EXHIBIT 13.4

FINANCIAL STATEMENTS

PAGE NO.
--------

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

Combined Selected Financial Data.......................... GSP-2

Management's Discussion and Analysis of Genzyme Surgical
Products' Financial Condition and Results of
Operations.............................................. GSP-5

Combined Statements of Operations--For the Years Ended
December 31, 1999, 1998
and 1997................................................ GSP-16

Combined Balance Sheets--December 31, 1999 and 1998....... GSP-17

Combined Statements of Cash Flows--For the Years Ended
December 31, 1999, 1998
and 1997................................................ GSP-18

Notes to Combined Financial Statements.................... GSP-19

Report of Independent Accountants......................... GSP-34

GSP-1

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

COMBINED SELECTED FINANCIAL DATA

Genzyme Surgical Products is our operating division that develops,
manufactures and markets surgical products for cardiovascular surgery and
general surgery.

A series of our common stock, Genzyme Surgical Products Division Common
Stock (which we refer to as "Surgical Products Stock") is designed to reflect
the value and track the performance of this division. Surgical Products Stock is
common stock of Genzyme Corporation, not of Genzyme Surgical Products; Genzyme
Surgical Products is a division, not a company or legal entity, and therefore
does not and cannot issue stock. The chief mechanisms intended to cause Surgical
Products Stock to "track" the financial performance of Genzyme Surgical Products
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
Genzyme Surgical Products into the determination of the amount available
to pay dividends on Surgical Products Stock; and

To determine earnings per share, we allocate Genzyme's earnings to each
series of our common stock based on the earnings attributable to that series of
stock. The earnings attributable to Surgical Products Stock is defined in our
charter as the net income or loss of Genzyme Surgical Products determined in
accordance with generally accepted accounting principles and as adjusted for tax
benefits allocated to or from Genzyme Surgical Products in accordance with our
management and accounting policies. Our charter also requires that all income
and expenses of Genzyme be allocated among the divisions in a reasonable and
consistent manner. Our board of directors, however, retains considerable
discretion in determining the types, magnitudes and extent of allocations to
each series of common stock without shareholder approval.

Because the earnings allocated to Surgical Products Stock are based on the
income or losses attributable to Genzyme Surgical Products, we include financial
statements and management's discussion and analysis of Genzyme Surgical Products
to aid investors in evaluating its performance.

The following combined selected financial data reflect the results of
operations and financial position of the operations and assets we have allocated
to Genzyme Surgical Products and should be read in conjunction with the
financial statements of Genzyme Surgical Products and accompanying notes.

We established Genzyme Surgical Products as a division in June 1999. The
business of Genzyme Surgical Products had previously been accounted for as a
business unit of Genzyme General. The products and assets allocated to Genzyme
Surgical Products are those we acquired upon the purchase of Deknatel Snowden
Pencer, Inc. in 1996, the Sepra products (our line of products and product
candidates designed to limit post-operative adhesions), and our research and
development programs in biomaterials and gene and cell therapy for
cardiovascular disease. Genzyme General transferred $150.0 million in cash, cash
equivalents and investments, and certain other assets, to Genzyme Surgical
Products in connection with the creation of Genzyme Surgical Products as a
separate division of Genzyme. In exchange for this transfer, we issued
approximately 14.8 million shares of Surgical Products Stock and distributed
them as a dividend to holders of Genzyme General Stock. These financial
statements reflect the financial position, results of operations and cash flows
attributable to Genzyme Surgical Products as if it had been accounted for as a
separate division of the corporation for all periods presented.

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GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

COMBINED SELECTED FINANCIAL DATA

COMBINED STATEMENTS OF OPERATIONS DATA

FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
(AMOUNTS IN THOUSANDS)

Net product sales(1).................... $ 111,981 $ 103,958 $ 100,835 $ 50,714 $ 8
Operating costs and expenses:
Cost of products sold(2).............. 67,242 72,274 59,802 32,654 733
Selling, general and administrative... 63,237 57,297 54,061 28,399 2,576
Research and development.............. 28,056 18,618 11,287 7,693 5,971
Amortization of intangibles........... 5,750 5,748 5,647 2,984 --
Purchase of in-process research and
development(3)...................... -- -- -- 24,170 --
--------- --------- --------- --------- --------
Total operating costs and
expenses.......................... 164,285 153,937 130,797 95,900 9,280
--------- --------- --------- --------- --------
Operating loss.......................... (52,304) (49,979) (29,962) (45,186) (9,272)
Other income (expenses):
Equity in net income (loss) of
unconsolidated affiliates........... (35) (6) (78) 2 (1)
Other................................. 138 60 236 8 --
Investment income..................... 4,199 144 98 84 --
Interest expense...................... (35) (75) (34) (58) --
--------- --------- --------- --------- --------
Total other income (expenses)....... 4,267 123 222 36 (1)
--------- --------- --------- --------- --------
Loss before income taxes................ (48,037) (49,856) (29,740) (45,150) (9,273)
Tax benefit............................. -- -- -- 837 --
--------- --------- --------- --------- --------
Division net loss....................... $ (48,037) $ (49,856) $ (29,740) $ (44,313) $ (9,273)
========= ========= ========= ========= ========

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GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

COMBINED SELECTED FINANCIAL DATA

COMBINED BALANCE SHEET DATA

DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)

Cash and investments(4)....................... $126,125 $ -- $ 975 $ 2,182 $ --
Working capital(4)............................ 98,465 32,714 34,279 40,556 118
Total assets(4)............................... 370,924 234,216 242,566 253,609 175
Division equity(4)............................ 353,918 227,088 234,969 239,040 175

- ------------------------

(1) On July 1, 1996, we acquired Deknatel Snowden Pencer, Inc., or "DSP".

(2) Cost of products sold for 1998 includes a $10.4 million charge to write-down
our Sepra products inventory to net realizable value.

(3) In 1996, we recorded a $24.2 million charge for the purchase of in-process
research and development in connection with its acquisition of DSP.

(4) We created Genzyme Surgical Products as a separate division of Genzyme on
June 28, 1999. Prior to this date, the operations of Genzyme Surgical
Products were included in the allocated results of Genzyme General. On
June 28, 1999, Genzyme General transferred $150.0 million in cash, cash
equivalents, investments and certain other assets to Genzyme Surgical
Products in connection with the creation of Genzyme Surgical Products as a
separate division of Genzyme. In exchange for this transfer, we issued
approximately 14.8 million shares of Surgical Products Stock.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME SURGICAL PRODUCTS'
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

This discussion contains forward-looking statements. These forward-looking
statements represent the expectations of our management as of the filing date of
this annual report. Actual results could differ materially from those
anticipated by the forward-looking statements due to the risks and uncertainties
described under the caption "Factors Affecting Future Operating Results" for
Genzyme Surgical Products and Genzyme Corporation included in this annual
report. You should consider carefully each of these risks and uncertainties in
evaluating the financial condition and results of operations of Genzyme Surgical
Products and Genzyme.

We established Genzyme Surgical Products as a separate division of Genzyme
in June 1999. The business of Genzyme Surgical Products had previously been
accounted for as a business unit of Genzyme General. The products and assets
allocated to Genzyme Surgical Products are those we acquired upon the purchase
of Deknatel Snowden Pencer, Inc. in 1996, the Sepra products (our line of
products and product candidates designed to limit post-operative adhesions), and
our research and development programs in biomaterials and gene and cell therapy
for cardiovascular disease. Genzyme General transferred $150.0 million in cash,
cash equivalents, investments, and certain other assets, to Genzyme Surgical
Products in connection with the creation of Genzyme Surgical Products as a
separate division of Genzyme. In exchange for this transfer, we issued
approximately 14.8 million shares of Surgical Products Stock and distributed
them as a dividend to holders of Genzyme General Stock. These financial
statements reflect the financial position, results of operations and cash flows
attributable to Genzyme Surgical Products as if it had been accounted for as a
separate division of the corporation for all periods presented.

We prepare the financial statements of Genzyme Surgical Products in
accordance with generally accepted accounting principles. We present financial
information and accounting policies specific to Genzyme Surgical Products in the
accompanying combined financial statements. We present financial information and
accounting policies relevant to the corporation and its operating divisions
taken as a whole in our consolidated financial statements. You should read the
consolidated financial statements in conjunction with the financial statements
of Genzyme Surgical Products. Note A., "Summary of Significant Accounting
Policies," to our consolidated financial statements contains our accounting
policies.

Genzyme Surgical Products Common Stock, which we refer to as "Surgical
Products Stock," is a series of our common stock that is designed to reflect the
value and track the performance of Genzyme Surgical Products. The chief
mechanisms intended to cause Surgical Products Stock to "track" the financial
performance of Genzyme Surgical Products 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
Genzyme Surgical Products into the determination of the amount available
to pay dividends on Surgical Products Stock; and

- requires us to exchange, redeem or distribute a dividend to the holders of
Surgical Products Stock if all or substantially all of the assets
allocated to Genzyme Surgical Products are sold to a third party (a
dividend or redemption payment must equal in value the net after-tax
proceeds from the sale; an exchange must be for Genzyme General Stock at a
10% premium to the exchanged stock's average market price following the
announcement of the sale).

