EXHIBIT 13.5

FINANCIAL STATEMENTS

PAGE NO.
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GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

Combined Selected Financial Data.......................... GTR-2

Management's Discussion and Analysis of Genzyme Tissue
Repair's Financial Condition and Results of
Operations.............................................. GTR-4

Combined Statements of Operations--For the Years Ended
December 31, 1999, 1998 and 1997........................ GTR-13

Combined Balance Sheets--December 31, 1999 and 1998....... GTR-14

Combined Statements of Cash Flows--For the Years Ended
December 31, 1999, 1998 and 1997........................ GTR-15

Notes to Combined Financial Statements.................... GTR-16

Report of Independent Accountants......................... GTR-29

GTR-1

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

COMBINED SELECTED FINANCIAL DATA

Genzyme Tissue Repair is our operating division that develops and markets
biological products for orthopedic injuries, such as cartilage damage, and
severe burns.

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

- requires us to exchange, redeem or distribute a dividend to the holders of
Tissue Repair Stock if all or substantially all of the assets allocated to
Genzyme Tissue Repair are sold to a third party

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 Tissue Repair Stock is defined in our
charter as the net income or loss of Genzyme Tissue Repair determined in
accordance with generally accepted accounting principles and as adjusted for tax
benefits allocated to or from Genzyme Tissue Repair 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 Tissue Repair Stock are based on the
income or losses attributable to Genzyme Tissue Repair, we include financial
statements and management's discussion and analysis of Genzyme Tissue Repair 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 Tissue Repair and should be read in conjunction with the financial
statements of Genzyme Tissue Repair and accompanying notes.

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GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

COMBINED SELECTED FINANCIAL DATA

COMBINED STATEMENT OF OPERATIONS DATA

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

Net service sales........................ $ 20,402 $ 17,117 $ 10,856 $ 7,312 $ 5,220
Operating costs and expenses:
Cost of services sold................ 13,237 13,438 11,788 11,193 4,731
Selling, general and
administrative..................... 24,604 24,579 25,571 27,111 12,927
Research and development............. 8,019 10,432 10,845 10,880 10,938
--------- --------- --------- --------- --------
Total operating costs and
expenses......................... 45,860 48,449 48,204 49,184 28,596
--------- --------- --------- --------- --------
Operating loss........................... (25,458) (31,332) (37,348) (41,872) (23,376)
Other income (expenses):
Equity in net loss of joint
venture(1)......................... (3,368) (7,674) (6,719) (1,727) --
Interest income...................... 609 1,176 979 1,432 1,386
Interest expense..................... (1,823) (2,556) (2,896) (148) (40)
--------- --------- --------- --------- --------
Total other income (expenses)...... (4,582) (9,054) (8,636) (443) 1,346
--------- --------- --------- --------- --------
Division net loss........................ $ (30,040) $ (40,386) $ (45,984) $ (42,315) $(22,030)
========= ========= ========= ========= ========

COMBINED BALANCE SHEET DATA

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

Cash and investments........................... $ 9,373 $ 7,732 $31,915 $16,230 $47,573
Working capital................................ 12,112 (6,461) 31,623 14,232 44,374
Total assets................................... 19,648 18,954 57,226 42,593 52,649
Long-term debt................................. 18,000 12,579 31,089 18,000 --
Division equity................................ (3,455) (16,396) 20,203 18,084 45,926

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

(1) Operations of Diacrin/Genzyme LLC, our joint venture with Diacrin, Inc.,
commenced in October 1996. In May 1999, we reallocated our ownership
interest in the joint venture from Genzyme Tissue Repair to Genzyme General.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME TISSUE REPAIR'S 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 Tissue Repair 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 Tissue
Repair and Genzyme.

We prepare the financial statements of Genzyme Tissue Repair in accordance
with generally accepted accounting principles. We present financial information
and accounting policies specific to Genzyme Tissue Repair 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
Tissue Repair. Note A., "Summary of Significant Accounting Policies," to our
accompanying consolidated financial statements contains our accounting policies.

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

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

To determine earnings per share, we allocate Genzyme's earnings to each
series of our common stock based on the earnings attributable to that series of
stock. The earnings attributable to Tissue Repair Stock is defined in our
charter as the net income or loss of Genzyme Tissue Repair determined in
accordance with generally accepted accounting principles and as adjusted for tax
benefits allocated to or from Genzyme Tissue Repair 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, 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.

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its liabilities, regardless of what we deem for financial statement presentation
purposes as allocated to any division. Holders of Tissue Repair 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 Tissue Repair 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 Tissue Repair 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 Tissue Repair 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 Tissue Repair Stock in our
consolidated financial statements. We present financial information and
accounting policies specific to Genzyme Tissue Repair 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 Tissue Repair's financial position and
results of operations in conjunction with the financial statements and related
notes of Genzyme Tissue Repair, 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 management believes are
necessary for an understanding of Genzyme Tissue Repair's financial statements.

