Genzyme 10Q 2002 Q2 Quarterly report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2002

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

For the transition period from to

Commission file number 0-14680

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

Massachusetts (State or other jurisdiction of incorporation or organization)		06-1047163 (I.R.S. Employer Identification No.)
One Kendall Square, Cambridge, Massachusetts (Address of principal executive offices)		02139 (zip code)

(617) 252-7500
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

The number of shares outstanding of each of the issuer's series of common stock as of July 31, 2002:

Genzyme General Division Common Stock		214,279,307
Genzyme Biosurgery Division Common Stock		40,376,346
Genzyme Molecular Oncology Division Common Stock		16,851,498

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements, including statements regarding our:

•: projected timetables for the preclinical and clinical development of, regulatory submissions and approvals for, and market introduction of, our products and services;
•: estimates of the potential markets for our products and services, including the anticipated drivers for future growth;
•: sales and marketing plans;
•: assessments of competitors and potential competitors;
•: manufacturing plans and expectations concerning certain manufacturing expenditures;
•: estimates of the capacity of manufacturing and other facilities to support our products and services;
•: expected future revenues, operations and expenditures;
•: allocations of revenues, expenses, liabilities and income tax benefits;
•: maintenance of financial covenants contained in our credit facility;
•: schedule for performance of goodwill impairment tests;
•: potential milestone payments to the former stockholders of Novazyme Pharmaceuticals, Inc.;
•: beliefs concerning the application of federal antitrust laws to our acquisition of Novazyme; and
•: projected cash needs.

These statements are subject to risks and uncertainties, and our actual results may differ significantly from those that are described in this report. These risks and uncertainties include:

•: our ability to successfully complete preclinical and clinical development of our products and services;
•: our ability to manufacture sufficient amounts of our products for development and commercialization activities;
•: our ability to obtain and maintain adequate patent and other proprietary rights protection of our products and services and successfully enforce our proprietary rights;
•: the scope, validity and enforceability of patents and other proprietary rights held by third parties and their impact on our ability to commercialize our products and services;
•: the accuracy of our estimates of the size and characteristics of the markets to be addressed by our products and services, including growth projections;
•: market acceptance of our products and services;
•: our ability to identify new patients for our products and services;
•: the accuracy of our information regarding the products and resources of our competitors and potential competitors;
•: the content and timing of submissions to and decisions made by the U.S. Department of Health and Human Services Food and Drug Administration, commonly referred to as the FDA, other regulatory agencies and institutional review boards at clinical trial sites;
•: the impact of the May 2001 expiration of orphan drug status for Cerezyme® and Ceredase® enzymes on our revenues from these products;
•: the outcome of our ongoing discussions with the FDA in connection with our Biologics License Application, commonly referred to as a BLA, submission for Fabrazyme® enzyme;

•: the outcome of the U.S. Federal Trade Commission's investigation concerning the application of federal antitrust laws to our acquisition of Novazyme;
•: our ability to obtain reimbursement for our products and services from third-party payors, the extent of such coverage and the impact of proposed Center for Medicare and Medicaid Services regulations related to reimbursement;
•: our ability to expand manufacturing capacity for Renagel® phosphate binder;
•: our ability to optimize dosing and improve patient compliance with Renagel phosphate binder;
•: our ability to effectively manage inventories of Renagel phosphate binder;
•: our ability to establish and maintain strategic license, collaboration and distribution arrangements;
•: the continued funding of our joint ventures by our partners;
•: our ability to successfully increase market penetration for Synvisc® viscosupplementation product as a treatment for osteoarthritis of the knee and to expand its use in other joints;
•: our ability to increase market penetration in Europe for our Fabrazyme enzyme, Thyrogen® hormone and Renagel phosphate binder;
•: our ability to obtain U.S. marketing approval by specified dates for therapies for lysosomal storage disorders using certain technology we acquired from Novazyme; and
•: the possible disruption of our operations due to terrorist activities and armed conflict, including as a result of the disruption of operations of our subsidiaries and our customers, suppliers, distributors, couriers, collaborative partners, licensees and clinical trial sites.

For a further description of these risks and other uncertainties, we encourage you to carefully read Exhibit 99.2, "Factors Affecting Future Operating Results," to our Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as amended (our "2001 Form 10-K"). We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements.

NOTE REGARDING REFERENCES TO GENZYME DIVISIONS

Throughout this Form 10-Q, the words "we," "us," "our" and "Genzyme" refer to Genzyme Corporation and all of its operating divisions taken as a whole, and "our board of directors" refers to the board of directors of Genzyme Corporation. In addition, we refer to our three operating divisions as follows:

•: Genzyme General Division = "Genzyme General;"
•: Genzyme Biosurgery Division = "Genzyme Biosurgery;" and
•: Genzyme Molecular Oncology Division = "Genzyme Molecular Oncology."

NOTE REGARDING INCORPORATION BY REFERENCE

The Securities and Exchange Commission allows us to disclose important information to you by referring you to other documents we have filed with the SEC. The information that we refer you to is "incorporated by reference" into this Form 10-Q. Please read that information.

NOTE REGARDING TRADEMARKS

Genzyme®, Cerezyme®, Ceredase®, Thyrogen®, Fabrazyme®, Seprafilm®, Carticel®, Epicel® and Snowden-Pencer® are registered trademarks of Genzyme. SAGE™, LongSAGE™ and Sepra™ are trademarks of Genzyme. Renagel® is a registered trademark of GelTex Pharmaceuticals, Inc. Synvisc® and Hylaform® are registered trademarks of Genzyme Biosurgery Corporation. Focal® and FocalSeal® are registered trademarks of Focal, Inc. Aldurazyme™ is a trademark of BioMarin/Genzyme LLC. WelChol™ is a trademark of Sankyo Pharma, Inc. Neurocell™ is a trademark of Diacrin, Inc. Zavesca™ is a trademark of Oxford GlycoSciences plc. All rights reserved.

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 2002
TABLE OF CONTENTS

		PAGE NO.
PART I. FINANCIAL INFORMATION		1
ITEM 1. Financial Statements		1
GENZYME CORPORATION AND SUBSIDIARIES
	Unaudited, Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001	1
	Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001	3
	Unaudited, Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001	4
	Notes to Unaudited, Consolidated Financial Statements	5
GENZYME GENERAL
	Unaudited, Combined Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001	23
	Combined Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001	24
	Unaudited, Combined Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001	25
	Notes to Unaudited, Combined Financial Statements	26
GENZYME BIOSURGERY
	Unaudited, Combined Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001	35
	Combined Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001	36
	Unaudited, Combined Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001	37
	Notes to Unaudited, Combined Financial Statements	38
GENZYME MOLECULAR ONCOLOGY
	Unaudited, Combined Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001	44
	Combined Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001	45
	Unaudited, Combined Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001	46
	Notes to Unaudited, Combined Financial Statements	47
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		48
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		107
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders		108
ITEM 6. Exhibits and Reports on Form 8-K		110
Signatures		111

PART 1. Financial Information

ITEM 1. Financial Statements

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited, amounts in thousands)

				Three Months Ended June 30,						Six Months Ended June 30,
				2002			2001			2002			2001
Revenues:
	Net product sales			$	299,980		$	273,473		$	566,606		$	524,303
	Net service sales				28,024			24,235			54,707			47,995
	Revenues from research and development contracts:
		Related parties			784			1,313			1,396			1,632
		Other			3,404			1,620			7,423			4,972

			Total revenues		332,192			300,641			630,132			578,902

Operating costs and expenses:
	Cost of products sold				76,522			79,600			148,676			156,132
	Cost of services sold				16,439			13,428			31,457			26,849
	Selling, general and administrative				110,882			103,666			213,840			194,780
	Research and development (including research and development related to contracts)				75,934			62,414			158,075			119,524
	Amortization of intangibles				17,586			30,174			35,183			59,165
	Purchase of in-process research and development				—			8,768			—			8,768

			Total operating costs and expenses		297,363			298,050			587,231			565,218

Operating income					34,829			2,591			42,901			13,684

Other income (expenses):
	Equity in net loss of unconsolidated affiliates				(3,948	)		(11,796	)		(8,042	)		(20,811	)
	Gain (loss) on investments in equity securities				343			(1,532	)		509			(1,532	)
	Minority interest in net loss of subsidiary				—			725			—			1,999
	Other				1,827			(133	)		963			(3,843	)
	Investment income				12,624			12,493			26,061			22,641
	Interest expense				(7,059	)		(10,766	)		(13,865	)		(22,136	)

			Total other income (expenses)		3,787			(11,009	)		5,626			(23,682	)

Income (loss) before income taxes					38,616			(8,418	)		48,527			(9,998	)
(Provision for) benefit from income taxes					(10,293	)		2,064			(13,431	)		2,734

Net income (loss) before cumulative effect of change in accounting for goodwill and derivative financial instruments					28,323			(6,354	)		35,096			(7,264	)
Cumulative effect of change in accounting for goodwill					—			—			(98,270	)		—
Cumulative effect of change in accounting for derivative financial instruments, net of tax					—			—			—			4,167

Net income (loss)				$	28,323		$	(6,354	)	$	(63,174	)	$	(3,097	)

Comprehensive income (loss), net of tax:
	Net income (loss)			$	28,323		$	(6,354	)	$	(63,174	)	$	(3,097	)

	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			47,999			(3,723	)		38,799			(17,844	)
		Unrealized gains (losses) on interest rate swap contracts, net of tax			(541	)		218			(163	)		(289	)
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period		(2,752	)		21,654			(26,709	)		(987	)
			Reclassification adjustment for losses included in net income (loss)		81			973			81			973

		Unrealized gains (losses) on securities, net			(2,671	)		22,627			(26,628	)		(14	)

	Other comprehensive income (loss)				44,787			19,122			12,008			(18,147	)

Comprehensive income (loss)				$	73,110		$	12,768		$	(51,166	)	$	(21,244	)

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations (Continued)

(Unaudited, amounts in thousands, except per share amounts)

			Three Months Ended June 30,						Six Months Ended June 30,
			2002			2001			2002			2001
Net income (loss) per share:
	Allocated to Genzyme General Stock:
		Genzyme General net income before cumulative effect of change in accounting for derivative financial instruments	$	44,411		$	21,718		$	68,720		$	46,863
		Cumulative effect of change in accounting for derivative financial instruments, net of tax		—			—			—			4,167

		Genzyme General division net income		44,411			21,718			68,720			51,030
		Tax benefit allocated from Genzyme Biosurgery		2,994			9,627			7,293			17,743
		Tax benefit allocated from Genzyme Molecular Oncology		2,235			3,854			4,365			6,680

		Net income allocated to Genzyme General Stock	$	49,640		$	35,199		$	80,378		$	75,453

Net income per share of Genzyme General Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.23		$	0.18		$	0.38		$	0.37
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			—			—			0.02

		Net income per share allocated to Genzyme General Stock	$	0.23		$	0.18		$	0.38		$	0.39

	Diluted:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.23		$	0.17		$	0.36		$	0.35
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			—			—			0.02

		Net income per share allocated to Genzyme General Stock	$	0.23		$	0.17		$	0.36		$	0.37

Weighted average shares outstanding:
	Basic			213,917			196,423			213,624			194,086

	Diluted			219,634			205,685			220,349			203,290

Allocated to Biosurgery Stock:
	Genzyme Biosurgery net loss before cumulative effect of change in accounting for goodwill		$	(17,522	)	$	(37,608	)	$	(37,904	)	$	(72,935	)
	Cumulative effect of change in accounting for goodwill			—			—			(98,270	)		—

	Genzyme Biosurgery division net loss			(17,522	)		(37,608	)		(136,174	)		(72,935	)
	Allocated tax benefit			2,442			4,386			4,890			8,990

	Net loss allocated to Biosurgery Stock		$	(15,080	)	$	(33,222	)	$	(131,284	)	$	(63,945	)

	Net loss per share of Biosurgery Stock—basic and diluted:
		Net loss per share before cumulative effect of change in accounting for goodwill	$	(0.38	)	$	(0.91	)	$	(0.83	)	$	(1.75	)
		Per share cumulative effect of change in accounting for goodwill		—			—			(2.48	)		—

	Net loss per share of Biosurgery Stock—basic and diluted		$	(0.38	)	$	(0.91	)	$	(3.31	)	$	(1.75	)

	Weighted average shares outstanding			39,637			36,659			39,600			36,531

Allocated to Molecular Oncology Stock:
	Net loss allocated to Molecular Oncology Stock		$	(6,237	)	$	(8,331	)	$	(12,268	)	$	(14,605	)

	Net loss per share of Molecular Oncology Stock—basic and diluted		$	(0.37	)	$	(0.52	)	$	(0.73	)	$	(0.91	)

	Weighted average shares outstanding			16,801			16,088			16,782			15,998

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands)

			June 30, 2002			December 31, 2001
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	289,003		$	247,011
	Short-term investments			80,104			66,481
	Accounts receivable, net			295,997			259,283
	Inventories			191,351			171,409
	Prepaid expenses and other current assets			43,901			35,408
	Deferred tax assets—current			70,277			70,196

		Total current assets		970,633			849,788
Property, plant and equipment, net				715,622			635,314
Long-term investments				763,870			807,766
Notes receivable—related parties				8,818			—
Goodwill, net				605,104			697,422
Other intangible assets, net				768,971			809,224
Investments in equity securities				53,127			88,686
Other noncurrent assets				25,714			47,545

		Total assets	$	3,911,859		$	3,935,745

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	35,649		$	47,860
	Accrued expenses			146,799			144,740
	Income taxes payable			93,338			75,944
	Deferred revenue			8,630			6,700
	Current portion of long-term debt and capital lease obligations			16,898			7,746

		Total current liabilities		301,314			282,990
Long-term debt and capital lease obligations				294,381			259,809
Convertible notes and debentures				575,000			585,000
Deferred tax liabilities				135,475			173,126
Other noncurrent liabilities				21,123			25,631

		Total liabilities		1,327,293			1,326,556

Stockholders' equity:
	Preferred stock, $0.01 par value			—			—
	Common stock:
		Genzyme General Stock, $0.01 par value		2,141			2,132
		Biosurgery Stock, $0.01 par value		397			395
		Molecular Oncology Stock, $0.01 par value		168			168
	Treasury Stock—Genzyme General—at cost			(901	)		(901	)
	Additional paid-in capital—Genzyme General Stock			1,804,054			1,749,097
	Additional paid-in capital—Biosurgery Stock			814,024			843,544
	Additional paid-in capital—Molecular Oncology Stock			148,667			148,481
	Deferred compensation			(1,456	)		(2,377	)
	Notes receivable from stockholders			(13,257	)		(13,245	)
	Accumulated deficit			(181,068	)		(117,894	)
	Accumulated other comprehensive income (loss)			11,797			(211	)

		Total stockholders' equity		2,584,566			2,609,189

		Total liabilities and stockholders' equity	$	3,911,859		$	3,935,745

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

					Six Months Ended June 30,
					2002			2001
Cash Flows from Operating Activities:
	Net loss				$	(63,174	)	$	(3,097	)
	Reconciliation of net loss to net cash provided by operating activities:
		Depreciation and amortization				64,326			78,025
		Non-cash compensation expense				751			4,972
		Provision for bad debts				3,795			1,825
		Charges for in-process research and development				—			8,768
		Equity in net loss of unconsolidated affiliates				8,042			20,811
		(Gain) loss on investments in equity securities				(509	)		1,532
		Minority interest in net loss of subsidiary				—			(1,999	)
		Deferred income tax benefit				(7,488	)		(14,811	)
		Other				3,128			3,000
		Cumulative effect of change in accounting for goodwill				98,270			—
		Cumulative effect of change in accounting for derivative financial instruments				—			(4,167	)
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			(28,034	)		(39,734	)
			Inventories			(5,015	)		11,252
			Prepaid expenses and other current assets			(5,648	)		1,321
			Accounts payable, accrued expenses and deferred revenue			(30,086	)		(40,230	)
			Income taxes payable and tax benefits from stock options			24,993			35,261

				Net cash provided by operating activities		63,351			62,729

Cash Flows from Investing Activities:
	Purchases of investments					(260,802	)		(359,534	)
	Sales and maturities of investments					290,391			210,764
	Purchases of equity securities					(2,210	)		(8,318	)
	Proceeds from sales of equity securities					4,773			36
	Purchases of property, plant and equipment					(96,199	)		(72,067	)
	Acquisitions, net of acquired cash					—			(83,420	)
	Investments in unconsolidated affiliates					(14,113	)		(22,744	)
	Note received from a collaborator					(4,045	)		—
	Other					1,261			749

				Net cash used in investing activities		(80,944	)		(334,534	)

Cash Flows from Financing Activities:
	Proceeds from issuance of common stock					21,417			59,079
	Proceeds from draw on credit facility					35,000			—
	Proceeds from issuance of debt					—			562,062
	Payments of debt and capital lease obligations					(1,258	)		(151,303	)
	Bank overdraft					4,157			2,007
	Payments received for notes receivable from stockholders					181			3,204
	Other					(1,479	)		2,403

				Net cash provided by financing activities		58,018			477,452

Effect of exchange rate changes on cash						1,567			(2,556	)

Increase in cash and cash equivalents						41,992			203,091
Cash and cash equivalents at beginning of period						247,011			236,213

Cash and cash equivalents at end of period					$	289,003		$	439,304

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

GENZYME CORPORATION AND SUBSIDIARIES

Notes To Unaudited, Consolidated Financial Statements

1. Basis of Presentation

Our unaudited, consolidated financial statements for each period include the statements of operations, balance sheets and statements of cash flows of each of our divisions and corporate operations taken as a whole. We eliminate all significant interdivisional and intercompany items and transactions in consolidation. We prepared our unaudited, consolidated financial statements following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by generally accepted accounting principles. We have reclassified certain 2001 data to conform to our 2002 presentation.

These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results. Since these are interim financial statements, you should also read the financial statements and notes included in our 2001 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

2. New Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board, commonly referred to as the FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 will be effective for our fiscal year ending December 31, 2003. We are in the process of assessing the effect of adopting SFAS No. 143 on our consolidated and combined financial statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and amends Accounting Principles Board Opinion No. 30 (APB No. 30), "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and was adopted by us, as required, on January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on our financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force, or EITF, Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost as defined in EITF Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. We will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 as required by the standard.

3. Acquisitions

In September 2001, we acquired Novazyme, a privately-held developer of biotherapies for the treatment of lysosomal storage disorders, or LSDs, and in June 2001, we acquired Wyntek Diagnostics, Inc., a privately-held provider of high quality point of care rapid diagnostic tests for

pregnancy and infectious diseases. We accounted for the acquisitions as purchases and allocated both to Genzyme General. Also, in June 2001, we acquired the remaining 78% of the outstanding shares of Focal, Inc. common stock not previously acquired. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery.

The following unaudited pro forma financial summary is presented as if the acquisitions of Novazyme, Focal and Wyntek were completed as of January 1, 2001. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated on those dates, or of the future operations of the combined entities. Material nonrecurring charges related to these acquisitions, such as acquired in-process research and development, or IPR&D, charges of $86.8 million resulting from the acquisition of Novazyme and $8.8 million resulting from the acquisition of Wyntek, are not reflected in the following pro forma financial summary.

Unaudited Pro Forma Financial Summary:

			Three Months Ended June 30, 2001			Six Months Ended June 30, 2001
			(Amounts in thousands)
Total revenues			$	303,204		$	587,461

Loss before extraordinary items and cumulative effect of change in accounting for derivative financial instruments			$	(14,446	)	$	(22,215	)
Cumulative effect of change in accounting for derivative financial instruments, net of tax				—			4,167

Net loss			$	(14,446	)	$	(18,048	)

Net income allocated to Genzyme General Stock:
	Net income allocated to Genzyme General Stock before cumulative effect of change in accounting for derivative financial instruments		$	32,644		$	66,919
	Cumulative effect of change in accounting for derivative financial instruments, net of tax			—			4,167

	Net income allocated to Genzyme General Stock		$	32,644		$	71,086

Net income per share allocated to Genzyme General Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.16		$	0.34
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			0.02

		Net income per share allocated to Genzyme General Stock	$	0.16		$	0.36

	Diluted:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.16		$	0.32
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			0.02

		Net income per share allocated to Genzyme General Stock	$	0.16		$	0.34

Weighted average shares outstanding:
	Basic			198,985			196,648

	Diluted			219,730			206,103

Net loss allocated to Biosurgery Stock			$	(38,759	)	$	(74,529	)

Net loss per share allocated to Biosurgery Stock—basic and Diluted			$	(1.00	)	$	(1.93	)

Weighted average shares outstanding—basic and diluted				38,746			38,618

The staff of the U.S. Federal Trade Commission, which is known as the FTC, is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there will be costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

4. Inventories (amounts in thousands)

		June 30, 2002		December 31, 2001
		(Unaudited)
Raw materials		$	42,767	$	52,586
Work-in-process			84,312		64,925
Finished products			64,272		53,898

	Total	$	191,351	$	171,409

5. Goodwill and Other Intangible Assets

Goodwill

Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, we ceased amortizing goodwill. At January 1, 2002, our gross goodwill totaled $799.5 million, including $4.3 million of acquired workforce intangible assets previously classified as other intangible assets, net of related deferred tax liabilities, of which $1.6 million was allocated to our Therapeutics segment, $0.8 million was allocated to our Diagnostic Products segment and $1.8 million was allocated to Genzyme Biosurgery.

In November 2001, we sold our Snowden-Pencer® line of surgical instruments, a component of our Biosurgical Specialties segment, and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of our cardiothoracic reporting unit, under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that the goodwill allocated to the cardiothoracic reporting unit would be impaired if the analysis was done using

discounted cash flows, as required by SFAS No. 142. Therefore, in the three months ended March 31, 2002, upon adoption of SFAS No. 142, we tested the goodwill of our cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations for Genzyme Biosurgery for the three months ended March 31, 2002.

The following table contains the changes in our net goodwill during the six months ended June 30, 2002 (amounts in thousands):

							(Unaudited)
				As of December 31, 2001			Adjustments			Impairment			As of June 30, 2002
Goodwill, net:
	Genzyme General:
		Therapeutics (1)		$	469,721		$	4,373		$	—		$	474,094
		Diagnostic Products (2)			32,427			786			—			33,213
		Other			56,462			103			—			56,565

			Total		558,610			5,262			—			563,872
	Genzyme Biosurgery (3,4)				236,621			1,841			(113,859	)		124,603
	Genzyme Molecular Oncology				—			—			—			—

			Total		795,231			7,103			(113,859	)		688,475
Accumulated amortization					(97,809	)		(1,151	)		15,589			(83,371	)

Goodwill, net				$	697,422		$	5,952		$	(98,270	)	$	605,104

(1)

Adjustments for Genzyme General's Therapeutics segment include:

•: $1.6 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of GelTex Pharmaceuticals, Inc. as required by SFAS No. 142;
•: $1.9 million to adjust goodwill resulting from a reclassification related to our acquisition of GelTex; and
•: $0.8 million to adjust goodwill resulting from increased integration and exit activity costs related to our acquisition of Novazyme.

(2): Adjustments for Genzyme General's Diagnostic Products segment represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of Wyntek as required by SFAS No. 142.

(3): Adjustments for Genzyme Biosurgery represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisitions of Focal and Biomatrix, Inc. as required by SFAS No. 142.
(4): Impairment for Genzyme Biosurgery represents the impairment charge we recorded in the three months ended March 31, 2002 in accordance with the transitional provisions of SFAS No. 142, related to the goodwill allocated to our cardiothoracic reporting unit.

Other Intangible Assets

The following table contains information on our other intangible assets for the periods presented (amounts in thousands):

		As of June 30, 2002 (Unaudited)							As of December 31, 2001
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	551,773	$	(66,236	)	$	485,537	$	551,743	$	(44,253	)	$	507,490
Patents			196,971		(29,430	)		167,541		196,968		(21,804	)		175,164
Trademarks			91,754		(12,952	)		78,802		91,754		(9,960	)		81,794
License fees			25,715		(6,242	)		19,473		25,460		(5,371	)		20,089
Distribution agreements			13,950		(2,679	)		11,271		13,950		(1,807	)		12,143
Customer lists			8,324		(3,615	)		4,709		8,324		(3,199	)		5,125
Other			12,242		(10,604	)		1,638		18,123		(10,704	)		7,419

	Total	$	900,729	$	(131,758	)	$	768,971	$	906,322	$	(97,098	)	$	809,224

All of our other intangible assets are amortized over their estimated useful lives. Total amortization expense for our other intangible assets was:

•: $17.9 million for the three months ended June 30, 2002;
•: $17.6 million for the three months ended June 30, 2001;
•: $35.8 million for the six months ended June 30, 2002; and
•: $33.9 million for the six months ended June 30, 2001.

Amortization expense for each quarter presented includes $0.3 million related to the amortization of a non-compete agreement which is charged to cost of products sold. Amortization expense for both the three and six months ended June 30, 2001 excludes the expense related to the amortization of goodwill.