GSP-5

also requires that all income and expenses of Genzyme be allocated among the
divisions in a reasonable and consistent manner. However, subject to its
fiduciary duties, our board of directors can, at its discretion, change the
methods of allocating earnings to each series of common stock. We intend to
allocate earnings using our current methods for the foreseeable future.

While Surgical Products Stock is designed to reflect Genzyme Surgical
Products' performance, it is common stock of Genzyme Corporation and not Genzyme
Surgical Products; Genzyme Surgical Products is a division, not a company or
legal entity, and therefore does not and cannot issue stock. Consequently,
holders of Genzyme Surgical Products Stock have no specific rights to assets
allocated to Genzyme Surgical Products. Genzyme Corporation continues to hold
title to all of the assets allocated to Genzyme Surgical Products and is
responsible for all of its liabilities, regardless of what we deem for financial
statement presentation purposes as allocated to any division. Holders of
Surgical Products 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 Surgical Products Stock and other tracking stockholders would
only have the rights of common stockholders in the combined assets of Genzyme.

Our charter sets forth what programs and businesses are initially allocated
to Genzyme Surgical Products and states that going forward the division will
also include all businesses, products or programs, developed by or acquired for
the division, as determined by our board of directors. We then manage and
account for transactions between Genzyme Surgical Products and our other
divisions and with third parties, and any resulting re-allocations of assets and
liabilities, by applying consistently across divisions a detailed set of
policies established by our board of directors. We publicly disclose our
divisional management and accounting policies, which appear in Exhibit 99.1 to
this Annual Report on Form 10-K. Our charter requires that all assets and
liabilities of Genzyme be allocated among the divisions. Our board of directors,
however, retains considerable discretion in determining the types, magnitudes
and extent of allocations to each series of common stock without shareholder
approval.

We present earnings per share data for Surgical Products Stock in our
consolidated financial statements. We present financial information and
accounting policies specific to Genzyme Surgical Products in the accompanying
combined financial statements. We present financial information and accounting
policies relevant to the corporation and its operating divisions taken as a
whole in our consolidated financial statements. You should, therefore, read this
discussion and analysis of Genzyme Surgical Products' financial position and
results of operations in conjunction with the financial statements and related
notes of Genzyme Surgical Products, the discussion and analysis of Genzyme's
financial position and results of operations, and the consolidated financial
statements and related notes of Genzyme, all of which are included in this
annual report.

In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
completion of the acquisition, we will form a new operating division, and the
assets and liabilities allocated to Genzyme Surgical Products and Genzyme Tissue
Repair will be re-allocated to that new division. For more information you
should read the section entitled "Subsequent Event" below.

RESULTS OF OPERATIONS

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

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The components of Genzyme Surgical Products' combined statements of
operations are described in the following table:

99/98 98/97
INCREASE/(DECREASE) INCREASE/(DECREASE)
1999 1998 1997 % CHANGE % CHANGE
--------- --------- --------- ------------------- -------------------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Total revenues............ $ 111,981 $ 103,958 $ 100,835 8% 3%
Cost of products sold..... 67,242 72,274 59,802 (7)% 21%
Selling, general and
administrative.......... 63,237 57,297 54,061 10% 6%
Research and
development............. 28,056 18,618 11,287 51% 65%
Amortization of
intangibles............. 5,750 5,748 5,647 0% 2%
--------- --------- ---------
Total operating costs
and expenses........ 164,285 153,937 130,797 7% 18%
--------- --------- ---------
Operating loss............ (52,304) (49,979) (29,962) 5% 67%
Other income (expenses),
net..................... 4,267 123 222 3,369% (45)%
--------- --------- ---------
Division net loss......... $ (48,037) $ (49,856) $ (29,740) (4)% 68%
========= ========= =========

REVENUES

99/98 98/97
INCREASE/(DECREASE) INCREASE/(DECREASE)
1999 1998 1997 % CHANGE % CHANGE
-------- -------- -------- ------------------- -------------------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Cardiovascular surgery
products................ $ 77,966 $ 74,545 $ 79,560 5% (6)%
General surgery
products................ 25,192 20,249 14,813 24% 37%
Other products............ 8,823 9,164 6,462 (4)% 42%
-------- -------- --------
Total revenues...... $111,981 $103,958 $100,835 8 % 3 %
======== ======== ========

1999 AS COMPARED TO 1998

Cardiovascular surgery products include chest drainage and fluid management
systems, surgical closures, biomaterials, and instruments for conventional and
minimally invasive cardiac surgery. The increase in cardiovascular surgery
product revenues in 1999 was primarily attributable to increased sales of
instruments for minimally invasive cardiac surgery.

The increase in general surgery product revenues was due primarily to the
increase in sales of Sepra Film-Registered Trademark- bioresorbable membrane.
Sales of Sepra Film-Registered Trademark- bioresorbable membrane in 1999 were
$13.4 million compared to $9.3 million in 1998.

Other surgery product revenues consisted of sales of Genzyme Surgical
Products' Snowden-Pencer-Registered Trademark-line of instruments for plastic
surgery and products sold to original equipment manufacturers, including
sutures.

International sales as a percentage of total sales in 1999 were 30% as
compared to 29% in 1998.

GSP-7

1998 AS COMPARED TO 1997

Cardiovascular surgery product revenues decreased as a result of a decrease
in sales of fluid management products, which were $39.8 million in 1998 compared
to $42.3 million in 1997. The decrease in fluid management product sales was due
to the termination of a group-purchasing contract in 1997, the impact of which
was realized in 1998.

The increase in general surgery product revenues in 1998 is primarily due to
increased product sales of Sepra Film-Registered Trademark- bioresorbable
membrane. These product sales increased 88% to $9.3 million in 1998 compared to
$4.9 million in 1997, primarily as a result of increased market acceptance.

International sales as a percentage of total sales in 1998 were 29% compared
to 28% in 1997.

MARGINS

99/98 98/97
INCREASE/(DECREASE) INCREASE/(DECREASE)
1999 1998 1997 % CHANGE % CHANGE
-------- -------- -------- ------------------- -------------------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Gross margins.................... $44,739 $31,684 $41,033 41% (23%)
% of total revenues.......... 40% 30% 41%

1999 AS COMPARED TO 1998

Genzyme Surgical Products sells a broad range of products. As a result,
Genzyme Surgical Products' gross margins may vary significantly depending on the
particular market conditions of each product line.

During the third quarter of 1998, Genzyme Surgical Products revised its
forecasted sales of Sepra products and, in accordance with our policy, analyzed
the Sepra products inventory to determine whether the carrying value exceeded
the net realizable value. The revised forecast showed slower sales growth as
well as higher manufacturing and sales and marketing costs than originally
expected. In addition, the Sepra products inventory on-hand had a relatively
high cost per unit because production was significantly less than originally
planned. As a result, in the third quarter of 1998, Genzyme Surgical Products
recorded a $10.4 million charge to cost of products sold to write down its Sepra
products inventory to net realizable value. Without the effect of this charge,
Genzyme Surgical Products' gross margin for 1998 would have been 40%.

1998 AS COMPARED TO 1997

In 1997, Genzyme Surgical Products recorded charges of $5.5 million to cost
of products sold and $1.9 million to selling, general and administrative expense
relating to the manufacture and sale of Sepracoat-TM- coating solution. Genzyme
Surgical Products took these charges after an FDA advisory panel recommended
against granting market approval of this product in 1997. This product is sold
outside of the United States.

Excluding this charge and the charge described above, gross margins for 1998
were 40% compared to 46% in 1997. The decrease in gross margins, excluding the
other charges described below, was primarily due to lower average selling prices
of fluid management products in 1998 and increased sales in 1998 of lower margin
products such as Sepra Film-Registered Trademark- bioresorbable membrane.

GSP-8

SG&A AND R&D EXPENSES

1999 AS COMPARED TO 1998

Genzyme Surgical Products' selling, general and administrative expense
increased in 1999 as a result of higher fringe benefit expenses and costs
associated with the creation of Genzyme Surgical Products as a separate division
of Genzyme.

Genzyme Surgical Products' research and development expense for 1998
includes a $1.7 million charge taken in the third quarter of 1998 to write off
certain costs related to equipment that it used to manufacture the Sepra
products. Excluding this charge, the increase in research and development costs
was a result of the increased spending for Genzyme Surgical Products' cell and
gene therapy programs as well as the initiation of several clinical trials for
its products. The increase in research and development costs was also
attributable to a $2.0 million milestone payment to a collaborator that was
recorded in June 1999.

