EXHIBIT 99.2
FACTORS AFFECTING FUTURE OPERATING RESULTS
From time to time, we or our management may make forward-looking
statements about our operations. These statements are based upon the assumptions
of our management and are only expectations of future results. These statements
are also subject to risks and uncertainties, and our actual results may differ
significantly than those described in the forward-looking statements. These
risks and uncertainties are described below.
In this document, the words "we," "us," "our," and "Genzyme" refer to
Genzyme Corporation and all of its operating divisions taken as a whole, and
"our board of directors" refers to the board of directors of Genzyme
Corporation. In addition, we refer to our three operating divisions as follows:
o Genzyme General Division = "Genzyme General;"
o Genzyme Biosurgery Division = "Genzyme Biosurgery;" and
o Genzyme Molecular Oncology Division = "Genzyme Molecular
Oncology."
RISKS RELATED TO GENZYME
The following risk factors relate to us generally and affect all of our
divisions.
A REDUCTION IN REVENUE FROM SALES OF PRODUCTS THAT TREAT GAUCHER DISEASE WOULD
HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
We generate a majority of our product revenue from sales of
enzyme-replacement products for patients with Gaucher disease. We entered this
market in 1991 with Ceredase(R) enzyme. Because production of Ceredase(R) enzyme
was subject to supply constraints, we developed Cerezyme(R) enzyme, a
recombinant form of the enzyme. Recombinant technology uses specially engineered
cells to produce enzymes, or other substances, by inserting into the cells of
one organism the genetic material of a different species. In the case of
Cerezyme(R) enzyme, scientists engineer Chinese hamster ovary cells to produce
human alpha glucocerebrosidase. We stopped producing Ceredase(R) enzyme, except
for small quantities, during 1998, after substantially all the patients who
previously used Ceredase(R) enzyme converted to Cerezyme(R) enzyme. Sales of
Ceredase(R) enzyme and Cerezyme(R) enzyme totaled $536.9 million for the year
ended December 31, 2000, representing approximately 59% of our consolidated
revenues for that year.
Because our business is highly dependent on Cerezyme(R) enzyme, a
decline in the growth rate of Cerezyme(R) enzyme sales could have an adverse
effect on our operations and may cause the value of our securities to decline
substantially. We will lose revenues from Cerezyme(R) enzyme if competitors
develop alternative treatments for Gaucher disease and these alternative
products gain commercial acceptance. Some companies have initiated efforts to
develop competitive products, and other companies may do so in the future. In
addition, the patient population with Gaucher disease is limited. Because a
significant percentage of that population already uses Cerezyme(R) enzyme,
opportunities for future sales growth are limited. Further, changes in the
methods for treating patients with Gaucher disease, including treatment
protocols that combine Cerezyme(R) enzyme with other therapeutic products or
reduce the amount of Cerezyme(R) enzyme prescribed, could result in a decline in
Cerezyme(R) enzyme sales. Cerezyme(R) enzyme has orphan drug status, providing
us with exclusive marketing rights for Cerezyme(R) enzyme in the United
1
States until May 2001. We also have patents protecting our method of
manufacturing Cerezyme(R) enzyme until 2010 and the composition of Cerezyme(R)
enzyme until 2013. The expiration of market exclusivity and orphan drug status
in May 2001 will likely subject Cerezyme(R) enzyme to increased competition
which may decrease the amount of revenue we receive from this product or the
growth of that revenue.
OUR ABILITY TO SIGNIFICANTLY INCREASE SALES OF RENAGEL(R) BRAND PHOSPHATE BINDER
WILL SUBSTANTIALLY DETERMINE WHETHER AND HOW QUICKLY OUR ACQUISITION OF GELTEX
IMPROVES OUR FUTURE EARNINGS GROWTH.
In November 1998, we launched, through a joint venture with GelTex
Pharmaceuticals, Inc., Renagel(R) brand phosphate binder, a non-absorbed
phosphate binder approved for use by patients with end-stage renal disease
undergoing a form of treatment known as hemodialysis. We acquired GelTex in
December 2000. We are currently conducting additional clinical trials in
order to determine the efficacy and safety of Renagel(R) brand phosphate
binder when administered to pre-dialysis patients. The commercial success of
Renagel(R) brand phosphate binder is subject to substantial uncertainty and
will depend on a number of factors, including:
o the results of additional clinical trials for additional
indications and expanded labeling;
o our ability to increase market acceptance and sales of
Renagel(R) brand phosphate binder;
o market acceptance of a tablet formulation of Renagel(R) brand
phosphate binder, which was launched in September 2000 in the
United States;
o optimal dosing and patient compliance with respect to
Renagel(R) brand phosphate binder;
o the availability of competing treatments serving the dialysis
market;
o the content and timing of our submissions to and decisions by
regulatory authorities;
o our ability to successfully retool and expand manufacturing
systems;
o our ability to manufacture Renagel(R) brand phosphate binder at a
reasonable price;
o the availability of reimbursement from third-party payers, and the
extent of coverage; and
o the accuracy of available information about dialysis patient
populations and the accuracy of our expectations about growth in
this population.
GOVERNMENT REGULATION IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE
DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND SERVICES.
Our success will depend on our ability to satisfy regulatory
requirements. We may not receive required regulatory approvals on a timely basis
or at all. Government agencies heavily regulate the production and sale of
healthcare products and the provision of healthcare services. In particular, the
Food and Drug Administration, commonly referred to as the FDA, and comparable
agencies in foreign countries must approve human therapeutic and diagnostic
products before they are marketed. This approval process can involve lengthy and
detailed laboratory and clinical testing, sampling activities and other costly
and time-consuming procedures. This regulation may delay the time at which a
company like Genzyme can first sell a product or may limit how a consumer may
use a product or service or may
2
adversely impact third-party reimbursement. A company's failure to comply with
applicable regulatory approval requirements may lead regulatory authorities to
take action against the company, including:
o issuing warning letters;
o issuing fines and other civil penalties;
o suspending regulatory approvals;
o refusing approval of pending applications or supplements to
approved applications;
o suspending product sales in the United States and/or exports from
the United States;
o recalling products; and
o seizing products.
Furthermore, therapies that have received regulatory approval for
commercial sale may continue to face regulatory difficulties. The FDA and
comparable foreign regulatory agencies, for example, may require post-marketing
clinical trials or patient outcome studies. In addition, regulatory agencies
subject a marketed therapy, its manufacturer and the manufacturer's facilities
to continual review and periodic inspections. The discovery of previously
unknown problems with a therapy, the therapy's manufacturer or the facility used
to produce the therapy could prompt a regulatory authority to impose
restrictions on the therapy, manufacturer or facility, including withdrawal of
the therapy from the market.
LEGISLATIVE CHANGES MAY ADVERSELY IMPACT OUR BUSINESS.
The FDA has designated some of our products, including Cerezyme(R)
enzyme, as orphan drugs under the Orphan Drug Act. The Orphan Drug Act provides
incentives to manufacturers to develop and market drugs for rare diseases,
generally by entitling the first developer that receives FDA marketing approval
for an orphan drug to a seven-year exclusive marketing period in the United
States for that product. In recent years Congress has considered legislation to
change the Orphan Drug Act to shorten the period of automatic market exclusivity
and to grant marketing rights to simultaneous developers of the drug. If the
Orphan Drug Act is amended in this manner, any drugs for which we have been
granted exclusive marketing rights under the Orphan Drug Act, will face
increased competition which may decrease the amount of revenue we receive from
these products. In addition, the U.S. government has shown significant interest
in pursuing healthcare reform. Any government-adopted reform measures could
adversely affect:
o the pricing of therapeutic products and medical devices in the
United States or internationally; and
o the amount of reimbursement available from governmental agencies
or other third-party payers.
If the U.S. government significantly reduces the amount we may charge for our
products, or the amount of reimbursement available for purchases of our products
declines, our future revenues may decline and we may need to revise our research
and development programs.
