EXHIBIT 13.1

FINANCIAL STATEMENTS
GENZYME CORPORATION AND SUBSIDIARIES

PAGE NO.
--------

Consolidated Selected Financial Data........................ GCS-2

Management's Discussion and Analysis of Genzyme Corporation
and Subsidiaries' Financial Condition and Results of
Operations................................................ GCS-9

Consolidated Statements of Operations--For the Years Ended
December 31, 2000, 1999 and 1998.......................... GCS-39

Consolidated Balance Sheets--December 31, 2000 and 1999..... GCS-41

Consolidated Statements of Cash Flows--For the Years Ended
December 31, 2000, 1999 and 1998.......................... GCS-43

Consolidated Statements of Stockholders' Equity--For the
Years Ended December 31, 2000, 1999 and 1998.............. GCS-45

Notes to Consolidated Financial Statements.................. GCS-50

Report of Independent Accountants........................... GCS-111

GCS-1

GENZYME CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA

These selected financial data have been derived from our audited
consolidated financial statements. You should read the following information in
conjunction with our audited financial statements and related notes contained
elsewhere in this annual report.

We have three series of common stock--Genzyme General Division common stock,
which we refer to as "Genzyme General Stock," Genzyme Biosurgery Division common
stock, which we refer to as "Biosurgery Stock," and Genzyme Molecular Oncology
Division common stock, which we refer to as "Molecular Oncology Stock." We also
refer to our series of stock as "tracking stock." Unlike typical common stock,
each of our tracking stocks is designed to track the financial performance of a
specified subset of our business operations and its allocated assets, rather
than operations and assets of our entire company. Each tracking stock is a
common stock of Genzyme Corporation, not of a division; each division is not a
company or legal entity, and therefore does not and cannot issue stock.

The chief mechanisms intended to cause each tracking stock to "track" the
financial performance of each division are provisions in our charter governing
dividends and distributions. Under these provisions, our charter:

- factors the assets and liabilities and income or losses attributable to a
division into the determination of the amount available to pay dividends
on the associated tracking stock; and

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

Because the earnings allocated to each series of stock are based on the
income or losses attributable to each corresponding division, we include
financial statements and management's discussion and analysis for the
corporation as well as for each of our divisions to aid investors in evaluating
our performance and the performance of each of our divisions.

On December 14, 2000, we acquired GelTex Pharmaceuticals, Inc., a public
company engaged in developing therapeutic products based on polymer technology.
The acquisition was structured as a merger of GelTex with and into one of our
wholly-owned subsidiaries. We accounted for the acquisition as a purchase and
allocated it to Genzyme General. Accordingly, the results of operations of
GelTex are included in our consolidated financial statements and the combined
financial statements of Genzyme General from the date of acquisition. We have
allocated the aggregate purchase price of $1.0 billion to the fair value of the
acquired assets and liabilities as of the acquisition date.

GCS-2

GENZYME CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (CONTINUED)

As part of the acquisition of GelTex, we acquired all of GelTex's interest
in RenaGel LLC, our joint venture with GelTex. Prior to the acquisition of
GelTex, we accounted for our investment in RenaGel LLC under the equity method.
The financial statements found herein reflect the consolidation of RenaGel LLC
into our financial statements and accounting for our purchase of GelTex's 50%
interest in the joint venture using the purchase method of accounting. Because
we already owned a 50% interest in RenaGel LLC, the assets of RenaGel LLC were
adjusted to fair value only to the extent of the 50% interest we acquired. We
intend that, as our wholly-owned subsidiary, GelTex will operate the same
business that it operated before the merger.

On December 18, 2000, we acquired Biomatrix, Inc., a public company engaged
in the development and manufacture of viscoelastic biomaterials for use in
orthopaedic and other medical applications. The acquisition was structured as a
merger of Biomatrix with and into one of our wholly-owned subsidiaries. At the
time of the merger, we created Genzyme Biosurgery as a new division. We
reallocated the businesses of Genzyme Surgical Products and Genzyme Tissue
Repair to Genzyme Biosurgery and allocated the acquired businesses of Biomatrix
to Genzyme Biosurgery. As a result of this transaction, we amended our charter
to create Biosurgery Stock and eliminate Surgical Products Stock and Tissue
Repair Stock. Each outstanding share of, or option to purchase, Surgical
Products Stock was converted into the right to receive 0.6060 of a share of, or
option to purchase, Biosurgery Stock and each outstanding share of, or option to
purchase, Tissue Repair Stock was converted into the right to receive 0.3352 of
a share of, or option to purchase, Biosurgery Stock.