1998 AS COMPARED TO 1997

Excluding a charge of $1.9 million in 1997 related to the manufacture and
sale of Sepracoat-TM- coating solution, selling, general and administrative
expense increased by 10% over 1997. The increase in selling, general and
administrative expense was primarily due to increased charges from Genzyme
General, a result of increased support for Genzyme Surgical Products' sales and
marketing programs and initiatives. Sepracoat-TM- coating solution was
discontinued for the U.S. market after an advisory panel of the FDA recommended
against granting market approval of this product. However, this product is sold
outside the United States.

The increase in research and development expense was primarily due to higher
expenditures in cardiovascular gene and cell therapy scientific research as well
as additional clinical trials initiated for the Sepra products. In addition,
during 1998, Genzyme Surgical Products wrote off $1.7 million of certain costs
related to equipment used to manufacture the Sepra products.

OTHER INCOME AND EXPENSES

99/98 98/97
INCREASE/(DECREASE) INCREASE/(DECREASE)
1999 1998 1997 % CHANGE % CHANGE
-------- -------- -------- ------------------- -------------------
(AMOUNTS IN THOUSANDS,
EXCEPT PERCENTAGE DATA)

Equity in net loss of unconsolidated
affiliates........................ $ (35) $ (6) $ (78) 483% (92%)
Other............................... 138 60 236 130% (75%)
Investment income................... 4,199 144 98 2,816% 47%
Interest expense.................... (35) (75) (34) (53%) 121%
------ ------ ------
Total other income.............. $4,267 $ 123 $ 222 3,369% (45%)
====== ====== ======

The increase in other income and expenses in 1999 was primarily due to an
increase in investment income. Investment income increased because Genzyme
Surgical Products had a higher average cash balance as a result of the
allocation to Genzyme Surgical Products in June 1999 of $150.0 million in cash
from Genzyme General.

GSP-9

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999, Genzyme Surgical Products had cash, cash equivalents,
and short- and long-term investments of $126.1 million. Genzyme Surgical
Products had no cash, cash equivalents, and short-and long-term investments at
December 31, 1998.

Genzyme Surgical Products used $41.0 million in cash for operations in 1999.
This was primarily due to Genzyme Surgical Products' net loss of $48.0 million
for the year.

Genzyme Surgical Products' investing activities in 1999 generated $21.7
million in cash from net sales of investments, used $4.0 million to purchase
shares of Focal Inc. common stock, and used $3.9 million to fund capital
expenditures.

Primarily as a result of the allocation of assets from Genzyme General in
connection with the creation of Genzyme Surgical Products as a separate division
of Genzyme, financing activities generated $50.9 million of cash in 1999.

In June 1999, Genzyme General transferred $150.0 million in cash, cash
equivalents and investments to Genzyme Surgical Products in connection with the
establishment of Genzyme Surgical Products as a separate division of Genzyme. In
exchange for this transfer, approximately 14.8 million shares of Surgical
Products Stock were issued and distributed as a dividend to holders of Genzyme
General Stock.

Genzyme Surgical Products, together with our other operating divisions, has
access to our revolving credit facilities. At December 31, 1999, $50.0 million
was available under a facility that matures in November 2000 and $77.0 million
was available under a facility that matures in November 2002.

Genzyme Surgical Products believes that its cash resources, together with
the revenues generated from its products and distribution agreements, will be
sufficient to finance its planned operations and capital requirements through
2001. Although Genzyme Surgical Products currently has substantial cash
resources, it intends to use substantial portions of its available cash for:

- research and development;

- product development and marketing, including for the Sepra products;

- expanding facilities; and

- working capital.

In addition, if Genzyme Surgical Products exercises its option to purchase
the limited partnership interests in Genzyme Development Partners, L.P. and uses
cash to pay all or a portion of the purchase price, Genzyme Surgical Products'
cash resources will be diminished (See Note L., "Genzyme Development Partners,
L.P.," to Genzyme Surgical Products' combined financial statements, which are
included in this report and the discussion below). Genzyme Surgical Products
currently intends to provide approximately $6.0 million of funding to GDP for
the Sepra programs through 2000, based on the 2000 budget for the programs.
Future funding commitments for the Sepra development programs will be evaluated
on an annual basis.

In March 2000, we entered into an agreement to acquire BioMatrix, Inc. The
consideration for the proposed acquisition consists of shares of a new series of
our common stock and up to approximately $245 million in cash, allocated at the
option of Biomatrix stockholders. To the extent Genzyme Surgical Products uses
cash to complete this acquisition, its cash reserves will be diminished.

Genzyme Surgical Products' 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 licensing arrangements and additional
distribution arrangements;

GSP-10

- costs involved in enforcing patent claims and other intellectual
property rights;

- market acceptance of novel approaches and therapies;

- development of competitive products; and

- ability to satisfy regulatory requirements of the FDA and other
governmental authorities.

Genzyme Surgical Products may require significant additional financing to
continue operations beyond 2001. We cannot guarantee that we will be able to
obtain any additional financing for Genzyme Surgical Products or find it on
favorable terms. If Genzyme Surgical Products has insufficient funds or we are
unable to raise additional funds for Genzyme Surgical Products, it may delay,
scale back or eliminate certain of its programs. Genzyme Surgical Products may
also have to give third parties rights to commercialize technologies or products
that it would otherwise have sought to commercialize itself.

NEW ACCOUNTING PRONOUNCEMENTS, EURO, YEAR 2000 AND MARKET RISK

See "Management's Discussion and Analysis of Genzyme Corporation and
Subsidiaries' Financial Condition and Results of Operations" included in this
annual report.

FACTORS AFFECTING FUTURE OPERATING RESULTS

The future operating results of Genzyme Surgical Products could differ
materially from the results described above due to the risks and uncertainties
described below and under the heading "Management's Discussion and Analysis of
Genzyme Corporation and Subsidiaries' Financial Condition and Results of
Operations--Factors Affecting Future Operating Results" included in this annual
report.

GENZYME SURGICAL PRODUCTS ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.

Genzyme Surgical Products expects to have significant operating losses for
the next several years. It plans to spend substantial amounts of money on, among
other things:

- conducting research and development activities;

- pursuing regulatory approvals;

- conducting commercialization activities; and

- providing surgeon education and training.

We cannot guarantee that the efforts underlying these expenditures will be
successful or that Genzyme Surgical Products' operations will ever be
profitable. It may be years before the division generates any revenue from sales
of products currently under development.

IF GENZYME SURGICAL PRODUCTS FAILS TO OBTAIN CAPITAL NECESSARY TO FUND ITS
OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE
CLINICAL TRIALS.

We anticipate that Genzyme Surgical Products' current cash resources,
together with revenues generated from its products and distribution agreements,
will be sufficient to fund its operations through 2001. However, its cash needs
may differ from those planned because of many factors, including:

- the ability to become profitable;

- the results of research and development efforts;

- the ability to establish strategic collaborations and licensing
arrangements for research and development programs;

- the achievement of milestones under strategic collaborations;

- the ability to establish and maintain additional distribution
arrangements;

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- the enforcement of patent and other intellectual property rights;

- market acceptance of novel approaches and therapies;

- the development of competitive products; and

- the ability to satisfy regulatory requirements of the FDA and other
government authorities.

Genzyme Surgical Products may require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that we will be
able to obtain any additional financing for Genzyme Surgical Products or find it
on favorable terms. If Genzyme Surgical Products has insufficient funds or we
are unable to raise additional funds for Genzyme Surgical Products, it may have
to delay, reduce or eliminate some of its programs. Genzyme Surgical Products
may also have to give third parties rights to commercialize technologies or
products that it would otherwise have sought to commercialize itself.

IF GENZYME SURGICAL PRODUCTS EXERCISES AN OPTION TO PURCHASE INTERESTS IN
GENZYME DEVELOPMENT PARTNERS, ITS CASH RESOURCES MAY DIMINISH AND THE RIGHTS
OF ITS STOCKHOLDERS MAY BE DILUTED.

In 1989, we organized Genzyme Development Partners, L.P., a special purpose
research and development entity, and transferred to it technology and commercial
rights to the Sepra products. We have an option to purchase the limited
partnership interests in the partnership under certain circumstances for
approximately $26 million plus continuing royalties based on certain sales of
the Sepra products. We have allocated the purchase option to Genzyme Surgical
Products. The option's exercise price is payable in cash, shares of Genzyme
General Stock or a combination of the two, as determined by Genzyme Surgical
Products when it exercises the option.

If Genzyme Surgical Products exercises this option, it will have to make
substantial cash payments or compensate Genzyme General with Genzyme Surgical
Products designated shares for the Genzyme General Stock used, or both. If the
division makes cash payments, its cash resources would diminish. If it makes the
payment in whole or in part in shares of Genzyme General Stock, then our board
of directors would need to approve the issuance of Genzyme General Stock in
return for Genzyme General having reserved for it a number of Genzyme Surgical
Products designated shares with a fair market value equal to the fair market
value of the shares of Genzyme General Stock. Those Genzyme Surgical Products
designated shares would be shares of Surgical Products Stock that our board
would have the option to issue from time to time with all proceeds allocable to
Genzyme General. Beginning on June 30, 2000, and on every June 30th thereafter,
we will have to distribute substantially all the Genzyme Surgical Products
designated shares if the number of those shares exceeds 10% of the number of
shares of Surgical Products Stock then outstanding.