3
THE DEVELOPMENT OF OUR PRODUCTS INVOLVES A LENGTHY AND COMPLEX PROCESS, AND WE
MAY BE UNABLE TO COMMERCIALIZE ANY OF THE PRODUCTS WE ARE CURRENTLY DEVELOPING.
Before we can commercialize our development-stage products, we will
need to:
o conduct substantial research and development;
o undertake preclinical and clinical testing; and
o pursue regulatory approvals.
This process involves a high degree of risk and takes several years. Our product
development efforts may fail for many reasons, including:
o failure of the product in preclinical studies;
o clinical trial data that is insufficient to support the safety or
effectiveness of the product; or
o our failure to obtain the required regulatory approvals.
For these reasons, and others, we may not successfully commercialize any of the
products we are currently developing.
ANY MARKETABLE PRODUCTS THAT WE DEVELOP MAY NOT BE COMMERCIALLY SUCCESSFUL.
Even if we obtain regulatory approval for any of our development-stage
products, those products may not be accepted by the market, or approved for
reimbursement by third-party payers. A number of factors may affect the rate and
level of market acceptance of these products, including:
o regulation by the FDA and other government authorities;
o market acceptance by doctors and hospital administrators;
o the effectiveness of our sales force;
o the effectiveness of our production and marketing capabilities;
o the success of competitive products; and
o the availability and extent of reimbursement from third-party
payers.
If our products fail to achieve market acceptance, our profitability and
financial condition will suffer.
WE WILL REQUIRE SIGNIFICANT ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE ON
FAVORABLE TERMS, IF AT ALL.
As of December 31, 2000, we had approximately $639.6 million in cash,
cash equivalents and short- and long-term investments, excluding investments in
equity securities. We intend to use substantial portions of our available cash
for:
o product development and marketing;
4
o expanding facilities and staff;
o working capital; and
o strategic business initiatives.
In January 2001, we paid approximately $26.0 million in cash to exercise our
option to purchase all of the Class A limited partnership interests of Genzyme
Development Partners, L.P. We are also obligated to pay the former holders of
the Class A interests royalties on sales of the Sepra products for ten years. We
may further reduce available cash reserves to pay principal and interest on the
following debt:
o In May 1998, we issued $250.0 million in subordinated convertible
notes, the entire principal amount of which is allocated to
Genzyme General. These convertible notes bear interest at an
annual rate of 5 1/4% and mature on June 1, 2005. However, the
holders of these notes may exchange principal on the notes for
shares of Genzyme General Stock, Molecular Oncology Stock and
Biosurgery Stock.
o In August 1998, we issued $21.2 million in subordinated
convertible debentures, the entire principal amount of which is
allocated to Genzyme General. These convertible debentures bear
interest at an annual rate of 5% and mature on August 29, 2003,
but the holders of these convertible debentures may exchange
principal, and under some circumstances interest, on the
convertible debentures for shares of Genzyme General Stock.
o In December 2000, we replaced our existing bank credit facilities
with a new $500.0 million revolving credit facility, $150.0
million of which matures in December 2001, and $350.0 million of
which matures in December 2003. At December 31, 2000, $368.0
million was outstanding under this facility, $150.0 million of
which was allocated to Genzyme General in connection with the
financing of a portion of the cash component of the GelTex merger
consideration, and $218.0 million of which was allocated to
Genzyme Biosurgery, primarily in connection with the financing of
a portion of the cash component of the Biomatrix merger
consideration.
o In connection with our acquisition of Biomatrix, Genzyme
Biosurgery Corporation, one of our wholly-owned subsidiaries,
assumed a 6.9% convertible subordinated note due May 14, 2003 in
favor of UBS Warburg LLC. At December 31, 2000, $10.0 million of
this note remained outstanding.
If we use cash to pay or redeem all or a portion of this debt, including the
principal and interest due on it, our cash reserves will be diminished.
To satisfy these and other commitments, we will have to obtain
additional financing. We may be unable to obtain any additional financing,
extend any existing financing arrangement, or obtain either on terms that we
consider favorable.
WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW
COMPETITORS TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS.
Our long-term success largely depends on our ability to market
technologically competitive products. If we fail to obtain or maintain these
protections, we may not be able to prevent third parties from using our
proprietary rights. Our currently pending or future patent applications may not
result in issued patents. In the United States, patent applications are
confidential until patents issue, and because
5
third parties may have filed patent applications for technology covered by our
pending patent applications without us being aware of those applications, our
patent applications may not have priority over any patent applications of
others. In addition, our issued patents may not contain claims sufficiently
broad to protect us against third parties with similar technologies or products
or provide us with any competitive advantage. If a third party initiates
litigation regarding our patents, our collaborators' patents, or those patents
for which we have license rights, and is successful, a court could revoke our
patents or limit the scope of coverage for those patents.
The U.S. Patent and Trademark Office, commonly referred to as the
USPTO, and the courts have not consistently treated the breadth of claims
allowed in biotechnology patents. If the USPTO or the courts begin to allow
broader claims, the incidence and cost of patent interference proceedings and
the risk of infringement litigation will likely increase. On the other hand, if
the USPTO or the courts begin to allow narrower claims, the value of our
proprietary rights may be limited. Any changes in, or unexpected interpretations
of, the patent laws may adversely affect our ability to enforce our patent
position.
We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. We protect this information with
reasonable security measures, including the use of confidentiality agreements
with our employees, consultants and corporate collaborators. It is possible that
these individuals will breach these agreements and that any remedies for a
breach will be insufficient to allow us to recover our costs. Furthermore, our
trade secrets, know-how and other technology may otherwise become known or be
independently discovered by our competitors.
WE MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS IN ORDER TO DEVELOP
AND COMMERCIALIZE SOME OF OUR PRODUCTS AND SERVICES, AND IT IS UNCERTAIN WHETHER
THESE LICENSES WILL BE AVAILABLE.
Third-party patent rights may cover some of the products that we or our
strategic partners are developing or testing. As a result, we or our strategic
collaborators may be required to obtain licenses from the holders of these
patents in order to use, manufacture or sell these products and services, and
payments under these licenses may reduce our revenue from these products.
Furthermore, we may not be able to obtain these licenses on acceptable terms or
at all. If we fail to obtain a required license or are unable to alter the
design of our technology to fall outside of a patent, we may be unable to
effectively market some of our technology and services, which could limit our
profitability.
WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.
A third party may sue us or one of our strategic collaborators for
infringing the third-party's patent rights. Likewise, we or one of our strategic
collaborators may need to resort to litigation to enforce patent rights or to
determine the scope and validity of third-party proprietary rights. For example,
we filed a lawsuit on July 25, 2000 seeking injunctive relief and damages
against Transkaryotic Therapies, Inc. in the U.S. District Court in Wilmington,
Delaware for patent infringement resulting from Transkaryotic Therapies'
manufacture and use of Replagal(TM), its replacement therapy for Fabry disease.
The suit alleges infringement of U.S. Patent No. 5,356,804, which we exclusively
licensed from Mount Sinai School of Medicine. The patent is directed to methods
of making alpha-galactosidase in mammalian cells, as well as the
genetically-engineered cells themselves. On September 19, 2000, Transkaryotic
Therapies filed a lawsuit against us and Mount Sinai School of Medicine in U.S.
District Court in Boston, Massachusetts seeking declaratory judgments that the
manufacture, use and sale of Replagal does not infringe the patent licensed by
us from Mount Sinai and that the Mount Sinai patent is invalid.
6
The cost to us of any litigation or other proceeding relating to
intellectual property rights, even if resolved in our favor, could be
substantial, and the litigation would divert our management's efforts. Some of
our competitors may be able to sustain the costs of complex patent litigation
more effectively than we can because they have substantially greater resources.
