tax issues
relating to the Euro. Genzyme's management believes that the Euro conversion
will not affect any of Genzyme's outstanding derivatives and forward contracts,
or any of its other material commercial contracts. Similarly, Genzyme's
management does not foresee any increased currency exchange rate risk as a
result of the Euro conversion.
Genzyme is continuing to assess whether there are any long-term competitive
implications of the Euro conversion. While no material risks have been
identified to date, individual European governments may pressure Genzyme to have
consistent European pricing, and individual customers and distributors in Europe
may choose to begin purchasing products in the country where the Euro price is
lowest.
Because the Internal Revenue Service has not yet issued final regulations
regarding the Euro, no assessment can be made as to the tax consequences of the
conversion at this time. If the temporary regulations currently in place are
adopted in their entirety, Genzyme's management believes that there will be no
material tax consequences of the conversion to Genzyme or to us.
Because Genzyme's existing accounting and finance software is currently able
to use Euro-based accounts, its management believes that the cost of upgrading
software and other information systems for the conversion will be immaterial.
YEAR 2000
Many computer systems and other equipment with embedded chips or processors
experience problems handling dates beyond the year 1999. As a result, older
programs may experience operating difficulties that cause date sensitive
transaction errors unless they are modified or upgraded to adequately address
the problem. We rely on Genzyme to provide general and administrative and other
services, and our joint venture relies on Genzyme to perform manufacturing,
marketing and sales services. These services require the use of Genzyme's
computer systems and equipment.
15
<PAGE>
Genzyme conducted a Year 2000 compliance program to identify and minimize
the Year 2000 problems. The program was a coordinated effort conducted by each
of Genzyme's divisions, business units and departments using its own MIS
personnel. The program involved four phases:
- conducting an inventory of Genzyme's Year 2000 issues;
- prioritizing identified systems, programs and equipment based on
materiality to Genzyme's operations;
- assessing Year 2000 compliance; and
- resolving Year 2000 issues through upgrades, replacements or repairs.
Concurrently with the conduct of Genzyme's internal compliance program,
Genzyme also surveyed certain third parties with whom Genzyme conducts business
about their Year 2000 readiness. These third parties include significant
customers, suppliers, research or collaborative partners, service providers and
distributors, considered to be critical to Genzyme's business. Genzyme attempted
to mitigate its risks with respect to such third parties' Year 2000 compliance
and none of our or Genzyme's key third party business partners failed to be Year
2000 compliant. As a result, no issues related to Year 2000 compliance have had
an adverse impact on our operations.
As of the date of this Form 10-K, Genzyme has not experienced any material
adverse effects on its business, results of operations or financial condition as
a result of the Year 2000 issue. Genzyme will continue to monitor its operations
and the operations of third parties critical to its operations for potential
Year 2000 problems. However, it does not anticipate that it will discover any
future Year 2000 issues that will have a material effect on its or our business,
results of operations or financial condition.
As of March 23, 2000, Genzyme had incurred total costs of approximately
$1.2 million in connection with its Year 2000 compliance program, which it
funded through operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Report of Independent Accountants........................... 18
Statements of Operations--For the Years Ended December 31,
1999, 1998 and 1997....................................... 19
Balance Sheets--December 31, 1999 and 1998.................. 20
Statements of Cash Flows--For the Years Ended December 31,
1999, 1998 and 1997....................................... 21
Statements of Changes in Partners' Capital (Deficit)--For
the Years Ended
December 31, 1999, 1998 and 1997.......................... 22
Notes to Financial Statements............................... 23
</TABLE>
All schedules are omitted since the required information is inapplicable or
has been presented in the financial statements and related notes.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Genzyme Development Corporation II
and Partners of Genzyme Development Partners, L.P.:
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in partners' capital (deficit) and of cash flows
present fairly, in all material respects, the financial position of Genzyme
Development Partners, L.P. (the "Partnership"), at December 31, 1999 and 1998,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Note A to the financial statements, the Partnership expended
all available research and development funds in 1994. Genzyme Corporation,
however, has funded the research on behalf of the Partnership through advances
since 1994 and has committed to fund research, development, general and
administrative expenses in 2000.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 23, 2000
18
<PAGE>
GENZYME DEVELOPMENT PARTNERS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER
UNIT DATA)
<S> <C> <C> <C>
Royalty revenue from Genzyme Corporation (Note C)........... $ 189 $ 145 $ 51
Costs and expenses:
Administrative expenses................................... 77 93 154
------ --------- ---------
Operating income (loss)..................................... 112 52 (103)
Other income (expenses):
Equity in net loss of joint venture (Note C).............. -- (592) (908)
Investment income........................................... 7 3 25
------ --------- ---------
Total other income (expenses)........................... 7 (589) (883)
------ --------- ---------
Net income(loss)............................................ $ 119 $ (537) $ (986)
====== ========= =========
Net income(loss) attributable to each partnership unit:
Limited Partners--based on 737 units...................... $ 160 $ 0 $ 0
====== ========= =========
General Partner--based on 1 unit............................ $1,193 $(537,000) $(986,000)
====== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
GENZYME DEVELOPMENT PARTNERS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 18 $ 97
Royalty receivable from Genzyme (Note C).................... 59 90
Investment in joint venture (Note C)........................ -- --
----- -----
Total assets.............................................. $ 77 $ 187
===== =====
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accrued expenses............................................ $ 70 $ 61
Payable to Genzyme (Note C)................................. 107 345
----- -----
Total liabilities......................................... 177 406
Commitments and contingencies (Note C)......................