We cannot guarantee that our board of directors would authorize the issuance
of shares of Genzyme General Stock for payment of the option exercise price and
the reservation of any Genzyme Surgical Products designated shares. If our board
of directors reserves and subsequently distributes or otherwise disposes of any
Genzyme Surgical Products designated shares, this would substantially dilute the
rights of the holders of Surgical Products Stock and could significantly affect
the market price of Surgical Products Stock.

If Genzyme Surgical Products does not exercise the option or otherwise
purchase the partnership, the partnership would have the right to sell or
otherwise transfer to a third party a license to background technology that we
granted to it. A sale or transfer of this technology may terminate our joint
venture with the partnership to manufacture and sell the Sepra products in the
U.S. and Canada. In addition, failure to exercise the option would cause the
joint venture to become terminable upon 90 days' prior notice by either Genzyme
or Genzyme Development Partners.

GSP-12

GENZYME SURGICAL PRODUCTS IS DEVOTING SIGNIFICANT RESOURCES TO DEVELOPING NOVEL
ALTERNATIVE PRODUCTS AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL.

Genzyme Surgical Products is devoting a significant amount of money to
developing products that will represent alternatives to traditional surgical
procedures or treatments. These products will likely require several years of
aggressive and costly marketing before they might become widely accepted by the
surgical community. Genzyme Surgical Products is developing products that are
designed to enable surgeons to perform minimally invasive cardiovascular
surgery. The medical conditions that can be treated with minimally invasive
cardiovascular surgery are currently being treated with widely accepted surgical
procedures such as coronary artery bypass grafting and catheter-based
treatments, including balloon angioplasty, atherectomy and coronary stenting. To
date, minimally invasive cardiovascular surgery has been performed on a limited
basis and its further adoption by the surgical community will partly depend on
Genzyme Surgical Products' ability to educate cardiothoracic surgeons about its
effectiveness and to facilitate the training of cardiothoracic surgeons in
minimally invasive cardiovascular surgery techniques.

Similarly, until recently surgeons have not used products designed to reduce
the incidence and extent of postoperative adhesions. Since 1996, when Sepra
Film-Registered Trademark- bioresorbable membrane was introduced, market
acceptance of anti-adhesion products has been slow. To increase sales of the
Sepra products, Genzyme Surgical Products has had to educate surgeons and
hospital administrators about the problems of, and costs associated with,
adhesions and the benefit of preventing adhesions. It has also had to train
surgeons on the proper handling and use of these products.

We cannot guarantee that Genzyme Surgical Products' efforts in educating and
training the surgical community will result in the widespread adoption of
minimally invasive cardiovascular surgery and anti-adhesion products or that
surgeons adopting these procedures and products will use Genzyme Surgical
Products' products.

ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME SURGICAL PRODUCTS' GENE THERAPY
PRODUCTS.

The recent death of a patient undergoing gene therapy using an adenoviral
vector to deliver a therapeutic gene has been widely publicized. This death and
any other adverse events in the field of gene therapy that may occur in the
future may result in greater governmental regulation and potential regulatory
delays relating to the testing or approval of Genzyme Surgical Products' gene
therapy products. As a result of this death, the U.S. Senate has commenced
hearings to determine whether additional legislation is required to protect
volunteers and patients who participate in gene therapy clinical trials.
Additionally, the Recombinant DNA Advisory Committee, which acts as an advisory
body to the National Institutes of Health (NIH), has extensively discussed the
use of adenoviral vectors in gene therapy clinical trials and recently issued a
draft report on the safety of adenoviral vectors. While this draft report
recommends that clinical trials using adenoviral vectors should continue with
caution, it also suggested a number of changes in the way gene therapy clinical
trials are conducted. If any new guidelines are adopted by the NIH, Genzyme
Surgical Products' gene therapy clinical trials could be delayed or become more
expensive to conduct.

The commercial success of any gene therapy products that Genzyme Surgical
Products develops will depend in part on public acceptance of the use of gene
therapies for the prevention or treatment of human diseases. Public attitudes
may be influenced by claims that gene therapy is unsafe, and gene therapy may
not gain the acceptance of the public or the medical community. Negative public
reaction to gene therapy could result in greater government regulation and
stricter clinical trial oversight and commercial product labeling requirements
of gene therapies and could cause a decrease in the demand for any gene therapy
product that Genzyme Surgical Products may develop.

GSP-13

COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT
GENZYME SURGICAL PRODUCTS' PERFORMANCE.

The human health care products and services industry is extremely
competitive. Major medical device and technology companies compete or may
compete with Genzyme Surgical Products. These include such companies as:

- Atrium Medical Corporation and Sherwood-Davis & Geck, a division of Tyco
International, Ltd. in the cardiovascular chest drainage and fluid
management market;

- The Ethicon division of Johnson & Johnson Ltd. and U.S. Surgical
Corporation, a division of Tyco in the cardiovascular closure market;

- CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical, Guidant
Corporation, Baxter Healthcare Corporation and Ethicon in the minimally
invasive cardiovascular surgery market;

- Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc. and
Gliatech, Inc. in the anti-adhesion market; and

- Karl Storz Endoscopy America, Inc., Scanlan International, Inc., Pilling
Weck Surgical Instruments and the Codman division of Johnson & Johnson
Ltd. in the reusable instruments market.

These competitors may have superior research and development, marketing and
production capabilities. Some competitors also may have greater financial
resources than Genzyme Surgical Products. The division is likely to incur
significant costs developing and marketing new products without any guarantee
that it will be commercially successful. The future success of Genzyme Surgical
Products will depend on its ability to effectively develop and market its
products against those of its competitors.

THE TREND TOWARD CONSOLIDATION IN THE SURGICAL DEVICES INDUSTRY MAY ADVERSELY
AFFECT GENZYME SURGICAL PRODUCTS' ABILITY TO MARKET SUCCESSFULLY ITS PRODUCTS
TO SOME SIGNIFICANT PURCHASERS.

The current trend among hospitals and other significant consumers of
surgical devices is to combine into larger purchasing groups to increase their
purchasing power and thus reduce their purchase price for surgical devices.
Partly in response to this development, surgical device manufacturers have been
consolidating to be able to offer a more comprehensive product line to these
larger purchasing groups. In order to successfully market its products to larger
purchasing groups, Genzyme Surgical Products may have to expand its product
lines or enter into joint marketing or distribution agreements with other
manufacturers of surgical devices. We cannot guarantee that it will be able to
employ either of these initiatives or that, when employed, these initiatives
will increase the marketability of its products.

GENZYME SURGICAL PRODUCTS MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM
COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A
FAILURE TO ENTER INTO FUTURE COLLABORATIONS.

Genzyme Surgical Products' strategy to develop and commercialize some of its
products and services includes entering into various arrangements with academic
and corporate collaborators and licensees. It depends on the success of these
parties in performing research, preclinical and clinical testing and marketing.
These arrangements may require Genzyme Surgical Products to transfer important
rights to its corporate collaborators and licensees. These collaborators and
licensees could choose not to devote resources to these arrangements or, under
certain circumstances, may terminate them early. In addition, these
collaborators and licensees, outside of their arrangements with Genzyme Surgical
Products, may develop technologies or products that are competitive with those
that Genzyme Surgical Products is developing. As a result, we cannot guarantee
that Genzyme Surgical Products will receive revenues from these relationships or
that any of its strategic collaborations will continue or not terminate early.
In addition, we cannot guarantee that Genzyme Surgical Products will be able to
enter into collaborations in the future.

GSP-14

SUBSEQUENT EVENT

In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
the effectiveness of our Registration Statement on Form S-4 and completion of
the merger, we will form a new operating division called Genzyme Biosurgery and
create a new series of common stock is intended to reflect its value and track
its performance. We refer to this stock as "Biosurgery Stock." In connection
with the merger, and upon Genzyme shareholder approval, the assets and
liabilities allocated to Genzyme Surgical Products will be re-allocated to
Genzyme Biosurgery and shares of Surgical Products Stock will be exchanged for
Biosurgery Stock. We will account for the acquisition of Biomatrix as a
purchase.

Biomatrix stockholders will receive $37.00 in cash, one share of Biosurgery
Stock or a combination of cash and stock for each share of Biomatrix common
stock they hold. The merger agreement provides, however, that the cash component
of the merger consideration will not exceed 28.38% of the total merger
consideration, or approximately $245 million. Holders of Surgical Products Stock
will receive 0.6060 share of Biosurgery Stock in exchange for each share of
Surgical Products Stock they hold.