The estimated future amortization expense for other intangible assets as of June 30, 2002 for the remainder of fiscal year 2002 and the five succeeding fiscal years is as follows (unaudited, amounts in thousands):

Year ended December 31,	Estimated Amortization Expense
2002 (remaining six months)	$	35,579
2003		69,948
2004		69,554
2005		69,230
2006		66,809
2007		66,751

Adjusted Net Income (Loss)

The following table presents the impact SFAS No. 142 would have had on our amortization of intangibles expense, net income (loss) and net income (loss) per share had the standard been in effect for the three and six months ended June 30, 2001 (unaudited, amounts in thousands, except per share amounts):

				Three Months Ended June 30, 2001								Six Months Ended June 30, 2001
				As Reported			Goodwill Amortization Adjustment			As Adjusted		As Reported			Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles				$	30,174		$	(12,892	)	$	17,282	$	59,165		$	(25,868	)	$	33,297

Net income (loss) before extraordinary items and cumulative effect of change in accounting for derivative financial instruments				$	(6,354	)	$	12,892		$	6,538	$	(7,264	)	$	25,868		$	18,604
Cumulative effect of change in accounting for derivative financial instruments, net of tax					—			—			—		4,167			—			4,167

Net income (loss)				$	(6,354	)	$	12,892		$	6,538	$	(3,097	)	$	25,868		$	22,771

Net income allocated to Genzyme General Stock:
	Net income allocated to Genzyme General Stock before cumulative effect of change in accounting for derivative financial instruments			$	35,199		$	9,103		$	44,302	$	71,286		$	18,012		$	89,298
	Cumulative effect of change in accounting for derivative financial instruments, net of tax				—			—			—		4,167			—			4,167

	Net income allocated to Genzyme General Stock			$	35,199		$	9,103		$	44,302	$	75,453		$	18,012		$	93,465

	Net income per share allocated to Genzyme General Stock
		Basic:
			Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.18		$	0.05		$	0.23	$	0.37		$	0.09		$	0.46
			Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			—			—		0.02			—			0.02

			Net income per share allocated to Genzyme General Stock	$	0.18		$	0.05		$	0.23	$	0.39		$	0.09		$	0.48

	Diluted:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.17		$	0.05	$	0.22		$	0.35		$	0.09	$	0.44
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			—		—			0.02			—		0.02

		Net income per share allocated to Genzyme General Stock	$	0.17		$	0.05	$	0.22		$	0.37		$	0.09	$	0.46

Net income (loss) allocated to Biosurgery Stock			$	(33,222	)	$	3,789	$	(29,433	)	$	(63,945	)	$	7,856	$	(56,089	)

Net income (loss) per share allocated to Biosurgery Stock—basic and diluted			$	(0.91	)	$	0.11	$	(0.80	)	$	(1.75	)	$	0.21	$	(1.54	)

6. Note Receivable from Dyax Corporation

In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88. As a result, our option to acquire a 50% interest in DX-88 for hereditary angioedema, or HAE, and other potential indications will now be exercisable following the completion of the ongoing phase 2 clinical trial of DX-88 for the treatment of HAE, or the expenditure by Dyax of at least $8.0 million in development and commercialization costs. As of June 30, 2002, Dyax has incurred $8.3 million of development costs under the collaboration agreement. The restructured agreement also provides Dyax with an option to acquire our interest in the potential application of DX-88 for the reduction of blood loss and other effects of systemic inflammatory responses in surgery. This option expires in March 2003.

Under the revised collaboration agreement, the line of credit we extended to Dyax was increased from $3.0 million to $7.0 million. In connection with the increase, Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2% and are due, together with any accrued but unpaid interest, in May 2005. In June 2002, Dyax drew $4.0 million under the note, which we recorded as a note receivable-related party in our unaudited, consolidated balance sheet and the unaudited, combined balance sheet of Genzyme General. Dyax is considered a related party because the chairman and chief executive officer of Dyax is a member of our board of directors. Pursuant to the terms of the note, we are not obligated to make advances in excess of $1.5 million during any subsequent calendar quarter.

7. Sale of GTC Common Stock

On April 4, 2002, GTC Biotherapeutics, Inc., formerly known as Genzyme Transgenics Corporation and which we refer to as GTC, purchased approximately 2.8 million shares of GTC common stock held by us and allocated to Genzyme General for an aggregate consideration of approximately $9.6 million. We received approximately $4.8 million in cash and a promissory note for the remaining amount of approximately $4.8 million. The shares of GTC common stock were valued at $3.385 per share in this transaction, using the simple average of the high and low transaction prices quoted on the Nasdaq National Market on April 1, 2002. We have committed to a 24-month lock-up provision on the remaining 4.9 million shares of GTC common stock held by us and allocated to Genzyme General, which is approximately 18% of the shares of GTC common stock outstanding as of June 30, 2002. We accounted for our investment in GTC under the equity method of accounting until May 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

Because of the 24-month lock-up provision, the remaining 4.9 million shares of GTC common stock held by us do not qualify as marketable securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As a result, we carry the investment on our consolidated balance sheet and the combined balance sheet of Genzyme General at cost, subject to review for impairment. Based on the market price of GTC common stock at June 30, 2002, our remaining investment would have an unrealized loss of $8.3 million. Because we have assessed the decline in the market price of GTC common stock to be temporary, we have not recorded an associated impairment charge.

8. Derivative Financial Instruments

On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 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 consolidated balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme General for the three months ended March 31, 2001, to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts allocated to Genzyme General were not significant. For the three months ended June 30, 2002, we recorded a charge of $0.9 million in other expense in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme General to reflect the change in value of our warrants to purchase shares of GTC common stock from April 1, 2002 to June 30, 2002 as compared to $0.2 million for the same period of 2001. For the six months ended June 30, 2002, we recorded a charge of $2.1 million in other expense in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme General to reflect the change in value of our warrants to purchase shares of GTC common stock from January 1, 2002 to June 30, 2002 as compared to $3.8 million for the same period a year ago. We also recorded a charge

of $1.1 million, ($1.7 million pre-tax) in other comprehensive income (loss) in stockholders' equity in our unaudited, consolidated balance sheets and the division equity in the unaudited, combined balance sheets of Genzyme General to reflect the change in value of our interest rate swaps during the six month period ended June 30, 2002. At June 30, 2002, our interest rate swaps had a fair market value of $(3.1) million.

9. Revolving Credit Facility

We have access to a $350.0 million revolving credit facility, all of which matures in December 2003. During the first quarter of 2002, we drew down $35.0 million from this facility and allocated the borrowings to Genzyme Biosurgery. At June 30, 2002, $269.0 million had been drawn down and remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin. The terms of the revolving credit facility include various covenants, including financial covenants, which require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants and do not anticipate falling out of compliance.

10. Tax (Provision) Benefit

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
	2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
(Provision for) benefit from income taxes	$	(10,293	)	$	2,064		(599	)%	$	(13,431	)	$	2,734		(591	)%
Effective tax rate		27	%		25	%				28	%		27	%

Our tax rates for all periods vary from the U.S. statutory tax rate as a result of our:

•: provision for state income taxes;
•: use of a foreign sales corporation; and
•: use of tax credits.

Our effective tax rate for both the three and six months ended June 30, 2001 also varied from the U.S. statutory rate due to nondeductible goodwill amortization expense. We stopped recording nondeductible goodwill amortization expense upon the adoption of SFAS No. 142 in fiscal year 2002.

11. Net Income (Loss) Per Share

We calculate earnings per share for each series of stock using the two-class method. To calculate basic earnings per share for each series of stock, we divide the earnings allocated to each series of stock by the weighted average number of outstanding shares of that series of stock during the applicable period. When we calculate diluted earnings per share, we also include in the denominator all potentially dilutive securities outstanding during the applicable period. We allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Genzyme General Stock, as defined in our charter, is equal to the net income or loss of Genzyme General determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management

and accounting policies. Earnings attributable to Biosurgery Stock and Molecular Oncology Stock are defined similarly and, as such, are based on the net income or loss of the corresponding division as adjusted for the allocation of tax benefits.

We calculate the income tax provision of each division as if such division were a separate taxpayer, which includes assessing realizability of deferred tax assets at the division level. Our management and accounting policies provide that if, as of the end of any fiscal quarter, a division cannot use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we may allocate the tax benefit to other divisions in proportion to their taxable income without compensating payment or allocation to the division generating the benefit. The tax benefits allocated to Genzyme General, which are included in earnings attributable to Genzyme General Stock, were:

			Three Months Ended June 30,				Six Months Ended June 30,
			2002		2001		2002		2001
			(Unaudited, amounts in thousands)
Tax benefits allocated from:
	Genzyme Biosurgery		$	2,994	$	9,627	$	7,293	$	17,743
	Genzyme Molecular Oncology			2,235		3,854		4,365		6,680

		Total	$	5,229	$	13,481	$	11,658	$	24,423

In future periods, Genzyme Biosurgery and Genzyme Molecular Oncology may recognize deferred tax assets in the calculation of their respective tax provisions determined on a separate division basis in accordance with generally accepted accounting principles. However, to the extent the benefit of those deferred tax assets has been previously allocated to Genzyme General in accordance with our management and accounting policies, the benefit will be reflected as a reduction of net income in determining net income (loss) attributable to Biosurgery Stock or Molecular Oncology Stock. As of June 30, 2002, the total tax benefits previously allocated to Genzyme General from Genzyme Biosurgery and Genzyme Molecular Oncology were (unaudited, amounts in thousands):

Genzyme Biosurgery		$	200,605
Genzyme Molecular Oncology			40,793

Genzyme General Stock:

The following table sets forth our computation of basic and diluted net income per share allocated to Genzyme General Stock:

				Three Months Ended June 30,				Six Months Ended June 30,
				2002		2001		2002		2001
				(Unaudited, amounts in thousands, except per share amounts)
Genzyme General net income before cumulative effect of change in accounting for derivative financial instruments				$	44,411	$	21,718	$	68,720	$	46,863
Cumulative effect of change in accounting for derivative financial instruments, net of tax					—		—		—		4,167

Genzyme General division net income					44,411		21,718		68,720		51,030
Tax benefit allocated from Genzyme Biosurgery					2,994		9,627		7,293		17,743
Tax benefit allocated from Genzyme Molecular Oncology					2,235		3,854		4,365		6,680

Net income allocated to Genzyme General Stock—basic and diluted				$	49,640	$	35,199	$	80,378	$	75,453

Shares used in computing net income per common share—basic					213,917		196,423		213,624		194,086
	Effect of dilutive securities:
		Stock options (1)			5,708		9,195		6,710		9,123
		Warrants and stock purchase rights			9		67		15		81

			Dilutive potential common shares		5,717		9,262		6,725		9,204

Shares used in computing net income per share—diluted (1,2)					219,634		205,685		220,349		203,290

Genzyme General Stock (Continued):

			Three Months Ended June 30,				Six Months Ended June 30,
			2002		2001		2002		2001
			(Unaudited, amounts in thousands, except per share amounts)
Net income per share of Genzyme General Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.23	$	0.18	$	0.38	$	0.37
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax (3)		—		—		—		0.02

		Net income per share allocated to Genzyme General Stock	$	0.23	$	0.18	$	0.38	$	0.39

	Diluted (1,2):
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.23	$	0.17	$	0.36	$	0.35
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax (3)		—		—		—		0.02

		Net income per share allocated to Genzyme General Stock	$	0.23	$	0.17	$	0.36	$	0.37

(1): We did not include the securities described in the following table in the computation of Genzyme General's diluted earnings per share for each period because these securities had an exercise price greater than the average market price of Genzyme General Stock:

	Three Months Ended June 30,		Six Months Ended June 30,
	2002	2001	2002	2001
	(Unaudited, amounts in thousands)
Shares of Genzyme General Stock issuable for options	8,062	1,726	7,579	1,091

(2): We did not include the potentially dilutive effect of the assumed conversion of the $575.0 million in principal of 3% convertible subordinated debentures allocated to Genzyme General in the computation of Genzyme General's dilutive earnings per share for the three and six months ended June 30, 2002, because the conditions for conversion had not been met. The debentures are contingently convertible into approximately 8.2 million shares of Genzyme General Stock at an initial conversion price of $70.30 per share.
(3): On January 1, 2001, we adopted SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138. In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme General for the three months ended March 31, 2001, to record the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001.

Biosurgery Stock:

For all periods presented, basic and diluted net loss per share of Biosurgery Stock are the same. We did not include the securities described in the following table in the computation of Biosurgery Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Biosurgery Stock:

	Three Months Ended June 30,		Six Months Ended June 30,
	2002	2001	2002	2001
	(Unaudited, amounts in thousands)
Shares of Biosurgery Stock issuable for options	6,798	6,852	6,746	5,644
Warrants to purchase shares of Biosurgery Stock	8	3	8	3
Shares issuable upon conversion of 6.9% convertible subordinated notes allocated to Genzyme Biosurgery	358	358	358	358
Biosurgery designated shares (1)	3,115	1,200	3,115	1,200
Biosurgery designated shares reserved for options (1)	80	97	80	97

Total shares excluded from the calculation of diluted net loss per share of Biosurgery Stock	10,359	8,510	10,307	7,302

(1): Biosurgery designated shares are shares of Biosurgery Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Biosurgery. As of June 30, 2002, there were approximately 3.2 million Biosurgery designated shares.

Molecular Oncology Stock:

For all periods presented, basic and diluted net loss per share of Molecular Oncology Stock are the same. We did not include the securities described in the following table in the computation of Molecular Oncology Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Molecular Oncology Stock:

	Three Months Ended June 30,		Six Months Ended June 30,
	2002	2001	2002	2001
	(Unaudited, amounts in thousands)
Shares of Molecular Oncology Stock issuable for options	2,804	1,294	2,169	1,139
Molecular Oncology designated shares (1)	1,651	1,318	1,651	1,318

Total shares excluded from the calculation of diluted net loss per share of Molecular Oncology Stock	4,455	2,612	3,820	2,457

(1): Molecular Oncology designated shares are shares of Molecular Oncology Stock that are not issued and outstanding, but which our board of directors may issue, sell, or distribute without allocating the proceeds to Genzyme Molecular Oncology. As of June 30, 2002, there were approximately 1.7 million Molecular Oncology designated shares.

12. Segment Information

In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent with the method we use to report this information to our management. Applying SFAS No. 131, we have four reportable segments:

•: Therapeutics, which develops, manufactures and distributes human therapeutic products with an expanding focus on products which treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and other specialty therapeutics. The segment derives substantially all of its revenue from sales of Cerezyme® enzyme and Renagel® phosphate binder;
•: Diagnostic Products, which provides diagnostic products to niche markets focusing onin vitro diagnostics;
•: Genzyme Biosurgery, which develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedics and cardiothoracic markets; and
•: Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

We have provided information concerning the operations of these reportable segments in the following table:

				Three Months Ended June 30,						Six Months Ended June 30,
				2002			2001			2002			2001
				(Unaudited, amounts in thousands)
Revenues:
	Genzyme General:
		Therapeutics (1)		$	213,476		$	188,543		$	404,315		$	365,330
		Diagnostic Products (2)			20,530			17,790			40,368			34,214
		Other (3)			32,303			31,352			63,091			60,464
		Eliminations/Adjustments (4)			859			1,313			1,541			1,683

			Total Genzyme General		267,168			238,998			509,315			461,691
	Genzyme Biosurgery (5)				62,863			60,364			116,234			114,520
	Genzyme Molecular Oncology				2,346			1,279			4,768			2,691
	Eliminations/Adjustments (6)				(185	)		—			(185	)		—

			Total	$	332,192		$	300,641		$	630,132		$	578,902

Net income (loss):
	Genzyme General:
		Therapeutics (1)		$	38,846		$	37,692		$	65,561		$	72,031
		Diagnostic Products (2)			681			(4,877	)		(764	)		(4,095	)
		Other (3)			1,024			2,888			3,215			4,872
		Eliminations/Adjustments (4)			3,860			(13,985	)		708			(25,945	)

			Net income for Genzyme General before cumulative effect of change in accounting for derivative financial instruments		44,411			21,718			68,720			46,863
			Cumulative effect of change in accounting for derivative financial instruments, net of tax (7)		—			—			—			4,167

		Net income for Genzyme General			44,411			21,718			68,720			51,030
	Genzyme Biosurgery (5):
		Net loss for Genzyme Biosurgery before cumulative effect of change in accounting for goodwill			(17,522	)		(37,608	)		(37,904	)		(72,935	)
		Cumulative effect of change in accounting for goodwill (8)			—			—			(98,270	)		—

		Net loss for Genzyme Biosurgery			(17,522	)		(37,608	)		(136,174	)		(72,935	)
	Genzyme Molecular Oncology				(6,237	)		(8,331	)		(12,268	)		(14,605	)
	Eliminations/Adjustments (9)				7,671			17,867			16,548			33,413

			Total	$	28,323		$	(6,354	)	$	(63,174	)	$	(3,097	)

(1): In September 2001, we acquired Novazyme and allocated the acquisition to Genzyme General. The results of operations of Novazyme are included in our Therapeutics reporting segment beginning on September 26, 2001, the date of acquisition.

(2): In June 2001, we acquired Wyntek and allocated the acquisition to Genzyme General. The results of operations of Wyntek are included in our Diagnostic Products reporting segment beginning on June 1, 2001, the date of acquisition.
(3): Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.
(4): Eliminations/Adjustments consists primarily of amounts related to Genzyme General's research and development and administrative activities, including investment income and interest expense that we do not specifically allocate to a particular segment of Genzyme General.
(5): In June 2001, we acquired Focal and allocated the acquisition to Genzyme Biosurgery. The results of operations of Focal are included in the results of Genzyme Biosurgery beginning on June 30, 2001, the date of acquisition.
(6): Represents the elimination of interdivisional revenue.
(7): In connection with the adoption of SFAS No. 133 on January 1, 2001, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme General for the three months ended March 31, 2001, to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General.
(8): In connection with the adoption of SFAS No. 142 on January 1, 2002, we tested the goodwill of our cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended March 31, 2002.
(9): Includes income tax benefits that have not been recognized in the tax provisions of the divisions.

Segment Assets:

We provide information concerning the assets of our reportable segments in the following table (amounts in thousands):

				June 30, 2002			December 31, 2001
				(Unaudited)
Segment Assets:
	Genzyme General (1):
		Therapeutics		$	1,605,879		$	1,484,387
		Diagnostic Products			104,476			105,354
		Other (2)			99,054			89,526
		Eliminations/Adjustments (3)			1,539,447			1,545,987

			Total Genzyme General		3,348,856			3,225,254
	Genzyme Biosurgery (4)				574,206			704,671
	Genzyme Molecular Oncology				26,157			42,419
	Eliminations/Adjustments (5)				(37,360	)		(36,599	)

			Total	$	3,911,859		$	3,935,745

(1): Segment assets for Genzyme General include primarily cash and investments, accounts receivable, inventory and certain fixed and intangible assets.
(2): Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.
(3): Eliminations/Adjustments for Genzyme General consists primarily of cash, cash equivalents, short-and long-term investments, equity investments, net property, plant and equipment and deferred tax assets.
(4): In connection with the adoption of SFAS No. 142 on January 1, 2002, we tested the goodwill of our cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative-effect impairment charge of $98.3 million in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended March 31, 2002.
(5): Eliminations/Adjustments represents the elimination of interdivisional balances.

13. Subsequent Event

In July 2002, together with BioMarin, we submitted the final portion of the "rolling" BLA for Aldurazyme enzyme to the FDA. As part of the BLA submission, we have formally requested Priority Review, which is an FDA procedure generally reserved for products that address an unmet medical need. We expect a decision regarding the FDA's acceptance of the Aldurazyme BLA and its Priority Review status by the end of September 2002. Pursuant to the terms of our joint venture agreement with BioMarin for the development and commercialization of Aldurazyme, we are obligated to pay BioMarin a $12.1 million milestone payment upon receipt of FDA approval of the Aldurazyme BLA. If the FDA accepts the BLA and grants Priority Review, we anticipate receiving a response from the FDA regarding the application to market Aldurazyme in the United States six months from the submission date of the completed application.

GENZYME GENERAL

A Division of Genzyme Corporation

Combined Statements of Operations

(Unaudited, amounts in thousands)

					Three Months Ended June 30,						Six Months Ended June 30,
					2002			2001			2002			2001
Revenues:
	Net product sales				$	242,756		$	219,040		$	461,219		$	421,246
	Net service sales					22,420			18,305			43,595			36,537
	Revenues from research and development contracts:
		Related parties				784			1,313			1,396			1,632
		Other				1,208			340			3,105			2,276

				Total revenues		267,168			238,998			509,315			461,691

Operating costs and expenses:
	Cost of products sold					50,765			47,469			98,364			95,363
	Cost of services sold					12,854			10,617			24,720			20,901
	Selling, general and administrative					80,519			66,558			156,909			125,089
	Research and development (including research and development related to contracts)					56,477			42,405			120,313			82,591
	Amortization of intangibles					9,723			18,182			19,441			35,852
	Purchase of in-process research and development					—			8,768			—			8,768

				Total operating costs and expenses		210,338			193,999			419,747			368,564

Operating income						56,830			44,999			89,568			93,127

Other income (expenses):
	Equity in net loss of unconsolidated affiliates					(3,948	)		(11,016	)		(8,042	)		(19,495	)
	Gain (loss) on investments in equity securities					343			(1,532	)		509			(1,532	)
	Minority interest in net loss of subsidiary					—			725			—			1,999
	Other					1,749			(171	)		852			(3,888	)
	Investment income					12,079			11,798			25,031			21,011
	Interest expense					(4,678	)		(7,282	)		(9,219	)		(13,680	)

				Total other income (expenses)		5,545			(7,478	)		9,131			(15,585	)

Income before income taxes						62,375			37,521			98,699			77,542
Provision for income taxes						(17,964	)		(15,803	)		(29,979	)		(30,679	)

Division net income before cumulative effect of change in accounting for derivative financial instruments						44,411			21,718			68,720			46,863
Cumulative effect of change in accounting for derivative financial instruments, net of tax						—			—			—			4,167

Division net income					$	44,411		$	21,718		$	68,720		$	51,030

Comprehensive income (loss), net of tax:
	Division net income				$	44,411		$	21,718		$	68,720		$	51,030

	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments				47,503			(4,227	)		42,140			(17,647	)
		Unrealized gain (loss) on interest rate swap contracts, net of tax				(541	)		218			(163	)		(289	)
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period			(2,923	)		21,654			(26,788	)		(1,084	)
			Reclassification adjustment for losses included in division net income			81			973			81			973

		Unrealized gains (losses) on securities, net				(2,842	)		22,627			(26,707	)		(111	)

	Other comprehensive income (loss)					44,120			18,618			15,270			(18,047	)

Comprehensive income					$	88,531		$	40,336		$	83,990		$	32,983

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

GENZYME GENERAL

A Division of Genzyme Corporation

Combined Balance Sheets

(Amounts in thousands)

			June 30, 2002		December 31, 2001
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	256,432	$	167,253
	Short-term investments			75,883		66,481
	Accounts receivable, net			258,975		220,527
	Inventories			149,369		127,864
	Prepaid expenses and other current assets			40,676		31,972
	Due from Genzyme Biosurgery			31,460		29,513
	Due from Genzyme Molecular Oncology			5,900		7,086
	Deferred tax assets—current			70,277		70,196

		Total current assets		888,972		720,892
Property, plant and equipment, net				663,220		581,401
Long-term investments				748,017		807,766
Notes receivable—related parties				8,818		—
Goodwill, net				492,396		487,826
Other intangible assets, net				470,852		493,642
Investments in equity securities				53,127		88,686
Other noncurrent assets				23,454		45,041

		Total assets	$	3,348,856	$	3,225,254

LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accounts payable		$	26,927	$	40,025
	Accrued expenses			121,648		119,511
	Income taxes payable			90,970		74,631
	Deferred revenue			5,056		1,693
	Current portion of long-term debt and capital lease obligations			6,088		6,841

		Total current liabilities		250,689		242,701
Long-term debt and capital lease obligations				25,044		25,085
Convertible notes and debentures				575,000		575,000
Deferred tax liabilities				48,523		80,696
Other noncurrent liabilities				17,748		21,420

		Total liabilities		917,004		944,902

Division equity				2,431,852		2,280,352

		Total liabilities and division equity	$	3,348,856	$	3,225,254

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

GENZYME GENERAL

A Division of Genzyme Corporation

Combined Statements of Cash Flows

(Unaudited, amounts in thousands)

					Six Months Ended June 30,
					2002			2001
Cash Flows from Operating Activities:
	Division net income				$	68,720		$	51,030
	Reconciliation of division net income to net cash provided by operating activities:
		Depreciation and amortization				45,205			50,794
		Non-cash compensation expense				751			4,972
		Provision for bad debts				3,424			1,597
		Charge for in-process research and development				—			8,768
		Equity in net loss of unconsolidated affiliates				8,042			19,495
		(Gain) loss on investments in equity securities				(509	)		1,532
		Minority interest in net loss of subsidiary				—			(1,999	)
		Deferred income tax benefit				(7,488	)		(14,811	)
		Other				3,305			2,924
		Cumulative effect of change in accounting for derivative financial instruments				—			(4,167	)
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			(30,303	)		(31,613	)
			Inventories			(7,335	)		1,820
			Prepaid expenses and other current assets			(5,919	)		1,174
			Due from Genzyme Biosurgery			(1,947	)		(20,035	)
			Due from Genzyme Molecular Oncology			1,186			(1,995	)
			Accounts payable, accrued expenses and deferred revenue			(6,642	)		(1,293	)
			Income taxes payable and tax benefits from stock options			26,880			35,261

				Net cash provided by operating activities		97,370			103,454

Cash Flows from Investing Activities:
	Purchases of investments					(239,358	)		(359,534	)
	Sales and maturities of investments					288,872			202,972
	Purchases of equity securities					(2,210	)		(3,318	)
	Proceeds from sales of equity securities					4,773			36
	Purchase of property, plant and equipment					(94,268	)		(69,584	)
	Acquisitions, net of cash acquired					—			(60,026	)
	Investments in unconsolidated affiliates					(14,113	)		(22,744	)
	Note received from a collaborator					(4,045	)		—
	Other					1,263			1,408

				Net cash used in investing activities		(59,086	)		(310,790	)

Cash Flows from Financing Activities:
	Allocated proceeds from issuance of Genzyme General Stock					20,801			57,934
	Allocated proceeds from issuance of debt					—			562,062
	Payments of debt and capital lease obligations					(775	)		(151,083	)
	Receipt of NeuroCell refund from Genzyme Biosurgery					27,063			—
	Net cash allocated from Genzyme Biosurgery					—			7
	Bank overdraft					4,469			2,660
	Other					(3,791	)		2,617

				Net cash provided by financing activities		47,767			474,197

Effect of exchange rate changes on cash						3,128			(2,560	)

Increase in cash and cash equivalents						89,179			264,301
Cash and cash equivalents at beginning of period						167,253			135,841

Cash and cash equivalents at end of period					$	256,432		$	400,142

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

GENZYME GENERAL

A Division of Genzyme Corporation

Notes To Unaudited, Combined Financial Statements

1. Basis of Presentation

The unaudited, combined financial statements of Genzyme General for each period include the statements of operations, balance sheets and statements of cash flows of the businesses we allocate to Genzyme General. We also allocate a portion of our corporate operations to Genzyme General using methods described in our allocation policy included in Note A., "Summary of Significant Accounting Policies—Allocation Policy," to Genzyme General's combined financial statements included in Exhibit 13.2 to our 2001 Form 10-K. These unaudited, combined financial statements are prepared using amounts included in our unaudited, consolidated financial statements included in this Form 10-Q. We prepared these unaudited, combined financial statements for Genzyme General following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by generally accepted accounting principles. We have reclassified certain 2001 data to conform to our 2002 presentation.