Partners' capital (deficit) (including accumulated deficit
of $34,251 as of December 31, 1999):
General partner........................................... (218) (192)
Class A limited partners.................................. 118 --
Class B limited partners.................................. -- --
----- -----
Gross partners' capital (deficit)....................... (100) (192)
Less: unpaid partners' capital............................ -- (27)
----- -----
Total partners' capital (deficit)....................... (100) (219)
----- -----
Total liabilities and partners' capital (deficit)....... $ 77 $ 187
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
GENZYME DEVELOPMENT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $119 $(537) $ (986)
Reconciliation of net income (loss) to net cash provided
(used) by operating activities:
Equity in net loss of joint venture..................... -- 592 908
Increase (decrease) in cash from working capital:
Royalties receivable from Genzyme..................... 31 (73) (9)
Payable to Genzyme and accrued expenses............... (229) 93 (42)
---- ----- -------
Net cash provided (used) by operating activities.......... (79) 75 (129)
Cash flows from investing activities:
Investment in joint venture............................. -- -- (1,500)
Cash flows from financing activities:
Capital contributed by Genzyme.......................... -- -- 1,500
---- ----- -------
Increase (decrease) in cash and cash equivalents............ (79) 75 (129)
Cash and cash equivalents at beginning of period............ 97 22 151
---- ----- -------
Cash and cash equivalents at end of period.................. $ 18 $ 97 $ 22
==== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
GENZYME DEVELOPMENT PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
GENERAL CLASS A CLASS B UNPAID TOTAL
PARTNER'S LIMITED LIMITED PARTNERS' PARTNERS'
CAPITAL PARTNERS' PARTNERS' CAPITAL CAPITAL
(DEFICIT) CAPITAL CAPITAL (DEFICIT) (DEFICIT)
--------- --------- ---------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996..................... $ (169) $ -- $ -- $(27) $ (196)
Capital paid during 1997......................... 1,500 -- -- -- 1,500
Net loss......................................... (986) -- -- -- (986)
------ ---- ---------- ---- ------
Balance at December 31, 1997................... 345 -- -- (27) 318
Net loss......................................... (537) -- -- -- (537)
------ ---- ---------- ---- ------
Balance at December 31, 1998................... (192) -- -- (27) (219)
Write-off of unpaid partners' capital............ (27) -- -- 27 --
Net income....................................... 1 118 -- -- 119
------ ---- ---------- ---- ------
Balance at December 31, 1999................... $ (218) $118 $ -- $ -- $ (100)
====== ==== ========== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
GENZYME DEVELOPMENT PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE A--ORGANIZATION
We were formed in 1989 to develop, produce and derive income from the sale
of products that we refer to as the Sepra products in the United States and
Canada. The Sepra products are, generally, products that:
- are based in whole or in part on hyaluronic acid, which is a naturally
occurring substance that protects tissue and organs;
- are used in human clinical trials or human surgical procedures (other than
ophthalmic surgery); and
- have the effect of reducing the incidence or severity of adhesions (scar
tissue).
In August 1996, Genzyme received marketing approval from the FDA for our
first product, Sepra Film-Registered Trademark- bioresorbable membrane, and
commenced commercial sales of Sepra Film-Registered Trademark- bioresorbable
membrane in the United States on behalf of our joint venture, Genzyme Ventures
II (described below).
We have entered into agreements (described in Note C) with Genzyme for the
development of the Sepra products and for their manufacture and marketing.
Our general partner is Genzyme Development Corporation II, a wholly-owned
subsidiary of Genzyme. We sold 735 Class A limited partnership interests and two
Class B limited partnership interests for $50,000 per interest less discounts
for certain interests. Each interest was sold with warrants to purchase 5,200
shares of Genzyme common stock subject to certain anti-dilution adjustments. The
warrants expired in October 1996.
Our profits and losses are generally allocated 99% to our limited partners
and 1% to our general partner. After the Class A limited partners have received
distributions aggregating 100% of their capital contribution to our partnership,
the Class B limited partner will be entitled to receive 5% of profits and losses
allocated to the Class A limited partners. Losses allocable to the limited
partners in excess of their capital contributions to our partnership are
allocated to our general partner. Approximately $532,000 of losses in 1998 and
$976,000 of losses in 1997 were allocable to our limited partners, but in excess
of their capital contribution, were re-allocated to our general partner
according to the terms of our Agreement of Limited Partnership.
Prior to 1999, we incurred net losses and substantially all of our available
funding, except for a small cash balance reserved for general and administrative
expenses, was spent by the end of the first quarter of 1994. In 1999, we earned
income for the first year since inception. As of December 31, 1999, we had
$18,000 of cash, all of which is available to fund operations. Our general
partner believes, however, that substantial additional funds will be required to
complete the development and clinical testing and commercialization of our
remaining Sepra products, other than Sepra Film-Registered Trademark-
bioresorbable membrane. Genzyme funded these activities from 1994 through 1999,
and currently intends to continue such funding through December 31, 2000.
Genzyme also currently intends to fund administrative expenses in excess of our
available cash in 2000.
NOTE B--ACCOUNTING POLICIES
ACCOUNTING METHOD
Our financial statements have been prepared under the accrual method of
accounting in conformity with generally accepted accounting principles.
23
<PAGE>
GENZYME DEVELOPMENT PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B--ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
Our preparation of financial statements in conformity with generally
accepted accounting principles requires the management of our general partner to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Our actual results could differ from those
estimates.
INVESTMENT IN JOINT VENTURE
As described in Note C, we formed our joint venture with Genzyme in
September 1989, which began to engage in business activities on August 17, 1996
(commencement of operations). We account for our investment in our joint venture
under the equity method of accounting and, therefore, we reflect our share of
our joint venture's losses in our statement of operations.
CASH AND CASH EQUIVALENTS
Our cash equivalents, consisting of non-government money market funds with
initial maturities of three months or less, are valued at cost plus accrued
interest which approximates market value.
REVENUE RECOGNITION
We record royalty revenue upon the shipment and passage of title of the
Sepra products by Genzyme to third parties in Europe. Our royalties are
calculated based on 6% of Genzyme's net sales of our Sepra products in this
region.