For more information about the merger and the merger consideration, we
encourage you to carefully read our Registration Statement on Form S-4 (File
No. 333-34972) filed with the SEC on April 18, 2000 and as amended from time to
time.

The acquisition is subject to:

- approval by Biomatrix's shareholders;

- approval by our shareholders, including separate approvals of the
holders of Surgical Products Stock and Tissue Repair Stock; and

- other customary closing conditions.

GSP-15

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION
COMBINED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(AMOUNTS IN THOUSANDS)

Total revenues.............................................. $ 111,981 $ 103,958 $ 100,835
Operating costs and expenses:
Cost of products sold..................................... 67,242 72,274 59,802
Selling, general and administrative....................... 63,237 57,297 54,061
Research and development.................................. 28,056 18,618 11,287
Amortization of intangibles............................... 5,750 5,748 5,647
--------- --------- ---------
Total operating costs and expenses.................... 164,285 153,937 130,797
--------- --------- ---------
Operating loss.............................................. (52,304) (49,979) (29,962)
Other income (expenses):
Equity in net loss of unconsolidated affiliates........... (35) (6) (78)
Other..................................................... 138 60 236
Investment income......................................... 4,199 144 98
Interest expense.......................................... (35) (75) (34)
--------- --------- ---------
Total other income (expenses)......................... 4,267 123 222
--------- --------- ---------
Division net loss........................................... $ (48,037) $ (49,856) $ (29,740)
========= ========= =========
Comprehensive loss, net of tax:

Division net loss........................................... $ (48,037) $ (49,856) $ (29,740)
Other comprehensive income (loss), net of tax:
Unrealized losses on securities arising during the
period.................................................. (1,839) -- --
--------- --------- ---------
Comprehensive loss.......................................... $ (49,876) $ (49,856) $ (29,740)
========= ========= =========

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

GSP-16

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION
BALANCE SHEETS

DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(AMOUNTS IN THOUSANDS)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 22,673 $ --
Short-term investments.................................... 41,606 --
Accounts receivable, net.................................. 19,886 15,663
Inventories............................................... 30,491 22,026
Prepaid expenses and other current assets................. 815 1,932
-------- --------
Total current assets.................................. 115,471 39,621
Property, plant and equipment, net........................ 17,621 16,249
Long-term investments..................................... 61,846 --
Intangibles, net.......................................... 172,833 177,897
Investment in equity securities........................... 3,140 --
Other..................................................... 13 449
-------- --------
Total assets.......................................... $370,924 $234,216
======== ========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,562 $ 3,925
Accrued expenses.......................................... 7,038 2,982
Due to Genzyme General.................................... 6,406 --
-------- --------
Total current liabilities............................. 17,006 6,907
Noncurrent liabilities...................................... -- 221
-------- --------
Total liabilities..................................... 17,006 7,128
Commitments and contingencies (Note K)
Division equity (Note J).................................... 353,918 227,088
-------- --------
Total liabilities and division equity................. $370,924 $234,216
======== ========

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

GSP-17

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(AMOUNTS IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Division net loss........................................... $ (48,037) $ (49,856) $ (29,740)
Reconciliation of division net loss to net cash used in
operating activities:
Depreciation and amortization............................. 8,181 8,008 8,831
Equity in loss of unconsolidated affiliate................ 35 6 78
Accrued interest/amortization of marketable securities.... 1,144 -- --
Loss on sale of plant and equipment....................... 91 -- --
Provision for bad debts and inventory..................... 1,431 526 759
Other..................................................... -- (60) (236)
Increase (decrease) in cash from working capital:
Accounts receivable..................................... (4,579) (2,140) 3,179
Inventories............................................. (9,540) 3,791 2,865
Prepaid expenses and other assets....................... 1,117 (1,469) 259
Accounts payable and accrued expenses................... 2,709 1,885 (2,123)
Due to Genzyme General.................................. 6,406 -- --
--------- --------- ---------
Net cash used in operating activities................. (41,042) (39,309) (16,128)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................... (15,161) -- --
Sales and maturities of investments......................... 36,878 -- --
Purchase of investments in equity securities................ (4,000) -- --
Acquisitions of property, plant and equipment............... (3,877) (1,959) (3,112)
Purchase of technology rights............................... (1,400) -- --
Other....................................................... 401 (688) (1,039)
--------- --------- ---------
Net cash provided by (used in) investing activities... 12,841 (2,647) (4,151)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash allocated from Genzyme General..................... 49,414 41,484 19,003
Payments of debt and capital lease obligations.............. -- (152) (173)
Bank overdraft.............................................. 1,681 -- --
Other....................................................... (221) (351) 242
--------- --------- ---------
Net cash provided by financing activities............. 50,874 40,981 19,072
Increase (decrease) in cash and cash equivalents............ 22,673 (975) (1,207)
Cash and cash equivalents at beginning of period............ -- 975 2,182
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 22,673 $ -- $ 975
========= ========= =========
Supplemental cash flow information:
Cash paid during the year for interest $ 35 $ 9 $ 29
Supplemental disclosures of non-cash transactions:
Transfer of investment--Note A.
Transfer of property, plant and equipment--Note F.

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

GSP-18

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Genzyme Surgical Products is our operating division that develops,
manufactures and markets surgical products for cardiovascular surgery and
general surgery.

BASIS OF PRESENTATION

The combined financial statements of Genzyme Surgical Products for each
period include the balance sheets, results of operations and cash flows of the
businesses we allocate to Genzyme Surgical Products. We also allocate a portion
of our corporate operations to Genzyme Surgical Products using methods described
in our allocation policy below. These combined financial statements are prepared
using amounts included in our consolidated financial statements included in this
annual report. We have reclassified certain 1998 and 1997 data to conform with
the 1999 presentation.

TRACKING STOCK

- factors the assets and liabilities and income or losses attributable to
Genzyme Surgical Products into the determination of the amount available
to pay dividends on Surgical Products Stock; and

To determine earnings per share, we allocate Genzyme's earnings to each
series of our common stock based on the earnings attributable to that series of
stock. The earnings attributable to Surgical Products Stock is defined in our
charter as the net income or loss of Genzyme Surgical Products determined in
accordance with generally accepted accounting principles and as adjusted for tax
benefits allocated to or from Genzyme Surgical Products in accordance with our
management and accounting policies. Our charter also requires that all income
and expenses of Genzyme be allocated among the divisions in a reasonable and
consistent manner. However, subject to its fiduciary duties, our board of
directors can, at its discretion,

GSP-19

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
change the methods of allocating earnings to each series of common stock. We
intend to allocate earnings using our current methods for the foreseeable
future.

While Surgical Products Stock is designed to reflect Genzyme Surgical
Products' performance, it is common stock of Genzyme Corporation and not Genzyme
Surgical Products; Genzyme Surgical Products is a division, not a company or
legal entity, and therefore does not and cannot issue stock. Consequently,
holders of Surgical Products Stock have no specific rights to assets allocated
to Genzyme Surgical Products. Genzyme Corporation continues to hold title to all
of the assets allocated to Genzyme Surgical Products and is responsible for all
of its liabilities, regardless of what we deem for financial statement
presentation purposes as allocated to any division. Holders of Surgical Products
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 Surgical
Products Stock and other tracking stockholders would only have the rights of
common stockholders in the combined assets of Genzyme.

ALLOCATION POLICY

Our charter sets forth what operations and assets are initially allocated to
Genzyme Surgical Products and states that going forward the division will also
include all business, products or programs, developed by or acquired for the
division, as determined by our board of directors. We then manage and account
for transactions between Genzyme Surgical Products and our other divisions and
with third parties, and any resulting re-allocations of assets and liabilities,
by applying consistently across divisions a detailed set of policies established
by our board of directors. We publicly disclose our divisional management and
accounting policies, which appear in Exhibit 99.1 to this Annual Report on
Form 10-K. Our charter requires that all assets and liabilities of Genzyme be
allocated among the divisions. Our board of directors, however, retains
considerable discretion in determining the types, magnitudes and extent of
allocations to each series of common stock without shareholder approval.

Our allocations to our divisions are based on one of the following
methodologies:

- Specific identification--assets that are dedicated to the production of
goods of a division or which solely benefit a division are allocated to
that division. Liabilities incurred as a result of the performance of
services for the benefit of a division or in connection with the expenses
incurred which directly benefit a division are allocated to the division.
Such specifically identified assets and liabilities include cash,
investments, accounts receivable, inventories, property and equipment,
intangible assets, accounts payable, accrued expenses and deferred
revenue. Revenues from the licensing of a division's products or services
to third parties and the related costs are allocated to a division;

- Actual usage--expenses are charged to the division for whose benefit such
expenses are incurred. Research and development, sales and marketing and
direct general and administrative services are

GSP-20

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
charged to the divisions for which the service is performed on a cost
basis. Such charges are generally based on direct labor hours;

- Proportionate usage--costs incurred which benefit more than one division
are allocated based on management's estimate of the proportionate benefit
each division receives. Such costs include facilities, legal, finance,
human resources, executive and investor relations; or

- Board directed--programs and products, both internally developed and
acquired, are allocated to divisions by the board of directors. The board
of directors also allocates long-term debt and strategic investments.