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The components of Genzyme Tissue Repair's combined statements of operations
are described in the following table:

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

Total revenues......................... $ 20,402 $ 17,117 $ 10,856 19% 58%
Cost of revenues....................... 13,237 13,438 11,788 (1)% 14%
Selling, general and administrative.... 24,604 24,579 25,571 0% (4)%
Research and development............... 8,019 10,432 10,845 (23)% (4)%
-------- -------- --------
Total operating costs and
expenses....................... 45,860 48,449 48,204 (5)% 1%
-------- -------- --------
Operating loss......................... (25,458) (31,332) (37,348) (19)% (16)%
Other expenses, net.................... (4,582) (9,054) (8,636) (49)% 5%
-------- -------- --------
Division net loss...................... $(30,040) $(40,386) $(45,984) (26)% (12)%
======== ======== ========

REVENUES

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

Carticel-Registered Trademark-
chondrocytes........................... $15,213 $10,978 $ 6,598 39% 66%
Epicel-TM- skin grafts................... 5,092 6,030 4,258 (16)% 42%
Other.................................... 97 109 -- (11)% N/A
------- ------- -------
Total revenues....................... $20,402 $17,117 $10,856 19% 58%
======= ======= =======

The increase in sales of Carticel-Registered Trademark- chondrocytes during
both periods was a result of continued increases in the numbers of patients
treated and surgeons trained as well as increases in the number of insurance
reimbursement approvals. Revenue from Epicel-TM- skin grafts varies from year to
year depending on the number of patients requiring severe burn care.

MARGINS

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

Gross margins.................................. $7,165 $3,679 $(932) 95% 495%
% of total revenues........................ 35% 21% (9)%

Genzyme Tissue Repair's gross margins improved in both periods as a result
of:

- Increased sales of Carticel-Registered Trademark- chondrocytes;

- Reductions in labor and manufacturing expenses; and

- Decreased material expenses.

GTR-6

SG&A AND R&D EXPENSES

Genzyme Tissue Repair's selling, general and administrative expenses
remained flat, while revenues increased, in 1999 compared to 1998 as a result of
its efforts to streamline operations. Its selling, general and administrative
expense decreased in 1998 compared to 1997 also as a result of its efforts to
streamline operations.

Genzyme Tissue Repair's research and development expense decreased in 1999
compared to 1998 due to the termination of its TGF-beta and other research and
development programs. Its research and development expense decreased slightly in
1998 compared to 1997.

OTHER INCOME AND EXPENSES

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

Equity in net loss of joint venture....... $(3,368) $(7,674) $(6,719) (56)% 14%
Interest income........................... 609 1,176 979 (48)% 20%
Interest expense.......................... (1,823) (2,556) (2,896) (29)% (12)%
------- ------- -------
Total other income (expense), net... $(4,582) $(9,054) $(8,636) (49)% 5%
======= ======= =======

1999 AS COMPARED TO 1998

Equity in net loss of joint venture decreased in 1999 compared to 1998 as a
result of the reallocation of Genzyme's ownership interest in Diacrin/Genzyme
LLC from Genzyme Tissue Repair to Genzyme General in May 1999. As a result,
Genzyme Tissue Repair will not recognize losses related to the joint venture
going forward. In the period of 1999 prior to the transfer, Genzyme Tissue
Repair provided $3.6 million in funding to the joint venture and realized a net
loss of $3.4 million from the joint venture. During 1998, Genzyme Tissue Repair
realized 12 months of losses from the joint venture.

Interest income decreased in 1999 compared to 1998 as a result of lower
average cash balances.

In the second quarter of 1998, Genzyme Tissue Repair completed the accretion
of the conversion feature of the 6% convertible subordinated note. Interest
expense decreased in 1999 as a result. During 1999, the holder of this note
converted the remaining principal amount of $12.4 million into shares of Tissue
Repair Stock.

1998 AS COMPARED TO 1997

Equity in net loss of joint venture increased in 1998 compared to 1997 as a
result of increased clinical trial activity during 1998. During 1998, Genzyme
Tissue Repair provided $7.2 million of funding to Diacrin/Genzyme LLC and
realized a net loss of $7.7 million from the joint venture.

Interest income increased in 1998 compared to 1997 as a result of higher
average cash balances.

In the second quarter of 1998, Genzyme Tissue Repair completed the accretion
of the conversion feature of the 6% convertible subordinated note. Interest
expense decreased in 1997 as a result. During 1998, the holder of this note
converted $0.6 million of principal into shares of Tissue Repair Stock.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999, Genzyme Tissue Repair had cash and cash equivalents of
$9.4 million, a decrease of $1.6 million from December 31, 1998.

GTR-7

Genzyme Tissue Repair used $25.1 million in cash for operations during 1999.
This is primarily due to Genzyme Tissue Repair's net loss of $30.0 million for
the year.

During 1999, Genzyme Tissue Repair used $4.4 million in cash as a result of
its investing activities. This amount included $3.6 million contributed to
Diacrin/Genzyme LLC and $0.9 million used to purchase equipment.

Genzyme Tissue Repair's financing activities generated $31.1 million in cash
during 1999. This included $25.0 million in cash allocated from Genzyme General
in connection with the transfer of our interest in Diacrin/Genzyme LLC to
Genzyme General, and $5.0 million allocated to Genzyme Tissue Repair under its
interdivisional financing arrangement from Genzyme General.