INCOME TAXES
Our financial statements do not include a provision for income taxes. Taxes,
if any, are the liability of our limited partners and our general partner.
Research and development expenditures have been reported as Internal Revenue
Code Section 174 deductions on our federal income tax return. There is, however,
a possibility that the Internal Revenue Service may contend that such amounts
should be treated as capitalized costs of obtaining and developing rights to the
technology.
UNCERTAINTIES
We are subject to risks common to companies in the biotechnology industry,
including, but not limited to:
- our development of new technological innovations;
- the development of new technological innovations by our competitors;
- our ability to obtain and maintain adequate protection of proprietary
technology;
- our ability to obtain reimbursement for our products;
- healthcare cost containment initiatives;
- product liability;
- market acceptance of new products; and
- compliance with applicable governmental regulations.
24
<PAGE>
GENZYME DEVELOPMENT PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B--ACCOUNTING POLICIES (CONTINUED)
The successful commercialization of the Sepra products will require us to
convince surgeons of the effectiveness of the products in reducing the formation
of postoperative adhesions. We also need these surgeons to incorporate these
products as standard surgical practice in procedures where adhesions are a
potential postoperative complication. Substantial efforts to educate surgeons
and hospital administrators as to the benefits of these products will be
required, however, in order for the products to penetrate target markets and
gain broad market acceptance. We cannot guarantee that our Sepra products will
gain such acceptance.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS 133, as amended by SFAS 137, is effective for our
fiscal year beginning 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 and have not yet made a determination
of the impact adoption will have on our financial statements.
NOTE C--AGREEMENTS WITH GENZYME CORPORATION
We have entered into the following agreements with Genzyme:
DEVELOPMENT AGREEMENT
Our Development Agreement calls for Genzyme to develop the Sepra products to
be used as surgical aids to limit the incidence and severity of postoperative
adhesions. We were required to reimburse Genzyme for all direct costs, a
reasonable allocation of indirect costs as they relate to the development effort
and a 10% management fee, up to our available funds. We paid a non-refundable
retainer fee of $1.5 million to Genzyme when our partnership commenced. Our
general partner has the authority to terminate the research program at any time
if it is deemed to be unfeasible or uneconomical. Genzyme has no obligation to
fund the programs beyond our available funds but has done so after we expended
our available funds in the first quarter of 1994. Genzyme spent approximately
$9.0 million in 1999, $8.4 million in 1998 and $7.3 million in 1997 on our
development programs. Genzyme currently intends to fund the programs through
2000 on a level consistent with previous years and the 2000 budget for the
program.
CROSS LICENSE AGREEMENT
Under the terms of our Cross License Agreement with Genzyme, Genzyme granted
to us an exclusive, royalty-free license to use all of Genzyme's patent and
technology rights to engage in the development and manufacture of the Sepra
products. We granted Genzyme an exclusive license to manufacture and market the
Sepra products in Europe in exchange for a royalty of 6% of Genzyme's net
European sales of the Sepra products. Genzyme began selling the Sepra products
in Europe in late 1995. These royalties are payable to the extent necessary for
us to pay projected distributions that are not otherwise funded through sales of
our products in the United States and Canada.
25
<PAGE>
GENZYME DEVELOPMENT PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C--AGREEMENTS WITH GENZYME CORPORATION (CONTINUED)
In addition to the 6% royalty on net European sales, we will also receive a
5% royalty on sales by Genzyme of competitive products that are not based on
hyaluronic acid within the United States and Canada.
JOINT VENTURE AGREEMENT
We formed our joint venture with Genzyme to make and sell Sepra products in
the United States and Canada. Genzyme manufactures our Sepra products and has
the exclusive right to sell the Sepra products in the United States and Canada
on behalf of our joint venture. We have contributed $1.7 million of cash to our
joint venture. Genzyme has contributed its agreement to:
- manufacture and market our Sepra products;
- make non-interest bearing loans to our joint venture in the amount of any
working capital deficiency;
- make capital contributions to the extent deemed necessary by both Genzyme
and us in connection with the business of our joint venture; and
- to allow the use of such trademarks, tradenames and logos as we both
determine are necessary and advisable for manufacturing and marketing the
Sepra products within the United States and Canada.
Our joint venture began to engage in active business after receipt of FDA
marketing approval for Sepra Film-Registered Trademark- bioresorbable membrane
on August 17, 1996 (commencement of operations).
Genzyme purchases the Sepra products from our joint venture at Genzyme's
price to the end-user less a distributor's discount (subject to a minimum price)
and receives reimbursement for certain costs incurred in connection with the
market introduction of our Sepra products. Genzyme holds the inventory for our
Sepra products and sells it to our joint venture upon the sales by Genzyme to
third parties.
Genzyme currently funds the joint venture's cash needs. Once annual revenues
from sales in the United and Canada exceed $25 million, Genzyme will be
reimbursed for general and administrative support through a quarterly commission
equal to 10% of our joint venture's revenues for each quarter. The first
$5.6 million of net profits of our joint venture will be allocated to Genzyme.
Afterward, 60% of the net profits will be allocated to Genzyme and 40% to us.
The first $200,000 of the joint venture's losses were allocated to us and,
thereafter, the losses are allocated 40% to us and 60% to Genzyme, except to the
extent that losses allocable to us would result in the allocation of these
losses to our general partner as a result of our limited partners' capital
account balance having been previously reduced to zero. In such an event, 100%
of the losses, in excess of the first $200,000, are allocated to Genzyme. For
financial statement purposes, Genzyme currently consolidates 100% of the losses
of our joint venture funded by Genzyme's non-interest bearing loans or capital
contributions. Our capital contributions to our joint venture and the allocation
of losses from the joint venture are as follows:
- In 1996, we contributed $0.2 milion of cash to our joint venture and the
first $0.2 million losses were allocated to us, which reduced our capital
account to zero. The entire amount of the remaining $2.2 million of losses
from the joint venture for 1996 was allocated to Genzyme.