Note B., "Policies Governing the Relationship of Genzyme's Operating
Divisions," further describes our policies concerning interdivisional
transactions and income tax allocations.

We believe that the divisional allocations are reasonable and have been
consistently applied. However, the division's results of operations may not be
indicative of what would have been realized if the division was a stand-alone
entity.

TRANSLATION OF FOREIGN CURRENCIES

We translate the financial statements of foreign subsidiaries allocated to
Genzyme Surgical Products from local currency into U.S. dollars and record
translation adjustments for these subsidiaries to division equity. Genzyme
Surgical Products records gains and losses in foreign currency transactions in
income.

We include exchange gains and losses on intercompany balances which are
long-term in nature in our division equity. Our gains and losses on all other
transactions are included in our results of operations.

REVENUE RECOGNITION

Genzyme Surgical Products recognizes revenue from product sales when it
ships the product and title has passed, net of any applicable third party
contractual allowances and rebates.

NET INCOME (LOSS) PER SHARE

Earnings per share is calculated for each series of Genzyme stock using the
two-class method, as further described in the notes to the consolidated
financial statements. We present earnings per share data only in the
consolidated financial statements of Genzyme because Genzyme Corporation is the
issuer of the securities Genzyme's divisions do not and cannot issue securities
because they are not companies or legal entities.

NOTE B. POLICIES GOVERNING THE RELATIONSHIP OF GENZYME'S OPERATING
DIVISIONS

Because each of our operating divisions is a part of a single company, our
board of directors has adopted policies to address issues that may arise among
divisions and to govern the management of and the relationships between each
division. With some exceptions that are mentioned specifically in this note, our
board of directors may modify or rescind these policies, or adopt additional
policies, in its sole

GSP-21

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE B. POLICIES GOVERNING THE RELATIONSHIP OF GENZYME'S OPERATING
DIVISIONS (CONTINUED)
discretion without stockholder approval, subject only to our board of directors'
fiduciary duty to stockholders. Generally accepted accounting principles require
that any change in policy be preferable (in accordance with these principles) to
the previous policy.

INTERDIVISION ASSET TRANSFERS

Our board of directors may at any time reallocate any program, product or
other asset from one division to any other division. We account for
interdivision asset transfers at book value. The consideration paid for an asset
transfer generally must be fair value as determined by our board of directors.
The difference between the consideration paid and the book value of the assets
transferred is recorded in division equity.

Our board of directors determines fair value using the following
methodologies: a risk-adjusted discounted cash flow model or a comparable
transaction model.

The risk-adjusted discounted cash flow model estimates fair value by taking
the discounted value of all the cash inflows and outflows related to a program
or product over a specified period of time, generally the economic life of the
project, adjusted for the probabilities of certain outcomes occurring or not
occurring. In performing this analysis, we consider various factors that could
affect the success or failure of the program including:

- the duration, cost and probability of success of each phase of
development;

- the current and potential size of the market and barriers to entry into
the market;

- the maximum number of patients likely to be treated with the product and
the speed with which that maximum number will be reached;

- reimbursement policies and pricing limitations;

- current and potential competitors;

- the net proceeds received by us upon the sale of the program or product;
and

- the costs of manufacturing and marketing the product or program.

The comparable transaction model estimates fair value through comparison to
valuations established for other transactions within the biotechnology and
biosurgical areas involving similar programs and products having similar terms
and structure. In identifying comparable transactions, we consider, among other
factors, the following:

- the similarity of market opportunity;

- the comparability of the medical needs addressed;

- the similarity of the regulatory, reimbursement and competitive
environment;

- the stage of product or program development; and

- the risk profile of successfully commercializing the product or program.

GSP-22

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE B. POLICIES GOVERNING THE RELATIONSHIP OF GENZYME'S OPERATING
DIVISIONS (CONTINUED)
We customarily use the comparable transaction model to corroborate
valuations derived under the risk-adjusted discounted cash flow model.

GSP-23

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE B. POLICIES GOVERNING THE RELATIONSHIP OF GENZYME'S OPERATING
DIVISIONS (CONTINUED)
When determining the fair value of a program under development using either
model, our board of directors also takes into account the following criteria in
the case of a program under development:

- the commercial potential of the program;

- the phase of clinical development of the program;

- the expenses associated with realizing any income from the program and the
likelihood and time of the realization; and

- other matters that our board of directors and its financial advisors, if
any, deem relevant.

One division may compensate another division for a reallocation with cash or
other consideration having a value equal to the fair market value of the
reallocated assets. In the case of a reallocation of assets from Genzyme General
to Genzyme Surgical Products, our board of directors may elect instead to
account for the reallocation as an increase in Genzyme Surgical Products
designated shares in accordance with the provisions of our charter. Genzyme
Surgical Products designated shares are shares of Surgical Products Stock that
are not issued and outstanding, but which our board of directors may issue,
sell, or distribute without allocating the proceeds to Genzyme Surgical
Products. No gain or loss is recognized as a result of these transfers.

Our policy regarding transfers of assets between divisions may not be
changed by our board of directors without the approval of the holders of
Surgical Products Stock voting as a separate class unless the policy change does
not affect Genzyme Surgical Products.

OTHER INTERDIVISION TRANSACTIONS

Our divisions may engage in transactions directly with one or more other
divisions or jointly with one or more other divisions and one or more third
parties. These transactions may include agreements by one division to provide
products and services for use by another division, license agreements and joint
ventures or other collaborative arrangements involving more than one division to
develop new products and services jointly and with third parties. These
transactions are subject to the following conditions:

- We charge research and development (including clinical and regulatory
support), distribution, sales, marketing, and general and administrative
services (including allocated space) performed by one division for another
division to the division for which the services are performed on a cost
basis. We charge direct costs to the division for which we incur them. We
allocate direct labor and indirect costs in reasonable and consistent
manners based on the use by a division of relevant services. Divisions
performing services for other divisions do not recognize revenue for the
services they perform.

- We charge the manufacturing of goods and performance of services by one
division exclusively for another division to the division for which it is
performed on a cost basis. We include in manufacturing costs an interest
charge (based on our short-term borrowing rate at the beginning of the
fiscal year) on the gross fixed assets used in the manufacturing process.
To perform this calculation, we determine gross fixed assets for the
facility used at the beginning of each fiscal year and apply our
short-term borrowing rate. We allocate direct labor and indirect costs in
reasonable and consistent

GSP-24

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE B. POLICIES GOVERNING THE RELATIONSHIP OF GENZYME'S OPERATING
DIVISIONS (CONTINUED)
manners based on the benefit received by a division of related goods and
services. Divisions performing services for other divisions do not
recognize revenue for the services they perform.

- Other than transactions involving research and development, manufacturing,
distribution, sales, marketing, general and administrative services, which
are addressed above, all interdivisional transactions are performed on
terms and conditions obtainable in arm's length transactions with third
parties. Divisions performing services for other divisions do not
recognize revenue for the services they perform.

- Our board of directors must approve interdivisional transactions that are
performed on terms and conditions other than as described above and are
material to one or more of the participating divisions. In giving its
approval, our board of directors must determine that the transaction is
fair and reasonable to each participating division and to holders of the
common stock representing each participating division.

- Divisions may make loans to other divisions. Any loan of $1 million or
less matures within 18 months and accrues interest at the best borrowing
rate available to the corporation for a loan of like type and duration.
Our board of directors must approve any loan in excess of $1 million. In
giving its approval, our board of directors must determine that the
material terms of the loan, including the interest rate and maturity date,
are fair and reasonable to each participating division and to holders of
the common stock representing each such division.

- All material interdivisional transactions are set forth in a written
agreement that is signed by an authorized member of the management team of
each division involved in the transaction.

TAX ALLOCATIONS

We file a consolidated tax return and allocate income taxes to each division
based upon the financial statement income, taxable income, credits and other
amounts properly allocable to each division under generally accepted accounting
principles as if it were a separate taxpayer. We assess the realizability of our
deferred tax assets at the division level. As a result, our consolidated tax
provision may not equal the sum of the divisions' tax provision. As of the end
of any fiscal quarter, however, if a division cannot use any projected annual
tax benefit attributable to it to offset or reduce its current or deferred
income tax expense, we may allocate the tax benefit to the other divisions in
proportion to their taxable income without any compensating payment or
allocation.

ACCESS TO TECHNOLOGY AND KNOW-HOW

Genzyme Surgical Products has unrestricted access to all technology and
know-how owned or controlled by Genzyme Corporation that may be useful in its
business, subject to any obligations or limitations that apply to the
corporation generally.