We accounted for the acquisition as a purchase and, accordingly, the results
of operations of Biomatrix are included in our consolidated financial statements
and the combined financial statements of Genzyme Biosurgery from the date of
acquisition. The aggregate purchase price of $426.2 million has been allocated
to the fair value of the acquired assets and liabilities as of the acquisition
date.

As market or competitive conditions warrant, we may create new series of
tracking stock or change our earnings allocation methodology. However, at the
present time, we have no plans to do so.

GCS-3

GENZYME CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (CONTINUED)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA

FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)

Revenues:
Net product sales............................. $811,897 $683,482 $613,685 $529,927 $424,483
Net service sales............................. 84,482 79,448 74,791 67,158 68,950
Revenues from research and development
contracts:
Related parties............................. 509 2,012 5,745 8,356 23,011
Other....................................... 6,432 7,346 15,114 3,400 2,310
-------- -------- -------- -------- --------
Total revenues............................ 903,320 772,288 709,335 608,841 518,754
-------- -------- -------- -------- --------
Operating costs and expenses:
Cost of products sold(1)...................... 232,383 182,337 211,076 206,028 155,930
Cost of services sold......................... 50,177 49,444 48,586 47,289 54,082
Selling, general and administrative........... 264,551 242,797 215,203 200,476 162,264
Research and development (including research
and development related to contracts)....... 169,478 150,516 119,005 89,558 80,849
Amortization of intangibles................... 22,974 24,674 24,334 17,245 8,849
Purchase of in-process research and
development(2).............................. 200,191 5,436 -- 7,000 130,639
Charge for impaired asset(3).................. 4,321 -- -- -- --
Other......................................... -- -- -- -- 1,465
-------- -------- -------- -------- --------
Total operating costs and expenses.......... 944,075 655,204 618,204 567,596 594,078
-------- -------- -------- -------- --------
Operating income (loss)......................... (40,755) 117,084 91,131 41,245 (75,324)
-------- -------- -------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated
affiliates.................................. (44,965) (42,696) (29,006) (12,258) (5,373)
Gain on affiliate sale of stock(4)............ 22,689 6,683 2,369 -- 1,013
Minority interest............................. 4,625 3,674 4,285 -- --
Gain on sale of investments in equity
securities.................................. 23,173 1,963 3,391 -- 1,711
Gain on sale of product line(5)............... -- 8,018 31,202 -- --
Charge for impaired investments............... (7,300) (5,712) (3,397) -- --
Other(6)...................................... 5,188 14,527 -- (2,000) --
Investment income............................. 45,593 36,158 25,055 11,409 15,341
Interest expense.............................. (15,710) (21,771) (22,593) (12,667) (6,990)
-------- -------- -------- -------- --------
Total other income (expenses)............... 33,293 844 11,306 (15,516) 5,702
-------- -------- -------- -------- --------
Income (loss) before income taxes............... (7,462) 117,928 102,437 25,729 (69,622)
Provision for income taxes...................... (55,478) (46,947) (39,870) (12,100) (3,195)
-------- -------- -------- -------- --------
Net income (loss)............................... $(62,940) $ 70,981 $ 62,567 $ 13,629 $(72,817)
======== ======== ======== ======== ========

GCS-4

GENZYME CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (CONTINUED)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA

FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK (7,8):
Genzyme General net income (loss)............ $ 85,956 $142,077 $133,052 $ 76,642 $(10,687)
Genzyme Surgical Products net loss........... -- (27,523) (49,856) (29,740) (44,313)
Tax benefit allocated from Genzyme
Biosurgery................................. 28,023 26,994 34,330 27,778 24,498
Tax benefit allocated from Genzyme Molecular
Oncology................................... 7,476 7,812 3,527 2,755 --
-------- -------- -------- -------- --------
Net income (loss) allocated to Genzyme
General Stock.............................. $121,455 $149,360 $121,053 $ 77,435 $(30,502)
======== ======== ======== ======== ========
Net income (loss) per share of Genzyme
General Stock:
Basic...................................... $ 1.41 $ 1.80 $ 1.53 $ 1.01 $ (0.45)
======== ======== ======== ======== ========
Diluted.................................... $ 1.35 $ 1.71 $ 1.48 $ 0.98 $ (0.45)
======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic...................................... 86,131 83,092 79,063 76,531 68,289
======== ======== ======== ======== ========
Diluted.................................... 89,683 93,228 85,822 78,925 68,289
======== ======== ======== ======== ========