If we do not prevail in this type of litigation, we or our strategic
collaborators may be required to:
o pay monetary damages;
o stop commercial activities relating to the affected products or
services;
o obtain a license in order to continue manufacturing or marketing
the affected products or services; or
o compete in the market with a substantially similar product.
Uncertainties resulting from the initiation and continuation of any
litigation could limit our ability to continue some of our operations. In
addition, a court may require that we pay expenses or damages and litigation
could disrupt our commercial activities.
WE MAY BE LIABLE FOR PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE.
Individuals who use our products or services, including those we
acquire in business combinations, may bring product liability claims against us
or our subsidiaries. While we have taken, and continue to take, what we believe
are appropriate precautions, we may be unable to avoid significant liability
exposure. We have only limited amounts of product liability insurance, which may
not provide sufficient coverage against any product liability claims. We may be
unable to obtain additional insurance in the future, or we may be unable to do
so on acceptable terms. Any additional insurance we do obtain may not provide
adequate coverage against any asserted claims. In addition, regardless of merit
or eventual outcome, product liability claims may result in:
o diversion of management's time and attention;
o expenditure of large amounts of cash on legal fees, expenses and
payment of damages;
o decreased demand for our products and services; and
o injury to our reputation.
IN CONNECTION WITH OUR ACQUISITION OF BIOMATRIX, WE ASSUMED LITIGATION FACED BY
BIOMATRIX.
On July 21 and August 7, 15, and 30, 2000, class action lawsuits
requesting unspecified damages were filed in the U.S. District Court in New
Jersey against Biomatrix, Inc. and two of its officers and directors, Endre A.
Balazs and Rory B. Riggs. In these actions, the plaintiffs seek to certify a
class of all persons or entities who purchased or otherwise acquired Biomatrix
common stock during the period between July 20, 1999 and April 25, 2000. The
plaintiffs allege, among other things, that the defendants failed to accurately
disclose information relating to Biomatrix' product Synvisc(R) during the period
between July 20, 1999 and April 25, 2000, and assert causes of action under the
Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated under
that statute. We acquired Biomatrix in December 2000. We intend to vigorously
defend against those actions. We may be required to pay substantial damages or
settlement costs to the extent that damages or settlement costs are not covered
by
7
insurance. Regardless of their outcome, these actions may cause a diversion of
our management's time and attention.
OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE
SUPERIOR PRODUCTS, MANUFACTURING CAPABILITIES OR MARKETING POSITION.
The human healthcare products and services industry is extremely
competitive. Our competitors include major pharmaceutical companies and other
biotechnology companies. Some of these competitors may have more extensive
research and development, marketing and production capabilities. Some
competitors also may have greater financial resources than we have. Our future
success will depend on our ability to develop and market effectively our
products against those of our competitors. For instance, we are seeking orphan
drug designation for some of our products that are still in development or are
currently being reviewed by the FDA for marketing approval, including
Fabrazyme(TM) enzyme for the treatment of Fabry disease. We are aware of other
companies developing products for the treatment of Fabry disease. Transkaryotic
Therapies Inc., for example, submitted its application for marketing approval
for its product to the FDA approximately one week before we submitted our
application for Fabrazyme(TM) enzyme. If Transkaryotic Therapies or any other
company receives FDA approval for a Fabry disease therapy with orphan drug
designation before we receive FDA approval for Fabrazyme(TM) enzyme, the Orphan
Drug Act may preclude us from selling Fabrazyme(TM) enzyme in the United States
for up to seven years. Similarly, we submitted our application for marketing
approval of Fabrazyme(TM) enzyme with the European Medicines Evaluation Agency,
or EMEA, within a short time of Transkaryotic Therapies' filing. If
Transkaryotic Therapies or any other company receives EMEA approval for a Fabry
disease therapy with orphan drug designation before we receive EMEA approval for
Fabrazyme(TM) enzyme, the European equivalent of the Orphan Drug Act may
preclude us from selling Fabrazyme(TM) enzyme in the European Union for up to
ten years. If our products receive marketing approval but cannot compete
effectively in the marketplace, our profitability and financial position will
suffer.
IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS OR
SERVICES MAY BECOME OBSOLETE.
The field of biotechnology is characterized by significant and rapid
technological change. Although we attempt to expand our technological
capabilities in order to remain competitive, research and discoveries by others
may make our products or services obsolete. For example, some of our competitors
may develop a product to treat Gaucher disease that is more effective or less
expensive than Cerezyme(R) enzyme. If we cannot compete effectively in the
marketplace, our profitability and financial position will suffer.
IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR PRODUCTS FROM
THIRD-PARTY PAYERS, THE COMMERCIAL POTENTIAL OF OUR PRODUCTS WILL BE
SIGNIFICANTLY LIMITED.
A substantial portion of our revenue comes from payments by third-party
payers, including government health administration authorities and private
health insurers. As a result of the trend toward managed healthcare in the
United States, as well as legislative proposals to reduce payments under
government insurance programs, third-party payers are increasingly attempting to
contain healthcare costs by:
o challenging the prices charged for healthcare products and
services;
o limiting both coverage and the amount of reimbursement for new
therapeutic products;
8
o denying or limiting coverage for products that are approved by the
FDA, but are considered experimental or investigational by
third-party payers; and
o refusing in some cases to provide coverage when an approved
product is used for disease indications in a way that has not
received FDA marketing approval.
Government and other third-party payers may not provide adequate
insurance coverage or reimbursement for our products and services, which could
impair our financial results. In addition, third-party payers may not reimburse
patients for newly approved healthcare products, which could decrease demand for
our products. Furthermore, Congress occasionally has discussed implementing
broad-based measures to contain healthcare costs. It is possible that Congress
will enact legislation specifically designed to contain healthcare costs. If
third-party reimbursement is inadequate to allow us to recover our costs or if
Congress passes legislation to contain healthcare costs, our profitability and
financial condition will suffer.
CHANGES IN THE ECONOMIC, POLITICAL, LEGAL AND BUSINESS ENVIRONMENTS IN THE
FOREIGN COUNTRIES IN WHICH WE DO BUSINESS COULD CAUSE OUR INTERNATIONAL SALES
AND OPERATIONS, WHICH ACCOUNT FOR A SIGNIFICANT PERCENTAGE OF OUR CONSOLIDATED
NET SALES, TO BE LIMITED OR DISRUPTED.
Our international operations accounted for 39% of our consolidated
revenues for the year ended December 31, 2000 and 41% of our consolidated
revenues for each of the years ended December 31, 1999 and 1998. We expect that
international sales will continue to account for a significant percentage of our
revenues for the foreseeable future. In addition, we have direct investments in
a number of subsidiaries outside of the United States, primarily in Europe and
Japan. Our international sales and operations could be limited or disrupted, and
the value of our direct investments may be diminished, by any of the following:
o fluctuations in currency exchange rates;
o the imposition of governmental controls;
o less favorable intellectual property or other applicable laws;
o the inability to obtain any necessary foreign regulatory approvals
of products in a timely manner;
o import and export license requirements;
o political instability;
o trade restrictions;
o changes in tariffs;
o difficulties in staffing and managing international operations;
and
o longer payment cycles.
A significant portion of our business is conducted in currencies other
than our reporting currency, the U.S. dollar. We recognize foreign currency
gains or losses arising from our operations in the period in which we incur
those gains or losses. As a result, currency fluctuations among the U.S. dollar
and the
9
currencies in which we do business have caused foreign currency transaction
gains and losses in the past and will likely do so in the future. Because of the
number of currencies involved, the variability of currency exposures and the
potential volatility of currency exchange rates, we may suffer significant
foreign currency transaction losses in the future due to the effect of exchange
rate fluctuations on our future operating results.
SEVERAL ANTI-TAKEOVER PROVISIONS MAY DEPRIVE OUR STOCKHOLDERS OF THE OPPORTUNITY
TO RECEIVE A PREMIUM FOR THEIR SHARES UPON A CHANGE IN CONTROL.