At December 31, 1999, $18.0 million of funds outstanding under our revolving
credit facility was allocated to Genzyme Tissue Repair. Genzyme Tissue Repair,
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.

In October 1996, our board of directors made $20.0 million of Genzyme
General's cash available to Genzyme Tissue Repair in order for Genzyme Tissue
Repair to fund its obligations under its joint venture with Diacrin. Under this
arrangement, Genzyme Tissue Repair may draw down funds as needed each quarter in
exchange for Genzyme Tissue Repair designated shares based on the fair market
value of Tissue Repair Stock (as defined in our charter) at the time of the
draw. Genzyme Tissue Repair made a $7.0 million draw under this arrangement in
1997.

In May 1998, our board of directors increased the amount committed under
this arrangement from $20.0 million to $50.0 million. Genzyme Tissue Repair made
a $5.0 million draw in February 1999. In May 1999, the amount available under
this arrangement was reduced to $25.0 million in connection with the
reallocation of our ownership interest in Diacrin/Genzyme LLC from Genzyme
Tissue Repair to Genzyme General.

We anticipate that Genzyme Tissue Repair's current cash resources, together
with the $20.0 million that remains available under an interdivisional financing
arrangement of credit from Genzyme General, will be sufficient to fund its
operations through the end of 2000.

If Diacrin/Genzyme LLC does not initiate a Phase III clinical trial of
NeuroCell-TM- PD by June 30, 2000, Genzyme Tissue Repair will be required to pay
Genzyme General $20 million plus accrued interest at 13.5% per annum. Genzyme
Tissue Repair may pay Genzyme General in cash, Genzyme Tissue Repair designated
shares, or a combination of both, at its option. If this milestone is not
achieved and Genzyme Tissue Repair elects to repay Genzyme General in cash, its
cash reserves will be substantially diminished or depleted in their entirety.

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

- ability to satisfy regulatory requirements of the FDA and other government
agencies;

- results of research and development and clinical testing;

- enforcement of patent and other intellectual property rights; and

- development of competitive products and services.

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or eliminate certain of its programs. Genzyme Tissue Repair 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 Tissue Repair 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.

THE COMMERCIAL SUCCESS OF GENZYME TISSUE REPAIR'S LEAD PRODUCT,
CARTICEL-REGISTERED TRADEMARK- CHONDROCYTES, IS UNCERTAIN.

Carticel-Registered Trademark- chondrocytes are used to treat knee cartilage
damage. This service involves a proprietary process for growing autologous (a
patient's own) cartilage cells to replace those that are damaged or lost.
Revenues from Carticel-Registered Trademark- chondrocytes accounted for
approximately 75% of Genzyme Tissue Repair's 1999 revenue. The commercial
success of Carticel-Registered Trademark- chondrocytes will depend on many
factors including:

POSITIVE RESULTS FROM POST-MARKETING STUDIES.

- We have agreed with the FDA to conduct two post-marketing studies to
confirm the effectiveness of Carticel-Registered Trademark- chondrocytes.
The first study compares clinical outcomes of patients in Genzyme Tissue
Repair's registry who did not respond to treatment before being implanted
with Carticel-Registered Trademark-chondrocytes. This study will measure
outcomes before and after implantation with Carticel-Registered Trademark-
chondrocytes. The second study compares the long-term clinical effects of
treatment with Carticel-Registered Trademark-chondrocytes to other
available treatments. If these studies demonstrate that treatment with
Carticel-Registered Trademark- chondrocytes is not superior to the
alternatives studied, the FDA may suspend or withdraw its approval of
Carticel-Registered Trademark- chondrocytes. If Genzyme Tissue Repair
cannot market Carticel-Registered Trademark- chondrocytes in the U.S., its
financial results will be negatively impacted.

FDA APPROVAL OF RELATED DEVICE.

- Genzyme Tissue Repair has developed a device to improve the procedure for
implanting Carticel-Registered Trademark-chondrocytes and plans to file
for marketing approval with the FDA. Genzyme Tissue Repair believes it
will begin marketing this device in 2000. We cannot guarantee that the FDA
will approve this device, that this device will improve the procedure for
implanting Carticel-Registered Trademark- chondrocytes, or that this
device will gain commercial acceptance.

THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT.

- Since the FDA approved Carticel-Registered Trademark- chondrocytes, we
have seen a substantial increase in the number of third party payers who
cover it. Some third party payers, however, do not cover
Carticel-Registered Trademark-chondrocytes. We cannot guarantee that any
third party payers will continue to cover it or that additional third
party payers will begin to provide reimbursement.