These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of Genzyme General's financial position and operating results. Since these are interim financial statements, you should also read the financial statements and notes for Genzyme General included in our 2001 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

2. New Accounting Pronouncements

We have included the impact that recently issued accounting standards will have on our financial statements in Note 2, "New Accounting Pronouncements," to our unaudited, consolidated financial statements, which we incorporate by reference into this note.

3. Acquisitions

In September 2001, we acquired Novazyme, a privately-held developer of biotherapies for the treatment of LSDs, and in June 2001, we acquired Wyntek, a privately-held provider of high quality point of care rapid diagnostic tests for pregnancy and infectious disease. We accounted for the acquisitions as purchases and allocated both to Genzyme General.

The following unaudited pro forma financial summary is presented as if the acquisitions of Novazyme and Wyntek were completed as of January 1, 2001. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated on those dates, or of the future operations of the combined entities. Material nonrecurring charges related to these acquisitions, such as acquired IPR&D charges of $86.8 million resulting from the acquisition of Novazyme and $8.8 million resulting from the acquisition of Wyntek, are not reflected in the following pro forma financial summary.

Unaudited Pro Forma Financial Summary:

	Three Months Ended June 30, 2001		Six Months Ended June 30, 2001
	(Amounts in thousands)
Total revenues	$	241,555	$	470,103
Income before extraordinary items and cumulative effect of change in accounting for derivative financial instruments		17,125		38,601
Division net income		17,125		42,768

The staff of the FTC is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there will be costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

4. Inventories (amounts in thousands)

		June 30, 2002		December 31, 2001
		(Unaudited)
Raw materials		$	30,726	$	39,285
Work-in-process			73,100		53,408
Finished products			45,543		35,171

	Total	$	149,369	$	127,864

5. Goodwill and Other Intangible Assets

Goodwill

Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, Genzyme General ceased amortizing goodwill. At January 1, 2002, gross goodwill allocated to Genzyme General totaled $561.0 million, including $2.4 million of acquired workforce intangible assets previously classified as other intangible assets, net of related deferred tax liabilities, of which $1.6 million was allocated to

Genzyme General's Therapeutics segment and $0.8 million was allocated to its Diagnostic Products segment.

We have completed the transitional impairment test for the $492.4 million of net goodwill related to Genzyme General's reporting units in the six months ended June 30, 2002, as provided by SFAS No. 142, and determined that no impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable.

The following table contains the changes in net goodwill attributable to Genzyme General's segments during the six months ended June 30, 2002 (amounts in thousands):

						(Unaudited)
			As of December 31, 2001			Adjustments			As of June 30, 2002
Goodwill, net:
	Therapeutics (1)		$	469,721		$	4,373		$	474,094
	Diagnostic Products (2)			32,427			786			33,213
	Other			56,462			103			56,565

		Total		558,610			5,262			563,872
Accumulated amortization				(70,784	)		(692	)		(71,476	)

Goodwill, net			$	487,826		$	4,570		$	492,396

(1)

Adjustments for the Therapeutics segment include:

•: $1.6 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of GelTex as required by SFAS No. 142;
•: $1.9 million to adjust goodwill resulting from a reclassification related to our acquisition of GelTex; and
•: $0.8 million to adjust goodwill resulting from increased integration and exit activity costs related to our acquisition of Novazyme.

(2): Adjustments for the Diagnostic Products segment represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of Wyntek as required by SFAS No. 142.

Other Intangible Assets

The following table contains information on other intangible assets allocated to Genzyme General for the periods presented (amounts in thousands):

		As of June 30, 2002 (Unaudited)							As of December 31, 2001
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	378,394	$	(42,211	)	$	336,183	$	378,364	$	(28,130	)	$	350,234
Patents			117,548		(12,951	)		104,597		117,545		(9,035	)		108,510
Trademarks			6,526		(673	)		5,853		6,526		(456	)		6,070
License fees			25,075		(6,165	)		18,910		25,075		(5,326	)		19,749
Customer lists			8,324		(3,615	)		4,709		8,324		(3,199	)		5,125
Other			10,045		(9,445	)		600		13,497		(9,543	)		3,954

	Total	$	545,912	$	(75,060	)	$	470,852	$	549,331	$	(55,689	)	$	493,642

All of Genzyme General's other intangible assets are amortized over their estimated useful lives. Total amortization expense for Genzyme General's other intangible assets was:

•: $10.0 million for the three months ended June 30, 2002;
•: $9.4 million for the three months ended June 30, 2001;
•: $20.0 million for the six months ended June 30, 2002; and
•: $18.4 million for the six months ended June 30, 2001.

The estimated future amortization expense for other intangible assets allocated to Genzyme General as of June 30, 2002 for the remainder of fiscal year 2002 and the five succeeding fiscal years is as follows (unaudited, amounts in thousands):

Year ended December 31,	Estimated Amortization Expense
2002 (remaining six months)	$	20,036
2003		38,862
2004		38,816
2005		38,751
2006		36,387
2007		36,387

Adjusted Net Income

The following table presents the impact SFAS No. 142 would have had on Genzyme General's amortization of intangibles expense and division net income had the standard been in effect for the three and six months ended June 30, 2001 (unaudited, amounts in thousands):

	Three Months Ended June 30, 2001							Six Months Ended June 30, 2001
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	18,182	$	(9,103	)	$	9,079	$	35,852	$	(18,012	)	$	17,840
Genzyme General's net income before cumulative effect of change in accounting for derivative financial instruments, net of tax		21,718		9,103			30,821		46,863		18,012			64,875
Division net income		21,718		9,103			30,821		51,030		18,012			69,042

6. Note Receivable from Dyax Corporation

7. Sale of GTC Common Stock

transaction, using the simple average of the high and low transaction prices quoted on the Nasdaq National Market on April 1, 2002. We have committed to a 24-month lock-up provision on the remaining 4.9 million shares of GTC common stock held by us and allocated to Genzyme General, which is approximately 18% of the shares of GTC common stock outstanding as of June 30, 2002. We accounted for our investment in GTC under the equity method of accounting until May 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

Because of the 24-month lock-up provision, the remaining 4.9 million shares of GTC common stock held by us do not qualify as marketable securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As a result, Genzyme General carries the investment on its combined balance sheet at cost, subject to review for impairment. Based on the market price of GTC common stock at June 30, 2002, our remaining investment would have an unrealized loss of $8.3 million. Because we have assessed the decline in the market price of GTC common stock to be temporary, we have not recorded an associated impairment charge.

8. NeuroCell Joint Venture Refund

In February 2002, Genzyme Biosurgery paid $27.1 million to Genzyme General, representing $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum. The refund arose because Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc., failed to initiate a phase 3 trial of NeuroCell-PD for Parkinson's disease by June 30, 2001.

9. Derivative Financial Instruments

On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 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 combined balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

$2.1 million in other expense in its unaudited, combined statements of operations to reflect the change in value of its warrants to purchase shares of GTC common stock from January 1, 2002 to June 30, 2002 as compared to $3.8 million for the same period a year ago. Genzyme General also recorded a charge of $1.1 million, ($1.7 million pre-tax) in division equity in its unaudited, combined balance sheets to reflect the change in value of its interest rate swaps during the six month period ended June 30, 2002. At June 30, 2002, Genzyme General's interest rate swaps had a fair market value of $(3.1) million.

10. Tax Provision

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
	2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
Provision for income taxes	$	(17,964	)	$	(15,803	)	14	%	$	(29,979	)	$	(30,679	)	(2	)%
Effective tax rate		29	%		42	%				30	%		40	%

Genzyme General's tax rates for all periods vary from the U.S. statutory tax rate as a result of its:

•: provision for state income taxes;
•: use of a foreign sales corporation; and
•: use of tax credits.

Genzyme General's effective tax rate for both the three and six months ended June 30, 2001 also varied from the U.S. statutory rate due to nondeductible goodwill amortization expense. Genzyme General stopped recording nondeductible goodwill amortization expense upon the adoption of SFAS No. 142 in fiscal year 2002.

11. Segment Information

In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information for Genzyme General in a manner consistent with the method we use to report this information to our management. Applying SFAS No. 131, Genzyme General has two reportable segments:

•: Therapeutics, which develops, manufactures and distributes human therapeutic products with an expanding focus on products which treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and other specialty therapeutics. The segment derives substantially all of its revenue from sales of Cerezyme enzyme and Renagel phosphate binder; and
•: Diagnostic Products, which provides diagnostic products to niche markets focusing onin vitro diagnostics.

We have provided information concerning the operations in these reportable segments in the following table:

			Three Months Ended June 30,					Six Months Ended June 30,
			2002		2001			2002			2001
			(Unaudited, amounts in thousands)
Revenues:
	Therapeutics (1)		$	213,476	$	188,543		$	404,315		$	365,330
	Diagnostic Products (2)			20,530		17,790			40,368			34,214
	Other (3)			32,303		31,352			63,091			60,464
	Eliminations/Adjustments (4)			859		1,313			1,541			1,683

		Total	$	267,168	$	238,998		$	509,315		$	461,691

Division net income:
	Therapeutics (1)		$	38,846	$	37,692		$	65,561		$	72,031
	Diagnostic Products (2)			681		(4,877	)		(764	)		(4,095	)
	Other (3)			1,024		2,888			3,215			4,872
	Eliminations/Adjustments (4)			3,860		(13,985	)		708			(25,945	)

	Division net income before cumulative effect of change in accounting for derivative financial instruments			44,411		21,718			68,720			46,863
	Cumulative effect of change in accounting for derivative financial instruments, net of tax (5)			—		—			—			4,167

		Division net income	$	44,411	$	21,718		$	68,720		$	51,030

(1): In September 2001, we acquired Novazyme and allocated the acquisition to Genzyme General. The results of operations of Novazyme are included in our Therapeutics reporting segment beginning on September 26, 2001, the date of acquisition.
(2): In June 2001, we acquired Wyntek and allocated the acquisition to Genzyme General. The results of operations of Wyntek are included in our Diagnostic Products reporting segment beginning on June 1, 2001, the date of acquisition.
(3): Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.
(4): Eliminations/Adjustments consists primarily of amounts related to Genzyme General's research and development and administrative activities, including investment income and interest expense, that we do not specifically allocate to a particular segment of Genzyme General.
(5): In connection with the adoption of SFAS No. 133, on January 1, 2001, Genzyme General recorded a cumulative effect adjustment of $4.2 million, net of tax, in its unaudited, combined statement of operations for the three months ended March 31, 2001, to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General.

Segment Assets:

We provide information concerning the assets of Genzyme General's reportable segments in the following table (amounts in thousands):

			June 30, 2002		December 31, 2001
			(Unaudited)
Segment Assets (1)
	Therapeutics		$	1,605,879	$	1,484,387
	Diagnostic Products			104,476		105,354
	Other (2)			99,054		89,526
	Eliminations/Adjustments (3)			1,539,447		1,545,987

		Total	$	3,348,856	$	3,225,254

(1): Segment assets for Genzyme General include primarily cash and investments, accounts receivable, inventory and certain fixed and intangible assets.
(2): Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.
(3): Eliminations/Adjustments consists primarily of cash, cash equivalents, short- and long-term investments, equity investments, net property, plant and equipment and deferred tax assets.

12. Subsequent Event

GENZYME BIOSURGERY

A Division of Genzyme Corporation

Combined Statements of Operations

(Unaudited, amounts in thousands)

				Three Months Ended June 30,						Six Months Ended June 30,
				2002			2001			2002			2001
Revenues:
	Net product sales			$	57,224		$	54,433		$	105,387		$	103,057
	Net service sales				5,604			5,930			10,812			11,458
	Revenues from research and development contracts				35			1			35			5

			Total revenues		62,863			60,364			116,234			114,520

Operating costs and expenses:
	Cost of products sold				25,757			32,131			50,312			60,769
	Cost of services sold				3,585			2,811			6,618			5,948
	Selling, general and administrative				28,239			35,297			52,738			65,989
	Research and development				12,984			11,956			24,856			22,675
	Amortization of intangibles				7,863			11,992			15,742			23,313

			Total operating costs and expenses		78,428			94,187			150,266			178,694

Operating loss					(15,565	)		(33,823	)		(34,032	)		(64,174	)

Other income (expenses):
	Equity in net loss of unconsolidated affiliate				—			(780	)		—			(1,316	)
	Other				78			38			111			45
	Investment income				326			427			623			939
	Interest expense				(2,361	)		(3,470	)		(4,606	)		(8,429	)

			Total other income (expenses)		(1,957	)		(3,785	)		(3,872	)		(8,761	)

Division net loss before cumulative effect of change in accounting for goodwill					(17,522	)		(37,608	)		(37,904	)		(72,935	)
Cumulative effect of change in accounting for goodwill					—			—			(98,270	)		—

Division net loss				$	(17,522	)	$	(37,608	)	$	(136,174	)	$	(72,935	)

Comprehensive income (loss), net of tax:
	Division net loss			$	(17,522	)	$	(37,608	)	$	(136,174	)	$	(72,935	)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			498			504			(3,340	)		(197	)
		Unrealized gains on securities, net			—			—			—			97

	Other comprehensive income (loss)				498			504			(3,340	)		(100	)

Comprehensive loss				$	(17,024	)	$	(37,104	)	$	(139,514	)	$	(73,035	)

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

GENZYME BIOSURGERY

A Division of Genzyme Corporation

Combined Balance Sheets

(Amounts in thousands)

			June 30, 2002		December 31, 2001
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	27,168	$	38,623
	Accounts receivable, net			36,997		38,293
	Inventories			41,982		43,545
	Prepaid expenses and other current assets			2,629		2,734

		Total current assets		108,776		123,195
Property, plant and equipment, net				52,343		53,794
Goodwill, net				112,708		209,596
Other intangible assets, net				298,119		315,582
Other noncurrent assets				2,260		2,504

		Total assets	$	574,206	$	704,671

LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accounts payable		$	8,722	$	7,835
	Accrued expenses			26,477		25,142
	Due to Genzyme General			31,460		29,513
	Current portion of long-term debt and capital lease obligations			10,810		905

		Total current liabilities		77,469		63,395
Long-term debt and capital lease obligations				269,337		234,724
Convertible notes				—		10,000
Other noncurrent liabilities				2,543		2,098

		Total liabilities		349,349		310,217

Division equity				224,857		394,454

		Total liabilities and division equity	$	574,206	$	704,671

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

GENZYME BIOSURGERY

A Division of Genzyme Corporation

Combined Statements of Cash Flows

(Unaudited, amounts in thousands)

					Six Months Ended June 30,
					2002			2001
Cash Flows from Operating Activities:
	Division net loss				$	(136,174	)	$	(72,935	)
	Reconciliation of division net loss to net cash used in operating activities:
		Depreciation and amortization				19,061			27,169
		Provision for bad debts				371			228
		Equity in net loss of unconsolidated affiliate				—			1,316
		Other				(109	)		(76	)
		Cumulative effect of change in accounting for goodwill				98,270			—
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			1,831			(8,029	)
			Inventories			2,320			9,432
			Prepaid expenses and other current assets			165			261
			Accounts payable and accrued expenses			(5,711	)		(3,909	)
			Due to Genzyme General			1,947			20,035

				Net cash used in operating activities		(18,029	)		(26,508	)

Cash Flows from Investing Activities:
	Purchase of equity securities					—			(5,000	)
	Purchases of property, plant and equipment					(1,931	)		(2,483	)
	Purchase of technology rights					(255	)		—
	Acquisitions, net of acquired cash					—			(23,394	)
	Other					253			(659	)

				Net cash used in investing activities		(1,933	)		(31,536	)

Cash Flows from Financing Activities:
	Allocated proceeds from issuance of Biosurgery Stock					432			756
	Proceeds from draw on credit facility					35,000			—
	Payments of debt and capital lease obligations					(483	)		(220	)
	Payment of NeuroCell refund to Genzyme General					(27,063	)		—
	Net cash allocated to Genzyme General					—			(7	)
	Bank overdraft					(312	)		(653	)
	Payments received for notes receivable from stockholders					181			3,204
	Other					2,312			(214	)

				Net cash provided by financing activities		10,067			2,866

Effect of exchange rate changes on cash						(1,560	)		4

Decrease in cash and cash equivalents						(11,455	)		(55,174	)
Cash and cash equivalents at beginning of period						38,623			78,163

Cash and cash equivalents at end of period					$	27,168		$	22,989

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

GENZYME BIOSURGERY

A Division of Genzyme Corporation

Notes to Unaudited, Combined Financial Statements

1. Basis of Presentation

The unaudited, combined financial statements of Genzyme Biosurgery for each period include the statements of operations, balance sheets and statements of cash flows of the businesses we allocate to Genzyme Biosurgery. We also allocate a portion of our corporate operations to Genzyme Biosurgery using methods described in our allocation policy included in Note A., "Summary of Significant Accounting Policies—Allocation Policy," to Genzyme Biosurgery's combined financial statements included in Exhibit 13.3 to our 2001 Form 10-K. These unaudited, combined financial statements are prepared using amounts included in our unaudited, consolidated financial statements included in this Form 10-Q. We prepared these unaudited, combined financial statements for Genzyme Biosurgery following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by generally accepted accounting principles.

These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of Genzyme Biosurgery's financial position and operating results. Since these are interim financial statements, you should also read the financial statements and notes for Genzyme Biosurgery included in our 2001 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

2. New Accounting Pronouncements

3. Acquisitions

On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock not previously acquired. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery.

The following unaudited pro forma financial summary is presented as if the acquisition of Focal was completed as of January 1, 2001. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated on that date, or of the future operations of the combined entities.

Unaudited Pro Forma Financial Summary:

	Three Months Ended June 30, 2001			Six Months Ended June 30, 2001
	(Amounts in thousands)
Total revenues	$	60,370		$	114,667
Division net loss		(43,145	)		(83,519	)

4. Inventories (amounts in thousands)

		June 30, 2002		December 31, 2001
		(Unaudited)
Raw materials		$	12,041	$	13,301
Work-in-process			11,212		11,517
Finished products			18,729		18,727

	Total	$	41,982	$	43,545

5. Goodwill and Other Intangible Assets

Goodwill

Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, Genzyme Biosurgery ceased amortizing goodwill. At January 1, 2002, gross goodwill allocated to Genzyme Biosurgery totaled $238.5 million, including $1.8 million of acquired workforce intangible assets previously classified as purchased intangible assets, net of related deferred tax liabilities.

In November 2001, we sold the Snowden-Pencer line of surgical instruments, a component of Genzyme Biosurgery's Biosurgical Specialties segment, and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of our cardiothoracic reporting unit, under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that the goodwill allocated to the cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, in the three months ended March 31, 2002, upon adoption of SFAS No. 142, we tested the goodwill of our cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations for Genzyme Biosurgery for the three months ended March 31, 2002.

to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstance suggest that the carrying value of an asset may not be recoverable.

The following table contains the changes in the net goodwill attributable to Genzyme Biosurgery's segments during the six months ended June 30, 2002 (amounts in thousands):

						(Unaudited)
			As of December 31, 2001			Adjustments			Impairments			As of June 30, 2002
Goodwill, net:
	Cardiothoracic (1,2)		$	113,447		$	412		$	(113,859	)	$	—
	Orthopaedics (1)			114,760			1,429			—			116,189
	Biosurgical Specialties			8,414			—			—			8,414

		Total		236,621			1,841			(113,859	)		124,603
Accumulated Amortization				(27,025	)		(459	)		15,589			(11,895	)

Goodwill, net			$	209,596		$	1,382		$	(98,270	)	$	112,708

(1): Adjustments for the Cardiothoracic and Orthopaedics segments represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisitions of Focal and Biomatrix as required by SFAS No. 142.
(2): Impairment for the Cardiothoracic segment represents the impairment charge recorded by Genzyme Biosurgery in the three months ended March 31, 2002 in accordance with the transitional provisions of SFAS No. 142, related to the goodwill allocated to its cardiothoracic reporting unit.

Other Intangible Assets

The following table contains information on other intangible assets allocated to Genzyme Biosurgery for the periods presented (amounts in thousands):

		As of June 30, 2002 (Unaudited)							As of December 31, 2001
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	173,379	$	(24,025	)	$	149,354	$	173,379	$	(16,123	)	$	157,256
Patents			79,423		(16,479	)		62,944		79,423		(12,769	)		66,654
Trademarks			85,228		(12,279	)		72,949		85,228		(9,504	)		75,724
License fees			640		(77	)		563		385		(45	)		340
Distribution agreements			13,950		(2,679	)		11,271		13,950		(1,807	)		12,143
Other			2,197		(1,159	)		1,038		4,626		(1,161	)		3,465

	Total	$	354,817	$	(56,698	)	$	298,119	$	356,991	$	(41,409	)	$	315,582

All of Genzyme Biosurgery's other intangible assets are amortized over their estimated useful lives. Total amortization expense for Genzyme Biosurgery's other intangible assets was:

•: $7.9 million for the three months ended June 30, 2002;
•: $8.2 million for the three months ended June 30, 2001;
•: $15.7 million for the six months ended June 30, 2002; and
•: $15.5 million for the six months ended June 30, 2001.

The estimated future amortization expense for other intangible assets allocated to Genzyme Biosurgery as of June 30, 2002 for the remainder of fiscal year 2002 and the five succeeding fiscal years is as follows (unaudited, amounts in thousands):

Year ended December 31,	Estimated Amortization Expense
2002 (remaining six months)	$	15,543
2003		31,086
2004		30,738
2005		30,479
2006		30,422
2007		30,364

Adjusted Net Loss

The following table presents the impact SFAS No. 142 would have had on Genzyme Biosurgery's amortization of intangibles expense and division net loss had the standard been in effect for the three and six months ended June 30, 2001 (unaudited, amounts in thousands):

	Three Months Ended June 30, 2001									Six Months Ended June 30, 2001
	As Reported			Goodwill Amortization Adjustment			As Adjusted			As Reported			Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	11,992		$	(3,789	)	$	8,203		$	23,313		$	(7,856	)	$	15,457
Division net income (loss)		(37,608	)		3,789			(33,819	)		(72,935	)		7,856			(65,079	)

6. NeuroCell Joint Venture Refund

In February 2002, Genzyme Biosurgery paid $27.1 million to Genzyme General, representing $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum. The refund arose because Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc., failed to initiate a Phase 3 trial of NeuroCell-PD for Parkinson's disease by June 30, 2001.

7. Revolving Credit Facility

Genzyme Biosurgery, together with our other operating divisions, has access to a $350.0 million revolving credit facility, all of which matures in December 2003. During the first quarter of 2002, we drew down $35.0 million from this facility and allocated the borrowings to Genzyme Biosurgery. At June 30, 2002, $269.0 million had been drawn down and remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin.

8. Segment Information

In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information for Genzyme Biosurgery in a manner consistent with the method we use to report this information to our management. Applying SFAS No. 131, Genzyme Biosurgery has three reportable segments:

•: Cardiothoracic, which includes chest drainage systems, lung sealants, instruments and closures used in coronary artery bypass, valve replacement, lung surgery and other cardiothoracic surgeries;
•: Orthopaedics, which includes Synvisc® viscosupplementation product and Carticel® chondrocytes; and
•: Biosurgical Specialties, which includes biomaterial products for the general, plastic and cardiovascular surgery markets, including the Sepra™ products and Epicel® skin grafts.

We have provided information concerning the operations of these reportable segments in the following table:

			Three Months Ended June 30,				Six Months Ended June 30,
			2002		2001		2002		2001
			(Unaudited, amounts in thousands)
Revenues:
	Cardiothoracic (1)		$	17,532	$	17,367	$	34,053	$	35,656
	Orthopaedics			30,495		26,488		54,670		46,905
	Biosurgical Specialties			14,801		16,508		27,476		31,954
	Other (2)			35		1		35		5

		Total	$	62,863	$	60,364	$	116,234	$	114,520

Gross Profit:
	Cardiothoracic (1)		$	5,283	$	5,291	$	10,046	$	12,455
	Orthopaedics			21,744		19,417		36,994		32,946
	Biosurgical Specialties			6,459		714		12,229		2,398
	Other (2)			35		—		35		4

		Total	$	33,521	$	25,422	$	59,304	$	47,803

(1): In June 2001, we acquired Focal and allocated the acquisition to Genzyme Biosurgery's Cardiothoracic reporting segment. The results of operations of Focal are included in the results of Genzyme Biosurgery beginning June 30, 2001, the date of acquisition.
(2): The Other category includes revenue from Genzyme Biosurgery's research and development contracts which we do not allocate to a particular reporting segment of Genzyme Biosurgery.

Segment Assets

Except for intangible assets, we do not allocate assets within Genzyme Biosurgery for purposes of reporting segment information.

In connection with the adoption of SFAS No. 142 on January 1, 2002, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended March 31, 2002.