ALLOCATED TO BIOSURGERY STOCK(9):
Genzyme Biosurgery net loss.................. $(87,636)
Allocated tax benefit........................ 448
--------
Net loss allocated to Biosurgery Stock....... $(87,188)
========
Net loss per share of Biosurgery Stock--basic
and diluted................................ $ (2.40)
========
Weighted average shares outstanding.......... 36,359
========

ALLOCATED TO MOLECULAR ONCOLOGY STOCK(8,10):
Net loss..................................... $(23,096) $(28,832) $(19,107) $(19,578)
======== ======== ======== ========
Net loss per share of Molecular Oncology
Stock--basic and diluted................... $ (1.60) $ (2.25) $ (3.81) $ (4.64)
======== ======== ======== ========
Weighted average shares outstanding.......... 14,446 12,826 5,019 3,929
======== ======== ======== ========

ALLOCATED TO SURGICAL PRODUCTS STOCK (8,9,11):
Net loss..................................... $(54,748) $(20,514)
======== ========
Net loss per share of Surgical Products
Stock--basic and diluted................... $ (3.67) $ (1.38)
======== ========
Weighted average shares outstanding.......... 14,900 14,835
======== ========

ALLOCATED TO TISSUE REPAIR STOCK(8,9):
Net loss..................................... $(19,833) $(30,040) $(40,386) $(45,984) $(42,315)
======== ======== ======== ======== ========
Net loss per share of Tissue Repair
Stock--basic and diluted................... $ (0.69) $ (1.26) $ (1.99) $ (3.07) $ (3.38)
======== ======== ======== ======== ========
Weighted average shares outstanding.......... 28,716 23,807 20,277 14,976 12,525
======== ======== ======== ======== ========

GCS-5

GENZYME CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (CONTINUED)

CONSOLIDATED BALANCE SHEET DATA

DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)

Cash and investments............... $ 639,640 $ 652,990 $ 575,729 $ 246,341 $ 187,955
Working capital.................... 559,652 592,249 417,116 350,822 395,605
Total assets....................... 3,318,100 1,787,282 1,688,854 1,295,453 1,270,508
Long-term debt, capital lease
obligations and convertible debt
(12)............................. 685,137 295,702 387,993 171,181 242,997
Stockholders' equity............... $2,175,141 $1,356,392 $1,172,535 $1,012,050 $ 902,309

There were no cash dividends paid.

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

(1) Cost of products sold for 1998 includes a $14.8 million charge to write-down
excess Ceredase-Registered Trademark- enzyme inventory and a $10.4 million
charge to write-down our Sepra-TM- products inventory to net realizable
value. Cost of products sold for 1997 includes an $18.1 million charge in
connection with the discontinuance of our melatonin, bulk pharmaceuticals
and fine chemicals product lines.

(2) Charges for in-process research and development were incurred in connection
with the following acquisitions:

- 2000--$118.0 million from the acquisition of GelTex and $82.1 million from
the acquisition of Biomatrix;

- 1999--$5.4 million from the acquisition of Peptimmune, Inc.;

- 1997--$7.0 million from the acquisition of PharmaGenics, Inc.; and

- 1996--$106.4 million from the acquisition of Neozyme II Corporation and
$24.2 million from the acquisition of Deknatel Snowden Pencer, Inc.

(3) Represents a charge to write off abandoned equipment at our Springfield
Mills manufacturing facility.

(4) During 2000, in accordance with our policy pertaining to affiliate sales of
stock, we recorded gains of $22.7 million relating to public offerings of
common stock by our unconsolidated affiliate, Genzyme Trangenics
Corporation. In 1999, our gain on affiliate sale of stock represents the
gain on our investment in Genzyme Transgenics as a result of Genzyme
Transgenics' various issuances of additional shares of its common stock.

(5) Gain on sale of product line of $31.2 million in 1998 relates to the sale of
our research products business assets to Techne Corporation. Gain on sale of
product line in 1999 consists of $7.5 million representing the payment of a
note receivable that we received as partial consideration for the sale of
Genetic Design, Inc. to Laboratory Corporation of America in 1996, and
$0.5 million relating to the sale of our immunochemistry business assets to
an operating unit of Sybron Laboratory Products Corp.

GCS-6

GENZYME CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (CONTINUED)

(6) Other income in 2000 includes a $5.1 million payment received in connection
with the settlement of a lawsuit. Other income in 1999 includes the receipt
of a $14.4 million payment associated with the termination of our agreement
to acquire Cell Genesys, Inc., net of acquisition related expenses.