Provisions of Massachusetts law and our charter, by-laws and
shareholder rights plan could delay or prevent a change in control of Genzyme or
a change in our management. Our tracking stock structure may also deprive our
stockholders of the opportunity to receive a premium for their shares upon a
change in control because, in order to obtain control of a particular division,
an acquiror would have to obtain control of the entire corporation. In addition,
our board of directors may, in its sole discretion:
o exchange shares of Molecular Oncology Stock or Biosurgery Stock
for Genzyme General Stock at a 30% premium over the market value
of the exchanged shares; and
o issue shares of undesignated preferred stock from time to time in
one or more series.
Either of these board actions could increase the cost of an acquisition of
Genzyme and thus discourage a takeover attempt.
RISKS RELATED TO GENZYME TRACKING STOCKS
We have three series of tracking stock designed to reflect the value
and track the performance of our three operating divisions as follows:
o Genzyme General Stock designed to track the performance of Genzyme
General;
o Molecular Oncology Stock designed to track the performance of
Genzyme Molecular Oncology; and
o Biosurgery Stock designed to track the performance of Genzyme
Biosurgery.
The following are risks related to owning shares of our tracking stock.
HOLDERS OF OUR TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY AND
UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE DIVISION COULD NEGATIVELY AFFECT THE
OTHER DIVISIONS.
Our divisions are not separate legal entities. Holders of our tracking
stock are stockholders of a single company and face all of the risks of an
investment in Genzyme.
For purposes of financial presentation, we will allocate programs,
products, assets and liabilities among our three divisions. Genzyme Corporation
and its subsidiaries, however, own all of the assets and are responsible for all
of the liabilities of each division. A holder of Biosurgery Stock, for example,
does not have any specific rights to the assets allocated to Genzyme Biosurgery
in our financial statements. Furthermore, if we are unable to satisfy one
division's liabilities out of the assets we allocate to that division, we may be
required to satisfy those liabilities with assets we have allocated to another
division.
10
OUR BOARD OF DIRECTORS MAY TAKE ACTIONS THAT HAVE AN UNEQUAL AND ADVERSE EFFECT
ON THE HOLDERS OF ONE OR MORE SERIES OF OUR TRACKING STOCK.
At times the interests of the holders of the different series of our
tracking stock may diverge or appear to diverge from each other. We are not
aware of any legal precedent interpreting the fiduciary duties of the directors
of a Massachusetts corporation in that situation. Recent cases in Delaware have
established that a Delaware court will afford considerable deference to business
decisions that are made in good faith by a disinterested and adequately informed
board of directors even when those decisions involve disparate treatment of
different series of tracking stock. These Delaware cases rely upon the premise
that the board of directors owes its fiduciary duties to the corporation and all
of its stockholders and does not owe separate duties to each class or series of
stockholders. If a Massachusetts court were to follow the reasoning in these
Delaware cases, a Genzyme stockholder may not be able to successfully challenge
an action by our board of directors that has a disadvantageous effect on a
particular series of our tracking stock.
MEMBERS OF OUR BOARD OF DIRECTORS MAY FAVOR ONE SERIES OF TRACKING STOCK OVER
ANOTHER IF THEY OWN A DISPROPORTIONATE AMOUNT OF THAT SERIES.
A member of our board may own a disproportionate amount of tracking
stock in a particular series, or the value of his or her holdings of a
particular series of stock may be different from the value of his or her
holdings in another series. This disparate stock ownership could cause the board
member to favor one series of stock over another. Nevertheless, we believe that
a member of our board could properly perform his or her fiduciary
responsibilities to all of our stockholders even if his or her interests in
shares of different series were disproportionate or of unequal values. Our board
members may create committees to review matters that raise conflict-of-interest
issues. If a committee is formed, it would report to the full board.
HOLDERS OF OUR TRACKING STOCK HAVE LIMITED DECISION-MAKING POWER BECAUSE THEY
HAVE LIMITED SEPARATE VOTING RIGHTS.
Holders of all series of our tracking stock vote together as a single
class on all matters requiring common stockholder approval, including the
election of directors. Holders of one series of tracking stock do not have the
right to vote on matters separately from the other series except in limited
circumstances. These circumstances are dictated by Massachusetts law, our
charter and our management and accounting policies. Therefore, stockholders of
one series of tracking stock generally could not make a proposal that would
require approval only of the holders of that series. Instead, they would have to
obtain approval from all common stockholders.
As of January 2, 2001, the relative voting power of our tracking stocks
was as follows:
APPROXIMATE PERCENTAGE
SERIES OF TOTAL VOTING POWER
------- ------------------------
Genzyme General Stock................................... 93%
Biosurgery Stock........................................ 5%
Molecular Oncology Stock................................ 2%
THE VOTES PER SHARE OF OUR TRACKING STOCKS ARE ADJUSTED EVERY TWO YEARS.
Under our charter, Genzyme General Stock is entitled to one vote per
share, which is never adjusted. However, the votes per share of our other
tracking stocks are adjusted every two years. Specifically, on January 1, 2003
and every second anniversary thereafter, the vote per share to which each
tracking stock is entitled will be recalculated based on its fair market value
divided by the fair market
11
value of a share of Genzyme General Stock, with "fair market value" meaning the
average closing price over the 20 consecutive trading days beginning the 30th
trading day preceding the January 1st adjustment date. At the time of an
adjustment, the per share voting power of any tracking stock relative to the
other series of tracking stock could decrease materially. Additionally, during
the intervening period between adjustments, the per share voting power of each
tracking stock will remain the same even though its market price will fluctuate
relative to -- and could become materially greater than -- the market prices of
the other tracking stocks. Currently, Biosurgery Stock is entitled to 0.14 vote
per share and Molecular Oncology Stock is entitled to 0.14 vote per share.
THE LIQUIDATION RIGHTS FOR OUR TRACKING STOCKS ARE NOT ADJUSTED TO REFLECT
CHANGES IN THEIR FAIR MARKET VALUES.
If we were to dissolve, liquidate or wind up our affairs, other than as
part of a merger, business combination or sale of substantially all of our
assets, our stockholders would receive any remaining assets according to the
percentage of total liquidation units that they hold. The number of liquidation
units per share for each series of our tracking stock outstanding is as follows:
o each share of Genzyme General Stock has 100 liquidation units;
o each share of Molecular Oncology Stock has 25 liquidation units;
and
o each share of Biosurgery Stock has 50 liquidation units.
Although we adjust liquidation units to prevent dilution in the event
of some subdivisions, combinations or distributions of common stock, we do not
adjust them to reflect changes in the relative market value or performance of
the divisions. Therefore, at the time of a dissolution, liquidation or winding
up, the relative liquidation units attributable to each series of tracking stock
may not correspond to the value of the underlying assets allocated to that
division.
OUR BOARD OF DIRECTORS MAY CHANGE OUR MANAGEMENT AND ACCOUNTING POLICIES TO THE
DETRIMENT OF ONE SERIES OF TRACKING STOCK WITHOUT STOCKHOLDER APPROVAL.
Our board of directors has adopted management and accounting policies
that are used to govern our business and to prepare our financial statements.
These policies cover the allocation of corporate expenses, assets and
liabilities and other accounting matters, and the reallocation of assets between
divisions and other matters. Our board generally may modify or rescind these
policies or adopt new ones without stockholder approval. Any revised policies
could have different effects on each series of our tracking stock and could be
detrimental to one series as compared to another. The discretion of our board to
make changes is limited only by the policies themselves and the board's
fiduciary duty to all of its stockholders. We encourage you to review the full
text of our management and accounting policies, a copy of which is attached as
Exhibit 3 to our Registration Statement on Form 8-A that we filed with the SEC
on December 19, 2000.
OUR BOARD CAN REQUIRE INVESTORS TO EXCHANGE THEIR SHARES OF OUR TRACKING STOCK.