- Although FDA approval is a crucial factor in insurance plans deciding to
cover new treatments, a number of major insurance plans also base such
decisions on their own or third party evaluations of such treatments. One
independent association that conducts such evaluations is the Blue Cross
Blue Shield Association. The Blue Cross Blue Shield Association has
determined that its Technology Assessment Committee does not believe that
Carticel-Registered Trademark- chondrocytes meets all of its published

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criteria for new treatments. We believe that Carticel-Registered
Trademark- chondrocytes does in fact meet all of such criteria and are
discussing the evaluation with the Blue Cross Blue Shield Association.
While individual Blue Cross Blue Shield plans representing more than 50%
of Blue Cross Blue Shield policyholders have provided policy coverage for
Carticel-Registered Trademark- chondrocytes without a favorable evaluation
by the Blue Cross Blue Shield Association, many Blue Cross Blue Shield
plans have delayed approving Carticel-Registered Trademark- chondrocytes
from coverage under their policies as a direct result of this unfavorable
ruling. Since these remaining plans represent a significant percentage of
insured lives in the U.S., this ruling has delayed our access to a
substantial portion of the market for Carticel-Registered Trademark-
chondrocytes.

THE SUCCESS OF COMPETITIVE PRODUCTS.

- The process we use to grow a patient's cartilage cells is not patentable,
and we do not yet have significant patent protection covering the other
processes used in providing Carticel-Registered Trademark- chondrocytes.
Consequently, we cannot prevent a competitor from developing the ability
to grow cartilage cells and from offering a product or service that is
similar or superior to Carticel-Registered Trademark- chondrocytes. If a
competitor were to develop such ability and obtain FDA approval for a
competitive product or service, Genzyme Tissue Repair's financial results
of operations would be negatively impacted. We are aware of at least two
other companies that are growing autologous cartilage cells for cartilage
repair in the European market. Also, several pharmaceutical and
biotechnology companies are developing alternative treatments for knee
cartilage damage. One or more of these companies may develop products or
services superior to the Carticel-Registered Trademark- chondrocytes.

MARKET ACCEPTANCE BY ORTHOPEDIC SURGEONS.

- We are marketing Carticel-Registered Trademark- chondrocytes to orthopedic
surgeons. We cannot guarantee that we will train enough surgeons who
incorporate it into their practice to make it commercially successful.

GENZYME TISSUE REPAIR ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE.

We expect Genzyme Tissue Repair to have significant operating losses at
least through 2000 as it continues to commercialize Carticel-Registered
Trademark- chondrocytes and to conduct research and development and clinical
programs. We cannot guarantee that Genzyme Tissue Repair's operations will ever
be profitable.

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

We anticipate that Genzyme Tissue Repair's current cash resources, together
with amounts available under an interdivisional financing arrangement from
Genzyme General, will be sufficient to fund Genzyme Tissue Repair's operations
through the end of 2000.

In 1999, Genzyme Tissue Repair received $25 million in cash from Genzyme
General in connection with the transfer to Genzyme General of our interest in
our joint venture with Diacrin, Inc. If the joint venture does not initiate a
Phase III clinical trial of NeuroCell-TM--PD by June 30, 2000, Genzyme Tissue
Repair will be required to pay Genzyme General $20 million plus accrued interest
at 13.5%. Genzyme Tissue Repair may repay this amount in cash, Genzyme Tissue
Repair designated shares, or combination of both, at its option. Genzyme Tissue
Repair designated shares are shares of Tissue Repair Stock that are not issued
and outstanding, but which our board of directors may issue, sell or distribute
without allocating the proceeds to Genzyme Tissue Repair. If these milestones
are not achieved, and Genzyme Tissue Repair elects to repay Genzyme General in
cash, its cash reserves will be substantially diminished or depleted in their
entirety. If Genzyme Tissue Repair elects to repay Genzyme General in Genzyme
Tissue Repair designated shares, this would substantially dilute the rights of
the holders of Tissue Repair Stock and could significantly affect the market
price of Tissue Repair Stock.

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Genzyme Tissue Repair's cash needs may differ from those planned as a result
of various factors, including the:

- ability to satisfy regulatory requirements of the FDA and other government
agencies;

- results of research and development and clinical testing;

- enforcement of patent and other intellectual property rights; and

- development of competitive products and services.

Genzyme Tissue Repair will require substantial additional funds in order to
continue operations at current levels beyond 2000. We cannot guarantee that we
will be able to obtain any additional financing for Genzyme Tissue Repair or
find it on favorable terms. If Genzyme Tissue Repair has insufficient funds or
we are unable to raise additional funds for Genzyme Tissue Repair, it may be
required to delay, scale back or eliminate certain of its programs. Genzyme
Tissue Repair may also have to give rights to third parties to commercialize
technologies or products that it would otherwise commercialize itself.

GENZYME TISSUE REPAIR'S RESULTS FLUCTUATE QUARTERLY AND THIS COULD HAVE AN
ADVERSE EFFECT ON ITS OPERATIONS.

We expect that the revenues from the sale of the Carticel-Registered
Trademark- chondrocytes will fluctuate based on Genzyme Tissue Repair's success
in penetrating the market, the availability of competitive procedures and the
availability of third party reimbursement. We cannot predict the timing or
magnitude of these fluctuations. Furthermore, we expect that revenues from
Carticel-Registered Trademark- chondrocytes will be lower in the summer months
because fewer operations are typically performed during those months.