GENZYME MOLECULAR ONCOLOGY

A Division of Genzyme Corporation

Combined Statements of Operations

(Unaudited, amounts in thousands)

				Three Months Ended June 30,						Six Months Ended June 30,
				2002			2001			2002			2001
Revenues:
	Service revenue			$	185		$	—		$	485		$	—
	Revenue from research and development contracts				1,469			703			2,938			1,406
	Licensing revenue				673			548			1,326			1,212
	Royalty revenue				19			28			19			73

			Total revenues		2,346			1,279			4,768			2,691

Operating costs and expenses:
	Cost of services sold				168			—			287			—
	Cost of revenue from research and development contracts and licensing revenue				1,167			485			2,302			1,029
	Selling, general and administrative				2,124			1,811			4,193			3,702
	Research and development				5,323			7,568			10,621			13,229

			Total operating costs and expenses		8,782			9,864			17,403			17,960

Operating loss					(6,436	)		(8,585	)		(12,635	)		(15,269	)

Other income (expenses):
	Interest income				219			268			407			691
	Interest expense				(20	)		(14	)		(40	)		(27	)

			Total other income (expenses)		199			254			367			664

Division net loss				$	(6,237	)	$	(8,331	)	$	(12,268	)	$	(14,605	)
												��
Comprehensive income (loss), net of tax:
	Division net loss			$	(6,237	)	$	(8,331	)	$	(12,268	)	$	(14,605	)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			(2	)		—			(1	)		—
		Unrealized losses on securities, net			171			—			79			—

	Other comprehensive income				169			—			78			—

Comprehensive loss				$	(6,068	)	$	(8,331	)	$	(12,190	)	$	(14,605	)

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

GENZYME MOLECULAR ONCOLOGY

A Division of Genzyme Corporation

Combined Balance Sheets

(Amounts in thousands)

			June 30, 2002		December 31, 2001
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	5,403	$	41,135
	Short-term investments			4,221		—
	Accounts receivable, net			25		463
	Prepaid expenses and other current assets			596		702

		Total current assets		10,245		42,300
Equipment, net				59		119
Long-term investments				15,853		—

		Total assets	$	26,157	$	42,419

LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accrued expenses		$	1,042	$	1,400
	Due to Genzyme General			5,900		7,086
	Deferred revenue—current portion			3,574		5,007

		Total current liabilities		10,516		13,493
Deferred revenue—long term portion				832		2,113

		Total liabilities		11,348		15,606

Division equity				14,809		26,813

		Total liabilities and division equity	$	26,157	$	42,419

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

GENZYME MOLECULAR ONCOLOGY

A Division of Genzyme Corporation

Combined Statements of Cash Flows

(Unaudited, amounts in thousands)

					Six Months Ended June 30,
					2002			2001
Cash Flows from Operating Activities:
	Division net loss				$	(12,268	)	$	(14,605	)
	Reconciliation of division net loss to net cash used in operating activities:
		Depreciation				60			62
		Other				(68	)		152
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			438			(92	)
			Prepaid expenses and other current assets			106			(114	)
			Accrued expenses and deferred revenue			(3,072	)		(1,615	)
			Due to Genzyme General			(1,186	)		1,995

				Net cash used in operating activities		(15,990	)		(14,217	)

Cash Flows from Investing Activities:
	Purchases of investments					(21,444	)		—
	Sales and maturities of investments					1,519			7,792

				Net cash provided by (used in) investing activities		(19,925	)		7,792

Cash Flows from Financing Activities:
	Allocated proceeds from issuance of Molecular Oncology Stock					184			389

				Net cash provided by financing activities		184			389

Effect of exchange rate changes on cash						(1	)		—

Decrease in cash and cash equivalents						(35,732	)		(6,036	)
Cash and cash equivalents at beginning of period						41,135			22,209

Cash and cash equivalents at end of period					$	5,403		$	16,173

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

GENZYME MOLECULAR ONCOLOGY

A Division of Genzyme Corporation

Notes To Unaudited, Combined Financial Statements

1. Basis of Presentation

The unaudited, combined financial statements of Genzyme Molecular Oncology for each period include the statements of operations, balance sheets and statements of cash flows of the businesses we allocate to Genzyme Molecular Oncology. We also allocate a portion of our corporate operations to Genzyme Molecular Oncology using methods described in our allocation policy included in Note A., "Summary of Significant Accounting Policies—Allocation Policy," to Genzyme Molecular Oncology's combined financial statements included in Exhibit 13.4 to our 2001 Form 10-K. These unaudited, combined financial statements are prepared using amounts included in our unaudited, consolidated financial statements included in this Form 10-Q. We prepared these unaudited, combined financial statements for Genzyme Molecular Oncology following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by generally accepted accounting principles.

These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of Genzyme Molecular Oncology's financial position and operating results. Since these are interim financial statements, you should also read the financial statements and notes for Genzyme Molecular Oncology included in our 2001 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

2. New Accounting Pronouncements

3. Goodwill and Other Intangible Assets

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by Genzyme Molecular Oncology effective at the beginning of fiscal year 2002. As of January 1, 2002, Genzyme Molecular Oncology had no goodwill or other intangible assets, therefore, adoption of the standard had no effect on Genzyme Molecular Oncology's unaudited, combined financial statements for the three and six months ended June 30, 2002.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described under "Note Regarding Forward-Looking Statements" and in Exhibit 99.2 to our 2001 Form 10-K. These risks and uncertainties could cause our actual results to differ materially from those forecast in forward-looking statements or implied by past results and trends. Forward-looking statements are statements that attempt to project or anticipate future developments in our business; we encourage you to review the examples of forward-looking statements under "Note Regarding Forward-Looking Statements." These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

INTRODUCTION

We are a biotechnology company that develops innovative products and services for significant unmet medical needs. We have three operating divisions:

•

Genzyme General, which develops and markets:

•: therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and other specialty therapeutics;
•: diagnostic products, with a focus onin vitro diagnostics; and
•: other products and services, such as genetic testing services and pharmaceutical materials.

•: Genzyme Biosurgery, which develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedic and cardiothoracic markets; and
•: Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

We have three series of common stock—Genzyme General Division common stock, which we refer to as "Genzyme General Stock," Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," and Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock." We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specific subset of our business operations and its allocated assets, rather than the operations and assets of our entire company. The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•: factors the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock; and
•: requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to those corresponding divisions are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10% premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

Shares of Biosurgery Stock and Molecular Oncology Stock are subject to certain exchange and redemption provisions as set forth in our charter. One of the exchange provisions allows our board of directors to exchange, at any time, shares of Biosurgery Stock and/or Molecular Oncology Stock for cash, shares of Genzyme General Stock, or a combination of both, valued at a 30% premium to the fair market value (as defined in our charter) of the series of stock being exchanged. We encourage you to read our charter for a more complete discussion of the mandatory and optional exchange and redemption provisions of our common stock.

To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with generally accepted accounting principles and as adjusted for tax benefits allocated to or from that division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock or change our earnings allocation methodology. However, at the present time, we have no plans to do so. Because the earnings allocated to each series of stock are based on the income or losses attributable to each corresponding division, we provide financial statements and management's discussion and analysis for the corporation and each of our divisions to aid investors in evaluating our performance and the performance of each of our divisions.

While each tracking stock is designed to reflect a division's performance, it is common stock of Genzyme Corporation and not of a division. Our divisions are not separate companies or legal entities, and therefore do not and cannot issue stock. Holders of tracking stock have no specific rights to assets allocated to the corresponding division. We continue to hold title to all of the assets allocated to the corresponding division and are responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to any division. Holders of each tracking stock, as common stockholders are, therefore, subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of each tracking stock would only have the rights of common stockholders in the combined assets of Genzyme.

DISPOSITION

In November 2001, we sold our Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery, for $15.9 million in net cash. The purchaser acquired all of the assets directly associated with the Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a net carrying value of approximately $41.0 million at the time of the sale. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery in connection with this sale. We also recorded a related tax benefit of $4.7 million in our consolidated financial statements.

ACQUISITIONS

In September 2001, we acquired all of the outstanding capital stock of Novazyme Pharmaceuticals, Inc., a privately-held developer of biotherapies for the treatment of LSDs, for an initial payment of approximately 2.6 million shares of Genzyme General Stock, valued at $110.6 million. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two additional payments

totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products for the treatment of LSDs that employ certain of Novazyme's technologies. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme common stock on an as-converted basis. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Novazyme are included in our consolidated financial statements and the combined financial statements of Genzyme General from September 26, 2001, the date of acquisition.

In January 2001, Focal, Inc. exercised its option to require us to purchase $5.0 million in Focal common stock. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. In June 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock that we had not previously acquired. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as consideration, valued at approximately $9.5 million. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Accordingly, the results of operations of Focal are included in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery from June 30, 2001, the date of acquisition.

In June 2001, we acquired all of the outstanding capital stock of privately-held Wyntek Diagnostics, Inc. for $65.0 million in cash. Wyntek is a provider of high quality point of care rapid diagnostic tests for pregnancy and infectious diseases. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Wyntek are included in our consolidated financial statements and in the combined financial statements of Genzyme General from June 1, 2001, the date of acquisition.

In January 2001, we acquired the outstanding Class A limited partnership interests in Genzyme Development Partners, L.P., which we refer to as GDP, a limited partnership engaged in developing, producing and commercializing Sepra products, for an aggregate of $25.7 million in cash plus royalties on sales of certain Sepra products for ten years. In August 2001, we purchased the remaining outstanding GDP limited partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus additional royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, the results of operations of GDP are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—

Critical Accounting Policies" in Exhibit 13.1 to our 2001 Form 10-K. Except for our policy regarding asset impairments, as described below, there have been no changes to these policies since December 31, 2001.

Asset Impairments

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and amends APB No. 30, "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and was adopted by us, as required, on January 1, 2002.

We periodically evaluate long-lived assets for potential impairment under SFAS No. 144. We perform these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•: a significant change in the manner in which an asset is used;
•: a significant decrease in the market value of an asset;
•: a significant adverse change in its business or its industry; and
•: a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

If we believe an indicator of potential impairment exists, we test to determine whether the impairment recognition criterion in SFAS No. 144 has been met. In evaluating long-lived assets for potential impairment, we make several significant estimates and judgments, including:

•: determining the appropriate grouping of assets at the lowest level for which cash flows are available;
•: estimating future cash flows associated with the asset or group of assets; and
•: determining an appropriate discount rate to use in the analysis.

Use of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. Unlike SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," goodwill impairment tests performed under SFAS No. 142 do not involve an initial test comparing the projected undiscounted cash flows to the carrying amount of goodwill. Instead, SFAS No. 142 requires that goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. Effective January 1, 2002, we reclassified $4.3 million of acquired workforce intangible assets, previously classified as other intangible assets, net of related deferred tax liabilities, to goodwill as required by SFAS No. 142.

In November 2001, we sold our Snowden-Pencer line of surgical instruments, a component of our Biosurgical Specialties segment, and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of our cardiothoracic reporting unit, under SFAS No. 121, did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that the goodwill allocated to the cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, in the three months ended March 31, 2002, upon adoption of SFAS No. 142, we tested the goodwill of our cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations for Genzyme Biosurgery for the three months ended March 31, 2002.

We have completed the transitional impairment test for the $605.1 million of net goodwill related to our other reporting units in the six months ended June 30, 2002, as provided by SFAS No. 142 and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of our acquisitions, various analyses, assumptions and estimates were made at the time of each acquisition specifically regarding product development, market conditions and cash flows that were used to determine the valuation of goodwill and intangibles. The possibility exists that those estimates could prove to be inaccurate, which could result in an impairment of goodwill.

A. RESULTS OF OPERATIONS

The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.

GENZYME CORPORATION

REVENUES

The components of our total revenues are described in the following table:

		Three Months Ended June 30,						Six Months Ended June 30,
		Three Months Ended June 30,				Increase/ (Decrease) % Change		Six Months Ended June 30,				Increase/ (Decrease) % Change
		2002		2001		Increase/ (Decrease) % Change		2002		2001		Increase/ (Decrease) % Change
		(Unaudited, amounts in thousands, except percentage data)
Product revenue		$	299,980	$	273,473	10	%	$	566,606	$	524,303	8	%
Service revenue			28,024		24,235	16	%		54,707		47,995	14	%

	Total product and service revenue		328,004		297,708	10	%		621,313		572,298	9	%
Research and development revenue			4,188		2,933	43	%		8,819		6,604	34	%

	Total revenues	$	332,192	$	300,641	10	%	$	630,132	$	578,902	9	%

Product Revenue

We derive product revenue from sales by Genzyme General of therapeutic products, including Cerezyme enzyme and Renagel phosphate binder, diagnostic products and other products, and sales by Genzyme Biosurgery of cardiothoracic products, including fluid management (chest drainage) systems, orthopaedic products, including Synvisc viscosupplementation product, and biosurgical specialties products, including Seprafilm™ bioresorbable membrane.

The following table sets forth our product revenue on a segment basis:

				Three Months Ended June 30,						Six Months Ended June 30,
				Three Months Ended June 30,				Increase/ (Decrease) % Change		Six Months Ended June 30,				Increase/ (Decrease) % Change
				2002		2001		Increase/ (Decrease) % Change		2002		2001		Increase/ (Decrease) % Change
				(Unaudited, amounts in thousands, except percentage data)
Genzyme General:
	Therapeutics:
		Cerezyme/Ceredase enzymes		$	154,717	$	141,312	9	%	$	302,783	$	280,943	8	%
		Renagel phosphate binder			39,543		40,408	(2	)%		69,075		69,003	—
		Other therapeutic products			18,083		6,503	178	%		29,528		13,179	124	%

			Total Therapeutics		212,343		188,223	13	%		401,386		363,125	11	%
	Diagnostic Products				20,530		17,790	15	%		40,368		34,214	18	%
	Other				9,883		13,027	(24	)%		19,465		23,907	(19	)%

			Total product revenue—Genzyme General		242,756		219,040	11	%		461,219		421,246	9	%

Genzyme Biosurgery:
	Cardiothoracic				17,532		17,367	1	%		34,053		35,656	(4	)%
	Orthopaedics				25,767		21,709	19	%		45,765		37,777	21	%
	Biosurgical specialties				13,925		15,357	(9	)%		25,569		29,624	(14	)%

			Total product revenue—Genzyme Biosurgery		57,224		54,433	5	%		105,387		103,057	2	%

			Total product revenues	$	299,980	$	273,473	10	%	$	566,606	$	524,303	8	%

Genzyme General—Therapeutics

The increase in Therapeutics product revenue for both the three and six months ended June 30, 2002 as compared to the same periods a year ago, was primarily due to continued growth in sales of Cerezyme enzyme for the treatment of Type 1 Gaucher disease and increased sales of other therapeutic products. Other therapeutic products revenue consists primarily of sales of Thyrogen® hormone, which is an adjunctive diagnostic tool for well-differentiated thyroid cancer and sales of Fabrazyme® enzyme, a recombinant form of the human enzyme alpha-galactosidase used for the treatment of Fabry disease.

The growth in sales of Cerezyme enzyme in both the three and six months ended June 30, 2002 was attributable to our continued identification of new Gaucher disease patients worldwide resulting from significant investment in our global sales and marketing infrastructure. Additionally, we continue to sell Ceredase enzyme for the treatment of Gaucher disease, although we have successfully converted virtually all Gaucher disease patients that were using Ceredase enzyme to a treatment regimen using Cerezyme enzyme.

Our results of operations are highly dependent on sales of Cerezyme enzyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Revenue from Cerezyme enzyme would be impacted negatively if competitors developed alternative treatments for Gaucher disease and the alternative products gained commercial acceptance. Although orphan drug status for Cerezyme enzyme, which provided us with exclusive marketing rights for Cerezyme enzyme in the United States, expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme enzyme until 2010 and the composition of Cerezyme enzyme as made by that process until 2013. The expiration of market exclusivity and orphan drug status will likely subject Cerezyme enzyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue.

Genzyme General is aware of companies that have initiated efforts to develop competitive products. Oxford Glycosciences plc, for example, is developing Zavesca™ (OGT 918), a small molecule drug candidate for the treatment of Type 1 Gaucher disease. OGT 918 has been granted orphan drug status in the United States for treatment of Type 1 Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Type 1 Gaucher disease. In 2001, Oxford Glycosciences submitted a Marketing Authorisation Application (MAA) to the European Agency for the Evaluation of Medicinal Products (EMEA), as well as a New Drug Application (NDA) to the FDA for OGT 918 for the oral treatment of Type 1 Gaucher disease. In June 2002, the FDA issued a complete response letter on the NDA for OGT 918. In the letter the FDA stated that, in its opinion, the product is not approvable due to OGS' failure to provide sufficient support for the safety and efficacy of OGT 918. In July 2002, the Committee for Proprietary Medicinal Products (CPMP), of the EMEA issued a positive opinion recommending marketing approval of OGT 918 for the treatment of Type 1 Gaucher disease. The CPMP's decision states that the product is indicated only for mild-to-moderate forms of Type 1 Gaucher disease, and may be used only if the treatment of patients for whom enzyme replacement therapy is unsuitable. The CPMP requested OGS provide follow-up safety data. To date, virtually all Gaucher disease patients who have received enzyme replacement therapy have experienced strong clinical benefit with few side effects.

The following table provides information regarding the change in sales of our Gaucher disease therapies during the periods presented:

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
	2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
Sales of Cerezyme/Ceredase enzymes	$	154,717		$	141,312		9	%	$	302,783		$	280,943		8	%
% of total product revenue		52	%		52	%				53	%		54	%

Although sales of our Gaucher disease therapies continue to increase, we expect them to decline as a percentage of total product revenue in the future. We expect sales of Renagel phosphate binder to increase, driven primarily by the continued adoption of the product by nephrologists worldwide. The increase in sales of Renagel phosphate binder will be dependent on several factors, including:

•: acceptance by the medical community of Renagel phosphate binder as the preferred treatment for elevated serum phosphorus levels in end-stage dialysis patients;
•: our ability to effectively manage inventories;
•: our ability to optimize dosing and improve patient compliance with Renagel phosphate binder;
•: our ability to expand manufacturing capacity; and
•: our ability to manufacture sufficient quantities to meet demand.

The following table provides information regarding the change in sales of Renagel phosphate binder during the periods presented:

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
	2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
Sales of Renagel phosphate binder	$	39,543		$	40,408		(2	)%	$	69,075		$	69,003		—
% of total product revenue		13	%		15	%				12	%		13	%

Sales for the three and six months ended June 30, 2002, reflect the impact of a reduction in average domestic wholesaler inventory levels.

Other therapeutics revenue consists primarily of sales of Thyrogen hormone, Fabrazyme enzyme and royalties earned on sales of WelChol™ compound. The increase in other therapeutics revenue for the three months ended June 30, 2002 as compared to the same period a year ago is attributable to:

•: a 54% increase in sales of Thyrogen hormone to $6.8 million primarily due to increased market penetration. Thyrogen hormone was launched in Europe during the fourth quarter of 2001 as a result of a positive opinion rendered in September 2001 by the CPMP of the EMEA, which was necessary for commercial introduction of the product;
•: a 638% increase in sales of Fabrazyme enzyme in Europe to $6.0 million primarily due to the introduction to several new markets in Europe and our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme. Fabrazyme was launched in Europe in August 2001; and
•: a 296% increase in royalty revenue for WelChol compound to $5.0 million primarily due to increased market penetration as a first-line therapy. WelChol compound is marketed in the U.S. by Sankyo Pharma, Inc. for use alone or in combination with an HMG-CoA reductase inhibitor, also known as a "statin," as adjunctive therapy to diet and exercise for the reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia.

The increase in other therapeutics revenue for the six months ended June 30, 2002 as compared to the same period a year ago is attributable to:

•: a 49% increase in sales of Thyrogen hormone to $12.8 million primarily due to increased market penetration;
•: a 557% increase in sales of Fabrazyme enzyme in Europe to $10.0 million primarily due to the introduction to several new markets in Europe and our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme; and
•: a 214% increase in royalty revenue for WelChol compound to $6.5 million primarily due to increased market penetration as a first-line therapy.

Genzyme General—Diagnostic Products

Diagnostic Products revenue increased $2.7 million, or 15%, to $20.5 million for the three month period ended June 30, 2002 as compared to the same period a year ago. The increase was primarily attributable to:

•: a 49% increase in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $4.8 million, which tests we obtained through our acquisition of Wyntek in June 2001; and
•: an 8% increase in the combined sales of infectious disease testing products, HDL and LDL cholesterol testing products and royalties on product sales by Techne Corporation's biotechnology group to $15.8 million.

Diagnostic Products revenue increased $6.2 million, or 18%, for the six month period ended June 30, 2002 as compared to the same period a year ago. The increase was primarily attributable to:

•: a 112% increase in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $10.3 million; and

•: a 3% increase in the combined sales of infectious disease testing products, HDL and LDL cholesterol testing products and royalties on product sales by Techne Corporation's biotechnology group to $30.1 million.

Genzyme General—Other Product Revenue

The 24% decrease in other product revenue for the three months ended June 30, 2002 as compared to the same period a year ago is primarily due to a 23% decrease in sales of pharmaceutical materials such as lipids, synthetic peptides and liquid crystals for drug delivery to $6.8 million. The 19% decrease in other product revenue for the six months ended June 30, 2002 as compared to the same period a year ago is primarily due to a 19% decrease in sales of pharmaceutical materials, such as lipids, synthetic peptides and liquid crystals for drug delivery, to $13.5 million.

Genzyme Biosurgery—Cardiothoracic

Cardiothoracic products include fluid management (chest drainage) systems, surgical closures, biomaterials and instruments for conventional, minimally invasive and off-pump cardiac surgery.

Cardiothoracic product revenue increased 1% for the three months ended June 30, 2002, as compared to the same period a year ago, primarily due to a 28% increase in the combined sales of FocalSeal®-L surgical sealant and instruments for minimally-invasive and off-pump cardiac surgery to $4.6 million. The increase was partially offset by a 3% decline in revenue from sales of surgical closures to $4.6 million due to our withdrawal of certain commodity suture lines in Europe and an 8% decline in the combined revenues from sales of fluid management systems and instruments for cardiac surgery to $8.3 million.

Cardiothoracic product revenue decreased 4% for the six months ended June 30, 2002, as compared to the same period a year ago, primarily due to a 13% decline in revenue from sales of surgical closures to $8.7 million resulting from our withdrawal of certain commodity suture lines in Europe and a 10% decline in the combined revenues from sales of fluid management systems and instruments for cardiac surgery to $16.6 million. These decreases were partially offset by a 22% increase in the combined sales of FocalSeal-L surgical sealant and instruments for minimally-invasive and off-pump cardiac surgery to $8.7 million.

Genzyme Biosurgery—Orthopaedics

Orthopaedics product revenue increased $4.1 million, or 19%, for the three months and $8.0 million, or 21%, for the six months ended June 30, 2002, as compared to the same periods a year ago, primarily due to increased sales of Synvisc viscosupplementation product.

Genzyme Biosurgery—Biosurgical Specialties

Biosurgical Specialties product revenue decreased $1.4 million, or 9%, in the three months ended June 30, 2002, as compared to the same period a year ago. The decrease is due to a $4.8 million, or 97%, decrease in sales of surgical instruments due to the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001, partially offset by a $1.8 million, or 25%, increase in sales of Sepra products and a $1.4 million, or 331%, increase in the sale of Hylaform® products.

Biosurgical Specialties product revenue decreased $4.1 million, or 14%, for the six months ended June 30, 2002, as compared to the same period a year ago. The decrease is due to a $9.1 million, or 94%, decrease in sales of surgical instruments due to the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001, partially offset by a $3.8 million, or 27%, increase in sales of Sepra products and a $1.7 million, or 155%, increase in the sale of Hylaform products.

Service Revenue

We derive service revenues from four principal sources:

•: genetic testing services performed by Genzyme General;
•: Genzyme Biosurgery's Carticel chondrocytes for the treatment of cartilage damage;
•: Genzyme Biosurgery's Epicel skin grafts for the treatment of severe burns; and
•: Genzyme Molecular Oncology's provision of services related to LongSAGE™, which is an extension of the SAGE™ technology.

The following table sets forth our service revenues on a segment basis:

			Three Months Ended June 30,						Six Months Ended June 30,
			Three Months Ended June 30,					Increase/ (Decrease) % Change	Six Months Ended June 30,					Increase/ (Decrease) % Change
			2002			2001		Increase/ (Decrease) % Change	2002			2001		Increase/ (Decrease) % Change
			(Unaudited, amounts in thousands, except percentage data)
Genzyme General—Other			$	22,420		$	18,305	22%	$	43,595		$	36,537	19%
Genzyme Biosurgery:
	Orthopaedics			4,728			4,779	(1)%		8,905			9,128	(2)%
	Biosurgical Specialties			876			1,151	(24)%		1,907			2,330	(18)%

		Total service revenue—Genzyme Biosurgery		5,604			5,930	(5)%		10,812			11,458	(6)%

Genzyme Molecular Oncology				185			—	N/A		485			—	N/A
Eliminations/Adjustments (1)				(185	)		—	N/A		(185	)		—	N/A

		Total service revenue	$	28,024		$	24,235	16%	$	54,707		$	47,995	14%

(1): Represents the elimination of interdivisional revenue.

The 22% increase in Genzyme General's other service revenue for the three months ended June 30, 2002 as compared to the same period a year ago is primarily due to increased sales of genetic testing services to $22.4 million. The 19% increase in other service revenue for the six months ended June 30, 2002 as compared to the same period a year ago is primarily due to increased sales of genetic testing services to $43.6 million. The increases for both periods were primarily attributable to expanded presence in the prenatal market and a broader test menu in oncology.

European sales of the service in each period. We have not been actively seeking new partners or marketing Carticel chondrocytes in Europe since the second quarter of 2001. The decrease in Biosurgical Specialties service revenue for both the three and six months ended June 30, 2002, as compared to the same periods a year ago, is attributable to decreased sales of Epicel skin grafts services in each period.