NOTE C. OTHER CHARGES

GSP-25

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE C. OTHER CHARGES (CONTINUED)
the carrying value exceeded the net realizable value. The revised forecast
showed slower sales growth as well as higher manufacturing and sales and
marketing costs than originally expected. In addition, the Sepra products
inventory on-hand had a relatively high cost per unit because production was
significantly less than originally planned. As a result, in the third quarter of
1998, Genzyme Surgical Products recorded a $10.4 million charge to cost of
products sold to write down its Sepra products inventory to net realizable
value.

In the fourth quarter of 1997, Genzyme Surgical Products also recorded a
$5.5 million charge to cost of products sold and a $1.9 million charge to
selling, general and administrative expense relating to the manufacturing and
sale of Sepracoat-TM- coating solution. Genzyme Surgical Products took these
charges after an FDA advisory panel recommended against granting marketing
approval for the product.

NOTE D. ACCOUNTS RECEIVABLE AND INTANGIBLE ASSETS

Genzyme Surgical Products' trade receivables primarily represent amounts due
from healthcare service providers. Genzyme Surgical Products performs credit
evaluations of its customers on an ongoing basis and generally does not require
collateral. Genzyme Surgical Products states accounts receivable at fair value
after reflecting an allowance for doubtful accounts. This allowance was $0.3
million at December 31, 1999 and $0.4 million at December 31, 1998. The
following table contains information on Genzyme Surgical Products' intangible
assets for the periods presented:

WEIGHTED WEIGHTED
AVERAGE AVERAGE
ESTIMATED ESTIMATED
USEFUL USEFUL
DECEMBER 31, LIFE DECEMBER 31, LIFE
1999 (YEARS) 1998 (YEARS)
------------ --------- ------------ ---------
(AMOUNTS IN THOUSANDS, EXCEPT USEFUL LIFE DATA)

Goodwill......................................... $129,847 40 $130,544 40
Tradenames....................................... 45,878 40 45,878 40
Patents.......................................... 15,319 12 15,319 12
Other............................................ 1,890 9 490 14
-------- --------
192,934 192,231
Less accumulated amortization.................... (20,101) (14,334)
-------- --------
Intangible assets, net........................... $172,833 $177,897
======== ========

NOTE E. INVENTORIES

DECEMBER 31,
-------------------------
1999 1998
-------- --------
(AMOUNTS IN THOUSANDS)

Raw materials......................................... $15,473 $11,567
Work-in-process....................................... 2,029 1,734
Finished products..................................... 12,989 8,725
------- -------
Total inventory................................... $30,491 $22,026
======= =======

GSP-26

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE F. PROPERTY, PLANT AND EQUIPMENT

DECEMBER 31,
-------------------------
1999 1998
-------- --------
(AMOUNTS IN THOUSANDS)

Plant and equipment................................... $10,276 $ 8,934
Land and buildings.................................... 8,268 8,261
Leasehold improvements................................ 434 434
Furniture and fixtures................................ 4,001 3,944
Construction-in-progress.............................. 1,407 614
------- -------
24,386 22,187
Less accumulated depreciation......................... (6,765) (5,938)
------- -------
Property, plant and equipment, net.................... $17,621 $16,249
======= =======

Genzyme Surgical Products' depreciation expense was $2.4 million in 1999,
$2.5 million in 1998, and $2.7 million in 1997. The estimated cost of completion
for assets under construction as of December 31, 1999 is $1.9 million.

NOTE G. INVESTMENTS

Genzyme Surgical Products had no cash, cash equivalents, and short- and
long-term investments at December 31, 1998. Investments in marketable securities
at December 31, 1999 consisted of the following:

DECEMBER 31,
1999
-------------------
MARKET
COST VALUE
-------- --------
(AMOUNTS IN
THOUSANDS)

Cash equivalents(1):
Corporate notes....................................... $16,930 $16,915
Money market fund..................................... 4,317 4,317
------- -------
$21,247 $21,232
======= =======
Short-term:
Corporate notes....................................... $41,757 $41,606
======= =======
Long-term:
Corporate notes....................................... $37,598 $36,878
Federal............................................... 4,081 4,026
U.S. Treasury notes................................... 20,979 20,942
------- -------
$62,658 $61,846
======= =======
Investment in equity securities....................... $ 4,000 $ 3,140
======= =======

- ------------------------

(1) Cash equivalents are included as part of cash and cash equivalents on our
balance sheets.

GSP-27

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE G. INVESTMENTS (CONTINUED)
Genzyme Surgical Products records gross unrealized holding gains and losses
in division equity. The following table sets forth the amounts recorded:

DECEMBER 31,
1999
------------

Unrealized holding losses............................. $1,839

The following table contains information regarding the range of contractual
maturities of Genzyme Surgical Products' investments in debt securities:

DECEMBER 31,
1999
----------------------
MARKET
COST VALUE
-------- --------
(AMOUNTS IN THOUSANDS)

Within 1 year.......................................... $ 63,004 $ 62,838
1-2 years.............................................. 62,658 61,846
-------- --------
$125,662 $124,684
======== ========

Note I., "Investments," to our consolidated financial statements contains
information regarding Genzyme Surgical Products' equity investment in
Focal, Inc. We incorporate that information into this note by reference.

NOTE H. ACCRUED EXPENSES

DECEMBER 31,
----------------------
1999 1998
-------- --------
(AMOUNTS IN
THOUSANDS)

Compensation............................................... $2,812 $1,555
Professional fees.......................................... 466 291
Royalties.................................................. 610 523
Other...................................................... 3,150 613
------ ------
$7,038 $2,982
====== ======

NOTE I. LONG-TERM DEBT AND LEASES

REVOLVING CREDIT FACILITY

Note K., "Long Term Debt and Leases," to our consolidated financial
statements contains information regarding our revolving credit facilities. We
incorporate that information into this note by reference.

GSP-28

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. LONG-TERM DEBT AND LEASES (CONTINUED)
OPERATING LEASES

Genzyme Surgical Products leases facilities and personal property under
operating leases with terms in excess of one year. Genzyme Surgical Products'
total expense under operating leases was:

1999 1998 1997
- ------------------------ ------------------------ ------------------------

$0.2 million $0.2 million $0.2 million

Over the next five years, Genzyme Surgical Products will be required to
repay the following amounts under operating leases:

2000 2001 2002 2003 2004 AFTER 2004
- --------------------- ----------- ----------- ----------- ----------- -----------

$0.2 $0.3 $0.3 $0.3 $3.0
$0.2 million million million million million million

NOTE J. DIVISION EQUITY

The following table contains the components of division equity for Genzyme
Surgical Products for the periods presented:

DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Balance at beginning of period............... $227,088 $234,969 $239,040
Division net loss............................ (48,037) (49,856) (29,740)
Unrealized gain (loss) on investments........ (1,839) -- --
Allocation from Genzyme General.............. 176,706 41,975 25,669
-------- -------- --------
Balance at end of period..................... $353,918 $227,088 $234,969
======== ======== ========

STOCK COMPENSATION PLANS

We apply APB Opinion 25 and related interpretations in accounting for our
five stock-based compensation plans: the 1990 Equity Incentive Plan, the 1997
Equity Plan (both of which are stock option plans), the 1990 Employee Stock
Purchase Plan, the 1999 Employee Stock Purchase Plan, and the 1998 Director
Stock Option Plan. We do not recognize compensation expense for options granted
and shares purchased under the provisions of these plans for options granted to
employees with an exercise price greater than or equal to fair market value.

The following table sets forth division net loss data for Genzyme Surgical
Products as if compensation expense for our stock-based compensation plans was
determined in accordance with SFAS 123 based on

GSP-29

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE J. DIVISION EQUITY (CONTINUED)
the fair value at the grant dates of the awards, and the compensation expense
related to Surgical Products Stock awards would be allocated to Genzyme Surgical
Products in accordance with our allocation policies:

DECEMBER 31,
1999
------------

Division net loss:
As reported......................................... $ (48,037)
Pro forma........................................... $ (50,583)

Note L., "Stockholders' Equity," to our consolidated financial statements
contains information regarding the assumptions we made in calculating pro forma
compensation expense in accordance with SFAS 123.

NOTE K. COMMITMENTS AND CONTINGENCIES

We periodically become subject to legal proceedings and claims arising in
connection with our business. We do not believe that there were any asserted
claims against us as of December 31, 1999 which, if adversely decided, would
have a material adverse effect on Genzyme Surgical Products' results of
operations, financial condition, or liquidity.

NOTE L. GENZYME DEVELOPMENT PARTNERS

Genzyme Development Partners, L.P. was formed in September 1989 to develop,
produce and derive income from the sale of the Sepra products. We refer to
Genzyme Development Partners as GDP. One of our wholly-owned subsidiaries is the
general partner of GDP. In September 1989, we also formed a joint venture with
GDP to manufacture and market the Sepra products in the United States and Canada
for use in human clinical trials or human clinical procedures. We refer to this
joint venture as GVII. We consolidate GVII for financial statement purposes and
allocate it to Genzyme Surgical Products.