(7) Until the distribution of Surgical Products Stock on June 28, 1999, Genzyme
Surgical Products' losses were included in the determination of income
allocated to Genzyme General Stock. If the shares of Surgical Products Stock
initially issued on June 28, 1999 were assumed to be outstanding since
January 1, 1996, net income allocated to Genzyme General Stock and weighted
average shares of Genzyme General Stock outstanding would have been as
follows:

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

Net income allocated to Genzyme General
Stock.......................................... $176,883 $170,909 $107,175 $13,811
Weighted average shares outstanding:
Basic.......................................... 83,092 79,063 76,531 68,289
Diluted........................................ 93,228 85,822 78,925 73,038

(8) To determine earnings per share, we allocate our earnings to each series of
our common stock based on the earnings attributable to that series of stock.
The earnings attributable to Genzyme General Stock is defined in our charter
as the net income or loss of Genzyme General determined in accordance with
generally accepted accounting principles and as adjusted for tax benefits
allocated to or from Genzyme General in accordance with our management and
accounting policies. Earnings attributable to Biosurgery Stock and Molecular
Oncology Stock are defined similarly and, therefore, are based on the net
income or loss of the corresponding division.

(9) We created Genzyme Biosurgery on December 18, 2000. Prior to this date, the
operations allocated to Genzyme Biosurgery were included in the operations
allocated to Genzyme Surgical Products and Genzyme Tissue Repair and as of
that date, the operations of Genzyme Surgical Products and Genzyme Tissue
Repair ceased. Net loss per share of Biosurgery Stock for 2000 is calculated
using the net loss allocated to Biosurgery Stock for the period
December 19, 2000 through December 31, 2000 and the weighted average shares
of Biosurgery Stock outstanding during the same period. Loss per share data
are not presented for Genzyme Biosurgery for the years ended December 31,
1996, 1997, 1998 and 1999 or for the period from January 1, 2000 to
December 18, 2000, as there were no shares of Biosurgery Stock outstanding
during those periods.

(10) We created Genzyme Molecular Oncology on June 18, 1997. Prior to this date,
Genzyme Molecular Oncology's losses were included in the determination of
income allocated to Genzyme General Stock. Net loss per share of Molecular
Oncology Stock for 1997 is calculated using the net loss allocated to
Genzyme Molecular Oncology for the period June 18, 1997 through
December 31, 1997 and the weighted average shares outstanding during the
same period. Loss per share data are not presented for Genzyme Molecular
Oncology for the year ended December 31, 1996 or for the period from
January 1, 1997 to June 17, 1997, as there were no shares of Molecular
Oncology Stock outstanding during those periods.

(11) We created Genzyme Surgical Products on June 28, 1999. Prior to this date,
the operations of Genzyme Surgical Products were included in the operations
allocated to Genzyme General and, therefore, in the net income allocated to
Genzyme General Stock. Net loss per share of Surgical Products Stock for
1999 is calculated using the net loss allocated to Genzyme Surgical Products
for the period June 28, 1999 through December 31, 1999 and the weighted
average shares outstanding

GCS-7

GENZYME CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (CONTINUED)

during the same period. Loss per share data are not presented for Genzyme
Surgical Products for the years ended December 31, 1996, 1997 and 1998 or
for the period from January 1, 1999 to June 28, 1999, as there were no
shares of Surgical Products Stock outstanding during those periods. If the
shares of Surgical Products Stock initially issued on June 28, 1999 were
assumed to be outstanding since January 1, 1996, net loss allocated to
Surgical Products Stock and weighted average shares outstanding would have
been as follows:

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

Net loss allocated to Surgical Products Stock........ $(48,037) $(49,856) $(29,740) $(44,313)
Weighted average shares outstanding--basic and
diluted............................................ 14,800 14,800 14,800 14,800

(12) In 2000, consists primarily of $250.0 million in principal of our 5 1/4%
convertible subordinated notes, $368.0 million outstanding under a revolving
credit facility, and a $25.0 million capital lease obligation. In 1999 and
1998 consists primarily of $250.0 million in principal of our 5 1/4%
convertible subordinated notes. In 1997 consists primarily of
$118.0 million outstanding under a revolving credit facility and in 1996
consists primarily of $218.0 million outstanding under that facility.

GCS-8

MANAGEMENT'S DISCUSSION AND ANALYSIS OF GENZYME CORPORATION
AND SUBSIDIARIES' 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" below.
You should consider carefully each of these risks and uncertainties in
evaluating our financial condition and results of operations.