Genzyme Molecular Oncology's service revenue for the six months ended June 30, 2002 includes $0.3 million received under an agreement with a pharmaceutical company related to LongSAGE. This was Genzyme Molecular Oncology's first agreement related to this technology, so no such revenues were recorded for the three and six months ended June 30, 2001.

Research and Development Revenue

We derive research and development revenue primarily from:

•: research initiatives related to Genzyme General's Therapeutics programs;
•: research and development services Genzyme General performed on behalf of GTC; and
•: license fees and funded research related to Genzyme Molecular Oncology's programs.

The following table sets forth our research and development revenues on a segment basis:

			Three Months Ended June 30,						Six Months Ended June 30,
			Three Months Ended June 30,				Increase/ (Decrease) % Change		Six Months Ended June 30,				Increase/ (Decrease) % Change
			2002		2001		Increase/ (Decrease) % Change		2002		2001		Increase/ (Decrease) % Change
			(Unaudited, amounts in thousands, except percentage data)
Genzyme General:
	Therapeutics		$	1,133	$	320	254	%	$	2,929	$	2,205	33	%
	Other			—		20	(100	)%		31		20	55	%
	Eliminations/Adjustments			859		1,313	(35	)%		1,541		1,683	(8	)%

		Total research and development revenue—Genzyme General		1,992		1,653	21	%		4,501		3,908	15	%
Genzyme Biosurgery—Other				35		1	3,400	%		35		5	600	%
Genzyme Molecular Oncology				2,161		1,279	69	%		4,283		2,691	59	%

		Total research and development revenue	$	4,188	$	2,933	43	%	$	8,819	$	6,604	34	%

Research and development revenue allocated to Genzyme General is related primarily to research initiatives for its Therapeutics business segment. Eliminations/Adjustments includes research and development efforts we conducted on behalf of GTC and amounts related to Genzyme General's research and development activities that we do not specifically allocate to a particular segment of Genzyme General.

Research and development revenue allocated to Genzyme Molecular Oncology is derived from the following sources:

•: technology access fees received from Purdue Pharma, L.P. and Kirin Brewery Company, Ltd., which are recognized over the course of associated research programs;
•: research performed by Genzyme Molecular Oncology on behalf of Purdue and Kirin; and
•: revenue associated with thein vitro cancer diagnostic assets that were transferred to Genzyme General in December 2001.

The increase in research and development revenue allocated to Genzyme Molecular Oncology for the three and six months ended June 30, 2002 is the result of the initiation of the collaboration

agreement with Kirin in November 2001 and a planned increase in the amount of research performed on behalf of Purdue, offset in part by a reduction in revenues associated with the cancer diagnostic assets. As a result of the transfer of the cancer diagnostic assets to Genzyme General, Genzyme Molecular Oncology will no longer be allocated revenue arising from the licensing of rights to those assets.

International Product and Service Revenue

A substantial portion of our revenue was generated outside of the United States. Most of our international revenue is attributable to sales of Cerezyme enzyme. The following table provides information regarding the change in international product and service revenue during the periods presented:

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
	2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
International product and service revenue	$	123,563		$	100,915		22	%	$	238,888		$	209,819		14	%
% of total product and service revenue		38	%		34	%				38	%		37	%

International sales of Cerezyme enzyme increased 13% to $81.1 million for the three months ended June 30, 2002 as compared to $71.4 in the same period a year ago. International sales of Cerezyme enzyme increased 6% to $158.9 million for the six months ended June 30, 2002 as compared to $149.2 in the same period a year ago.

The increase for the three months ended June 30, 2002 as compared to the same period a year ago is primarily due to:

•: an 11% increase in international unit sales of Cerezyme enzyme; and
•: an approximately 5% increase in the average exchange rate of the Euro.

The increase for the six months ended June 30, 2002 as compared to the same period a year ago is primarily due to a 7% increase in international unit sales of Cerezyme enzyme.

International sales of Renagel phosphate binder increased 157% to $10.5 million for the three months ended June 30, 2002 as compared to $4.1 million for the same period a year ago. International sales of Renagel phosphate binder increased 150% to $18.8 million for the six months ended June 30, 2002 as compared to $7.6 million for the same period a year ago.

The increases for the three and six months ended June 30, 2002 as compared to the same periods a year ago are primarily due to:

•: the on-going launch of Renagel phosphate binder tablets in Europe; and
•: the expansion of the European Renagel phosphate binder sales forces.

MARGINS

			Three Months Ended June 30,						Six Months Ended June 30,
			Three Months Ended June 30,					Increase/ (Decrease) % Change	Six Months Ended June 30,					Increase/ (Decrease) % Change
			2002			2001		Increase/ (Decrease) % Change	2002			2001		Increase/ (Decrease) % Change
			(Unaudited, amounts in thousands, except percentage data)
Product margin:
	Genzyme General		$	191,991		$	171,571	12%	$	362,855		$	325,883	11%
	Genzyme Biosurgery			31,467			22,302	41%		55,075			42,288	30%

		Total product margin	$	223,458		$	193,873	15%	$	417,930		$	368,171	14%

Service margin:
	Genzyme General		$	9,566		$	7,688	24%	$	18,875		$	15,636	21%
	Genzyme Biosurgery			2,019			3,119	(35)%		4,194			5,510	(24)%
	Genzyme Molecular Oncology			17			—	N/A		198			—	N/A
	Elimination			(17	)		—	N/A		(17	)		—	N/A

		Total service margin	$	11,585		$	10,807	7%	$	23,250		$	21,146	10%

Total gross margin:
	Genzyme General		$	201,557		$	179,259	12%	$	381,730		$	341,519	12%
	Genzyme Biosurgery			33,486			25,421	32%		59,269			47,798	24%
	Genzyme Molecular Oncology			17			—	N/A		198			—	N/A
	Elimination			(17	)		—	N/A		(17	)		—	N/A

		Total gross margin	$	235,043		$	204,680	15%	$	441,180		$	389,317	13%

We provide a broad range of healthcare products and services. As a result, our gross margin may vary significantly based on the category of product or service. Sales of therapeutic products, including Cerezyme enzyme, result in higher margins than from sales of surgical or diagnostic products.

Product Margin

Our total product margin increased 15% for the three months ended June 30, 2002 as compared to the same period a year ago, primarily due to a 10% increase in total product revenue coupled with a favorable 4% decrease in the total cost of products sold. Product margin increased 14% for the six months ended June 30, 2002 as compared to the same period a year ago, primarily due to an 8% increase in total product revenue coupled with a favorable 5% decrease in the total cost of products sold.

The 12% increase in product margin for products allocated to Genzyme General and the increase in product margin as a percentage of product revenue for the three months ended June 30, 2002 as compared to the same period a year ago was primarily attributable to an 11% increase in product revenue offset by a 7% increase in the cost of products sold. The 11% increase in product margin for products allocated to Genzyme General and the increase in product margin as a percentage of product revenue for the six months ended June 30, 2002 as compared to the same period a year ago was primarily attributable to a 9% increase in product revenue offset by a 3% increase in the cost of products sold. The improved margins for both periods were primarily the result of an increase in sales of higher margin Therapeutics products. Sales of Therapeutics products such as Cerezyme enzyme, Thyrogen hormone and Fabrazyme enzyme increased for both periods as compared to the same periods a year ago, while cost of Therapeutics products sold decreased for both periods as compared to the same periods a year ago. The decrease in cost of Therapeutics products sold was primarily attributable to a volume discount on the production costs for Renagel phosphate binder in both periods in accordance with certain third party manufacturing agreements and greater manufacturing efficiencies gained across a number of product areas. Contributing to the decrease in cost of Therapeutics products

sold for both periods, as compared to the same periods a year ago, were charges of $4.7 million for the three months ended June 30, 2001 and $8.2 million for the six months ended June 30, 2001 relating to the increased basis of the inventory obtained in connection with our acquisition of GelTex in December 2000, for which there were no comparable amounts in the same periods of 2002. Also impacting product margins slightly were margins attributable to lower margin Diagnostic Products. Although sales of Diagnostic Products, such as point of care rapid diagnostic tests for pregnancy and infectious diseases, increased for both periods as compared to the same periods a year ago, cost of Diagnostic Products sold also increased for both periods as compared to a the same periods a year ago. The increase in cost of Diagnostic Products sold was partially attributable to a charge of $2.8 million recorded in the three months ended March 31, 2002 for the planned closure of a Diagnostic Products manufacturing facility in San Carlos, CA. We expect that in the future Genzyme General's product margin as a percentage of product revenue will trend slightly lower, primarily due to the lower margins normally attributable to Renagel phosphate binder and a product mix shift as sales of Diagnostic Products continue to increase.

For products allocated to Genzyme Biosurgery, the 41% increase in product margin and the increase in product margin as a percentage of product revenue for the three months ended June 30, 2002 as compared to the same period a year ago was primarily attributable to a modest increase in revenue and a favorable 20% decrease in cost of products sold. The decrease in the cost of products sold was primarily related to our December 2000 acquisition of Biomatrix, Inc., which was allocated to Genzyme Biosurgery. As part of the acquisition, we adjusted the acquired inventory to fair value, resulting in an increase of $11.3 million. This amount was fully amortized to cost of products sold as the acquired inventory was sold in 2001. For the three months ended June 30, 2001, $5.3 million was charged to cost of products sold. Excluding this adjustment, Genzyme Biosurgery's product margin for the three months ended June 30, 2001 would have been 51%.

The 30% increase in product margin for products allocated to Genzyme Biosurgery and the increase in product margin as a percentage of product revenue for the six months ended June 30, 2002 as compared to the same period as year ago was primarily attributable to a modest increase in revenue and a favorable 17% decrease in cost of products sold as discussed above. For the six months ended June 30, 2001, $11.3 million related to the Biomatrix acquisition was charged to cost of products sold. Excluding this adjustment, Genzyme Biosurgery's product margin for the six months ended June 30, 2001 would have been 52%.

Excluding the adjustments described above, product margin for products allocated to Genzyme Biosurgery increased in the three and six months ended June 30, 2002 as compared to the same periods in 2001, primarily as a result of an increase in sales of Synvisc viscosupplementation product, a higher margin product.

Service Margin

Our total service margin increased 7% for the three months ended June 30, 2002 as compared to the same period a year ago primarily due to a 16% increase in total service revenue, which was partially offset by a 22% increase in total cost of services sold. Service margin increased 10% for the six months ended June 30, 2002 as compared to the same period a year ago primarily due to a 14% increase in service revenue, which was partially offset by a 17% increase in total cost of services sold.

Service margin for services allocated to Genzyme General increased for the three and six months ended June 30, 2002 as compared to the same period a year ago primarily due to increased sales of genetic testing services attributable to our expanded presence in the prenatal market and a broader test menu in oncology.

Service margin for services allocated to Genzyme Biosurgery decreased for the three and six months ended June 30, 2002 as compared to the same period a year ago primarily due to decreased sales of both Carticel chondrocytes and Epicel skin grafts.

OPERATING EXPENSES

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 7% for the three month period ended June 30, 2002 and 10% for the six month period ended June 30, 2002 as compared to same periods a year ago as a result of:

•: increased staffing to support the growth in several of the product lines allocated to Genzyme General;
•: increased expenditures to support the increased sales of Cerezyme enzyme, the growth in sales of Renagel phosphate binder and Thyrogen hormone, and the continued launch of Fabrazyme enzyme in Europe; and
•: the addition of expenses resulting from our acquisitions of Novazyme, Focal and Wyntek, which were partially offset by decreased expenses related to the sale of the former Snowden-Pencer line of surgical instruments and to efforts within Genzyme Bisourgery to streamline and consolidate selling efforts.

In addition, the three and six months ended June 30, 2001 include $5.5 million of costs associated with the consolidation of Genzyme Biosurgery's European operations, for which there were no comparable amounts in the same periods of 2002.

Research and Development Expenses

Research and development expenses increased 22% for the three month period ended June 30, 2002 and 32% for the six month period ended June 30, 2002 as compared to the same periods a year ago as a result of:

•: the increased cost of post-marketing clinical development efforts for Renagel phosphate binder;
•: increased spending on our orthopaedics development programs, primarily Synvisc viscosupplementation product;
•: charges related to our Pompe development program as described below;
•: the addition of spending as a result of our acquisitions of Novazyme and Wyntek;
•: the addition of spending on the cardiothoracic development programs, particularly cell therapy;
•: additional spending on the continued development of the C.difficile colitis, oral iron chelator, oral mucositis, and anti-obesity programs; and
•: increased spending on Genzyme General's program to further develop Fabrazyme enzyme for the treatment of Fabry disease.

Included in research and development expenses for the six month period ended June 30, 2002 are expenses associated with a comparison study of our enzyme programs for treatment of Pompe disease that we concluded during the first quarter of 2002. The enzyme programs included:

•: the internally produced enzyme derived from a Chinese hamster ovary, or CHO, cell line;
•: the CHO enzyme licensed from Synpac (North Carolina), Inc. in 2000; and
•: an enzyme produced using technology we obtained in the Novazyme acquisition in 2001.

The analysis of the data from that study indicated that our internally developed CHO product offers the clearest and most efficient pathway to commercialization based on both clinical and manufacturing considerations. As a result of this analysis we:

•: have cancelled our manufacturing contact for the clinical development of the CHO therapy licensed from Synpac while recording a charge of $8.8 million to research and development in the first quarter of 2002 to reflect bulk product purchases and contract cancellation charges;
•: will continue to supply the CHO therapy licensed from Synpac to patients participating in the extensions of clinical trials, as we have with patients receiving the transgenic enzyme developed in a joint venture with Pharming Group, N.V., until they can be transitioned to a CHO-cell product; and
•: will proceed with the pre-clinical development of an enzyme product using technology we obtained through our acquisition of Novazyme as a potential next-generation therapy for Pompe disease and utilize Novazyme's engineering technologies to develop improved second-generation versions of our marketed products and optimal products for the treatment of other LSD's.

Research and development expenses for the six months ended June 30, 2002 include a charge of $2.0 million we recorded in the first quarter of 2002 representing the restructuring of Genzyme General's facilities in New Jersey and Oklahoma that were acquired in connection with our acquisition of Novazyme.

Amortization of Intangibles

Amortization of intangibles expense decreased 42% to $17.6 million for the three months ended June 30, 2002 and 41% to $35.2 million for the six months ended June 30, 2002 as compared to the same periods in 2001 due to our adoption of SFAS No. 142 in January 2002. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. In accordance with the provisions of SFAS No. 142, we ceased amortizing goodwill as of January 1, 2002. Had SFAS No. 142 been in effect on January 1, 2001, our amortization of intangibles expense would have been as follows:

	Three Months Ended June 30, 2001							Six Months Ended June 30, 2001
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
	(Unaudited, amounts in thousands)
Amortization of intangibles	$	30,174	$	(12,892	)	$	17,282	$	59,165	$	(25,868	)	$	33,297

Purchase of In-Process Research and Development

Novazyme

In September 2001, in connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly, we allocated to IPR&D and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. We recorded this amount as a charge to expense in our unaudited, consolidated statements of operations and in Genzyme General's unaudited, combined statements of operations for the quarter ended September 30, 2001.

The platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the treatment of

LSDs. As of June 30, 2002, we estimate that it will take approximately four to six years and an investment of approximately $75 million to $100 million to complete the development of, obtain approval for and commercialize the first product based on this technology platform.

Wyntek

In June 2001, in connection with our acquisition of Wyntek, we allocated approximately $8.8 million of the purchase price to IPR&D. We recorded this amount as a charge to expense in our unaudited, consolidated statements of operations and in Genzyme General's unaudited, combined statements of operations for the quarter ended June 30, 2001.

Wyntek currently is developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. These are the leading markers for the diagnosis of acute myocardial infarction. The product consists of a mobile, stand-alone, quantitative diagnostic device and a reaction strip that detects disease specific marker proteins. The intended use of the device is to read reaction strips at the patient's bedside or in an emergency room setting. We expect to complete the regulatory review process, file an application for marketing approval and begin selling the product during 2002.

GelTex

In December 2000, in connection with the acquisition of GelTex, we allocated approximately $118.0 million of the purchase price to IPR&D, which we recorded as a charge to expense in our consolidated statement of operations and in Genzyme General's combined statements of operations for the year ended December 31, 2000. As of June 30, 2002, the technological feasibility of the projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Below is a brief description of the GelTex IPR&D projects, including an estimation of when our management believes Genzyme General may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication	Development Status at June 30, 2002		Value at Acquisition Date		Estimated Cost to Complete at June 30, 2002		Year of Expected Product Launch
				(Amounts in millions)
Renagel phosphate binder	Next stage non-absorbed polymer phosphate binder for the treatment of hyperphospatemia	• • •	Clinical studies scheduled for completion in 2002, 2003 and 2004 Phase 4 trials ongoing in the U.S. Phase 3 trials ongoing in Japan	$	19.7	$	5.1	(1)
GT160-246	C. difficile colitis	•	Phase 2 trial ongoing		37.4		31.1	2006
GT56-252 Oral Iron Chelator	Iron overload disease	• •	Filed an IND in Q4 2001 Approval to commence Phase 1 trials in Europe obtained 2001		15.7		23.5	2007
GT316-235 Fat absorption inhibitor	Anti-obesity	•	Expected to file an IND in the first half of 2003		17.8		38.2	2010
Polymer	Oral Mucositis	•	IND expected to be filed in the second quarter of 2003		17.8		29.1	2008
DENSPM	Psoriasis	•	Program cancelled during 2001; no further development planned		3.4		N/A	N/A
GT102-279	Second generation lipid-lowering compound	•	Program cancelled during 2001; no further development planned		6.2		N/A	N/A

				$	118.0	$	127.0

(1): Year of launch not estimable due to early stage of the program.

Biomatrix

In connection with our acquisition of Biomatrix, we allocated approximately $82.1 million to IPR&D, which we recorded as a charge to expense in our consolidated statements of operations and in Genzyme Biosurgery's combined statement of operations for the year ended December 31, 2000. As of June 30, 2002, the technological feasibility of the Biomatrix IPR&D projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Below is a brief description of the Biomatrix IPR&D projects, including an estimation of when management believes we may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication	Development Status at June 30, 2002		Value at Acquisition Date		Estimated Cost to Complete at June 30, 2002	Year of Expected Product Launch
				(Amounts in millions)
Visco-supplementation	Use of elastoviscous solutions and viscoelastic gels in disease conditions to supplement tissues and body fluids, alleviating pain and restoring normal function.	• • • •	Prelaunch for hip indication in Europe Preclinical for hip indication in U.S. Preclinical for knee indication Preclinical for other joints	$	33.8	(1)	2002 to 2008
Visco-augmentation and Visco-separation (Adhesion prevention)	Use of viscoelastic gels to provide scaffolding for tissue regeneration and to separate tissues and decrease formation of adhesions and excessive scars after surgery.	• •	Preclinical—gynecological and pelvic indications Phase 2—spine indications		48.3	(1)	2003 to 2006

				$	82.1

(1): Costs to complete are not estimable due to the early stage of these programs.

Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once developed each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

OTHER INCOME AND EXPENSES

		Three Months Ended June 30,								Six Months Ended June 30,
		Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
		2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
		(Unaudited, amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliates		$	(3,948	)	$	(11,796	)	(67	)%	$	(8,042	)	$	(20,811	)	(61	)%
Gain (loss) on investments in equity securities			343			(1,532	)	(122	)%		509			(1,532	)	(133	)%
Minority interest in net loss of subsidiary			—			725		(100	)%		—			1,999		(100	)%
Other			1,827			(133	)	(1,474	)%		963			(3,843	)	(125	)%
Investment income			12,624			12,493		1	%		26,061			22,641		15	%
Interest expense			(7,059	)		(10,766	)	(34	)%		(13,865	)		(22,136	)	(37	)%

	Total other income (expenses)	$	3,787		$	(11,009	)	(134	)%	$	5,626		$	(23,682	)	(124	)%

Equity in Net Loss of Unconsolidated Affiliates

We record the results of the following joint ventures in equity in net loss of unconsolidated affiliates:

Joint Venture	Partner	Effective Date	Product/Indication	Genzyme Division
BioMarin/ Genzyme LLC	BioMarin Pharmaceutical Inc.	September 1998	Aldurazyme™ enzyme for the treatment of mucopolysaccharidosis-I	Genzyme General
Pharming/ Genzyme LLC(1)	Pharming Group, N.V.(2)	October 1998	Human alpha-glucosidase for the treatment of Pompe disease (transgenic product)	Genzyme General
Genzyme/Pharming Alliance LLC(3)	Pharming Group, N.V.(2)	June 2000	Human alpha-glucosidase for the treatment of Pompe disease (produced using CHO cells)	Genzyme General
Diacrin/ Genzyme LLC	Diacrin, Inc.	October 1996	Products using porcine fetal cells for the treatment of Parkinson's and Huntington's diseases	Genzyme Biosurgery (until May 1999); Genzyme General (after May 1999)

(1): Beginning in August 2001, we became responsible for funding all of the operations of Pharming/Genzyme LLC, which in turn is legally obligated to supply transgenically-derived human alpha-glucosidase enzyme until the patients currently enrolled in the clinical trial of this product can be transitioned to a CHO-cell product.
(2): Since August 2001, Pharming Group N.V. has been operating under court-supervised receivership.
(3): In August 2001, we terminated our strategic alliance with Pharming Group N.V. and certain of its subsidiaries for the development of a CHO-cell product for Pompe disease and assumed full operational and financial responsibility for the development of the CHO-cell product.

Through May 31, 2002, our equity in net loss of unconsolidated affiliates included our portion of the losses of GTC. Our equity in net loss of unconsolidated affiliates decreased for both the three and six months ended June 30, 2002, as compared to the same periods a year ago, primarily as the result of the August 2001 termination of our strategic alliance with Pharming Group, N.V. for the development

of a CHO-cell derived product for the treatment of Pompe disease. In addition, in August 2001, we became responsible for funding the costs to produce transgenically-derived alpha-glucosidase and related clinical trial costs for Pharming/Genzyme LLC until the patients currently enrolled in the clinical trial of the product can be transitioned to a CHO-cell product. Our share of losses for both joint ventures was $4.1 million for the three months ended June 30, 2001 and $6.8 million for the six months ended June 30, 2002.

The decreases in our equity in net loss of unconsolidated affiliates for the three and six months ended June 30, 2002 as compared to the same periods a year ago were also attributable to decreased losses from our joint ventures with BioMarin and Diacrin, which were offset in part by a slight increase in losses in our equity position in GTC.

On April 4, 2002, GTC purchased approximately 2.8 million shares of GTC common stock held by us and allocated to Genzyme General for an aggregate consideration of approximately $9.6 million. We received approximately $4.8 million in cash and a promissory note for the remaining amount of approximately $4.8 million. The shares of GTC common stock were valued at $3.385 per share in this transaction, using the simple average of the high and low transaction prices quoted on the Nasdaq National Market on April 1, 2002. We have committed to a 24-month lock-up provision on the remaining 4.9 million shares of GTC common stock held by us and allocated to Genzyme General, which is approximately 18% of the shares of GTC common stock outstanding as of June 30, 2002. We accounted for our investment in GTC under the equity method of accounting until May 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

Because of the 24-month lock-up provision, the remaining 4.9 million shares of GTC common stock held by us do not qualify as marketable securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As a result, we carry the investment on our consolidated balance sheet and the combined balance sheet of Genzyme General at cost, subject to review for impairment. Based on the market price of GTC common stock at June 30, 2002, our remaining investment would have an unrealized loss of $8.3 million. Because we have assessed the decline in the market price of GTC common stock to be temporary, we have not recorded an associated impairment charge.

On June 30, 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock that we did not already hold and began consolidating the operations of Focal. Prior to this transaction we recorded in equity in net loss of unconsolidated affiliates our portion of the results of Focal, which were $0.8 million during the three months ended June 30, 2001 and $1.3 million during the six months ended June 30, 2001.

Gain (Loss) on Investment in Equity Securities

For the three and six months ended June 30, 2001, we recorded a $1.2 million realized loss to reflect the fair market value of our investment in Aronex Pharmaceuticals resulting from Antigenics Inc.'s April 2001 announcement that it had entered into a definitive merger agreement with Aronex. The merger was completed in July 2001. Under the terms of the merger agreement, we received 0.0594 of a share of Antigenics common stock for each of our shares of Aronex common stock.

Minority Interest in Net Loss of Subsidiary

As a result of our combined direct (until July 2001) and indirect interest in ATIII LLC, Genzyme General had consolidated the results of ATIII LLC, recording GTC's portion of the losses of that joint venture as minority interest. ATIII LLC was a joint venture we formed with GTC for the development and commercialization of transgenically-derived antithrombin III. In July 2001, we transferred our 50% ownership interest in ATIII LLC to GTC and stopped recording minority interest.

Investment Income

Our investment income increased 1% for the three months ended June 30, 2002 and increased 15% for the six months ended June 30, 2002 as compared to the same periods a year ago primarily due to higher average cash balances. The higher cash balances resulted primarily from our May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. Net proceeds from the offering were approximately $562.1 million. We allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General.

Interest Expense

Our interest expense decreased 34% for the three months ended June 30, 2002 and 37% for the six months ended June 30, 2002 as compared to the same periods a year ago primarily due to the June 2001 redemption of our $250.0 million in principal of 5¹/4% convertible subordinated notes due 2005, which was partially offset by the May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. Also in May 2001, Genzyme General used a portion of the $562.1 million in net proceeds from the private placement of the 3% convertible subordinated debentures due May 2021 to repay the $150.0 million we had drawn under our revolving credit facility in December 2000.

Tax (Provision) Benefit

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
	2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
(Provision for) benefit from income taxes	$	(10,293	)	$	2,064		(599	)%	$	(13,431	)	$	2,734		(591	)%
Effective tax rate		27	%		25	%				28	%		27	%

Our tax rates for all periods vary from the U.S. statutory tax rate as a result of our:

•: provision for state income taxes;
•: use of a foreign sales corporation; and
•: use of tax credits.