We also expect that revenues from the sale of Epicel-TM- skin grafts will
continue to fluctuate from quarter to quarter. This fluctuation is a result of
several unpredictable factors, including the number and survival rate of severe
burn patients who are treated with Epicel-TM- skin grafts.

Since Genzyme Tissue Repair must maintain extensive tissue culture
facilities and a trained staff for both Carticel-Registered Trademark-
chondrocytes and Epicel-TM- skin grafts, a significant portion of its costs are
fixed and, therefore, fluctuations in demand can have an adverse effect on its
results of operations.

GENZYME TISSUE REPAIR RELIES ON KEY COLLABORATORS TO SUPPORT FURTHER RESEARCH
AND DEVELOPMENT OF CARTICEL-REGISTERED TRADEMARK-CHONDROCYTES AND THESE
EFFORTS COULD SUFFER IF IT EXPERIENCES PROBLEMS WITH THESE COLLABORATORS.

Carticel-Registered Trademark- chondrocytes were developed based on the work
of a group of Swedish physicians. Genzyme Tissue Repair had consulting
agreements with the two leaders of that group. These agreements, however,
expired in 1998 and Genzyme Tissue Repair is currently negotiating renewals of
these agreements. Pending these negotiations, these physicians are continuing to
advise Genzyme Tissue Repair on the commercialization and further development
Carticel-Registered Trademark- chondrocytes.

We cannot guarantee that the two physicians will sign a new consulting
agreement or continue to advise Genzyme Tissue Repair.

In addition, individuals who are familiar with the know-how underlying
Carticel-Registered Trademark- chondrocytes through their association with these
physicians may disclose such information to our competitors. Either event could
have an adverse effect on Genzyme Tissue Repair's results of operations.

We have entered into a sponsored research agreement with the University of
Gothenburg in Sweden and certain physicians, including the two physicians
discussed above. The purpose of the agreement is to conduct additional research
on Carticel-Registered Trademark- chondrocytes. The agreement prohibits each
member of the research team from disclosing any information relating to Genzyme
Tissue Repair or its business that they acquire in connection with their work
under the agreement. The agreement also states that all inventions that the
members conceive or reduce to practice during the course of the research program
will be

GTR-11

Genzyme Tissue Repair's property, with royalties payable to the inventing
member. We cannot guarantee that these members will honor their obligations
under the sponsored research agreement.

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.

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 shareholders;

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

- other customary closing conditions.

GTR-12

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION
COMBINED STATEMENTS OF OPERATIONS

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

Total revenues........................................... $ 20,402 $ 17,117 $ 10,856
Operating costs and expenses:
Cost of services sold.................................. 13,237 13,438 11,788
Selling, general and administrative.................... 24,604 24,579 25,571
Research and development............................... 8,019 10,432 10,845
--------- --------- ---------
Total operating costs and expenses................. 45,860 48,449 48,204
--------- --------- ---------
Operating loss........................................... (25,458) (31,332) (37,348)

Other income (expenses):
Equity in net loss of joint venture.................... (3,368) (7,674) (6,719)
Interest income........................................ 609 1,176 979
Interest expense....................................... (1,823) (2,556) (2,896)
--------- --------- ---------
Total other income (expenses)...................... (4,582) (9,054) (8,636)
--------- --------- ---------
Division net loss........................................ $ (30,040) $ (40,386) $ (45,984)
========= ========= =========
Comprehensive loss, net of tax:

Division net loss........................................ $ (30,040) $ (40,386) $ (45,984)
Other comprehensive income (loss), net of tax:
Unrealized gains on securities arising during the
period............................................... -- 9 (9)
--------- --------- ---------
Comprehensive loss....................................... $ (30,040) $ (40,377) $ (45,993)
========= ========= =========

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

GTR-13

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION
COMBINED BALANCE SHEETS

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

ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,373 $ 7,732
Accounts receivable, net.................................. 4,968 3,833
Inventories............................................... 2,394 2,645
Other current assets...................................... 253 1,723
------- --------
Total current assets.................................... 16,988 15,933

Plant and equipment, net.................................... 2,545 2,836
Other....................................................... 115 185
------- --------
Total assets............................................ $19,648 $ 18,954
======= ========

LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,062 $ 1,355
Accrued expenses.......................................... 3,131 2,491
Due to Genzyme General.................................... 683 548
Current portion of long-term debt......................... -- 18,000
------- --------
Total current liabilities............................... 4,876 22,394

Convertible note, net....................................... -- 12,579
Long-term debt.............................................. 18,000 --
Other....................................................... 227 377
------- --------
Total liabilities....................................... 23,103 35,350

Commitments and Contingencies (See Notes)

Division equity (Note I).................................... (3,455) (16,396)
------- --------
Total liabilities and division equity................... $19,648 $ 18,954
======= ========