26
<PAGE>
GENZYME DEVELOPMENT PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C--AGREEMENTS WITH GENZYME CORPORATION (CONTINUED)
- In 1997, Genzyme contributed $1.5 million to our partnership through our
general partner. We contributed $1.5 million of cash to our joint venture
and, because our capital account balance was positive, we were eligible to
receive 40%, or $0.9 million, of losses from our joint venture. The entire
amount of the remaining $1.4 million or 60% of our losses from the joint
venture for 1997 was allocated to Genzyme.
- In 1998, we did not make any additional capital contributions to our joint
venture and were only eligible to receive an allocation of losses from the
joint venture equal to our remaining capital balance of $0.6 million. The
entire amount of the remaining $4.2 million of the losses from our joint
venture for 1998 was allocated to Genzyme.
- In 1999, we did not make any additional capital contributions to our joint
venture and were not eligible to receive an allocation of losses from our
joint venture for 1999. All of the losses of our joint venture for 1999
were allocated to Genzyme.
We will not be eligible to receive an allocation of losses from our joint
venture until we make an additional capital contribution to the joint venture.
Our joint venture's losses for the years ending December 31, 1999, 1998 and
1997 are allocated according to the terms of the Amended and Restated Joint
Venture Agreement, which were retroactive to August 17, 1996.
We have summarized condensed financial information and allocation of the
losses of our joint venture in the table below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Revenues....................................... $6,810 $ 5,598 $ 3,210
Operating expenses............................. (7,236) (10,393) (5,479)
Gross profit................................... (426) (4,795) (2,269)
Net loss....................................... (425) (4,775) (2,269)
Allocated to Genzyme Development Partners...... $ -- $ (592) $ (908)
Allocated to Genzyme........................... $ (425) $(4,183) $(1,361)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Joint venturer's capital--Genzyme........................ $20 $20
Joint venturer's capital--Genzyme Development Partners... $-- $--
</TABLE>
MARKETING AND DISTRIBUTION AGREEMENT
In connection with negotiating the Amended and Restated Joint Venture
Agreement, our joint venture entered into an exclusive Marketing and
Distribution Agreement with Genzyme, whereby:
- Genzyme acts as sole distributor of the Sepra products for our joint
venture;
27
<PAGE>
GENZYME DEVELOPMENT PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C--AGREEMENTS WITH GENZYME CORPORATION (CONTINUED)
- our joint venture agreed to sell our Sepra products to Genzyme at the
price at which Genzyme sells the applicable products to the end-user less
a distributor's discount (subject to a minimum purchase price); and
- our joint venture agreed to reimburse Genzyme for certain costs incurred
in connection with market introduction of our Sepra products.
The economic terms of the Marketing and Distribution Agreement are intended to
be substantially similar to those that would be applicable if Genzyme provided
these services in its capacity as a venturer rather than as a distributor.
TAX INDEMNIFICATION AGREEMENT
At the request of a special committee of directors of our general partner
consisting of the two directors who were not affiliated with Genzyme, we also
entered into a Tax Indemnification Agreement with Genzyme. Under that agreement,
Genzyme agreed, subject to certain limitations, to indemnify our limited
partners against loss of the benefits of certain research and development
deductions certain of our limited partners have taken (net of potential tax
savings due to any resultant higher tax basis in the limited partnership
interests). The Tax Indemnification Agreement can be waived at our discretion in
connection with a purchase of our partnership by Genzyme.
PARTNERSHIP PURCHASE OPTION AGREEMENT
Our Partnership Purchase Option Agreement with Genzyme grants Genzyme the
option to purchase our limited partnership interests during the 90-day period
beginning on August 31, 2000. The commencement date may be accelerated to the
last day of the month in which the aggregate distributions we receive from our
joint venture are equal to $5.5 million or more. If Genzyme exercises its rights
under the Partnership Purchase Option Agreement, each of our limited partners
will receive approximately $35,000 per partnership unit, in cash, Genzyme common
stock, or any combination of the two. Additionally, our limited partners will
receive quarterly royalty payments for a period of ten years after the buyout
date.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Exclusive management and control of our business is vested in our general
partner. Accordingly, the following information pertains to the directors and
executive officers of the general partner:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Henri A. Termeer 54 President and director since September
1989
W. Gerald Austen, M.D. 70 Director since February 1990
Earl M. Collier, Jr. 52 Director since September 1997
Stelios Papadopoulos, Ph.D. 52 Director since November 1998
Michael S. Wyzga 45 Treasurer since 1999
</TABLE>
Directors of our general partner are elected annually by Genzyme, its sole
stockholder, and each officer's term of office extends until the meeting of our
board of directors following the next annual meeting of stockholders and until a
successor is elected and qualified.
Under a voting agreement between Genzyme and PaineWebber R&D Partners II,
L.P., which we refer to as the Fund, the holder of 15% of the Class A limited
partnership interests, Genzyme has agreed to nominate and vote its shares for
the election of directors such that at least half of the directors of our
general partner consist of persons designated by the Fund. Dr. Papadopoulos and
Dr. Austen were designated by the Fund. Directors designated by the Fund may not
be removed without the written approval of the Fund. No mechanism has been
provided to resolve a deadlock on our board of directors.
MR. TERMEER has been President of Genzyme since October 1983, Chief
Executive Officer of Genzyme since December 1985 and Chairman of the Board of
Genzyme since May 1988. For ten years prior to joining Genzyme, Mr. Termeer
worked for Baxter Travenol Laboratories, Inc., a manufacturer of human
healthcare products. Mr. Termeer is a director of Genzyme Transgenics
Corporation, ABIOMED, Inc., AutoImmune Inc., Diacrin, Inc., and GelTex
Pharmaceuticals, Inc., and a trustee of Hambrecht & Quist Healthcare Investors
and Hambrecht & Quist Life Sciences Investors.