Cumulative Effects of Changes in Accounting for Goodwill and Derivative Financial Instruments

On January 1, 2002, we adopted SFAS No. 142, which requires that ratable amortization of goodwill be replaced with periodic impairment testing of goodwill. Accordingly, we ceased amortizing goodwill effective January 1, 2002.

In accordance with the transitional provisions of SFAS No. 142, we tested the impairment of the goodwill for our cardiothoracic reporting unit and recorded an impairment charge of $98.3 million in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended March 31, 2002, which we recorded as the cumulative effect of a change in accounting for goodwill.

On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 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 unaudited, consolidated balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in income, unless the derivative is part of a qualified hedging relationship.

In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our unaudited, consolidated statement of operations and in the unaudited, combined statement of operations of Genzyme General for the three months ended March 31, 2001, to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts allocated to Genzyme General were not significant. For the three months ended June 30, 2002, we recorded a charge of $0.9 million in other expense in our unaudited, consolidated statements of operations and in the unaudited, combined statement of operations of Genzyme General to reflect the change in value of our warrants to purchase shares of GTC common stock from April 1, 2002 to June 30, 2002 as compared to $0.2 million for the same period of 2001. For the six months ended June 30, 2002, we recorded a charge of $2.1 million in other expense to reflect the change in fair value of our warrants to purchase shares of GTC common stock from January 1, 2002 to June 30, 2002 as compared to $3.8 million for the same period a year ago. We also recorded a charge of $1.1 million, ($1.7 million pre-tax) in other comprehensive income (loss), in our stockholders' equity in our unaudited, consolidated balance sheets and in division equity in the unaudited, combined balance sheet of Genzyme General to reflect the change in value of our interest rate swaps during the six month period ended June 30, 2002. At June 30, 2002, our interest swaps had a fair market value of $(3.1) million.

GENZYME GENERAL
A Division of Genzyme Corporation

The following discussion summarizes the key factors our management believes necessary for an understanding of Genzyme General's financial statements.

ACQUISITIONS

In September 2001, we acquired all of the outstanding capital stock of Novazyme for an initial payment of approximately 2.6 million shares of Genzyme General Stock valued at $110.6 million. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products for the treatment of LSDs that employ certain of Novazyme's technologies. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme common stock on an as-converted basis. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Novazyme are included in our consolidated financial statements and the combined financial statements of Genzyme General from September 26, 2001, the date of acquisition.

In June 2001, we acquired all of the outstanding capital stock of privately-held Wyntek for $65.0 million in cash. Wyntek is a provider of high quality point of care rapid diagnostic tests for pregnancy and infectious diseases. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Wyntek are included in our consolidated financial statements and in the combined financial statements of Genzyme General from June 1, 2001, the date of acquisition.

CRITICAL ACCOUNTING POLICIES

The critical accounting policies for Genzyme General are set forth under the heading "Management's Discussion and Analysis of Genzyme General's Financial Condition and Results of Operations—Critical Accounting Policies" in Exhibit 13.2 to our 2001 Form 10-K. Except for Genzyme General's policy regarding asset impairments, as described below, there have been no changes to these policies since December 31, 2001.

Asset Impairments

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and amends APB No. 30, "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and was adopted by Genzyme General, as required, on January 1, 2002.

Genzyme General periodically evaluates long-lived assets for potential impairment under SFAS No. 144. Genzyme General performs these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•: a significant change in the manner in which an asset is used;
•: a significant decrease in the market value of an asset;
•: a significant adverse change in its business or its industry; and
•: a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

If Genzyme General believes an indicator of potential impairment exists, it tests to determine whether the impairment recognition criterion in SFAS No. 144 has been met. In evaluating long-lived assets for potential impairment, Genzyme General makes several significant estimates and judgments, including:

•: determining the appropriate grouping of assets at the lowest level for which cash flows are available;
•: estimating future cash flows associated with the asset or group of assets; and
•: determining an appropriate discount rate to use in the analysis.

Use of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

Effective January 1, 2002, Genzyme General adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. Unlike SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," goodwill impairment tests performed under SFAS No. 142 do not involve an initial test comparing the projected undiscounted cash flows to the carrying amount of goodwill. Instead, SFAS No. 142 requires that goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value.

Effective January 1, 2002, Genzyme General reclassified $2.4 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax liabilities, to goodwill as required by SFAS No. 142.

We have completed transitional impairment tests for the $492.4 million of net goodwill related to Genzyme General's reporting units in the three months ended March 31, 2002, as provided by SFAS No. 142 and determined that no impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of our acquisitions, various analyses, assumptions and estimates were made at the time of each acquisition specifically regarding product development, market conditions and cash flows that were used to determine the valuation of goodwill and intangibles. The possibility exists that those estimates could prove to be inaccurate, which could result in an impairment of goodwill.

REVENUES

The components of Genzyme General's total revenues are described in the following table:

		Three Months Ended June 30,						Six Months Ended June 30,
		Three Months Ended June 30,				Increase/ (Decrease) % Change		Six Months Ended June 30,				Increase/ (Decrease) % Change
		2002		2001		Increase/ (Decrease) % Change		2002		2001		Increase/ (Decrease) % Change
		(Unaudited, amounts in thousands, except percentage data)
Product revenue		$	242,756	$	219,040	11	%	$	461,219	$	421,246	9	%
Service revenue			22,420		18,305	22	%		43,595		36,537	19	%

	Total product and service revenue		265,176		237,345	12	%		504,814		457,783	10	%
Research and development revenue			1,992		1,653	21	%		4,501		3,908	15	%

	Total revenues	$	267,168	$	238,998	12	%	$	509,315	$	461,691	10	%

Product and Service Revenue

The following table sets forth Genzyme General's product and service revenues on a segment basis:

				Three Months Ended June 30,						Six Months Ended June 30,
				Three Months Ended June 30,				Increase/ (Decrease) % Change		Six Months Ended June 30,				Increase/ (Decrease) % Change
				2002		2001		Increase/ (Decrease) % Change		2002		2001		Increase/ (Decrease) % Change
				(Unaudited, amounts in thousands, except percentage data)
Product Revenue:
	Therapeutics:
		Cerezyme/Ceredase enzymes		$	154,717	$	141,312	9	%	$	302,783	$	280,943	8	%
		Renagel phosphate binder			39,543		40,408	(2	)%		69,075		69,003	—
		Other therapeutic products			18,083		6,503	178	%		29,528		13,179	124	%

			Total Therapeutics		212,343		188,223	13	%		401,386		363,125	11	%
	Diagnostic Products				20,530		17,790	15	%		40,368		34,214	18	%
	Other				9,883		13,027	(24	)%		19,465		23,907	(19	)%

			Total product revenue		242,756		219,040	11	%		461,219		421,246	9	%
Service Revenue:
	Other				22,420		18,305	22	%		43,595		36,537	19	%

			Total product and service revenue	$	265,176	$	237,345	12	%	$	504,814	$	457,783	10	%

Therapeutics

Genzyme General's increase in Therapeutics product revenue for both the three and six months ended June 30, 2002 as compared to the same period a year ago, was primarily due to continued growth in sales of Cerezyme enzyme for the treatment of Type 1 Gaucher disease and increased sales of other therapeutic products. Other therapeutic products revenue consists primarily of sales of Thyrogen hormone, which is an adjunctive diagnostic tool for well-differentiated thyroid cancer and sales of Fabrazyme enzyme, a recombinant form of the human enzyme alpha-galactosidase used for the treatment of Fabry disease.

The growth in sales of Cerezyme enzyme in both the three and six months ended June 30, 2002 was attributable to Genzyme General's continued identification of new Gaucher disease patients worldwide resulting from significant investment in our global sales and marketing infrastructure. Additionally, Genzyme General continues to sell Ceredase enzyme for the treatment of Gaucher

disease, although we have successfully converted virtually all Gaucher disease patients that were using Ceredase enzyme to a treatment regimen using Cerezyme enzyme.

Genzyme General's results of operations are highly dependent on sales of Cerezyme enzyme and a reduction in revenue from sales of this product would adversely affect its results of operations. Revenue from Cerezyme enzyme would be impacted negatively if competitors developed alternative treatments for Gaucher disease and the alternative products gained commercial acceptance. Although orphan drug status for Cerezyme enzyme, which provided us with exclusive marketing rights for Cerezyme enzyme in the United States, expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme enzyme until 2010 and the composition of Cerezyme enzyme as made by that process until 2013. The expiration of market exclusivity and orphan drug status will likely subject Cerezyme enzyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue.

Genzyme General is aware of companies that have initiated efforts to develop competitive products. Oxford Glycosciences plc, for example, is developing Zavesca (OGT 918), a small molecule drug candidate for the treatment of Type 1 Gaucher disease. OGT 918 has been granted orphan drug status in the United States for treatment of Type 1 Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Type 1 Gaucher disease. In 2001, Oxford Glycosciences submitted an MAA to the EMEA, as well as an NDA to the FDA for OGT 918 for the oral treatment of Type 1 Gaucher disease. In June 2002, the FDA issued a complete response letter on the NDA for OGT 918. In the letter the FDA stated that, in its opinion, the product is not approvable due to OGS' failure to provide sufficient support for the safety and efficacy of OGT 918. In July 2002, the CPMP of the EMEA issued a positive opinion recommending marketing approval of OGT 918 for the treatment of Type 1 Gaucher disease. The CPMP's decision states that the product is indicated only for mild-to-moderate forms of Type 1 Gaucher disease, and may be used only if the treatment of patients for whom enzyme replacement therapy is unsuitable. The CPMP requested OGS provide follow-up safety data. To date, virtually all Gaucher disease patients who have received enzyme replacement therapy have experienced strong clinical benefit with few side effects.

The following table provides information regarding the change in sales of Genzyme General's Gaucher disease therapies as a percentage of total product revenue during the periods presented:

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
	2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
Sales of Cerezyme/Ceredase enzymes	$	154,717		$	141,312		9	%	$	302,783		$	280,943		8	%
% of total product revenue		64	%		65	%				66	%		67	%

Although sales of Genzyme General's Gaucher disease therapies continue to increase, we expect them to decline as a percentage of total product revenue in the future. Genzyme General expects sales of Renagel phosphate binder to increase, driven primarily by the continued adoption of the product by nephrologists worldwide. The increase in sales of Renagel phosphate binder will be dependent on several factors, including:

•: acceptance by the medical community of Renagel phosphate binder as the preferred treatment for elevated serum phosphorus levels in end-stage dialysis patients;
•: our ability to effectively manage inventories;
•: our ability to optimize dosing and improve patient compliance with Renagel phosphate binder;
•: our ability to expand manufacturing capacity; and
•: our ability to manufacture sufficient quantities to meet demand.

The following table provides information regarding the change in sales of Renagel phosphate binder during the periods presented:

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
	2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
Sales of Renagel phosphate binder	$	39,543		$	40,408		(2	)%	$	69,075		$	69,003		—
% of total product revenue		16	%		18	%				15	%		16	%

Sales for the three and six months ended June 30, 2002, reflect the impact of a reduction in average domestic wholesaler inventory levels.

Other therapeutics revenue consists primarily of sales of Thyrogen hormone, Fabrazyme enzyme and royalties earned on sales of WelChol compound. The increase in other therapeutics revenue for the three months ended June 30, 2002 as compared to the same period a year ago is attributable to:

•: a 54% increase in sales of Thyrogen hormone to $6.8 million primarily due to increased market penetration. Thyrogen hormone was launched in Europe during the fourth quarter of 2001 as a result of a positive opinion rendered in September 2001 by the CPMP of the EMEA, which was necessary for commercial introduction of the product;
•: a 638% increase in sales of Fabrazyme enzyme in Europe to $6.0 million primarily due to the introduction to several new markets in Europe and our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme. Fabrazyme was launched in Europe in August 2001; and
•: a 296% increase in royalty revenue for WelChol compound to $5.0 million primarily due to increased market penetration as a first-line therapy. WelChol compound is marketed in the U.S. by Sankyo Pharma, Inc. for use alone or in combination with an HMG-CoA reductase inhibitor, also known as a "statin," as adjunctive therapy to diet and exercise for the reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia.

The increase in other therapeutics revenue for the six months ended June 30, 2002 as compared to the same period a year ago is attributable to:

•: a 49% increase in sales of Thyrogen hormone to $12.8 million primarily due to increased market penetration;
•: a 557% increase in sales of Fabrazyme enzyme in Europe to $10.0 million primarily due to the introduction to several new markets in Europe and our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme; and
•: a 214% increase in royalty revenue for WelChol compound to $6.5 million primarily due to increased market penetration as a first-line therapy.

Diagnostic Products

•: a 49% increase in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $4.8 million, which tests we obtained through our acquisition of Wyntek in June 2001; and

•: an 8% increase in the combined sales of infectious disease testing products, HDL and LDL cholesterol testing products and royalties on product sales by Techne Corporation's biotechnology group to $15.8 million.

Diagnostic Products revenue increased $6.2 million or 18% for the six month period ended June 30, 2002 as compared to the same period a year ago. The increase was primarily attributable to:

•: a 112% increase in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $10.3 million; and
•: a 3% increase in the combined sales of infectious disease testing products, HDL and LDL cholesterol testing products and royalties on product sales by Techne Corporation's biotechnology group to $30.1 million.

Other Product and Service Revenue

The 24% decrease in other product revenue for the three months ended June 30, 2002 as compared to the same period a year ago is primarily due to a 23% decrease in sales of pharmaceutical materials, such as lipids, synthetic peptides and liquid crystals for drug delivery, to $6.8 million. The 22% increase in other service revenue for the three months ended June 30, 2002 as compared to the same period a year ago is primarily due to increased sales of genetic testing services to $22.4 million. This increase was primarily attributable to expanded presence in the prenatal market and a broader test menu in oncology.

The 19% decrease in other product revenue for the six months ended June 30, 2002 as compared to the same period a year ago is primarily due to a 19% decrease in sales of pharmaceutical materials, such as lipids, synthetic peptides and liquid crystals for drug delivery, to $13.5 million. The 19% increase in other service revenue for the six months ended June 30, 2002 as compared to the same period a year ago is primarily due to increased sales of genetic testing services to $43.6 million. This increase was primarily attributable to expanded presence in the prenatal market and a broader test menu in oncology.

Research and Development Revenue

The following table sets forth Genzyme General's research and development revenue on a segment basis:

			Three Months Ended June 30,						Six Months Ended June 30,
			Three Months Ended June 30,				Increase/ (Decrease) % Change		Six Months Ended June 30,				Increase/ (Decrease) % Change
			2002		2001		Increase/ (Decrease) % Change		2002		2001		Increase/ (Decrease) % Change
			(Unaudited, amounts in thousands, except percentage data)
Research and development revenue:
	Therapeutics		$	1,133	$	320	254	%	$	2,929	$	2,205	33	%
	Other			—		20	(100	)%		31		20	55	%
	Eliminations/Adjustments			859		1,313	(35	)%		1,541		1,683	(8	)%

		Total research and development revenue	$	1,992	$	1,653	21	%	$	4,501	$	3,908	15	%

Research and development revenue allocated to Genzyme General is related primarily to research initiatives for its Therapeutics business segment. Eliminations/Adjustments includes research and development efforts Genzyme General performs on behalf of GTC and amounts related to Genzyme General's research and development activities that we do not specifically allocate to a particular segment of Genzyme General.

International Product and Service Revenue

A substantial portion of Genzyme General's revenue was generated outside of the United States. Most of the international revenue was attributable to sales of Cerezyme enzyme. The following table provides information regarding the change in international product and service sales revenue during the periods presented:

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
	2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
International product and service revenue	$	111,393		$	88,349		26	%	$	214,907		$	185,467		16	%
% of total product and service revenue		42	%		37	%				43	%		41	%

The increase for the three months ended June 30, 2002 as compared to the same period a year ago is primarily due to:

•: an 11% increase in international unit sales of Cerezyme enzyme; and
•: an approximate 5% increase in the average exchange rate of the Euro.

The increase for the six months ended June 30, 2002 as compared to the same period a year ago is primarily due to a 7% increase in international unit sales of Cerezyme enzyme.

The increase for the three and six months ended June 30, 2002 as compared to the same periods a year ago is primarily due to:

•: the on-going launch of Renagel phosphate binder tablets in Europe; and
•: the expansion of the European Renagel phosphate binder sales forces.

MARGINS

	Three Months Ended June 30,					Six Months Ended June 30,
	Three Months Ended June 30,				Increase/ (Decrease) % Change	Six Months Ended June 30,				Increase/ (Decrease) % Change
	2002		2001		Increase/ (Decrease) % Change	2002		2001		Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
Product margin	$	191,991	$	171,571	12%	$	362,855	$	325,883	11%
% of product revenue		79%		78%			79%		77%
Service margin		9,566		7,688	24%		18,875		15,636	21%
% of service revenue		43%		42%			43%		43%
Total gross margin	$	201,557	$	179,259	12%	$	381,730	$	341,519	12%
% of total product and service revenue		76%		76%			76%		75%

Genzyme General provides a broad range of healthcare products and services. As a result, Genzyme General's gross margin may vary significantly based on the category of product or service. Sales of therapeutic products, including Cerezyme enzyme, result in higher margins than sales of diagnostic products.

Product Margin

The 12% increase in product margin and the increase in product margin as a percentage of product revenue for the three months ended June 30, 2002 as compared to the same period a year ago was primarily attributable to an 11% increase in product revenue offset by a 7% increase in the cost of products sold. The 11% increase in product margin and the increase in product margin as a percentage of product revenue for the six months ended June 30, 2002 as compared to the same period a year ago was primarily attributable to a 9% increase in product revenue offset by a 3% increase in the cost of products sold. The improved margins for both periods were primarily the result of an increase in sales of higher margin Therapeutics products. Sales of Therapeutics products such as Cerezyme enzyme, Thyrogen hormone and Fabrazyme enzyme increased for both periods as compared to the same periods a year ago, while cost of Therapeutics products sold decreased for both periods as compared to the same periods a year ago. The decrease in cost of Therapeutics products sold was primarily attributable to a volume discount on the production costs for Renagel phosphate binder in both periods in accordance with certain third party manufacturing agreements and greater manufacturing efficiencies gained across a number of product areas. Contributing to the decrease in cost of Therapeutics products sold for both periods, as compared to the same periods a year ago, were charges of $4.7 million for the three months ended June 30, 2001 and $8.2 million for the six months ended June 30, 2001 relating to the increased basis of the inventory obtained in connection with our acquisition of GelTex in December 2000, for which there were no comparable amounts in the same periods of 2002. Also impacting product margins slightly were margins attributable to lower margin Diagnostic Products. Although sales of Diagnostic Products, such as point of care rapid diagnostic tests for pregnancy and infectious diseases, increased for both periods as compared to the same periods a year ago, cost of Diagnostic Products sold also increased for both periods as compared to the same periods a year ago. The increase in cost of Diagnostic Products sold was partially attributable to a charge of $2.8 million recorded in the three months ended March 31, 2002 for the planned closure of a Diagnostic Products manufacturing facility in San Carlos, CA. We expect that in the future Genzyme General's product margin as a percentage of product revenue will trend slightly lower, primarily due to the lower margins normally attributable to Renagel phosphate binder and a product mix shift as sales of Diagnostic Products continue to increase.

Service Margin

Service margin increased for the three and six months ended June 30, 2002 as compared to the same periods a year ago primarily due to increased sales of genetic testing services attributable to our expanded presence in the prenatal market and a broader test menu in oncology.

OPERATING EXPENSES

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 21% for the three month period ended June 30, 2002 and 25% for the six month period ended June 30, 2002 as compared to same periods a year ago as a result of:

•: increased staffing to support the growth in several of Genzyme General's product lines;
•: increased expenditures to support the increased sales of Cerezyme enzyme, the growth in sales of Renagel phosphate binder and Thyrogen hormone, and the continued launch of Fabrazyme enzyme in Europe; and
•: the addition of expenses resulting from our acquisitions of Novazyme and Wyntek.

Research and Development Expenses

Research and development expenses increased 33% for the three month period ended June 30, 2002 and 46% for the six month period ended June 30, 2002 as compared to the same period a year ago as a result of:

•: the increased cost of post-marketing clinical development efforts for Renagel phosphate binder;
•: charges related to our Pompe development program as described below;
•: the addition of spending as a result of our acquisition of Novazyme and Wyntek;
•: additional spending on the continued development of the C.difficile colitis, oral iron chelator, oral mucositis, and anti-obesity programs; and
•: increased spending on Genzyme General's program to further develop Fabrazyme enzyme for the treatment of Fabry disease.

•: the internally produced CHO enzyme;
•: the CHO enzyme licensed from Synpac (North Carolina) in 2000; and
•: an enzyme produced using technology we obtained in the Novazyme acquisition in 2001.

•: have cancelled our manufacturing contact for the clinical development of the CHO therapy licensed from Synpac while recording a charge of $8.8 million to research and development in the first quarter of 2002 to reflect bulk product purchases and contract cancellation charges;
•: will continue to supply the CHO therapy licensed from Synpac to patients participating in the extensions of clinical trials, as we have with patients receiving the transgenic enzyme developed

in a joint venture with Pharming Group, N.V., until they can be transitioned to a CHO-cell product; and

•: will proceed with the pre-clinical development of an enzyme produced using technology we obtained through the acquisition of Novazyme as a potential next-generation therapy for Pompe disease and utilize Novazyme's engineering technologies to develop improved second-generation versions of our marketed products and optimal products for the treatment of other LSD's.

Amortization of Intangibles

Amortization of intangibles expense decreased 47% to $9.7 million for the three months ended June 30, 2002 and 46% to $19.4 million for the six months ended June 30, 2002 as compared to the same periods in 2001 primarily due to Genzyme General's adoption of SFAS No. 142 in January 2002. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. In accordance with the provisions of SFAS No. 142, Genzyme General ceased amortizing goodwill as of January 1, 2002. Had SFAS No. 142 been in effect on January 1, 2001, Genzyme General's amortization of intangibles expense would have been as follows:

	Three Months Ended June 30, 2001							Six Months Ended June 30, 2001
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
	(Unaudited, amounts in thousands)
Amortization of intangibles	$	18,182	$	(9,103	)	$	9,079	$	35,852	$	(18,012	)	$	17,840

Purchase of In-Process Research and Development

Novazyme

In September 2001, in connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly, we allocated to IPR&D and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. Genzyme General recorded this amount as a charge to expense in its unaudited, combined statements of operations for the quarter ended September 30, 2001.

The platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the treatment of LSDs. As of June 30, 2002, we estimate that it will take approximately four to six years and an investment of approximately $75 million to $100 million to complete the development of, obtain approval for, and commercialize the first product based on this technology platform.

Wyntek

In June 2001, in connection with our acquisition of Wyntek, we allocated approximately $8.8 million of the purchase price to IPR&D. Genzyme General recorded this amount as a charge to expense in its unaudited, combined statement of operations for the quarter ended June 30, 2001.

GelTex

In December 2000, in connection with the acquisition of GelTex, we allocated approximately $118.0 million of the purchase price to IPR&D, which Genzyme General recorded as a charge to expense in its unaudited, combined statements of operations for the year ended December 31, 2000. As of June 30, 2002, the technological feasibility of the projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Program	Program Description or Indication		Development Status at June 30, 2002	Value at Acquisition Date		Estimated Cost to Complete at June 30, 2002		Year of Expected Product Launch
				(Amounts in millions)
Renagel phosphate binder	Next stage non-absorbed polymer phosphate binder for the treatment of hyperphospatemia	• • •	Clinical studies scheduled for completion in 2002, 2003 and 2004 Phase 4 trials ongoing in the U.S. Phase 3 trials ongoing in Japan	$	19.7	$	5.1	(1	)
GT160-246	C. difficile colitis	•	Phase 2 trial ongoing		37.4		31.1	2006
GT56-252 Oral Iron Chelator	Iron overload disease	• •	Filed an IND in Q4 2001 Approval to commence Phase 1 trials in Europe obtained 2001		15.7		23.5	2007
GT316-235 Fat absorption inhibitor	Anti-obesity	•	Expected to file an IND in the first half of 2003		17.8		38.2	2010
Polymer	Oral Mucositis	•	IND expected to be filed in the second quarter of 2003		17.8		29.1	2008
DENSPM	Psoriasis	•	Program cancelled during 2001; no further development planned		3.4		N/A	N/A
GT102-279	Second generation lipid-lowering compound	•	Program cancelled during 2001; no further development planned		6.2		N/A	N/A

				$	118.0	$	127.0

(1): Year of launch not estimable due to early stage of the program.

applications that we may choose to pursue. We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

OTHER INCOME AND EXPENSES

		Three Months Ended June 30,								Six Months Ended June 30,
		Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
		2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
		(Unaudited, amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliates		$	(3,948	)	$	(11,016	)	(64	)%	$	(8,042	)	$	(19,495	)	(59	)%
Gain (loss) on investments in equity securities			343			(1,532	)	(122	)%		509			(1,532	)	(133	)%
Minority interest in net loss of subsidiary			—			725		(100	)%		—			1,999		(100	)%
Other			1,749			(171	)	(1,123	)%		852			(3,888	)	(122	)%
Investment income			12,079			11,798		2	%		25,031			21,011		19	%
Interest expense			(4,678	)		(7,282	)	(36	)%		(9,219	)		(13,680	)	(33	)%

	Total other income (expenses)	$	5,545		$	(7,478	)	(174	)%	$	9,131		$	(15,585	)	(159	)%

Equity in Net Loss of Unconsolidated Affiliates

Genzyme General records in equity in net loss of unconsolidated affiliates its portion of the results of our joint ventures with BioMarin, Pharming and Diacrin and through May 31, 2002, its portion of the results of GTC.