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

GTR-14

GENZYME TISSUE REPAIR
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......................................... $ (30,040) $ (40,386) $ (45,984)
Reconciliation of division net loss to net cash used in
operating activities:
Depreciation and amortization............................. 1,186 1,757 2,482
Loss on disposal of property, plant and equipment......... -- -- 24
Non-cash compensation expense............................. -- 108 221
Accrued interest/amortization on bonds.................... -- 188 (188)
Provision for bad debts and inventory..................... 2,718 2,985 4,400
Accretion of debt discount................................ 220 453 1,071
Equity in net loss of joint venture....................... 3,368 7,674 6,719
Amortization of deferred rent............................. (150) (150) (150)

Increase (decrease) in cash from working capital:
Accounts receivable..................................... (1,319) (1,869) (1,024)
Inventories............................................. (2,283) (3,400) (4,070)
Other current assets.................................... 1,248 (719) (587)
Accounts payable and accrued expenses................... (151) (574) (39)
Due to Genzyme General.................................. 135 (665) (391)
--------- --------- ---------
Net cash used in operating activities................. (25,068) (34,598) (37,516)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................. -- -- (10,614)
Sales and maturities of investments....................... -- 10,614 318
Investment in joint venture............................... (3,594) (7,163) (6,820)
Purchases of property, plant and equipment................ (894) (670) (496)
Sale of property, plant and equipment to Genzyme
General................................................. -- 16,500 852
Other..................................................... 70 15 (428)
--------- --------- ---------
Net cash provided by (used in) investing activities... (4,418) 19,296 (17,188)

CASH FLOWS FROM FINANCING ACTIVITIES:
Allocated proceeds from issuance of Tissue Repair Stock,
net..................................................... 462 2,204 31,475
Allocated proceeds from issuance of debt, net............. -- -- 13,542
Payments of debt and capital lease obligations............ (96) (445) 3
Cash allocated from Genzyme General....................... 30,037 155 14,892
Bank overdraft............................................ 724 -- --
--------- --------- ---------
Net cash provided by financing activities............. 31,127 1,914 59,912

Increase (decrease) in cash and cash equivalents............ 1,641 (13,388) 5,208
Cash and cash equivalents at beginning of period............ 7,732 21,120 15,912
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 9,373 $ 7,732 $ 21,120
========= ========= =========

Supplemental cash flow information:
Cash paid during the year for interest.................... $ 1,594 $ 2,265 $ 1,127

Supplemental disclosures of non-cash transactions:
Transfer of plant and equipment--Note E.
Conversion of 5% convertible subordinated note--Note H.

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

GTR-15

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Genzyme Tissue Repair is our operating division that develops and markets
biological products for orthopedic injuries, such as cartilage damage, and
severe burns.

BASIS OF PRESENTATION

The combined financial statements of Genzyme Tissue Repair for each period
include the balance sheets, results of operations and cash flows of the
businesses we allocate to Genzyme Tissue Repair. We also allocate a portion of
our corporate operations to Genzyme Tissue Repair using methods described in our
allocation policy 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.

We prepare the financial statements of Genzyme Tissue Repair in accordance
with generally accepted accounting principles. We present financial information
and accounting policies specific to Genzyme Tissue Repair 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
Tissue Repair. Note A., "Summary of Significant Accounting Policies," to our
consolidated financial statements contains our accounting policies. We
incorporate that information into this note by reference.

TRACKING STOCK

- factors the assets and liabilities and income or losses attributable to
Genzyme Tissue Repair into the determination of the amount available to
pay dividends on Tissue Repair 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 Tissue Repair Stock, is defined in our
charter as the net income or loss of Genzyme Tissue Repair determined in
accordance with generally accepted accounting principles and as adjusted for tax
benefits allocated to or from Genzyme Tissue Repair 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,

GTR-16

GENZYME TISSUE REPAIR
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 Tissue Repair Stock is designed to reflect Genzyme Tissue Repair's
performance, it is common stock of Genzyme Corporation and not Genzyme Tissue
Repair; Genzyme Tissue Repair is a division, not a company or legal entity, and
therefore does not and cannot issue stock. Consequently, holders of Tissue
Repair Stock have no specific rights to assets allocated to Genzyme Tissue
Repair. Genzyme Corporation continues to hold title to all of the assets
allocated to Genzyme Tissue Repair 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 Tissue Repair 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 Tissue Repair 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 Tissue Repair 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 Tissue Repair 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

GTR-17

GENZYME TISSUE REPAIR
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 Between 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 Tissue Repair from local currency into U.S. dollars and include
translation adjustments for these subsidiaries in division equity. Genzyme
Tissue Repair 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 Tissue Repair recognizes revenue from sales of Carticel-Registered
Trademark- chondrocytes and Epicel-TM- skin grafts when the cartilage or skin
cells, as applicable, are shipped and title has passed. Cancellation charges
apply to cancelled shipments of Epicel-TM- skin grafts.

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

GTR-18

GENZYME TISSUE REPAIR
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.

GTR-19

GENZYME TISSUE REPAIR
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.

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 Tissue Repair, our board of directors may elect instead to account
for the reallocation as an increase in Genzyme Tissue Repair designated shares
in accordance with the provisions of our charter. 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 Tissue
Repair Stock voting as a separate class unless the policy change does not affect
Genzyme Tissue Repair.