DR. AUSTEN currently is Chairman of the Massachusetts General Physicians
Organization. In addition, Dr. Austen is the Edward D. Churchill Professor of
Surgery at the Harvard Medical School. Dr. Austen is also a director of
ABIOMED, Inc.
MR. COLLIER joined Genzyme in January 1997 as Senior Vice President, Health
Systems and has served as Executive Vice President since July 1997. In addition,
Mr. Collier serves as President of Genzyme's Surgical Products division and also
has responsibility for its Tissue Repair division. Prior to joining Genzyme,
Mr. Collier was President of Vitas HealthCare Corporation (formerly Hospice Care
Incorporated), a provider of healthcare services, from October 1991 until
August 1995. Prior to that, Mr. Collier was a partner in the Washington, D.C.
law firm Hogan & Hartson, which he joined in 1981.
DR. PAPADOPOULOS is a Managing Director in the investment banking division
at SG Cowen Securities Corporation focusing on the biotechnology and
pharmaceutical sectors. From April 1987 until February 2000, he was an
investment banker at PaineWebber Inc., where he was most recently Chairman of
PaineWebber Development Corp., a PaineWebber subsidiary. Dr. Papadopoulos is an
Adjunct Associate Professor of Cell Biology of New York University Medical
Center and is a director of Diacrin, Inc.
29
<PAGE>
MR. WYZGA joined Genzyme in February 1998 as Vice President and Corporate
Controller and served as Senior Vice President, Corporate Controller and Chief
Accounting Officer since January 1999 and as Senior Vice President, Finance and
Chief Financial Officer of Genzyme since July 1999. Prior to joining Genzyme,
from February 1997 to February 1998 Mr. Wyzga served as Chief Financial Officer
of Sovereign Hill Software, Inc., a software company. From November 1995 to
February 1997 he served as Vice President of Finance and Chief Financial Officer
of CACHELINK Corporation, a client/server software company. From October 1994 to
November 1995 Mr. Wyzga served as Vice President of Finance for Lotus, and he
also served from August 1993 to October 1994 as Director of Plans and Controls
and from April 1991 to August 1993 as Manager of Plans and Controls for Lotus.
EXCHANGE ACT SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
The executive officers and directors of our general partner are required
under Section 16(a) of the Exchange Act to file reports of ownership of
Partnership securities and changes in ownership with the Securities and Exchange
Commission. Copies of those reports must be furnished to us.
Based solely on a review of the copies of reports which have been furnished
to us and written representations that no other reports were required, our
general partner believes that during 1999 the executive officers and directors
of our general partner complied with all applicable Section 16(a) filing
requirements.
ITEM 11. EXECUTIVE COMPENSATION
Dr. Austen and Dr. Papadopoulos are paid $2,500 for each meeting of the
board of directors of our general partner. The other directors and officers of
our general partner do not receive any compensation or economic benefits from
us.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We have disclosed information regarding the ownership of our securities by
persons we know to be beneficial owners of more than five percent of any class
of our partnerhip interests as of February 29, 2000 in the table below. None of
our directors or officers own any of our securities.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
- -------------- --------------------------------------- ----------------------- ----------
<S> <C> <C> <C>
General Partner Genzyme Development One General 100.0%
Interest Corporation II Partner Interest
One Kendall Square
Cambridge, MA 02139
Class B Limited PaineWebber Development Two Class B 100.0%
Partnership Interest Corporation Limited Partner
1285 Avenue of the Americas Interests
New York, NY 10019
Class A Limited PaineWebber R&D 111 Class A 15.1%
Partnership Partners II, L.P. Limited Partner
Interest 1285 Avenue of the Americas Interests
New York, NY 10019
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Termeer, Mr. Collier and Mr. Wyzga are executive officers of Genzyme. We
are a party to agreements with Genzyme that are summarized in Note C.,
"Agreements with Genzyme Corporation," to our financial statements included in
Item 8 of this Form 10-K.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
<TABLE>
<C> <S>
(a) 1. Financial Statements
The financial statements are listed under Item 8 of this
Form 10-K.
2. Financial Statement Schedules
None.
3. Exhibits
The exhibits are listed below under Part IV, Item 14(c) of
this Form 10-K.
(b) Reports on Form 8-K
We did not file any reports on Form 8-K during the quarter
ended December 31, 1999.
</TABLE>
31
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<S> <C>
3 Agreement of Limited Partnership dated as of September 13,
1989 between Genzyme Development Corporation II, as General
Partner, and each of the Limited Partners named therein.
Filed as Exhibit 10(aa) to the Registration Statement of
Genzyme Corporation on Form S-4, File No. 33-32343, and
incorporated herein by reference.
10.1 Cross License Agreement dated as of September 13, 1989
between Genzyme Corporation and Genzyme Development
Partners, L.P. Filed as Exhibit 10(bb) to Genzyme's
Registration Statement on Form S-4, File No. 33-32343, and
incorporated herein by reference.
10.2 Development Agreement dated as of September 13, 1989 between
Genzyme Corporation and Genzyme Development Partners, L.P.
Filed as Exhibit 10(cc) to Genzyme's Registration Statement
on Form S-4, File No. 33-32343, and incorporated herein by
reference.
10.3 Partnership Purchase Option Agreement dated as of September
13, 1989 between Genzyme Corporation, Genzyme Development
Corporation II, Genzyme Development Partners, L.P., each
Class A Limited Partner and the Class B Limited Partner.
Filed as Exhibit 10(dd) to Genzyme's Registration Statement
on Form S-4, File No. 33-32343, and incorporated herein by
reference.