Our board of directors may at any time, in its sole discretion, decide
to exchange shares of Molecular Oncology Stock and/or Biosurgery Stock, for any
combination of cash and shares of Genzyme General Stock at a 30% premium over
the exchanged stock's then current market value. At any time that all of a
division's assets are held through a wholly-owned subsidiary, our board can
choose to "spin off" that division by exchanging the outstanding shares of
tracking stock corresponding to that division for
12
shares in the spun off company, whereupon former tracking stockholders will no
longer be Genzyme stockholders.
If we transfer or sell to a third party all or substantially all of the
assets allocated to Genzyme Molecular Oncology or Genzyme Biosurgery, the board
would have to either redeem, make a dividend payment on or exchange outstanding
Molecular Oncology or Biosurgery Stock, as applicable. Our board will have sole
discretion in deciding whether to effect that redemption, dividend payment or
exchange using Genzyme General Stock or any combination of cash or other
property regardless of the form of consideration paid by the buyer. However, our
charter will require that any exchange for Genzyme General Stock be at a 10%
premium to the exchanged series' average market price following public
announcement of the sale and that any payment of cash or other property be equal
in value to the sale's after-tax net proceeds.
Also, our board can exchange shares of Molecular Oncology Stock and/or
Biosurgery Stock into Genzyme General Stock at no premium to the exchanged
stocks' market value in the event of certain adverse tax developments, as
discussed in the immediately following risk factor.
WE MAY ELIMINATE TRACKING STOCK IF A CORPORATE OR SHAREHOLDER LEVEL TAX IS
IMPOSED ON THE ISSUANCE OR RECEIPT OF TRACKING STOCK.
In 1999, the Clinton Administration proposed tax legislation that would
have imposed a corporate level tax on issuances of tracking stock. In 2000, the
Clinton Administration proposed legislation that would tax stockholders upon the
receipt of tracking stock from the issuing corporation as a distribution or in a
tracking stock exchange. Congress did not enact either of these proposals into
law. If similar proposals are enacted into law or effected through Treasury
Department regulations, we could be taxed on an amount up to the gain realized
in future financings in which we sell tracking stock. Also, any use of our
tracking stock to acquire other companies could result in a tax on us, the
stockholders of the target company, or both. We also may be taxed if we
distribute to stockholders "designated" shares of tracking stock, which are
shares designated by the tracked division as issuable at the option of our board
for Genzyme General's benefit. In addition, stockholders could be taxed if they
receive a distribution of designated shares of tracking stock or if they receive
shares of tracking stock in exchange for other Genzyme stock. These or similarly
adverse tax consequences could cause us to eliminate tracking stock from our
capital structure. We cannot predict, however, whether Congress will enact
legislation, or whether the Treasury Department will issue regulations effecting
these or similar proposals.
WE CANNOT ASSURE THAT TRACKING STOCK WILL "TRACK" THE PERFORMANCE OF THE
CORRESPONDING DIVISION.
Although we have attempted to design our tracking stocks to "track" the
performance of their corresponding divisions, we cannot assure that the market
prices of these stocks will indeed reflect that performance. The market may
assign values to a tracking stock that are based on factors other than a
corresponding division's reported financial performance. For instance, we cannot
be certain what, if any, valuation the market might place on the mandatory and
optional exchange features or the differing voting rights and liquidation units
of the tracking stocks. In addition, as discussed above under the subheading
"--Holders of our tracking stock are stockholders of a single company and
unfavorable financial trends affecting one division could negatively affect the
other divisions," financial developments in one division, particularly if
significant and/or adverse, may affect other divisions.
13
THE USE OF OPERATING LOSSES AT UNPROFITABLE DIVISIONS TO LOWER THE REPORTED TAX
LIABILITY OF OUR PROFITABLE DIVISIONS WILL CAUSE THE UNPROFITABLE DIVISIONS TO
REPORT LOWER EARNINGS IN THE FUTURE.
Genzyme Corporation, rather than our divisions, is liable for taxes.
Under our management and accounting policies, for financial reporting purposes
we generally allocate taxes among our divisions as if they were separate
taxpayers. However, our board of directors has adopted a policy that provides
that if any of Genzyme's divisions is unable to use its operating losses or
other projected annual tax benefits to reduce its current or deferred income tax
expense, we may reallocate these losses or benefits to our profitable divisions
on a quarterly basis for financial reporting purposes. This will result in a
division with current losses (such as Genzyme Molecular Oncology and Genzyme
Biosurgery) reporting lower earnings available to its common stockholders in the
future than would be the case if that division had retained its historical
losses or other benefits in the form of a net operating loss carry forward.
THE NON-COMPETE POLICY AMONG OUR DIVISIONS MAY NOT COVER ALL OF THE ACTIVITIES
OF A PARTICULAR DIVISION.
Our board of directors has adopted a policy regarding competition among
our divisions. This non-compete policy requires that we develop certain products
and services within a given division, as opposed to another division, or through
joint ventures involving a given division, because the product or service is
within the field of activity of that division. This non-compete policy, however,
does not cover the entire field of activity of each division. We cannot
guarantee that all products and services we develop in a given field of activity
will be allocated to a division primarily engaged in that field of activity.
FUTURE SALES OR DISTRIBUTIONS OF DESIGNATED SHARES MAY SIGNIFICANTLY DILUTE YOUR
OWNERSHIP.
Our management and accounting policies require that we sell or
distribute any designated shares of a division that may be held by Genzyme
General, subject to certain limitations. Designated shares are created when cash
or other assets are transferred from Genzyme General to a division. Proceeds
from a sale or distribution will be allocated to Genzyme General but the
issuance and sale may substantially dilute your ownership of the other division.
Circumstances under which designated shares will be sold or distributed are
described in our management and accounting policies, a copy of which is attached
as Exhibit 3 to our Registration Statement on Form 8-A that we filed with the
SEC on December 19, 2000.
RISKS RELATING TO GENZYME GENERAL
The following risks and uncertainties may adversely affect the business
of Genzyme General.
GENZYME GENERAL IS SUBSTANTIALLY DEPENDENT UPON SALES OF CEREZYME(R) ENZYME.
Genzyme General derives a majority of its revenue from sales of
Cerezyme(R) Enzyme, our enzyme-replacement therapy for the treatment of
Gaucher disease. Accordingly, the risks described above under "--Risks
Related to Genzyme--A reduction in revenue from sales of products that treat
Gaucher disease would have an adverse effect on our business" may adversely
affect the business of Genzyme General.
SALES OF RENAGEL(R) PHOSPHATE BINDER MAY NOT INCREASE.
We encourage you to read the material under "--Risks Related to
Genzyme--Our ability to significantly increase sales of renagel(R) brand
phosphate binder will substantially determine whether and how quickly our
acquisition of GelTex improves our future earnings growth". That material
describes the factors on which the commercial success of Renagel(R) phosphate
binder depends.
14
WE MAY NOT SUCCESSFULLY COMMERCIALIZE GENZYME GENERAL'S PRODUCT CANDIDATES.
Genzyme General is developing or collaborating on the development of
treatments for Fabry disease, mucopolysaccharidosis I (MPS I) disease, and Pompe
disease, among others. Our ability to secure regulatory approvals for marketing
these product candidates is highly uncertain, as is our ability to successfully
commercialize those that receive regulatory approvals. Because the commercial
success of these product candidates will substantially determine future revenue
and profit growth at Genzyme General, we encourage you to review the factors
described under "-- Risks Related to Genzyme--" for details regarding risks that
characterize commercialization of our biotechnology product candidates.
GENZYME GENERAL MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE THYROGEN HORMONE.
In January 1999, Genzyme General launched U.S. sales of Thyrogen(R)
recombinant thyroid stimulating hormone used to diagnose thyroid cancer. The
commercial success of Thyrogen(R) hormone will depend on a number of factors,
including:
o regulation by the FDA;
o our ability to obtain regulatory approvals in foreign countries;
o the development and commercial success of competitive products;
and
o the availability of reimbursement from third-party payers.