We have the option to purchase all of the outstanding partnership interests
in GDP for approximately $26.0 million in cash, Genzyme General Stock or
Surgical Products Stock, or a combination of both, plus future royalty payments
on the sale of the Sepra products. We can exercise this option during the 90-day
period beginning on August 31, 2000. This option will be accelerated if at any
time prior to August 31, 2000 GDP receives distributions from GVII of at least
$5.5 million. If we exercise this right, we will allocate the acquisition of GDP
to Genzyme Surgical Products. While we have no obligation to fund the research
and development activities of GDP, it elected to fund the following amounts:

1999 1998 1997
- ------------ ------------ ------------

$ 9.0
million..... $8.4 million $7.3 million

We intend to provide approximately $6.0 million of funding to GDP for the
Sepra programs through 2000, based on the 2000 budget for the programs. Future
funding commitments for the Sepra development programs will be evaluated on an
annual basis. We believe, however, that additional funds will be required to
complete the development, clinical testing and commercialization of GDP's
products.

GSP-30

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE M. INCOME TAXES

Genzyme Surgical Products' provisions for income taxes were at rates other
than the U.S. federal statutory tax rate for the following reasons:

1999 1998 1997
-------- -------- --------

Tax at U.S. statutory rate.................................. (35.0)% (35.0)% (35.0)%
State taxes, net............................................ (1.2) (3.1) (3.0)
Nondeductible amortization.................................. 2.3 2.3 4.0
Other, net.................................................. 0.3 -- --
Deductions subject to deferred tax valuation allowance...... 33.6% 35.8% 34.0%
----- ----- -----
Effective tax rate.......................................... 0.0% 0.0% 0.0%
===== ===== =====

The components of net deferred tax assets are described in the following
table:

DECEMBER 31,
-------------------------
1999 1998
-------- --------
(AMOUNTS IN THOUSANDS)

Deferred tax assets:
Net operating loss carryforwards................. $ 64,156 $ 48,701
Unrealized capital losses........................ -- 1,317
Reserves and other............................... 5,638 4,908
-------- --------
Gross deferred tax asset............................. 69,794 54,926
Valuation allowance.................................. (60,087) (45,896)
-------- --------
$ 9,707 $ 9,030
Deferred tax liabilities:
Intangible amoritization......................... (7,390) (6,712)
Depreciable assets............................... (2,317) (2,318)
-------- --------
Net deferred tax asset............................... $ -- $ --
======== ========

As a result of uncertainty surrounding our ability to realize certain tax
benefits that primarily relate to operating loss carryforwards, we placed
valuation allowances of $60.1 million in 1999 and $45.9 million in 1998 against
otherwise recognizable deferred tax assets.

As Genzyme Surgical Products recognizes these deferred tax assets in
accordance with generally accepted accounting principles, the benefits of those
assets are reflected in its tax provision. However, the benefit of these
deferred tax assets has previously been allocated to Genzyme General in
accordance with our management and accounting policies.

NOTE N. BENEFIT PLANS

Note P., "Benefit Plans," to our consolidated financial statements contains
information regarding our 401(k) and other pension plans. We incorporate that
information into this note by reference.

GSP-31

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE O. SEGMENT INFORMATION

We present segment information in a manner consistent with the method we use
to report this information to our management and have restated our 1997 segment
information to conform with this method of presentation. Applying SFAS 131,
Genzyme Surgical Products has two reportable segments:

- Cardiovascular Surgery, which includes chest drainage systems, instruments
and closures used in coronary artery bypass, valve replacement, and other
cardiothoracic surgeries; and

- General Surgery, which includes surgical instruments and Sepra
Film-Registered Trademark- bioresorbable membrane.

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

DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Revenues:
Cardiovascular Surgery.................................. $ 77,966 $ 74,545 $ 79,560
General Surgery......................................... 25,192 20,249 14,813
Other................................................... 8,823 9,164 6,462
-------- -------- --------
Total....................................................... $111,981 $103,958 $100,835
======== ======== ========
Gross Profit:
Cardiovascular Surgery.................................. $ 33,360 $ 29,596 $ 33,494
General Surgery......................................... 8,604 (490) 4,772
Other................................................... 2,775 2,578 2,767
-------- -------- --------
Total....................................................... $ 44,739 $ 31,684 $ 41,033
======== ======== ========

The Other category includes amounts attributable to our products for plastic
surgery.

The following table contains revenue information by geographic area:

DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Revenues:
U.S..................................................... $ 78,854 $ 74,072 $ 71,898
Germany................................................. 16,886 17,400 16,839
Other................................................... 16,241 12,486 12,098
-------- -------- --------
Total................................................. $111,981 $103,958 $100,835
======== ======== ========

All long-lived assets are in the United States.

GSP-32

GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE O. SEGMENT INFORMATION (CONTINUED)
Genzyme Surgical Products markets its products directly to physicians and
hospitals. Genzyme Surgical Products also markets its products through
distributors and had the following sales as a percentage of total revenue to two
unaffiliated distributors:

DECEMBER 31,
----------------------------
1999 1998 1997
-------- -------- ----
(AMOUNTS IN
THOUSANDS)

Revenues:
Distributor A........................................... 16% 18% 20%
Distributor B........................................... 9% 8% 11%

NOTE Q. QUARTERLY RESULTS (UNAUDITED)

1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)

1999:
Net revenue............................................ $ 27,353 $ 26,681 $ 27,385 $30,562
Gross profit........................................... 11,509 9,242 10,587 13,401
Division net loss...................................... (10,745) (17,658) (10,953) (8,681)

1998:
Net revenue............................................ $ 24,227 $ 27,201 $ 24,904 $27,626
Gross profit........................................... 9,504 11,942 (919) 11,157
Division net loss...................................... (9,118) (9,886) (21,519) (9,333)

NOTE R. SUBSEQUENT EVENT

In March 2000, we entered into an agreement to acquire Biomatrix, Inc. Upon
the effectiveness of our Registration Statement on Form S-4 and completion of
the merger, we will form a new operating division called Genzyme Biosurgery and
create a new series of common stock designed to reflect its value and track its
performance. We refer to this stock as "Biosurgery Stock." In connection with
the merger, and upon Genzyme shareholder approval, the assets and liabilities
allocated to Genzyme Surgical Products and Genzyme Tissue Repair will be
reallocated to Genzyme Biosurgery and shares of Surgical Products Stock and
Tissue Repair Stock will be exchanged for Biosurgery Stock. We will account for
the acquisition of Biomatrix as a purchase.

Biomatrix stockholders will receive $37 in cash, one share of Biosurgery
Stock, or a combination of cash and stock for each share of Biomatrix Stock they
hold. The merger agreement provides that we will pay cash for up to 28.38% of
the outstanding shares of Biomatrix common stock that receive merger
consideration, or up to approximately $245.0 million.

Holders of Surgical Products Stock will receive 0.6060 share of Biosurgery
Stock in exchange for each share of Surgical Products Stock they hold and
holders of Tissue Repair Stock will receive 0.3352 share of Biosurgery Stock in
exchange for each share of Tissue Repair Stock they hold.

GSP-33

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Genzyme Corporation:

In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and of cash flows present fairly, in all
material respects, the financial position of Genzyme Surgical Products (as
described in Note A) at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related combined financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

As more fully described in Note A to these financial statements, Genzyme
Surgical Products is a division of Genzyme Corporation; accordingly, the
combined financial statements of Genzyme Surgical Products should be read in
conjunction with the audited consolidated financial statements of Genzyme
Corporation and Subsidiaries.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 23, 2000

GSP-34

GENZYME SURGICAL PRODUCTS

A DIVISION OF GENZYME CORPORATION

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------- ------------------- --------------------------------- ---------- -------------
ADDITIONS
---------------------------------
BALANCE AT CHARGED TO COSTS CHARGED TO BALANCE AT
DESCRIPTION BEGINNING OF PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
- -------------------------- ------------------- ---------------- -------------- ---------- -------------

Year ended December 31,
1999:
Allowance for doubtful
accounts................ $ 365,000 $ 375,000 $ -- $ 407,000(1) $ 333,000
Inventory reserve......... $12,127,000 $ 1,056,000 $ -- $4,460,000 $ 8,723,000
Year ended December 31,
1998:
Allowance for doubtful
accounts................ $ 476,000 $ 166,000 $ -- $ 277,000(1) $ 365,000
Inventory reserve......... $ 3,700,000 $10,758,000 $ -- $2,331,000 $12,127,000
Year ended December 31,
1997:
Allowance for doubtful
accounts................ $ 917,000 $ 275,000 $ -- $ 716,000(1) $ 476,000
Inventory reserve......... $ 3,854,000 $ 484,000 $ -- $ 638,000 $ 3,700,000

- ------------------------

(1) Uncollectible accounts written off, net of recoveries.

GSP-35