10.4 Partnership Purchase Agreement, undated and unexecuted,
between Genzyme Corporation, Genzyme Development Corporation
II, Genzyme Development Partners, L.P., each Class A Limited
Partner and the Class B Limited Partner, as the case may be.
Filed as Exhibit 10(ee) to Genzyme's Registration Statement
on Form S-4, File No. 33-32343, and incorporated herein by
reference.
10.5 Amendment No. 1 to Development Agreement dated January 4,
1994 between Genzyme Corporation and Genzyme Development
Partners, L.P. Filed as Exhibit 10.14 to Genzyme's Form 10-K
for 1993, File No. 0-14680, and incorporated herein by
reference.
10.6 Notice dated January 4, 1994 from Genzyme Corporation to
Genzyme Development Partners, L.P. Filed as Exhibit 10.15 to
Genzyme Corporation's Form 10-K for 1993, File No. 0-14680,
and incorporated herein by reference.
10.7 Notice dated January 13, 1995 from Genzyme Corporation to
Genzyme Development Partners, L.P. Filed as Exhibit 10.16 to
Genzyme Corporation's Form 10-K for 1994, File No. 0-14680,
and incorporated herein by reference.
10.8 Notice dated February 22, 1996 from Genzyme Corporation to
Genzyme Development Partners, L.P. Filed as Exhibit 10.17 to
Genzyme Corporation's Form 10-K for 1995, File No. 0-14680,
and incorporated herein by reference.
10.9 Amended and Restated Joint Venture Agreement dated as of
May 7, 1997 between Genzyme Corporation and Genzyme
Development Partners, L.P. Filed as Exhibit 10.1 to Genzyme
Development Partners, L.P.'s Report on Form 10-Q as of March
31, 1997, File No. 0-18554 and incorporated herein by
reference.
10.10 Tax Indemnification Agreement dated as of May 7, 1997
between Genzyme Corporation and Genzyme Development
Partners, L.P. Filed as Exhibit 10.2 to Genzyme Development
Partners, L.P. Report on Form 10-Q as of March 31, 1997,
File No. 0-18554 and incorporated herein by reference.
10.11 Marketing and Distribution Agreement dated as of May 7, 1997
between Genzyme Corporation and Genzyme Ventures II. Filed
as Exhibit 10.3 to Genzyme Development Partners, L.P. Report
on Form 10-Q as of March 31, 1997, File No. 0-18554 and
incorporated herein by reference.
27 Financial Data Schedule for Genzyme Development Partners,
L.P. Filed herewith.
99 Financial Statements of Genzyme Ventures II as of December
31, 1998 and 1999 and for the years ended December 31, 1999,
1998 and 1997. Filed herewith.
</TABLE>
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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 DEVELOPMENT PARTNERS, L.P.
By: GENZYME DEVELOPMENT CORPORATION, II
General Partner
Date: March 30, 2000 By: /s/ MICHAEL S. WYZGA
-----------------------------------------
Michael S. Wyzga
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HENRI A. TERMEER Director and Principal Executive
------------------------------------ Officer March 30, 2000
Henri A. Termeer
/s/ MICHAEL S. WYZGA Principal Financial and Accounting
------------------------------------ Officer March 30, 2000
Michael S. Wyzga
/s/ W. GERALD AUSTEN Director
------------------------------------ March 30, 2000
W. Gerald Austen
/s/ EARL M. COLLIER, JR. Director
------------------------------------ March 30, 2000
Earl M. Collier, Jr.
Director
------------------------------------
Stelios Papadopoulos
</TABLE>
33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<S> <C>
3 Agreement of Limited Partnership dated as of September 13,
1989 between Genzyme Development Corporation II, as General
Partner, and each of the Limited Partners named therein.
Filed as Exhibit 10(aa) to the Registration Statement of
Genzyme Corporation on Form S-4, File No. 33-32343, and
incorporated herein by reference.
10.1 Cross License Agreement dated as of September 13, 1989
between Genzyme Corporation and Genzyme Development
Partners, L.P. Filed as Exhibit 10(bb) to Genzyme's
Registration Statement on Form S-4, File No. 33-32343, and
incorporated herein by reference.
10.2 Development Agreement dated as of September 13, 1989 between
Genzyme Corporation and Genzyme Development Partners, L.P.
Filed as Exhibit 10(cc) to Genzyme's Registration Statement
on Form S-4, File No. 33-32343, and incorporated herein by
reference.
10.3 Partnership Purchase Option Agreement dated as of September
13, 1989 between Genzyme Corporation, Genzyme Development
Corporation II, Genzyme Development Partners, L.P., each
Class A Limited Partner and the Class B Limited Partner.
Filed as Exhibit 10(dd) to Genzyme's Registration Statement
on Form S-4, File No. 33-32343, and incorporated herein by
reference.
10.4 Partnership Purchase Agreement, undated and unexecuted,
between Genzyme Corporation, Genzyme Development Corporation
II, Genzyme Development Partners, L.P., each Class A Limited
Partner and the Class B Limited Partner, as the case may be.
Filed as Exhibit 10(ee) to Genzyme's Registration Statement
on Form S-4, File No. 33-32343, and incorporated herein by
reference.
10.5 Amendment No. 1 to Development Agreement dated January 4,
1994 between Genzyme Corporation and Genzyme Development
Partners, L.P. Filed as Exhibit 10.14 to Genzyme's Form 10-K
for 1993, File No. 0-14680, and incorporated herein by
reference.
10.6 Notice dated January 4, 1994 from Genzyme Corporation to
Genzyme Development Partners, L.P. Filed as Exhibit 10.15 to
Genzyme Corporation's Form 10-K for 1993, File No. 0-14680,
and incorporated herein by reference.