Genzyme General cannot be sure that market penetration of Thyrogen(R) hormone
will increase.
IF GENZYME GENERAL'S STRATEGIC ALLIANCES TO DEVELOP AND COMMERCIALIZE ITS
PRODUCTS ARE UNSUCCESSFUL, GENZYME GENERAL'S EARNINGS GROWTH WILL BE LIMITED.
Several of Genzyme General's strategic initiatives involve alliances
with other biotechnology companies. These include:
o an agreement with Biogen, Inc. for the marketing of AVONEX
(Interferon beta1a), Biogen's treatment for relapsing forms of
multiple sclerosis, in Japan following regulatory approval;
o a joint venture with BioMarin Pharmaceutical Inc. for the
development and commercialization of alpha-L-iduronidase for the
treatment of the lysosomal storage disorder known as
mucopolysaccharidosis I;
o a strategic alliance with Pharming Group N.V. for the development
and commercialization of human alpha-glucosidase produced using a
Chinese hamster ovary cell line for the treatment of Pompe
disease; and
o a joint venture with Diacrin, Inc. to develop and commercialize
products and processes using porcine fetal cells for the treatment
of Parkinson's disease.
Genzyme General plans to enter into additional alliances in the future.
The success of many of these arrangements is largely dependent on technology and
other intellectual property contributed by
15
Genzyme General's strategic partners to the alliances or the resources, efforts
and skills of Genzyme General's partners. Genzyme General's strategic partners
may:
o terminate their agreements and Genzyme General's access to the
underlying intellectual property;
o fail to devote significant financial or other resources to the
alliances and thereby significantly hinder or delay development,
manufacturing or commercialization activities; and
o fail to successfully develop or commercialize any products.
If any of these alliances are terminated and Genzyme General loses access to the
underlying intellectual property, or if Genzyme General and its partners are
unable to successfully develop or commercialize products, Genzyme General's
future earnings' growth potential will be limited.
RISKS RELATED TO GENZYME BIOSURGERY
The following risks and uncertainties may adversely affect the business
of Genzyme Biosurgery.
A FAILURE TO INCREASE SALES OF SYNVISC(R) COULD HAVE A NEGATIVE EFFECT ON OUR
BUSINESS.
Genzyme Biosurgery expects to generate a substantial portion of its
product revenues from sales of Synvisc(R), a treatment of osteoarthritis of
the knee. Revenues from Synvisc(R) could be impacted negatively if
competitive treatments for osteoarthritis of the knee are deemed more
efficacious or cost effective. Some companies are developing competitive
products, and other companies may do so in the future.
The commercial success of Synvisc(R) also will depend on many other
factors, including:
o THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT.
Many third party payers in the United States and abroad cover
Synvisc(R). Genzyme Biosurgery will continue to discuss
reimbursement for Synvisc(R) with European government agencies. We
cannot guarantee that any third party payers will continue to
cover Synvisc(R) or that additional third party payers will begin
to provide reimbursement.
o CONTINUED RELATIONS WITH MARKETING PARTNERS.
Genzyme Biosurgery has entered into several distribution
agreements for marketing and distributing Synvisc(R). Genzyme
Biosurgery has in the past and may in the future periodically
reacquire distribution rights in some territories if partners
cease to perform under agreements relating to these territories.
Genzyme Biosurgery may not be able to maintain or replace these
marketing partners. In this event, there may be disruptions in
sales associated with restructuring Genzyme Biosurgery's
distribution arrangements.
The future commercial success of Synvisc(R), as well as the other
marketed products allocated to Genzyme Biosurgery, is highly uncertain. For
additional details concerning the risks associated with
16
commercializing novel biotechnology products, we encourage you to review the
factors described under "--Risks Related to Genzyme."
THE COMMERCIAL SUCCESS OF CARTICEL(R) CHONDROCYTES IS UNCERTAIN.
Carticel(R) cartilage repair service involves a proprietary process for
growing autologous chondrocytes (a patient's own cartilage cells) to replace
those that are damaged or lost. Revenues from Carticel(R) chondrocytes
represented approximately 13% of Genzyme Biosurgery's total revenue during 2000.
The commercial success of Carticel(R) chondrocytes will depend on many factors,
including the following:
o POSITIVE RESULTS FROM POST-MARKETING STUDIES.
If two ongoing post-marketing studies do not demonstrate that
treatment with Carticel(R) chondrocytes is superior to the
alternatives studied, the FDA may suspend or withdraw its approval
of Carticel(R) chondrocytes.
o FDA APPROVAL OF RELATED DEVICE.
Genzyme Biosurgery has developed a device to improve the procedure
for implanting Carticel(R) chondrocytes and has filed for
marketing approval with the FDA. We cannot guarantee that the FDA
will approve this device, that this device will improve the
procedure for implanting Carticel(R) chondrocytes, or that this
device will gain commercial acceptance.
o THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT.
Since the FDA approved Carticel(R) chondrocytes, Genzyme has seen
a substantial increase in the number of third party payers who
cover it. Some third party payers, however, do not cover
Carticel(R) chondrocytes. Genzyme 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 treatments. One independent association that
conducts 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(R)
chondrocytes meets all of its published criteria for new
treatments. We believe that Carticel(R) chondrocytes does in fact
meet all of these 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(R) chondrocytes without a favorable evaluation by the
Blue Cross Blue Shield Association, many Blue Cross Blue Shield
plans have delayed approving Carticel(R) 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 United States, this
ruling has restricted our access to a substantial portion of the
market for Carticel(R) chondrocytes.
o 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(R)
17
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(R)
chondrocytes. If a competitor were to develop such ability and
obtain FDA approval for a competitive product or service, Genzyme
Biosurgery's 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(R) chondrocytes.
o MARKET ACCEPTANCE BY ORTHOPAEDIC SURGEONS.
We are marketing Carticel(R) chondrocytes to orthopaedic surgeons.
We cannot guarantee that we will train enough surgeons who
incorporate Carticel(R) chondrocytes into their practice to make
it commercially successful.
o FLUCTUATING REVENUES DUE TO SEASONAL FACTORS.
Genzyme expects that the revenues from the sale of the Carticel(R)
chondrocytes will fluctuate based on Genzyme Biosurgery's success
in penetrating the market, the availability of competitive
procedures and the availability of third party reimbursement.
Genzyme cannot predict the timing or magnitude of these
fluctuations. Furthermore, Genzyme expects that revenues from
Carticel(R) chondrocytes will be lower in the summer months
because fewer operations are typically performed during those
months.
o RELIANCE ON KEY COLLABORATORS.
Carticel(R) chondrocytes were developed based on the work of a
group of Swedish physicians.
These physicians, and other individuals who are familiar with
the know-how underlying Carticel(R) chondrocytes through their
association with these physicians, may disclose the information
to our competitors. This event could have an adverse effect on
Genzyme Biosurgery's results of operations.
Genzyme Biosurgery will have a sponsored research agreement with
the University of Gothenburg in Sweden and certain physicians,
including the two physicians who lead the group that developed
Carticel(R) chondrocytes. The purpose of the agreement is to
conduct additional research on Carticel(R) chondrocytes. The
agreement will prohibit members of the research team from
disclosing any information relating to Genzyme Biosurgery or its
business that they acquire in connection with their work under the
agreement. The agreement also will state that all inventions that
the members conceive or reduce to practice during the course of
the research program will be Genzyme Biosurgery's property, with
royalties payable to the inventing member. We cannot guarantee
that these members will honor their obligations under the
sponsored research agreement.
18
GENZYME BIOSURGERY WILL DEVOTE SIGNIFICANT RESOURCES TO DEVELOP NOVEL PRODUCTS
AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL.