Genzyme General's equity in net loss of unconsolidated affiliates decreased for both the three and six months ended June 30, 2002, as compared to the same periods a year ago, primarily as the result of the August 2001 termination of our strategic alliance with Pharming for the development of a CHO-cell derived product for the treatment of Pompe disease. In addition, in August 2001, we became responsible for funding the costs to produce transgenically-derived alpha-glucosidase and related clinical trial costs for Pharming/Genzyme LLC until the patients currently enrolled in the clinical trial of the product can be transitioned to a CHO-cell product. Genzyme General's share of losses for both joint ventures was $4.1 million for the three months ended June 30, 2001 and $6.8 million for the six months ended June 30, 2001.

The decreases in equity in net loss of unconsolidated affiliates for the three and six months ended June 30, 2002 as compared to the same periods a year ago were also attributable to decreased losses from our joint ventures with BioMarin and Diacrin, which were offset in part by a slight increase in losses in our equity position in GTC.

which is approximately 18% of the shares of GTC common stock outstanding as of June 30, 2002. We accounted for our investment in GTC under the equity method of accounting until May 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

Because of the 24-month lock-up provision, the remaining 4.9 million shares of GTC common stock held by us do not qualify as marketable securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As a result, we carry the investment on our combined balance sheet at cost, subject to review for impairment. Based on the market price of GTC common stock at June 30, 2002, our remaining investment would have an unrealized loss of $8.3 million. Because we have assessed the decline in the market price of GTC common stock to be temporary, we have not recorded an associated impairment charge.

Minority Interest in Net Loss of Subsidiary

As a result of our combined direct (until July 2001) and indirect interest in ATIII LLC, Genzyme General had consolidated the results of ATIII LLC, recording GTC's portion of the losses of that joint venture as minority interest. In July 2001, we transferred our 50% ownership interest in ATIII LLC to GTC and stopped recording minority interest.

Investment Income

Genzyme General's investment income increased 2% for the three months ended June 30, 2002 and increased 19% for the six months ended June 30, 2002 as compared to the same periods a year ago primarily due to higher average cash balances. The higher cash balances resulted primarily from our May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. Net proceeds from the offering were approximately $562.1 million. We allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General.

Interest Expense

Genzyme General's interest expense decreased 36% for the three months ended June 30, 2002 and decreased 33% for the six months ended June 30, 2002 as compared to the same periods a year ago primarily due to the June 2001 redemption of our $250.0 million in principal 5¹/4% convertible subordinated notes due 2005, which was partially offset by the May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. Also in May 2001, Genzyme General used a portion of the $562.1 million in proceeds from the private placement of the 3% convertible subordinated debentures due May 2021 to repay the $150.0 million we had drawn under our revolving credit facility in December 2000.

Tax Provision

	Three Months Ended June 30,								Six Months Ended June 30,
	Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
	2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
	(Unaudited, amounts in thousands, except percentage data)
Provision for income taxes	$	(17,964	)	$	(15,803	)	14	%	$	(29,979	)	$	(30,679	)	(2	)%
Effective tax rate		29	%		42	%				30	%		40	%

Genzyme General's tax rates for all periods vary from the U.S. statutory tax rate as a result of its:

•: provision for state income taxes;

•: use of a foreign sales corporation; and
•: use of tax credits.

Genzyme General's effective tax rate for both the three and six months ended June 30, 2001 also varied from the U.S. statutory rate due to nondeductible goodwill amortization expense. Genzyme General stopped recording non-deductible goodwill amortization expense upon the adoption of SFAS No. 142 in fiscal year 2002.

Cumulative Effect of Change in Accounting Principle

On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 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 Genzyme General's combined balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in income, unless the derivative is part of a qualified hedging relationship.

In accordance with the transition provisions of SFAS No. 133, Genzyme General recorded a cumulative effect adjustment of $4.2 million, net of tax, in its unaudited, combined statements of operations for the three months ended March 31, 2001 to recognize the fair value of our warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts allocated to Genzyme General were not significant. For the three months ended June 30, 2002, Genzyme General recorded a charge of $0.9 million in other expense in its unaudited, combined statement of operations to reflect the change in value of its warrants to purchase shares of GTC common stock from April 1, 2002 to June 30, 2002 as compared to $0.2 million for the same period a year ago. For the six months ended June 30, 2002, Genzyme General recorded a charge of $2.1 million in other expense to reflect the change in fair value of its warrants to purchase shares of GTC common stock from January 1, 2002 to June 30, 2002 as compared to $3.8 million for the same period a year ago. Genzyme General also recorded a charge of $1.1 million ($1.7 million pre-tax) in division equity in its unaudited, combined balance sheets to reflect the change in value of its interest rate swaps during the six month period ended June 30, 2002 as compared to $0.5 million ($0.8 million pre-tax) for the same period a year ago. At June 30, 2002, Genzyme General's interest rate swaps had a fair-market value of $(3.1) million.

GENZYME BIOSURGERY
A Division of Genzyme Corporation

The following discussion summarizes the key factors our management believes necessary for an understanding of Genzyme Biosurgery's financial statements.

DISPOSITION

ACQUISITIONS

In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. In June 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock not previously acquired. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as consideration, valued at approximately $9.5 million. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Accordingly, the results of operations of Focal are included in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery from June 30, 2001, the date of acquisition.

In January 2001, we acquired the outstanding Class A limited partnership interests in GDP, a limited partnership engaged in developing, producing and commercializing Sepra products, for an aggregate of $25.7 million in cash plus royalties on sales of certain Sepra products for ten years. In August 2001, we purchased the remaining outstanding GDP limited partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus additional royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, the results of operations of GDP are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

CRITICAL ACCOUNTING POLICIES

The critical accounting policies for Genzyme Biosurgery are set forth under the heading "Management's Discussion and Analysis of Genzyme Biosurgery's Financial Condition and Results of Operations—Critical Accounting Policies" in Exhibit 13.3 to our 2001 Form 10-K. Except for Genzyme Biosurgery's policy regarding asset impairments, as described below, there have been no changes to these policies since December 31, 2001.

Asset Impairments

"Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and was adopted by Genzyme Biosurgery, as required, on January 1, 2002.

Genzyme Biosurgery periodically evaluates long-lived assets for potential impairment under SFAS No. 144. Genzyme Biosurgery performs these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•: a significant change in the manner in which an asset is used;
•: a significant decrease in the market value of an asset;
•: a significant adverse change in its business or its industry; and
•: a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

If Genzyme Biosurgery believes an indicator of potential impairment exists, it tests to determine whether the impairment recognition criterion in SFAS No. 144 has been met. In evaluating long-lived assets for potential impairment, Genzyme Biosurgery makes several significant estimates and judgments, including:

•: determining the appropriate grouping of assets at the lowest level for which cash flows are available;
•: estimating future cash flows associated with the asset or group of assets; and
•: determining an appropriate discount rate to use in the analysis.

Use of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

Effective January 1, 2002, Genzyme Biosurgery adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. Unlike SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," goodwill impairment tests performed under SFAS No. 142 do not involve an initial test comparing the projected undiscounted cash flows to the carrying amount of goodwill. Instead, SFAS No. 142 requires that goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. Effective January 1, 2002, we reclassified $1.8 million of acquired workforce intangible assets, previously classified as other intangible assets, net of related deferred tax liabilities, to goodwill as required by SFAS No. 142.

We have completed the transitional impairment test for the $112.7 million of net goodwill related to Genzyme Biosurgery's other reporting units in the six months ended June 30, 2002, as provided by SFAS No. 142, and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of our acquisitions, various analyses, assumptions and estimates were made at the time of each acquisition specifically regarding product development, market conditions and cash flows that were used to determine the valuation of goodwill and intangibles. The possibility exists that those estimates could prove to be inaccurate, which could result in an impairment of goodwill.

REVENUES

The components of Genzyme Biosurgery's total revenues are described in the following table:

			Three Months Ended June 30,						Six Months Ended June 30,
			Three Months Ended June 30,				Increase/ (Decrease) % Change		Six Months Ended June 30,				Increase/ (Decrease) % Change
			2002		2001		Increase/ (Decrease) % Change		2002		2001		Increase/ (Decrease) % Change
			(Unaudited, amounts in thousands, except percentage data)
Product revenue:
	Cardiothoracic		$	17,532	$	17,367	1	%	$	34,053	$	35,656	(4	)%
	Orthopaedics			25,767		21,709	19	%		45,765		37,777	21	%
	Biosurgical Specialties			13,925		15,357	(9	)%		25,569		29,624	(14	)%

		Total product revenue		57,224		54,433	5	%		105,387		103,057	2	%

Service revenue:
	Orthopaedics			4,728		4,779	(1	)%		8,905		9,128	(2	)%
	Biosurgical Specialties			876		1,151	(24	)%		1,907		2,330	(18	)%

		Total service revenue		5,604		5,930	(5	)%		10,812		11,458	(6	)%

Research and development revenue:
	Other			35		1	3,400	%		35		5	600	%

		Total revenues	$	62,863	$	60,364	4	%	$	116,234	$	114,520	1	%

Product Revenue

Cardiothoracic products include fluid management (chest drainage) systems, surgical closures, biomaterials and instruments for conventional, minimally invasive and off-pump cardiac surgery.

Cardiothoracic product revenue increased 1% for the three months ended June 30, 2002, as compared to the same period a year ago, primarily due to a 28% increase in the combined sales of FocalSeal-L surgical sealant and instruments for minimally-invasive and off-pump cardiac surgery to $4.6 million. The increase was partially offset by a 3% decline in revenue from sales of surgical closures to $4.6 million due to our withdrawal of certain commodity suture lines in Europe and an 8% decline in the combined revenues from sales of fluid management systems and instruments for cardiac surgery to $8.3 million.

Service Revenue

Orthopaedics service revenue did not change significantly during the three and six months ended June 30, 2002 when compared to the same periods a year ago. Increased sales of Carticel chondrocyte services in the U.S. for both the three and six months ended June 30, 2002 were offset by decreased European sales of the service in each period. We have not been actively seeking new partners or marketing Carticel chondrocytes in Europe since the second quarter of 2001. The decrease in Biosurgical Specialties service revenue for both the three and six months ended June 30, 2002, as compared to the same periods a year ago, is attributable to decreased sales of Epicel skin grafts services in each period.

International Revenue

International revenue as a percentage of total sales for the three months ended June 30, 2002 was 19% as compared to 21% in the same period of 2001. International sales as a percentage of total sales for both the six months ended June 30, 2002 and 2001 was 21%.

MARGINS

		Three Months Ended June 30,						Six Months Ended June 30,
		Three Months Ended June 30,				Increase/ (Decrease) % Change		Six Months Ended June 30,				Increase/ (Decrease) % Change
		2002		2001		Increase/ (Decrease) % Change		2002		2001		Increase/ (Decrease) % Change
		(Unaudited, amounts in thousands, except percentage data)
Product margin		$	31,467	$	22,302	41	%	$	55,075	$	42,288	30	%
	% of product revenue		55%		41%				52%		41%
Service margin		$	2,019	$	3,119	(35	)%	$	4,194	$	5,510	(24	)%
	% of service revenue		36%		53%				39%		48%
Total gross margin		$	33,486	$	25,421	32	%	$	59,269	$	47,798	24	%
	% of total product and service revenue		53%		42%				51%		42%

Genzyme Biosurgery provides a broad range of healthcare products and services. As a result, Genzyme Biosurgery's gross margin may vary significantly depending on the market conditions of each product or service.

Product Margin

The 41% increase in product margin and the increase in product margin as a percentage of product revenue for the three months ended June 30, 2002 as compared to the same period a year ago was primarily attributable to a modest increase in revenue and a favorable 20% decrease in cost of products sold. The decrease in the cost of products sold was primarily related to our December 2000 acquisition of Biomatrix, which was allocated to Genzyme Biosurgery. As part of the acquisition, we adjusted the acquired inventory to fair value, resulting in an increase of $11.3 million. This amount was fully amortized to cost of products sold as the acquired inventory was sold in 2001. For the three months ended June 30, 2001, $5.3 million was charged to cost of products sold. Excluding this adjustment, Genzyme Biosurgery's product margin for the three months ended June 30, 2001 would have been 51%.

The 30% increase in product margin and the increase in product margin as a percentage of product revenue for the six months ended June 30, 2002 as compared to the same period a year ago was primarily attributable to a modest increase in revenue and a favorable 17% decrease in cost of products sold. For the six months ended June 30, 2001, $11.3 million related to the Biomatrix acquisition was charged to cost of products sold. Excluding this adjustment, Genzyme Biosurgery's product margin for the six months ended June 30, 2001 would have been 52%.

Excluding the adjustments described above, product margin increased in the three and six months ended June 30, 2002, as compared to the same periods in 2001, as a result of an increase in sales of Synvisc viscosupplementation product, a higher margin product.

Service Margin

Service margins decreased for both the three and six months ended June 30, 2002 as compared to the same periods a year ago, primarily due to decreased sales of both Carticel chondrocytes and Epicel skin grafts.

OPERATING EXPENSES

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased 20% for the three and six months ended June 30, 2002 as compared to the same periods in 2001. The decrease was primarily due to a

$1.3 million reduction for the three months and $6.0 million reduction for the six months ended June 30, 2002 when compared to the same periods a year ago in selling, general and administrative expenses related to the sale of our former Snowden-Pencer line of surgical instruments and to efforts within Genzyme Biosurgery to streamline and consolidate selling efforts.

In addition, the three and six months ended June 30, 2001 include $5.5 million of costs associated with the consolidation of European operations, for which there were no comparable amounts in the same periods of 2002.

Research and Development Expenses

Research and development expenses increased 9% during the three months ended June 30, 2002 as compared to the same period in 2001. The increase was primarily due to a $0.6 million increase in spending on the cardiothoracic development programs, particularly cell therapy, and a $0.5 million increase in spending on the orthopaedics development programs, particularly Synvisc viscosupplementation product.

Research and development expenses increased 10% during the six months ended June 30, 2002 as compared to the same period in 2001. The increase was primarily due to a $1.0 million increase in spending on the cardiothoracic development programs, particularly cell therapy, and a $0.4 million increase in spending on the orthopaedics development programs, particularly Synvisc viscosupplementation product.

Amortization of Intangibles

Amortization of intangibles expense decreased 34% to $7.9 million for the three months ended June 30, 2002 and 32% to $15.7 million for the six months ended June 30, 2002 as compared to the same periods in 2001 due to Genzyme Biosurgery's adoption of SFAS No. 142 in January 2002. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. In accordance with the provisions of SFAS No. 142, Genzyme Biosurgery ceased amortizing goodwill as of January 1, 2002. Had SFAS No. 142 been in effect on January 1, 2001, Genzyme Biosurgery's amortization of intangible expense would have been as follows:

	Three Months Ended June 30, 2001							Six Months Ended June 30, 2001
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
	(Unaudited, amounts in thousands)
Amortization of intangibles	$	11,992	$	(3,789	)	$	8,203	$	23,313	$	(7,856	)	$	15,457

Purchase Of In-Process Research And Development

Biomatrix

In connection with our acquisition of Biomatrix, we allocated approximately $82.1 million to IPR&D, which Genzyme Biosurgery recorded as a charge to expense in its combined statement of operations for the year ended December 31, 2000. As of June 30, 2002, the technological feasibility of the Biomatrix IPR&D projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

Below is a brief description of the Biomatrix IPR&D projects, including an estimation of when our management believes we may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication		Development Status at June 30, 2002	Value at Acquisition Date		Estimated Cost to Complete at June 30, 2002	Year of Expected Product Launch
				(Amounts in millions)
Visco-supplementation	Use of elastoviscous solutions and viscoelastic gels in disease conditions to supplement tissues and body fluids, alleviating pain and restoring normal function.	• • • •	Prelaunch for hip indication in Europe Preclinical for hip indication in U.S. Preclinical for knee indication Preclinical for other joints	$	33.8	(1)	2002 to 2008
Visco-augmentation and Visco-separation (Adhesion prevention)	Use of viscoelastic gels to provide scaffolding for tissue regeneration and to separate tissues and decrease formation of adhesions and excessive scars after surgery.	• •	Preclinical—gynecological and pelvic indications Phase 2—spine indications		48.3	(1)	2003 to 2006

				$	82.1

(1): Costs to complete are not estimable due to the early stage of these programs.

Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once developed, each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

OTHER INCOME AND EXPENSES

		Three Months Ended June 30,								Six Months Ended June 30,
		Three Months Ended June 30,						Increase/ (Decrease) % Change		Six Months Ended June 30,						Increase/ (Decrease) % Change
		2002			2001			Increase/ (Decrease) % Change		2002			2001			Increase/ (Decrease) % Change
		(Unaudited, amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliate		$	—		$	(780	)	(100	)%	$	—		$	(1,316	)	(100	)%
Other			78			38		105	%		111			45		147	%
Investment income			326			427		(24	)%		623			939		(34	)%
Interest expense			(2,361	)		(3,470	)	(32	)%		(4,606	)		(8,429	)	(45	)%

	Total other income (expenses)	$	(1,957	)	$	(3,785	)	(48	)%	$	(3,872	)	$	(8,761	)	(56	)%

Equity in Net Loss of Unconsolidated Affiliate

In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding

shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated our investment in Focal to Genzyme Biosurgery. Genzyme Biosurgery recorded in equity in net loss of unconsolidated affiliate its portion of the results of Focal. On June 30, 2001, we acquired the remaining 78% of the outstanding shares in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Genzyme Biosurgery's equity in net loss of unconsolidated affiliate decreased in the three and six months ended June 30, 2002 when compared to the same periods in 2001 because Genzyme Biosurgery began accounting for Focal as a wholly-owned subsidiary when the remaining outstanding shares were purchased.

Investment Income

Investment income decreased in the three and six months ended June 30, 2002 as compared to the same periods in 2001, despite higher average cash balances, as a result of a decline in interest rates.

Interest Expense

Interest expense decreased in the three and six months ended June 30, 2002 as compared to the same periods in 2001 primarily as a result of a decrease in interest rates used to calculate interest on borrowings from our revolving credit facility.

Cumulative Effect of Change in Accounting for Goodwill

On January 1, 2002, we adopted SFAS No. 142 which requires that ratable amortization of goodwill be replaced with periodic impairment testing of goodwill. Accordingly, Genzyme Biosurgery ceased amortizing goodwill effective January 1, 2002.

In accordance with the transitional provisions of SFAS No. 142, Genzyme Biosurgery tested the impairment of the goodwill for its cardiothoracic reporting unit and recorded an impairment charge of $98.3 million in its combined statement of operations for the three months ended March 31, 2002, which it reported as the cumulative effect of change in accounting for goodwill.

GENZYME MOLECULAR ONCOLOGY
A Division of Genzyme Corporation

The following discussion summarizes the key factors management believes are necessary for an understanding of Genzyme Molecular Oncology's financial statements.

CRITICAL ACCOUNTING POLICIES

The critical accounting policies for Genzyme Molecular Oncology are set forth under the heading "Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations—Critical Accounting Policies" in Exhibit 13.4 to our 2001 Form 10-K. Except for Genzyme Molecular Oncology's policy regarding asset impairment, as described below, there have been no changes to these policies since December 31, 2001.

Asset Impairments

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and amends APB No. 30, "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and was adopted by Genzyme Molecular Oncology, as required, on January 1, 2002.

Genzyme Molecular Oncology periodically evaluates long-lived assets for potential impairment under SFAS No. 144. Genzyme Molecular Oncology performs these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•: a significant change in the manner in which an asset is used;
•: a significant decrease in the market value of an asset;
•: a significant adverse change in its business or its industry; and
•: a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

If Genzyme Molecular Oncology believes an indicator of potential impairment exists, it tests to determine whether the impairment recognition criterion in SFAS No. 144 has been met. In evaluating long-lived assets for potential impairment, Genzyme Molecular Oncology makes several significant estimates and judgments, including:

•: determining the appropriate grouping of assets at the lowest level for which cash flows are available;
•: estimating future cash flows associated with the asset or group of assets; and
•: determining an appropriate discount rate to use in the analysis.

Use of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

REVENUES

The components of Genzyme Molecular Oncology's total revenues are described in the following table:

		Three Months Ended June 30,						Six Months Ended June 30,
		Three Months Ended June 30,				Increase/ (Decrease) % Change		Six Months Ended June 30,				Increase/ (Decrease) % Change
		2002		2001		Increase/ (Decrease) % Change		2002		2001		Increase/ (Decrease) % Change
		(Unaudited, amounts in thousands, except percentage data)
Service revenue		$	185	$	—	N/A		$	485	$	—	N/A
Research and development revenue			1,469		703	109	%		2,938		1,406	109	%
Licensing revenue			673		548	23	%		1,326		1,212	9	%
Royalty revenue			19		28	(32	)%		19		73	(74	)%

	Total revenues	$	2,346	$	1,279	83	%	$	4,768	$	2,691	77	%

Service revenue for the six months ended June 30, 2002 includes $0.3 million received under an agreement with a pharmaceutical company related to LongSAGE. This was Genzyme Molecular Oncology's first agreement related to this technology, so no such revenues were recorded for the three and six months ended June 30, 2001.

Research and development revenue for the three months ended June 30, 2002 consists of $0.9 million of revenue for research performed on behalf of Purdue under the cancer antigen discovery agreement that was initiated in October 2000 and $0.6 million of revenue for research performed on behalf of Kirin under a collaboration agreement related to the tumor endothelial marker (TEM) program that was initiated in November 2001. Research and development revenue for the three months ended June 30, 2001 is solely attributable to research performed under the agreement with Purdue. Research and development revenue increased in the six months ended June 30, 2002 as compared to the same period in 2001 due to the addition of work performed under the Kirin collaboration, combined with an increase in resources applied to the Purdue collaboration.

Licensing revenue for the three and six months ended June 30, 2002 consisted primarily of technology access fees Genzyme Molecular Oncology received from Purdue and Kirin resulting from those collaborations. Genzyme Molecular Oncology is amortizing these fees over the course of the associated research programs. For the three months ended June 30, 2002, Genzyme Molecular Oncology recognized $0.4 million of the technology access fee it received from Purdue, consistent with the same period in 2001, and $0.3 million of the fee it received from Kirin in the fourth quarter of 2001. For the six months ended June 30, 2002, Genzyme Molecular Oncology recognized $0.8 million of the technology fee it received from Purdue, consistent with the same period in 2001, and $0.5 million of the fee it received from Kirin. Genzyme Molecular Oncology also recognizes licensing revenue from licenses of rights to the SAGE technology and, prior to the transfer of its non-corein vitro cancer diagnostic assets to Genzyme General in December 2001, licenses associated with these assets. Those licensing revenues decreased $0.1 million in the three months ended June 30, 2002 as compared to the same period of 2001 and $0.4 million in the six months ended June 30, 2002 as compared to the same period of 2001 primarily due to the transfer of the diagnostic assets to Genzyme General. As a result of the asset transfer, Genzyme Molecular Oncology will no longer be receiving license revenue under its diagnostic patent estate.

Royalty revenue consists of royalties received under licenses to the SAGE technology and, through December 2001, under Genzyme Molecular Oncology's diagnostic assets. Because Genzyme Molecular Oncology transferred itsin vitro cancer diagnostic assets to Genzyme General in December 2001, it will not receive royalty revenue generated by those assets in the future.

COST OF REVENUES

		Three Months Ended June 30,						Six Months Ended June 30,
		Three Months Ended June 30,				Increase/ (Decrease) % Change		Six Months Ended June 30,				Increase/ (Decrease) % Change
		2002		2001		Increase/ (Decrease) % Change		2002		2001		Increase/ (Decrease) % Change
		(Unaudited, amounts in thousands, except percentage data)
Cost of services sold		$	168	$	—	N/A		$	287	$	—	N/A
Cost of research and development contracts and licensing revenue			1,167		485	141	%		2,302		1,029	124	%

	Total cost of revenues	$	1,335	$	485	175	%	$	2,589	$	1,029	152	%

Genzyme Molecular Oncology's cost of services sold for the six months ended June 30, 2002 includes $0.1 million of costs associated with the performance of services using the LongSAGE technology on behalf of third parties for which there were no similar amounts in the same period of 2001.

Genzyme Molecular Oncology's cost of research and development contracts and licensing revenue for the three and six months ended June 30, 2002 and 2001 includes:

•: costs associated with work performed under funded research and development agreements, including those with Purdue and, for the three and six months ended June 30, 2002, Kirin; and
•: royalties payable to third parties, most notably The Johns Hopkins University, for technology that Genzyme Molecular Oncology has licensed from them.

Cost of research and development contracts and licensing revenue increased for both the three and six months ended June 30, 2002 as compared to the same periods in 2001 primarily due to the addition of work performed under the Kirin collaboration, combined with an increase in resources applied to the Purdue collaboration.

OPERATING EXPENSES

Selling, General and Administrative Expenses

Genzyme Molecular Oncology's selling, general and administrative expenses increased 17% to $2.1 million for the three months ended June 30, 2002 and increased 13% to $4.2 million for the six months ended June 30, 2002 as compared to the same periods of 2001 as a result of enhanced business development efforts and increased expenses related to information technology, legal, accounting and general management services.

Research and Development Expenses

Genzyme Molecular Oncology's research and development expenses decreased 30% to $5.3 million for the three months ended June 30, 2002 and 20% to $10.6 million for the six months ended June 30, 2002 as compared to the same periods of 2001 primarily due to a planned increase in the amount of research and development funded by collaborators. These collaborator-funded research expenses are included in Genzyme Molecular Oncology's cost of research and development contracts and licensing revenues rather than as a research and development expense. Total research and development expenses, including collaborator-funded expenses, decreased 19% to $6.5 million and 9% to $12.9 million for the three and six months ended June 30, 2002 as compared to the same periods of 2001 primarily due to the timing of certain clinical trial expenses combined with some non-recurring expenses incurred in the patient-specific vaccine program during the second quarter of 2001.

OTHER INCOME AND EXPENSES

Genzyme Molecular Oncology's other income decreased 22% to $0.2 million for the three months ended June 30, 2002 and decreased 45% to $0.4 million for the six months ended June 30, 2002 as compared to the same periods in 2001 primarily due to a decrease in interest income in each period. Interest income declined 18% for the three months ended June 30, 2002 and 41% for the six months ended June 30, 2002 as compared to the same periods of 2001, as a result of a decline in interest rates despite higher average cash balances.