10.7 Notice dated January 13, 1995 from Genzyme Corporation to
Genzyme Development Partners, L.P. Filed as Exhibit 10.16 to
Genzyme Corporation's Form 10-K for 1994, File No. 0-14680,
and incorporated herein by reference.
10.8 Notice dated February 22, 1996 from Genzyme Corporation to
Genzyme Development Partners, L.P. Filed as Exhibit 10.17 to
Genzyme Corporation's Form 10-K for 1995, File No. 0-14680,
and incorporated herein by reference.
10.9 Amended and Restated Joint Venture Agreement dated as of
May 7, 1997 between Genzyme Corporation and Genzyme
Development Partners, L.P. Filed as Exhibit 10.1 to Genzyme
Development Partners, L.P.'s Report on Form 10-Q as of March
31, 1997, File No. 0-18554 and incorporated herein by
reference.
10.10 Tax Indemnification Agreement dated as of May 7, 1997
between Genzyme Corporation and Genzyme Development
Partners, L.P. Filed as Exhibit 10.2 to Genzyme Development
Partners, L.P. Report on Form 10-Q as of March 31, 1997,
File No. 0-18554 and incorporated herein by reference.
10.11 Marketing and Distribution Agreement dated as of May 7, 1997
between Genzyme Corporation and Genzyme Ventures II. Filed
as Exhibit 10.3 to Genzyme Development Partners, L.P. Report
on Form 10-Q as of March 31, 1997, File No. 0-18554 and
incorporated herein by reference.
27 Financial Data Schedule for Genzyme Development Partners,
L.P. Filed herewith.
99 Financial Statements of Genzyme Ventures II as of December
31, 1999 and 1998 and for the years ended December 31, 1999,
1998 and 1997. Filed herewith.
</TABLE>
34
<PAGE>
EXHIBIT 99
REPORT OF INDEPENDENT ACCOUNTANTS
To the Venturers of Genzyme Ventures II:
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in venturers' capital (deficit) and of cash flows
present fairly, in all material respects, the financial position of Genzyme
Ventures II (the "Joint Venture") at December 31, 1999 and 1998, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Joint Ventures' management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 23, 2000
<PAGE>
GENZYME VENTURES II
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net product sales........................................... $6,810 $ 5,598 $ 3,210
Operating costs and expenses:
Cost of products sold..................................... (2,256) (2,443) (868)
Selling and marketing expenses............................ (4,980) (7,950) (4,611)
------ ------- -------
Total operating costs and expenses...................... (7,236) (10,393) (5,479)
------ ------- -------
Operating loss.............................................. (426) (4,795) (2,269)
Other income:
Investment income......................................... 1 20 --
------ ------- -------
Total other income...................................... 1 20 --
------ ------- -------
Net loss.................................................... $ (425) $(4,775) $(2,269)
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
GENZYME VENTURES II
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $21 $20
=== ===
LIABILITIES AND VENTURERS' CAPITAL (DEFICIT)
Accounts payable to Genzyme Corporation (Note C)............ -- --
Commitments and contingencies (Note D)...................... -- --
Venturers' capital:
Genzyme................................................... 21 20
Genzyme Development Partners, L.P......................... -- --
Total Venturers' capital.................................... 21 20
--- ---
Total liabilities and Venturers' capital.................... $21 $20
=== ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
GENZYME VENTURES II
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(425) $(4,775) $(2,269)
Cash flows from financing activities:
Capital contributed by Genzyme............................ 426 3,095 2,469
Capital contributed by Genzyme Development Partners,
L.P..................................................... -- -- 1,500
----- ------- -------
Increase (decrease) in cash................................. 1 (1,680) 1,700
Cash at beginning of period................................. 20 1,700 --
----- ------- -------
Cash at end of period....................................... $ 21 $ 20 $ 1,700
===== ======= =======
</TABLE>
Supplemental disclosure of non-cash transaction:
Conversion of accounts payable to Genzyme to capital--Note D
The accompanying notes are an integral part of these financial statements.
<PAGE>
GENZYME VENTURES II
STATEMENTS OF CHANGES IN VENTURERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
GENZYME
DEVELOPMENT
GENZYME PARTNERS, TOTAL
CORPORATION L.P. VENTURERS'
CAPITAL CAPITAL CAPITAL (DEFICIT)
----------- ----------- -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1996........................... $(2,279) $ -- $(2,279)
Capital contributions.................................. 4,748 1,500 6,248
Net loss............................................... (1,361) (908) (2,269)
------- ------ -------
Balance at December 31, 1997......................... 1,108 592 1,700
Capital contribution................................... 3,095 -- 3,095
Net loss............................................... (4,183) (592) (4,775)
------- ------ -------
Balance at December 31, 1998......................... 20 -- 20
Capital contribution................................... 426 -- 426
Net loss............................................... (425) -- (425)
------- ------ -------
Balance at December 31, 1999......................... $ 21 $ -- $ 21
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
GENZYME VENTURES II
NOTES TO FINANCIAL STATEMENTS
DESCRIPTION OF REFERENCES
In these notes to the financial statements of Genzyme Ventures II we refer
to:
- Genzyme Development Partners, L.P. as "GDP;"
- Genzyme Corporation as "Genzyme;"
- GDP and Genzyme together as "venturers;" and
- Genzyme Ventures II as the "joint venture."
NOTE A. ORGANIZATION
In September 1989, GDP and Genzyme formed the joint venture under the terms
and provisions of the Delaware Uniform Partnership Act for the purpose of
manufacturing and marketing GDP's surgical products (the "Sepra products") in
the United States and Canada for use in human clinical trials or human surgical
procedures, other than in ophthalmic surgery. The Sepra products are based on
hyaluronic acid and are intended to be used to limit the incidence and severity
of postoperative adhesions.