Genzyme Biosurgery has devoted 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 Biosurgery expects to develop 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 Biosurgery's 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
Seprafilm(TM) bioresorbable membrane was introduced, market acceptance of
anti-adhesion products has been slow. To increase sales of the Sepra products,
Genzyme Biosurgery has had to educate surgeons and hospital administrators about
the problems of, and costs associated with, adhesions and the benefits of
preventing adhesions. Genzyme Biosurgery also has had to, and continues to have
to, train surgeons on the proper handling and use of these products.
We cannot guarantee that Genzyme Biosurgery's continued 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
Biosurgery's products.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME BIOSURGERY'S GENE THERAPY PRODUCTS.
The death of a patient undergoing gene therapy using an adenoviral
vector to deliver a therapeutic gene has been widely publicized. Although this
patient was not part of a Genzyme Biosurgery clinical trial, deaths 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 Biosurgery's gene therapy
products. As a result of the death, the U.S. Senate has conducted 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 Biosurgery's
gene therapy clinical trials could be delayed or become more expensive to
conduct.
The commercial success of any gene therapy products that Genzyme
Biosurgery 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:
19
o greater government regulation;
o stricter clinical trial oversight;
o tighter commercial product labeling requirements of gene
therapies; and
o a decrease in the demand for any gene therapy product that Genzyme
Biosurgery may develop.
Recently, the NIH and FDA have issued proposed rules regarding the public
disclosure of information from gene therapy trials. If these rules become
regulation, additional public disclosure requirements may affect public
perception of gene therapies.
BECAUSE GENZYME BIOSURGERY HAS SIGNIFICANT FIXED PAYMENTS, IT WILL NEED TO
DEVOTE A SUBSTANTIAL PORTION OF ITS CASH FLOW TO MAKE THE PAYMENTS AND MAY NEED
TO BORROW MONEY IN THE FUTURE TO MAKE DEBT PAYMENTS AND OPERATE ITS BUSINESS.
As of December 31, 2000, we had allocated to Genzyme Biosurgery
approximately $218.0 million borrowed under a credit facility. Genzyme
Biosurgery will use a large part of its cash flow to make principal and
interest payments on this debt. If Genzyme Biosurgery's cash flow from
operations is insufficient to meet these obligations, the division may need
to borrow to make these payments. We cannot guarantee that such additional
financing will be available or available on favorable terms.
In addition to amounts borrowed under the credit facility, significant
cash obligations allocated to Genzyme Biosurgery include the following:
o GENZYME GENERAL.
In 1999, Genzyme Biosurgery received $25.0 million in cash from
Genzyme General in connection with the transfer to Genzyme
General of our interest in a joint venture with Diacrin, Inc.
If the joint venture does not initiate a Phase 3 clinical trial
of NeuroCell(TM)-PD by June 30, 2001, Genzyme Biosurgery will
be required to repay Genzyme General $20.0 million plus accrued
interest at 13.5% per year in cash, Biosurgery designated
shares, or a combination of both, at its option, provided that
Genzyme General notifies Genzyme Biosurgery of its intent to
require this repayment. If these milestones are not achieved,
and Genzyme Biosurgery elects to repay Genzyme General in cash,
Genzyme Biosurgery's cash reserves will be diminished. If
Genzyme Biosurgery elects to repay Genzyme General in shares of
Biosurgery designated shares, this would dilute the rights of
the holders of Biosurgery Stock and could adversely affect the
market price of Biosurgery Stock.
o UBS WARBURG LLC.
In connection with our acquisition of Biomatrix, Genzyme Biosurgery
Corporation, a wholly-owned subsidiary of ours, assumed a 6.9%
convertible subordinated note due May 14, 2003 in favor of UBS Warburg
LLC. At December 31, 2000, $10.0 million of this note remained
outstanding. Genzyme Biosurgery will use a part of its cash flow to
satisfy debt service on this note. If all or a portion of the note is
not converted at the option of the holder into Biosurgery Stock, at
maturity Genzyme Biosurgery's cash reserves will be diminished by the
amount necessary to repay the outstanding principal of the note.
20
GENZYME BIOSURGERY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE.
Genzyme Biosurgery expects to have operating losses before amortization
of intangibles and goodwill through at least the second quarter of 2001 as it
combines the operations of Genzyme Surgical Products, Genzyme Tissue Repair and
Biomatrix, and as it continues to spend substantial amounts of money on, among
other things, conducting research, development, regulatory and commercialization
activities to support its expanded product lines. This strategy involves risks,
which include supporting higher levels of operating expenses, attracting and
retaining employees, and dealing with other management difficulties that arise
from rapid growth. If Genzyme Biosurgery cannot manage growth effectively, it
may not become profitable.
IF GENZYME BIOSURGERY 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 Biosurgery's current cash resources,
together with revenues generated from products sales, will be sufficient to fund
its operations through at least 2001.
Genzyme Biosurgery's cash needs may differ from those planned because
of many factors, including the:
o ability to become profitable;
o results of research and development efforts and clinical testing;
o ability to share costs of product development with research and
marketing partners;
o ability to establish strategic alliances and licensing
arrangements for research and development programs;
o achievement of milestones under strategic alliances;
o ability to establish and maintain additional distribution
arrangements;
o costs of protecting its intellectual property rights;
o market's acceptance of novel approaches and therapies;
o success of its initiatives to reduce expenses and streamline its
operations;
o development of competing products; and
o ability to satisfy regulatory requirements of the FDA and other
government authorities.
Genzyme Biosurgery may require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that it will be
able to obtain additional financing or find it on favorable terms. If Genzyme
Biosurgery has insufficient funds or is unable to raise additional funds, it may
have to delay, reduce or eliminate certain of its programs. Genzyme Biosurgery
may also have to give third parties rights to attempt to commercialize
technologies or products that it would otherwise have sought to commercialize
itself.
21
CHANGES IN GENZYME BIOSURGERY'S MANUFACTURING CAPABILITIES COULD SIGNIFICANTLY
REDUCE ITS ABILITY TO DELIVER ITS PRODUCTS.
Genzyme Biosurgery is engaged in the production of a wide variety of
products and services. Genzyme Biosurgery's manufacturing processes are highly
complex and are regulated by the government. It is possible that Genzyme
Biosurgery will have problems maintaining or expanding its facilities in the
future. These problems could cause delays in production or delivery. Any
significant disruption in Genzyme Biosurgery's manufacturing operations or in
its ability to manufacture products cost effectively could have an adverse
effect on its business, results of operations, and financial condition.
COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT
GENZYME BIOSURGERY'S PERFORMANCE.
The human health care products and services industry is extremely
competitive. Major medical device and technology companies compete or may
compete with Genzyme Biosurgery. These include such companies as:
o Atrium Medical Corporation and Sherwood-Davis & Geck, a
division of Tyco International, Ltd., in the cardiovascular
fluid management market;
o The Ethicon division of Johnson & Johnson Ltd. and U.S. Surgical
Corporation, a division of Tyco, in the cardiovascular closure
market;
o CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical,
Guidant Corporation, Baxter Healthcare Corporation and Ethicon in
the minimally invasive cardiovascular surgery market;
o Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc.
and Gliatech, Inc. in the anti-adhesion market;
o 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; and
o Fidia S.p.A., Sanofi and OrthoLogic Corp., Anika Therapeutics,
Inc. and Zimmer, Inc., and Seikagiku Corporation and Smith &
Nephew in the visco supplementation products market.
These competitors may have superior research and development, marketing and
production capabilities. Some competitors also may have greater financial
resources than Genzyme Biosurgery. The division is likely to incur
significant costs developing and marketing new products without any guarantee
that they will be competitively successful in one or more markets. The future
success of Genzyme Biosurgery 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 BIOSURGERY'S 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 more comprehensive product lines to these
larger purchasing groups. In order to market successfully its products to larger
purchasing groups, Genzyme Biosurgery
22
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.