B. LIQUIDITY AND CAPITAL RESOURCES

GENZYME CORPORATION

At June 30, 2002 and December 31, 2001, we had cash, cash equivalents, and short- and long-term investments of $1.1 billion.

Our operating activities generated $63.4 million of cash for the six months ended June 30, 2002. Net cash provided by operating activities was impacted by our net loss of $63.2 million and $43.8 million attributable to the net decrease in working capital, offset by:

•: $64.3 million of depreciation and amortization, of which $28.5 million resulted from the depreciation of property, plant and equipment and $35.7 million resulted from the amortization of intangible assets;
•: $8.0 million attributable to our equity in the net losses of unconsolidated affiliates; and
•: $98.3 million for the cumulative effect of a change in accounting for the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of SFAS No. 142.

Our investing activities used $80.9 million of cash for the six months ended June 30, 2002. Net cash used in investing activities was primarily the result of:

•: $96.2 million in cash used to fund purchases of property, plant and equipment, of which $61.8 million resulted primarily from our manufacturing capacity expansions in the Republic of Ireland, the United Kingdom and Belgium, $9.0 million resulted from our manufacturing capacity expansion in the United States and $25.4 million representing an aggregate of other domestic manufacturing, research and development and administrative capital expenditures; and
•: $14.1 million in cash to fund our investments in unconsolidated affiliates.

Net cash utilized in investing activities was offset by $32.2 million of cash provided from net of purchases, sales and maturity of investments;

As of June 30, 2002, our property, plant and equipment includes approximately $16.0 million of costs related to the development of a manufacturing site adjacent to our existing facilities in Framingham, Massachusetts, which is allocated to Genzyme General. In the fourth quarter of 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. We are considering alternative uses for the site and intend to make a decision in 2002 regarding its future use. We believe that the costs incurred by Genzyme General to-date for the Framingham site will be realized in the future construction at the site.

$250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2% and are due, together with any accrued but unpaid interest, in May 2005. In June 2002, Dyax drew $4.0 million under the note, which we recorded as a note receivable-related party in our unaudited, consolidated balance sheet and the unaudited, combined balance sheet of Genzyme General. Dyax is considered a related party because the chairman and chief executive officer of Dyax is a member of our board of directors. Pursuant to the terms of the note, we are not obligated to make advances in excess of $1.5 million during any subsequent calendar quarter.

Our financing activities provided $58.0 million of cash for the six months ended June 30, 2002. Net cash provided by financing activities was primarily the result of:

•: $21.4 million of proceeds from the issuance of common stock in connection with the exercise of options to purchase shares of common stock under our stock plans; and
•: $35.0 million in proceeds drawn under our credit facility.

We have access to a $350.0 million revolving credit facility, all of which matures in December 2003. During the first quarter of 2002, we drew down $35.0 million under this facility and allocated the borrowings to Genzyme Biosurgery. At June 30, 2002, $269.0 million had been drawn down and remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin. The terms of the revolving credit facility include various covenants, including financial covenants, which require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants and do not anticipate falling out of compliance.

We believe that our available cash, investments and cash flow from operations will be sufficient to fund our planned operations and capital requirements for the foreseeable future. Although we have substantial cash resources and positive cash flow, we intend to use substantial portions of our available cash for:

•: product development and marketing;
•: expanding facilities and staff;
•: working capital; and
•: strategic business initiatives.

Our cash reserves will be further reduced to pay interest on the $575.0 million in principal under our 3% convertible subordinated debentures due May 2021, which may be convertible into shares of Genzyme General Stock. If we use cash to pay or redeem any of this debt, including principal and interest due on it, our cash reserves will be diminished. To satisfy these and other commitments, we may have to obtain additional financing. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on favorable terms.

The disclosure of payments we have committed to make under contractual obligations is set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Liquidity and Capital Resources" in Exhibit 13.1 to our 2001 Form 10-K. Except for our commitments under our revolving credit facility, as described above, and operating leases, as described below, there have been no material changes to our contractual obligations since December 31, 2001.

In May 2002, we entered into an agreement to lease an 85,808 square foot building and related parking area in Westborough, Massachusetts for Genzyme General's genetic testing business. The term

of the lease is ten years with rent payable in advance commencing August 1, 2002. Yearly fixed rent payments during the term of the lease are as follows (amounts in thousands):

August–December 2002	$	261
2003		627
2004		714
2005		930
2006		1,060
Thereafter		7,097

Total	$	10,689

Pursuant to the terms of the net lease agreement, we are obligated to pay, in addition to yearly fixed rent, the taxes, betterment assessments, insurance costs, utility charges, base operating costs and certain other expenses related to the property under lease. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms and a one-time option, exercisable during the first five years of the lease, to purchase the land and building under lease.

To satisfy these and other commitments, we may have to obtain additional financing. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on favorable terms.

New Accounting Pronouncements

In August 2001, the FASB issued SFAS, No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 will be effective for our fiscal year ending December 31, 2003. We are in the process of assessing the effect of adopting SFAS No. 143 on our consolidated and combined financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes EITF Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost as defined in EITF Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. We will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 as required by the standard.

Subsequent Events

In July 2002, we also entered into an agreement to lease 61,101 square feet of additional office space in Cambridge, Massachusetts for Genzyme Biosurgery. The term of the lease is seven years with rent payable in advance commencing the earlier of October 1, 2002 or the date we occupy the premises to conduct business, as defined in the lease agreement. Yearly fixed rent payments during the term of the lease are as follows (amounts in thousands):

October–December 2002	$	519
2003		2,075
2004		2,090
2005		2,151
2006		2,197
Thereafter		6,043

Total	$	15,075

Pursuant to the terms of the lease agreement, we are obligated to pay, in addition to yearly fixed rent, our pro rata share of the landlord's operating costs and the real estate taxes for the property. In addition, the landlord will charge us for direct use of electricity at cost. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms and three options to lease a total of 45,577 square feet of additional space at the property. In addition, the lease provides us with first offer options as to additional space that becomes available in the building.

GENZYME GENERAL
A Division of Genzyme Corporation

At June 30, 2002, Genzyme General had cash, cash equivalents, and short- and long-term investments of $1.1 billion, an increase of $38.8 million from December 31, 2001.

Genzyme General's operating activities generated $97.4 million of cash for the six months ended June 30, 2002. Net cash provided by operating activities was primarily the result of Genzyme General's net income of $68.7 million and:

•: $45.2 million in cash provided from depreciation and amortization, of which $25.1 million resulted from the depreciation of property, plant and equipment and $20.0 million resulted from the amortization of intangible assets; and
•: $8.0 million in cash provided from the equity in net losses of unconsolidated affiliates.

Genzyme General's operating activities were impacted by a $24.1 million net decrease in working capital.

Genzyme General's investing activities utilized $59.1 million of cash for the six months ended June 30, 2002. Net cash utilized in investing activities consisted primarily of:

•: $94.3 million of cash used to fund purchases of plant, property and equipment, of which, $61.8 million resulted primarily from our manufacturing capacity expansions in the Republic of Ireland, the United Kingdom and Belgium, $9.0 million resulted from our manufacturing capacity expansion in the United States and $23.5 million representing an aggregate of other domestic manufacturing, research and development and administrative capital expenditures; and
•: $14.1 million of cash to fund Genzyme General's investments in unconsolidated affiliates.

Net cash utilized in investing activities was offset by $52.1 million of cash provided from Genzyme General's net of purchases, sales and maturity of investments.

As of June 30, 2002, Genzyme General's property, plant and equipment includes approximately $16.0 million of costs related to the development of a manufacturing site adjacent to our existing facilities in Framingham, Massachusetts, which is allocated to Genzyme General. In the fourth quarter of 2001, Genzyme General suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. We are considering alternative uses for the site and intend to make a decision in 2002 regarding its future use. We believe that the costs incurred by Genzyme General to-date for the Framingham site will be realized in the future construction at the site.

In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88 and increased the line of credit we extended to Dyax from $3.0 million to $7.0 million. In connection with the increase, Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2% and are due, together with any accrued but unpaid interest, in May 2005. In June 2002, Dyax drew $4.0 million under the note, which we recorded as a note receivable-related party in our unaudited, consolidated balance sheet and the unaudited, combined balance sheet of Genzyme General. Dyax is considered a related party because the chairman and chief executive officer of Dyax is a member of our board of directors. Pursuant to the terms of the note, we are not obligated to make advances in excess of $1.5 million during any subsequent calendar quarter.

100

Genzyme General's financing activities provided $47.8 million of cash for the six months ended June 30, 2002 primarily the result of:

•: $27.1 million in cash refunded from Genzyme Biosurgery representing $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum; and
•: $20.8 million of allocated proceeds from the issuance of Genzyme General Stock in connection with the exercise of options to purchase shares of Genzyme General Stock under our stock plans.

Genzyme General, together with our other operating divisions, has access to a $350.0 million revolving credit facility, all of which matures in December 2003. At June 30, 2002, $269.0 million had been drawn down and remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin.

Our board of directors has made $25.0 million of Genzyme General's cash available to Genzyme Biosurgery. Under this arrangement, Genzyme Biosurgery is able to draw down funds as needed in exchange for Biosurgery designated shares based on the fair market value (as defined in our charter) of Biosurgery Stock at the time of the draw. At June 30, 2002, $3.0 million remained available to Genzyme Biosurgery under this arrangement. Our board of directors has made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed in exchange for Molecular Oncology designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. At June 30, 2002, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

We believe that Genzyme General's available cash, investments and cash flow from operations will be sufficient to fund its planned operations and capital requirements for the foreseeable future. Although Genzyme General currently has substantial cash resources and positive cash flow, it intends to use substantial portions of its available cash for:

•: product development and marketing;
•: expanding facilities and staff;
•: working capital; and
•: strategic business initiatives.

Genzyme General's cash reserves will be further reduced to pay interest on the $575.0 million in principal under our 3% convertible subordinated debentures due May 2021, which may be convertible into shares of Genzyme General Stock. If Genzyme General uses cash to pay or redeem any of this debt, including principal and interest due on it, its cash reserves will be diminished. In addition, Genzyme General's cash resources will be reduced to the extent that we are required to use cash allocated to Genzyme General to settle the liabilities of Genzyme Biosurgery or Genzyme Molecular Oncology.

The disclosure of payments we have committed to make under contractual obligations using cash allocated to Genzyme General is set forth under the heading "Management's Discussion and Analysis of Genzyme General's Financial Condition and Results of Operations—Liquidity and Capital Resources" in Exhibit 13.2 to our 2001 Form 10-K. Except for our commitments under operating leases allocated to Genzyme General, as described below, there have been no material changes to the contractual obligations allocated to Genzyme General since December 31, 2001.

101

In May 2002, we entered into an agreement to lease an 85,808 square foot building and related parking area in Westborough, Massachusetts for Genzyme General's genetic testing business. The term of the lease is ten years with rent payable in advance commencing August 1, 2002. Yearly fixed rent payments during the term of the lease are as follows (amounts in thousands):

August–December 2002	$	261
2003		627
2004		714
2005		930
2006		1,060
Thereafter		7,097

Total	$	10,689

To satisfy these and other commitments, we may have to obtain additional financing for Genzyme General. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on favorable terms.

Subsequent Event

102

GENZYME BIOSURGERY

At June 30, 2002, Genzyme Biosurgery had cash and cash equivalents of $27.2 million, a decrease of approximately $11.5 million from December 31, 2001.

Genzyme Biosurgery's operating activities used $18.0 million in cash in the first half of 2002. Operating activities were impacted by Genzyme Biosurgery's division net loss of $136.2 million, offset by:

•: $19.1 million of depreciation and amortization, of which $3.4 million resulted from the depreciation of property, plant and equipment and $15.7 million resulted from the amortization of intangible assets, including intangible assets acquired in connection with our acquisitions of Biomatrix and Focal;
•: $98.3 million for the cumulative effect of a change in accounting for the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of SFAS No. 142; and
•: $0.6 million of cash provided from net changes in working capital.

Genzyme Biosurgery's investing activities used $1.9 million of cash for the six months ended June 30, 2002 primarily to fund capital expenditures.

Genzyme Biosurgery's financing activities provided $10.1 million of net cash for the six months ended June 30, 2002. Net cash provided by financing activities was primarily a result of the $35.0 million draw under the revolving credit facility allocated to Genzyme Biosurgery. This was partially offset by a $27.1 million payment to Genzyme General, representing a refund of $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum.

Genzyme Biosurgery, together with our other operating divisions, has access to a $350.0 million revolving credit facility, all of which matures in December 2003. During the first quarter of 2002, we drew down $35.0 million under this facility and allocated the borrowings to Genzyme Biosurgery. At June 30, 2002, $269.0 million had been drawn down and remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin.

We anticipate that Genzyme Biosurgery's cash resources, together with amounts available from the following sources, will be sufficient to finance its planned operations and capital requirements through the fourth quarter of 2003:

•: revenues generated from its products and distribution agreements;
•: the $3.0 million remaining under the interdivisional financing arrangement with Genzyme General; and
•: amounts available to Genzyme Biosurgery under our revolving credit facility.

Genzyme Biosurgery intends to use substantial portions of its available cash for:

•: research and development;

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•: product development and marketing, including for Synvisc viscosupplementation product;
•: improving manufacturing efficiency;
•: enforcing patent and other intellectual property rights;
•: transactional activity related to acquiring and disposing of assets;
•: consolidating facilities and related relocation activities; and
•: working capital.

Genzyme Biosurgery's cash needs may differ from those planned as a result of many factors, including the:

•: results of research and development efforts;
•: ability to establish and maintain strategic alliances;
•: ability to enter into and maintain licensing arrangements and additional distribution arrangements;
•: ability to share costs of product development with research and marketing partners;
•: costs involved in enforcing patent claims and other intellectual property rights;
•: costs involved in defending or settling post-closing retained liabilities in connection with our sale of the Snowden-Pencer line of surgical instruments;
•: market acceptance of novel approaches and therapies;
•: success of its initiatives to reduce expenses and streamline its operations;
•: development of competitive products; and
•: ability to satisfy regulatory requirements of the FDA and other governmental authorities.

The disclosure of payments we have committed to make under contractual obligations using cash allocated to Genzyme Biosurgery is set forth under the heading "Management's Discussion and Analysis of Genzyme Biosurgery's Financial Condition and Results of Operations—Liquidity and Capital Resources" in Exhibit 13.3 to our 2001 Form 10-K. Except for the $27.1 million refund paid by Genzyme Biosurgery to Genzyme General in February 2002 and commitments under our revolving credit facility that are allocated to Genzyme Biosurgery, as described above, and commitments under operating leases allocated to Genzyme Biosurgery, as described below, there have been no material changes to the contractual obligations allocated to Genzyme Biosurgery since December 31, 2001.

Genzyme Biosurgery will require significant additional financing to continue operations at anticipated levels. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on terms that we consider favorable. If Genzyme Biosurgery has insufficient funds or is unable to raise additional funds, it may delay, scale back or eliminate certain of its programs. Genzyme Biosurgery may also have to give third parties rights to commercialize technologies or products that it would otherwise have sought to commercialize itself.

Subsequent Event

In July 2002, we entered into an agreement to lease 61,101 square feet of additional office space in Cambridge, Massachusetts for Genzyme Biosurgery. The term of the lease is seven years with rent payable in advance commencing the earlier of October 1, 2002 or the date we occupy the premises to

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conduct business, as defined in the lease agreement. Yearly fixed rent payments during the term of the lease are as follows (amounts in thousands):

October–December 2002	$	519
2003		2,075
2004		2,090
2005		2,151
2006		2,197
Thereafter		6,043

Total	$	15,075

Pursuant to the terms of the lease agreement, we are obligated to pay, in addition to yearly fixed rent, our pro rata share of the landlord's operating costs and the real estate taxes for the property. In addition, the landlord will charge us for direct use of electricity at cost. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms and three options to lease a total of 45,577 square feet of additional space at the property. In addition, the lease provides us with first offer options on additional space that becomes available in the building.

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GENZYME MOLECULAR ONCOLOGY
A Division of Genzyme Corporation

At June 30, 2002, Genzyme Molecular Oncology had cash, cash equivalents, short- and long-term investments of $25.5 million, a decrease of $15.7 million from cash and cash equivalents of $41.1 million at December 31, 2001.

Genzyme Molecular Oncology's operating activities used $16.0 million of cash for the six months ended June 30, 2002. Operating activities were impacted by Genzyme Molecular Oncology's division net loss of $12.3 million for the six months ended June 30, 2002 and $3.7 million attributable to the net decrease in working capital.

Genzyme Molecular Oncology's investing activities used $19.9 million of cash for the six months ended June 30, 2002 for the net purchases and sales of investments.

Genzyme Molecular Oncology's financing activities provided $0.2 million of allocated proceeds from the issuance of Molecular Oncology Stock in connection with the exercise of options to purchase shares of Molecular Oncology Stock under our stock plans.

Genzyme Molecular Oncology, together with our other operating divisions, has access to our $350.0 million revolving credit facility that matures in December 2003. As of June 30, 2002, $81.0 million remained available for borrowing under this facility. Borrowings under this facility bear interest at LIBOR plus an applicable margin.

Our board of directors has made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed in exchange for Molecular Oncology designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. At June 30, 2002, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

We anticipate that Genzyme Molecular Oncology's current cash resources, together with amounts available from the following sources, will be sufficient to fund its operations through the third quarter of 2004:

•: committed research funding from collaborators;
•: the $11.0 million remaining under the interdivisional financing arrangement with Genzyme General; and
•: amounts available to Genzyme Molecular Oncology under our revolving credit facility.

Genzyme Molecular Oncology plans to spend substantial amounts of funds on, among other things:

•: research and development;
•: preclinical and clinical testing;
•: pursuing regulatory approvals; and
•: working capital.

Genzyme Molecular Oncology's cash needs may differ from those planned as a result of many factors, including the:

•: results of research and development and clinical testing;
•: achievement of milestones under existing licensing arrangements;
•: ability to establish and maintain additional strategic collaborations and licensing arrangements;
•: costs involved in enforcing patent claims and other intellectual property rights;

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•: market acceptance of novel approaches and therapies;
•: development of competing products and services; and
•: ability to satisfy regulatory requirements of the FDA and other government authorities.

The disclosure of payments we have committed to make under contractual obligations using cash allocated to Genzyme Molecular Oncology is set forth under the heading "Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations—Liquidity and Capital Resources" in Exhibit 13.4 to our 2001 Form 10-K. There have been no material changes to the contractual obligations allocated to Genzyme Molecular Oncology since December 31, 2001.

Genzyme Molecular Oncology may require significant additional financing to continue operations at anticipated levels. We cannot guarantee that Genzyme Molecular Oncology will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on terms that we consider favorable. If Genzyme Molecular Oncology has insufficient funds or is unable to raise additional funds, it may delay, reduce or eliminate certain of its programs. Genzyme Molecular Oncology may also have to sell or give to third parties rights to commercialize technologies or products that it would otherwise have sought to commercialize itself.

ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK

We are exposed to potential loss from financial market risks that may occur as a result of changes in interest rates, equity prices and foreign exchange rates. Our exposure to these risks has not materially changed since December 31, 2001.

We incorporate by reference our disclosure related to market risk which is set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Market Risk," "—Interest Rate Risk," "—Foreign Exchange Risk;" and "—Equity Price Risk" in Exhibit 13.1 to our 2001 Form 10-K.

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PART II. OTHER INFORMATION

ITEM 4. Submission of Matters to a Vote of Security Holders

I.: We held our annual meeting of stockholders on May 30, 2002. All proposals required a favorable vote of the majority of votes cast at the meeting for approval. Abstentions and broker non-votes do not count for or against a matter determined by a majority of votes cast. The following represents the results of the voting on proposals submitted to the stockholders at the annual meeting for a vote:
a.: Proposal to elect three directors for a term of office expiring in 2005:

		Number of Votes
Nominee		Number of Votes
Nominee		For	Withheld
Constantine E. Anagnostopulos
	Genzyme General Stock	179,209,463	2,552,684
	Biosurgery Stock*	8,206,976	293,481
	Molecular Oncology Stock*	4,010,799	50,637

	Total	191,427,238	2,896,802

		Number of Votes
Nominee		Number of Votes
Nominee		For	Withheld
Robert J. Carpenter
	Genzyme General Stock	163,675,556	18,086,591
	Biosurgery Stock*	7,247,970	1,252,488
	Molecular Oncology Stock*	3,863,941	197,494

	Total	174,787,467	19,536,573

		Number of Votes
Nominee		Number of Votes
Nominee		For	Withheld
Charles L. Cooney
	Genzyme General Stock	178,873,038	2,889,109
	Biosurgery Stock*	8,180,316	320,142
	Molecular Oncology Stock*	4,011,026	50,410

	Total	191,064,380	3,259,661

Each nominee received a majority of the votes cast, and therefore have been duly elected as a director of Genzyme. The terms of office for Henri A. Termeer, Douglas A. Berthiaume, Henry E. Blair, Victor J. Dzau and Connie Mack III as directors of Genzyme continued after the annual meeting.

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b.: Proposal to amend our 1999 Employee Stock Purchase Plan to increase the number of shares of Genzyme General Stock authorized for issuance under the plan by 300,000 shares.

	Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
Genzyme General Stock	172,725,791	8,232,545	803,810	N/A
Biosurgery Stock*	8,101,724	378,527	20,205	N/A
Molecular Oncology Stock*	3,786,998	264,145	10,291	N/A

Total	184,614,513	8,875,217	834,306	N/A

The proposal received a majority of the votes cast, and therefore has been adopted.

c.: Proposal to amend our 1999 Employee Stock Purchase Plan to increase the number of shares of Biosurgery Stock authorized for issuance under the plan by 400,000 shares.

	Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
Genzyme General Stock	172,658,332	8,294,378	809,435	N/A
Biosurgery Stock*	8,091,156	389,850	19,451	N/A
Molecular Oncology Stock*	3,782,947	267,335	11,153	N/A

Total	184,532,435	8,951,563	840,039	N/A

The proposal received a majority of the votes cast, and therefore has been adopted.

d.: Proposal to amend our 1999 Employee Stock Purchase Plan to increase the number of shares of Molecular Oncology Stock authorized for issuance under the plan by 150,000 shares.

	Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
Genzyme General Stock	136,297,055	8,298,495	827,001	N/A
Biosurgery Stock*	4,806,592	385,762	21,994	N/A
Molecular Oncology Stock*	1,536,127	269,052	9,590	N/A

Total	142,639,774	8,953,309	858,585	N/A

The proposal received a majority of the votes cast, and therefore has been adopted.

e.: Proposal to amend our 2001 Equity Incentive Plan to increase the number of shares of Genzyme General Stock authorized for issuance under the plan by 5,000,000 shares.

	Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
Genzyme General Stock	147,184,461	33,720,390	857,295	N/A
Biosurgery Stock*	7,523,131	951,825	25,499	N/A
Molecular Oncology Stock*	3,682,833	339,211	39,391	N/A

Total	158,390,425	35,011,426	922,185	N/A

The proposal received a majority of the votes cast, and therefore has been adopted.

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f.: Proposal to amend our 2001 Equity Incentive Plan to increase the number of shares of Biosurgery Stock authorized for issuance under the plan by 1,000,000 shares.

	Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
Genzyme General Stock	145,097,823	35,812,269	852,054	N/A
Biosurgery Stock*	7,504,864	973,498	22,095	N/A
Molecular Oncology Stock*	3,673,149	349,001	39,285	N/A

Total	156,275,836	37,134,768	913,434	N/A

The proposal received a majority of the votes cast, and therefore has been adopted.

g.: Proposal to amend our 2001 Equity Incentive Plan to increase the number of shares of Molecular Oncology Stock authorized for issuance under the plan by 1,000,000 shares.

	Number of Votes for	Number of Votes Against	Number of Votes Abstaining	Number of Broker Non-Votes
Genzyme General Stock	109,023,890	35,528,417	870,246	N/A
Biosurgery Stock*	4,246,564	943,064	24,720	N/A
Molecular Oncology Stock*	1,441,391	334,613	38,766	N/A

Total	114,711,845	36,806,094	933,732	N/A

The proposal received a majority of the votes cast, and therefore has been adopted.

*: Represents the actual number of shares of Biosurgery Stock and Molecular Oncology Stock voted multiplied by 0.28.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a): Exhibits

See the Exhibit Index immediately following the signature page to this report on Form 10-Q.

(b): Reports on Form 8-K

None.

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GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		GENZYME CORPORATION
DATE: August 14, 2002		By:		/s/ MICHAEL S. WYZGA Michael S. Wyzga Senior Vice President, Finance, Chief Financial Officer, and Chief Accounting Officer

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GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 2002

EXHIBIT INDEX

Exhibit No.		Description
*3.1		Restated Articles of Organization of Genzyme, as amended. Filed as Exhibit 3 to Genzyme's Form 8-K filed on June 6, 2001.
*3.2		By-laws of Genzyme, as amended. Filed as Exhibit 3.2 to Genzyme's Form 10-Q for the quarter ended September 30, 1999.
10.1		Lease dated as of May 9, 2002 for 3400 Computer Drive, Westborough, Massachusetts, between EMC Corporation and Genzyme. Filed herewith.
10.2		Form of Severance Agreement between Genzyme and the executive officers listed on the schedule attached thereto. Filed herewith.
10.3		Amended and Restated Collaboration Agreement, dated May 31, 2002, between Genzyme and Dyax Corporation. Filed herewith.
99.1		Written Statement of Chief Executive Officer, dated August 14, 2002. Filed herewith.
99.2		Written Statement of Chief Financial Officer, dated August 14, 2002. Filed herewith.

*: Indicates an exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference. Exhibits filed with Forms 8-K and 10-Q of Genzyme Corporation were filed under Commission File No. 0-14680.

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