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

GTR-20

GENZYME TISSUE REPAIR
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 Genzyme
Tissue Repair 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 Genzyme Tissue
Repair 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 Tissue Repair 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. ACCOUNTS RECEIVABLE

Genzyme Tissue Repair performs credit evaluations of its customers on an
ongoing basis and generally does not require collateral. Genzyme Tissue Repair
states accounts receivable at fair value after

GTR-21

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE C. ACCOUNTS RECEIVABLE (CONTINUED)
reflecting an allowance for doubtful accounts. This allowance was $1.0 million
at December 31, 1999 and 1998.

NOTE D. INVENTORIES

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

Raw materials............................................ $ 428 $ 264
Work-in-process.......................................... 1,938 2,381
Finished products........................................ 28 --
------ ------
Total inventory.................................... $2,394 $2,645
====== ======

NOTE E. PLANT AND EQUIPMENT

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

Plant and equipment.................................... $ 4,675 $ 3,845
Leasehold improvements................................. 2,597 2,577
Furniture and fixtures................................. 191 146
------- -------
7,463 6,568
Less accumulated depreciation.......................... (4,918) (3,732)
------- -------
Plant and equipment, net............................... $ 2,545 $ 2,836
======= =======

Genzyme Tissue Repair's depreciation and amortization expense was $1.2
million in 1999, $1.6 million in 1998, and $2.3 million in 1997.

In June 1998, our board of directors reallocated a manufacturing facility
(including land, building and equipment) from Genzyme Tissue Repair to Genzyme
General in exchange for $16.5 million in cash. Genzyme Tissue Repair recorded a
gain in division equity of approximately $0.7 million in connection with this
reallocation.

NOTE F. DIACRIN JOINT VENTURE

In May 1999, we reallocated our ownership interest in Diacrin/Genzyme LLC,
our joint venture with Diacrin, Inc. for the development and commercialization
of NeuroCell-TM--PD for the treatment of Parkinson's disease and
NeuroCell-TM--HD for the treatment of Huntington's disease, from Genzyme Tissue
Repair to Genzyme General in exchange for $25.0 million in cash. For the period
October 1996 through May 1999, Genzyme Tissue Repair provided a total of
$19.5 million of funding to the joint venture, $5.1 million of which was
provided by Genzyme General in exchange for 489,810 Genzyme Tissue Repair
designated shares. Genzyme Tissue Repair realized net losses from the joint
venture of $3.4 million in 1999, $7.7 million in 1998 and $6.8 million in 1997.

GTR-22

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE F. DIACRIN JOINT VENTURE (CONTINUED)
If Diacrin/Genzyme LLC does not initiate a Phase III clinical trial of
NeuroCell-TM--PD by June 30, 2000, Genzyme Tissue Repair is required to pay
Genzyme General $20 million plus accrued interest at 13.5% per annum. Genzyme
Tissue Repair may pay Genzyme General in cash, Genzyme Tissue Repair designated
shares, or a combination of both, at its option.

Condensed financial information and allocation of the losses of the
Diacrin/Genzyme LLC are summarized below:

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

Operating expenses............................ $ (10,718) $ (9,595) $ (6,809)
Net loss...................................... (10,713) (9,595) (6,809)

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

Current assets.............................................. $443 $364
Noncurrent assets........................................... 192 220
Current liabilities......................................... 972 885
Noncurrent liabilities...................................... -- --

NOTE G. ACCRUED EXPENSES

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

Compensation............................................. $1,569 $1,271
Professional fees........................................ 334 505
Royalties................................................ 97 88
Other.................................................... 1,131 627
------ ------
Total accrued expenses............................. $3,131 $2,491
====== ======

NOTE H. DEBT INSTRUMENTS AND OPERATING LEASES

REVOLVING CREDIT FACILITY

During 1999, we refinanced our revolving credit facility allocated to
Genzyme Tissue Repair, which matured in October 1999. At December 31, 1999,
$18.0 million of the amount outstanding under our new revolving credit facility
was allocated to Genzyme Tissue Repair. On that date, the interest rate on this
borrowing was approximately 6.635%. Genzyme Tissue Repair incurred interest
expense of $0.2 million on amounts borrowed under this revolving credit
facility.

GTR-23

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE H. DEBT INSTRUMENTS AND OPERATING LEASES (CONTINUED)
Genzyme Tissue Repair incurred interest expense of $0.8 million in 1999,
$1.1 million in 1998 and $1.1 million in 1997 on amounts borrowed under our
credit facility that matured in 1999.

5% CONVERTIBLE SUBORDINATED NOTE

In February 1997, we issued a 5% convertible subordinated note in a
principal amount of $13.0 million. This note was convertible into shares of
Tissue Repair Stock at a discount to the market value of Tissue Repair Stock.
Genzyme Tissue Repair recorded a $0.2 million charge to interest expense in
1999, $0.5 million in 1998 and $1.1 million in 1997, to reflect the accretion to
fair value of the conversion feature of this note.