GDP has contributed its technology and $1.7 million to the joint venture;
and Genzyme has contributed its agreement to manufacture and market the Sepra
products, to make non-interest bearing loans to the joint venture in the amount
of any working capital deficiency, to make capital contributions to the extent
deemed necessary by GDP and Genzyme in connection with the business of the joint
venture and to allow the use of such trademarks, tradenames and logos as GDP and
Genzyme shall determine to be necessary and advisable for manufacturing and
marketing the Sepra products within the United States and Canada. In
August 1996, Genzyme received marketing approval for GDP's first product, Sepra
Film-Registered Trademark- bioresorbable membrane, and commenced commercial
sales of this product in the United States on behalf of the joint venture on
August 17, 1996 (commencement of operations).
NOTE B. ACCOUNTING POLICIES
ACCOUNTING METHOD
The financial statements of our joint venture have been prepared under the
accrual method of accounting in conformity with generally accepted accounting
principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues and corresponding cost of sales from product sales are recognized
when goods are shipped by Genzyme to the end customer and title has passed as
provided in the Amended and Restated Joint Venture Agreement (described in
Note C).
INVENTORY
Genzyme manufactures the Sepra products on behalf of the joint venture. The
Sepra products are then sold to the joint venture at the time Genzyme sells the
Sepra products to the end customer. The
<PAGE>
GENZYME VENTURES II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B. ACCOUNTING POLICIES (CONTINUED)
joint venture does not hold the inventory and, therefore, no inventory is
reflected on the joint venture's balance sheet.
INCOME TAXES
The joint venture's financial statements do not include a provision for
income taxes. Taxes, if any, are the liability of GDP and Genzyme, as partners.
UNCERTAINTIES
The joint venture is subject to risks common to companies in the
biotechnology industry, including but not limited to, development by its
competitors of new technological innovations, protection of proprietary
technology, health care cost containment initiatives, product liability, market
acceptance of the Sepra products and compliance with the government regulations,
including those of the U.S. Department of Health and Human Services and the FDA.
In addition, the joint venture is dependent upon Genzyme's ability to produce
and market the Sepra products.
NOTE C. JOINT VENTURE AGREEMENT BETWEEN GDP AND GENZYME
In March 1997, GDP and Genzyme reached agreement concerning the operation of
and allocations of profits and losses from the joint venture. Under the terms of
these agreements, Genzyme purchases product from the joint venture for resale by
Genzyme as sole distributor for the joint venture. Genzyme purchases the
products from the joint venture at Genzyme's price to the end-user less a
distributor's discount (subject to a minimum price) and receives reimbursement
for certain costs incurred in connection with the market introduction of the
Sepra products. Genzyme holds the inventory of the Sepra products and sells it
to the joint venture upon sales to third parties. Genzyme is not entitled to
reimbursement for general and administrative services it provides to the joint
venture until the first year in which the joint venture generates more than
$25.0 million in revenues, at which time Genzyme will receive a quarterly
commission for general and administrative services in an amount equal to 10% of
the joint venture's gross revenues.
Under the terms of the Amended and Restated Joint Venture Agreement, GDP
will receive the first $5.6 million in profits generated by the joint venture,
Genzyme will receive the next $8.4 million in profits and, thereafter, Genzyme
and GDP will receive a 60% and 40% share, respectively, in the profits of the
joint venture. The first $200,000 of the joint venture's losses are allocated to
GDP and thereafter losses are allocated 40% to GDP and 60% to Genzyme except to
the extent that any losses allocable to GDP would result in the allocation of
such loss to Genzyme Development Corporation II as the general partner of GDP as
a result of the GDP limited partners' capital account balance having been
previously reduced to zero. In such an event, 100% of the losses, in excess of
the first $200,000, are allocated to Genzyme. These financial statements reflect
the terms of the Amended and Restated Joint Venture Agreement.
The venturers' losses for the years ending December 31, 1999, 1998 and 1997
are allocated pursuant to the terms of the Amended and Restated Joint Venture
Agreement, which is retroactive to August 17, 1996.
<PAGE>
GENZYME VENTURES II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C. JOINT VENTURE AGREEMENT BETWEEN GDP AND GENZYME (CONTINUED)
Allocation of joint venture losses is summarized as follows (amounts in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Joint Venture net loss........................... $(425) $(4,775) $(2,269)
===== ======= =======
Losses allocated to GDP.......................... $ -- $ (592) $ (908)
Losses allocated to Genzyme...................... $(425) $(4,183) $(1,361)
</TABLE>
NOTE D. JOINT VENTURE CAPITAL
In 1997, Genzyme contributed $1.5 million of cash to GDP through its
wholly-owned subsidiary, Genzyme Development Corporation II, which also is the
general partner of GDP. GDP contributed $1.5 million in 1997 and $200,000 in
1996 to the joint venture and agreed to allow the use of such trademarks,
tradenames and logos as the venturers shall determine to be necessary and
advisable for manufacturing and marketing the Sepra products within the United
States and Canada.
Genzyme funded the operating losses of the Joint Venture in 1999, 1998 and
1997 and intends to fund the operating losses of the joint venture in 2000.
Genzyme converted its receivables from the joint venture of $0.4 million in
1999, $3.1 million in 1998 and $2.3 million in 1997 to capital.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS OF GENZYME DEVELOPMENT PARTNERS, L.P. FOR
THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 77
<CURRENT-LIABILITIES> 177
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 100
<TOTAL-LIABILITY-AND-EQUITY> 77
<SALES> 0
<TOTAL-REVENUES> 189
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 77
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 119
<INCOME-TAX> 0
<INCOME-CONTINUING> 119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119<F1>
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>We were formed as a Delaware limited partnership. Net earnings or loss
are reported per partnership unit instead of per share. We recorded net
earnings of $119,000 for the year ended December 31, 1999. Our net losses
for 1999 were allocated 99% to our limited partners and 1% to our general
partner.
</FN>
</TABLE>