BIOMATRIX FACES LITIGATION THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON GENZYME
BIOSURGERY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We encourage you to read the material under "-- Risks Related to
Genzyme -- In connection with our acquisition of Biomatrix, we assumed
litigation faced by Biomatrix." That material describes a securities lawsuit
filed against Biomatrix prior to Genzyme's acquisition of Biomatrix.
RISKS RELATED TO GENZYME MOLECULAR ONCOLOGY
The following risks and uncertainties may adversely affect the business
of Genzyme Molecular Oncology.
GENZYME MOLECULAR ONCOLOGY MAY NEVER BE ABLE TO SUCCESSFULLY DEVELOP OR
COMMERCIALIZE ANY OF ITS CANCER THERAPIES.
Genzyme Molecular Oncology does not have any cancer therapies on the
market and its only therapies in clinical development are at an early stage.
Before commercializing any cancer therapies, Genzyme Molecular Oncology will
need to conduct substantial additional research and development, including, in
some cases, the replication of studies performed by third parties, undertake
preclinical and clinical testing and obtain regulatory approvals. This process
involves a high degree of uncertainty and may take several years. Its product
development efforts may fail for many reasons, including: the product fails in
preclinical studies; clinical trials may not support the safety or effectiveness
of the product; or we fail to obtain the required regulatory approvals. We
cannot guarantee that Genzyme Molecular Oncology will successfully develop any
particular product or that any product it successfully develops will gain market
acceptance.
GENZYME MOLECULAR ONCOLOGY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.
Genzyme Molecular Oncology has not generated significant revenues to
date and does not expect to do so for several years. As of December 31, 2000,
Genzyme Molecular Oncology had an accumulated deficit of approximately $92.1
million. We expect Genzyme Molecular Oncology to have significant operating
losses for the next several years. Genzyme Molecular Oncology plans to spend
substantial amounts of money on, among other things: research and development;
preclinical and clinical testing; and pursuing regulatory approvals. We cannot
guarantee that the efforts underlying these expenditures will be successful or
that Genzyme Molecular Oncology's operations will ever be profitable.
IF GENZYME MOLECULAR ONCOLOGY FAILS TO OBTAIN THE CAPITAL NECESSARY TO FUND ITS
OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL
TRIALS.
We anticipate that Genzyme Molecular Oncology's current cash resources,
together with amounts available from the following sources, will be sufficient
to fund its operations through the third quarter of 2002:
o revenues generated from license agreements;
o committed research funding from collaborators;
23
o the $15.0 million remaining under the interdivisional financing
arrangement with Genzyme General; and
o amounts available to Genzyme Molecular Oncology under our
revolving credit facilities.
Genzyme Molecular Oncology plans to spend substantial amounts of funds
on, among other things:
o research and development;
o preclinical and clinical testing; and
o pursuing regulatory approvals.
Genzyme Molecular Oncology's cash needs may differ from those planned,
however, because of many factors, including the:
o results of research and development and clinical testing;
o achievement of milestones under existing licensing arrangements;
o ability to establish and maintain additional strategic
collaborations and licensing arrangements;
o enforcement of patent and other intellectual property rights;
o market acceptance of novel approaches and therapies;
o development of competing products and services; and
o ability to satisfy regulatory requirements of the FDA and other
government authorities.
Genzyme Molecular Oncology may require significant additional financing
to continue operations at anticipated levels. We cannot guarantee that it will
be able to obtain any additional financing or find it on favorable terms. If
Genzyme Molecular Oncology has insufficient funds or is unable to raise
additional funds, it may have to delay, reduce or eliminate some of its
programs. Genzyme Molecular Oncology may also have to give third parties rights
to commercialize technologies or products that it would otherwise have sought to
commercialize itself.
GENZYME MOLECULAR ONCOLOGY MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM
COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A
FAILURE TO ENTER INTO FUTURE COLLABORATIONS.
Genzyme Molecular Oncology's 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 Molecular Oncology 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 Molecular Oncology, may develop technologies or products that are
competitive with those that Genzyme Molecular Oncology is developing. As a
result, we cannot guarantee that Genzyme Molecular Oncology will receive
24
revenues from these relationships or that any of its strategic collaborations
will continue or not terminate early. In addition, we cannot guarantee that
Genzyme Molecular Oncology will be able to enter into collaborations in the
future.
GENZYME MOLECULAR ONCOLOGY MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM
COMPETITORS IN ORDER TO DEVELOP AND COMMERCIALIZE SOME OF ITS PRODUCTS AND
SERVICES, AND IT IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE.
Third party patent rights and pending patent applications filed by
third parties, if issued, may cover some of the products Genzyme Molecular
Oncology is developing or testing. As a result, Genzyme Molecular Oncology may
be required to obtain licenses from the holders of these patents in order to use
or sell certain products and services. We cannot guarantee that these licenses
will be made available on acceptable terms or at all. If these licenses are not
available, Genzyme Molecular Oncology's ability to commercialize its products
and services may be impaired.
In its cancer vaccine program, Genzyme Molecular Oncology is in the
process of evaluating the therapeutic administration of peptide products and
genes that encode specific tumor antigens, including MART-1 and gp100. Genzyme
Molecular Oncology is aware of two issued U.S. patents directed to the gene that
encodes MART-1. While it has obtained rights under one of these patents, Genzyme
Molecular Oncology is still in the process of evaluating the scope and validity
of the other to determine whether it needs to obtain a license. Genzyme
Molecular Oncology is also evaluating an issued U.S. patent covering the gene
that encodes gp100 and three published Patent Cooperation Treaty applications by
three different applicants that may cover antigens derived from gp100. Genzyme
Molecular Oncology is in the process of evaluating the scope and validity of
these patents and patent applications to determine whether it needs to obtain
licenses.
GENZYME MOLECULAR ONCOLOGY MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION
OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.
If Genzyme Molecular Oncology or one of its strategic collaborators
initiates litigation to enforce Genzyme Molecular Oncology's patent or license
rights, or are required to defend these rights in response to third party
claims, its business or financial position may be negatively affected. Genzyme
Molecular Oncology has licensed its p53 gene therapy rights to Schering-Plough.
These patent rights are the subject of an interference proceeding in the U.S.
and an opposition proceeding in Europe. Adverse determinations in these
proceedings may negatively affect Genzyme Molecular Oncology's ability to
receive future milestones and product royalties under its agreement with
Schering-Plough.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME MOLECULAR ONCOLOGY'S GENE THERAPY
PRODUCTS.
The death of a patient undergoing gene therapy using an adenoviral
vector to deliver a therapeutic gene has been widely publicized. Although this
patient was not part of a Genzyme Molecular Oncology clinical trial, deaths 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 Molecular Oncology's gene
therapy products. As a result of this death, the U.S. Senate has conducted
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
25
gene therapy clinical trials are conducted. If any new guidelines are adopted by
the NIH, Genzyme Molecular Oncology's gene therapy clinical trials could be
delayed or become more expensive to conduct.
Genzyme Molecular Oncology has reported to the FDA and the NIH that
there have been six deaths in its Phase 1/2 melanoma cancer vaccine trial at
Massachusetts General Hospital. The principal investigator for this trial
indicated that each of these deaths was due to disease progression and not
related to the patient's investigational treatment. Deaths are not unexpected in
a clinical trial involving patients with advanced stage melanoma because these
patients have short life expectancies. Genzyme Molecular Oncology cannot,
however, rule out the possibility that its investigational cancer vaccines, like
all investigational drug and biologic products, may be a contributing cause of
death for patients in the future.
The commercial success of any gene therapy products that Genzyme
Molecular Oncology 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:
o greater government regulation;
o stricter clinical trial oversight;
o tighter commercial product labeling requirements of gene
therapies; and
o a decrease in the demand for any gene therapy product that Genzyme
Molecular Oncology may develop.
Recently, the NIH and FDA have issued proposed rules regarding the
public disclosure of information from gene therapy trials. If these rules become
regulation, additional public disclosure requirements may affect public
perception of gene therapies.
26