In 1998, the holder of this note converted $0.6 million in principal amount
into 223,405 shares of Tissue Repair Stock. Genzyme Tissue Repair paid $1.1
million in accrued interest in connection with these conversions. In 1999, the
holder converted the remaining $12.4 million in principal amount into 7,257,573
shares of Tissue Repair Stock. Genzyme Tissue Repair paid $0.5 million in
accrued interest in connection with these conversions. As of December 31, 1999,
there was no principal or interest remaining on this convertible note.

OPERATING LEASES

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

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

$1.7 million $2.2 million $1.8 million

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

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

$1.9 million $1.8 million $1.5 million $1.5 million $1.5 million $1.5 million

GTR-24

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. DIVISION EQUITY

The following table contains the components of division equity for Genzyme
Tissue Repair for the periods presented:

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

Balance at beginning of period.............................. $(16,396) $ 20,203 $ 18,084
Division net loss........................................... (30,040) (40,386) (45,984)
Allocated proceeds from issuance of Tissue Repair Stock
under stock plans......................................... 397 2,109 2,438
Allocation of cash to Genzyme Tissue Repair for designated
shares(1)................................................. 5,001 -- 14,892
Tissue Repair Stock issued in public offering............... -- -- 29,037
Payment from Genzyme General for research program........... 100 250 --
Payment from Genzyme General for transfer of interest in
joint venture............................................. 25,000 -- --
Allocated stock compensation expense........................ -- 108 221
Allocated value of debt conversion feature.................. -- -- 1,524
Allocated value of Tissue Repair Stock issued upon
conversion of convertible debt............................ 12,483 600 --
Allocated gain on transfer of facility...................... -- 711 --
Allocated equity adjustments................................ -- 9 (9)
-------- -------- --------
Balance at end of period.................................... $ (3,455) $(16,396) $(20,203)
======== ======== ========

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

(1) Genzyme Tissue Repair designated shares are shares of Tissue Repair Stock
that are not issued and outstanding, but which our board of directors may
issue, sell or distribute without allocating the proceeds to Genzyme Tissue
Repair. As of December 31, 1999, there were 2,238,053 Genzyme Tissue Repair
designated shares.

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 Tissue
Repair as if compensation expense for our stock-based compensation plans was
determined in accordance with SFAS 123 based on

GTR-25

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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

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

Division net loss:
As reported......................... $ (30,040) $ (40,386) $ (45,984)
Pro forma........................... $ (33,292) $ (44,481) $ (49,547)

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.

INTERDIVISIONAL FINANCING ARRANGEMENT

In May 1998, our board of directors increased the amount committed under
this arrangement from $13.0 million to $50.0 million. Genzyme Tissue Repair made
a $5.0 million draw in February 1999. In May 1999, the amount available under
this arrangement was reduced to $25.0 million in connection with the
reallocation of our ownership interest in Diacrin/Genzyme LLC from Genzyme
Tissue Repair to Genzyme General.

NOTE J. 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 Tissue Repair's results of operations,
financial condition, or liquidity.

GTR-26

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE K. INCOME TAXES

Genzyme Tissue Repair's 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................................ (1.3) (2.8) (3.0)
Benefit of tax credits.......................... (0.1) (3.4) (1.4)
Other, net...................................... 0.2 0.6 1.0
Deductions subject to deferred tax valuation
allowance..................................... 36.2 40.6 38.4
----- ----- -----
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..................... $ 66,011 $ 55,582
Tax credits.......................................... 2,360 2,331
Intangible amortization.............................. 9,651 10,586
Reserves and other................................... 5,830 5,035
-------- --------
Gross deferred tax assets................................ $ 83,852 $ 73,534
Valuation allowance...................................... (83,852) (73,534)
-------- --------
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 $83.9 million in 1999 and $73.5 million in 1998 against
otherwise recognizable deferred tax assets.

As Genzyme Tissue Repair 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 L. BENEFIT PLANS

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

NOTE M. SUBSEQUENT EVENT

GTR-27

GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NOTE M. SUBSEQUENT EVENT (CONTINUED)
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.

GTR-28

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 cash flows present fairly, in all material
respects, the financial position of Genzyme Tissue Repair (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 significantly 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 Tissue
Repair is a division of Genzyme Corporation; accordingly, the combined financial
statements of Genzyme Tissue Repair should be read in conjunction with the
audited consolidated financial statements of Genzyme Corporation and
Subsidiaries.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 23, 2000

GTR-29

GENZYME TISSUE REPAIR

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............... $ 1,021,000 $ 184,000 $ -- $ 215,000(1) $ 990,000
Inventory reserve........ $10,652,000 $ 2,534,000 $ -- $ -- $13,186,000
Year ended December 31,
1998:
Allowance for doubtful
accounts............... $ 839,000 $ 257,000 $ -- $ 75,000(1) $ 1,021,000
Inventory reserve........ $ 8,347,000 $ 2,728,000 $ -- $ 423,000 $10,652,000
Year ended December 31,
1997:
Allowance for doubtful
accounts............... $ 408,000 $ 480,000 $ -- $ 49,000(1) $ 839,000
Inventory reserve........ $ 4,427,000 $ 3,920,000 $ -- $ -- $ 8,347,000

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

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

GTR-30