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

- Genzyme General, which develops and markets:

- therapeutic products, with an expanding focus on products to treat
patients suffering from lysosomal storage disorders and other specialty
therapeutics;

- diagnostic products, with a focus on IN VITRO diagnostics; and

- other products and services, such as genetic testing services;

- Genzyme Biosurgery, which develops and markets instruments, devices,
biomaterials and biotherapeutic products to improve or replace surgery,
with an emphasis on the orthopaedic and cardiothoracic markets; and

- Genzyme Molecular Oncology, which is utilizing its functional genomics and
antigen discovery technology platforms to develop novel cancer products
focused on cancer vaccines and angiogenesis inhibitors and to generate
partnering revenues.

On December 18, 2000, we acquired Biomatrix, Inc., a public company engaged
in the development and commercialization of viscoelastic products made of
biological polymers called hylans for use in therapeutic medical applications
and skin care. We accounted for the acquisition as a purchase. Immediately prior
to the acquisition, we combined two of our operating divisions, Genzyme Surgical
Products and Genzyme Tissue Repair, to form a new division called Genzyme
Biosurgery. We allocated the acquired assets and liabilities of Biomatrix to
Genzyme Biosurgery. The combination of Genzyme Surgical Products and Genzyme
Tissue Repair to form Genzyme Biosurgery did not result in any adjustments to
the book values of the net assets of the divisions because they remained
divisions of the same corporation. We present the financial statements of
Genzyme Biosurgery as though the divisions had been combined for all periods
presented, and include the operations of Biomatrix from the date of acquisition.

In connection with the formation of Genzyme Biosurgery, we created Genzyme
Biosurgery Division common stock, which we refer to as "Biosurgery Stock."
Biosurgery Stock is designed to track the performance of Genzyme Biosurgery.
Each outstanding share of Genzyme Surgical Products Division common stock, or
"Surgical Products Stock," was converted into 0.6060 of a share of Biosurgery
Stock, and each outstanding share of Genzyme Tissue Repair Division common
stock, or "Tissue Repair Stock," was converted into 0.3352 of a share of
Biosurgery Stock. All outstanding options to purchase Surgical Products Stock
and Tissue Repair Stock were converted into options to purchase Biosurgery Stock
at the applicable conversion rates.

As market or competitive conditions warrant, we may create new series of
tracking stock or change our earnings allocation methodology. However, at the
present time, we have no plans to do so.

GCS-9

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

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

- factors the assets and liabilities and income or losses attributable to a
division into the determination of the amount available to pay dividends
on the associated tracking stock; and

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

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

While each tracking stock is designed to reflect a division's performance,
it is common stock of Genzyme Corporation and not of a division; each division
is not a company or legal entity, and therefore does not and cannot issue stock.
Consequently, holders of a series of tracking stock have no specific rights to
assets allocated to the corresponding division. Genzyme Corporation continues to
hold title to all of the assets allocated to each division 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 each tracking
stock, as common stockholders, are therefore subject to the risks of investing
in the businesses, assets and liabilities of Genzyme as a whole. For instance,
the assets allocated to each division are subject to company-wide claims of
creditors, product liability plaintiffs and stockholder litigation. Also, in the
event of a Genzyme liquidation, insolvency or similar event, holders of each
tracking stock would only have the rights of common stockholders in the combined
assets of Genzyme.

GCS-10

We provide separate financial statements for each of our divisions as well
as consolidated financial statements that include the consolidated results of
each of our divisions and our corporate operations taken as a whole. You should
read this discussion and analysis of our financial position and results of
operations in conjunction with those consolidated financial statements and
related notes, which are included in this annual report.

RESULTS OF OPERATIONS

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

The components of our consolidated statements of operations are described in
the following table:

00/99 99/98
% CHANGE % CHANGE
2000 1999 1998 INCREASE/(DECREASE) INCREASE/(DECREASE)
-------- -------- -------- ------------------- -------------------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Total revenues......................... $903,320 $772,288 $709,335 17% 9%

Cost of products and services sold..... 282,560 231,781 259,662 22% (11)%
Selling, general and administrative.... 264,551 242,797 215,203 9% 13%
Research and development (including
research and development related to
contracts)........................... 169,478 150,516 119,005 13% 26%
Amortization of intangibles............ 22,974 24,674 24,334 (7)% 1%
Purchase of in-process research and
development.......................... 200,191 5,436 -- 3,583% N/A
Charge for impaired asset.............. 4,321 -- -- N/A N/A
-------- -------- --------
Total operating costs and expenses..... 944,075 655,204 618,204 44% 6%
-------- -------- --------
Operating income (expense)............. (40,755) 117,084 91,131 (135)% 28%
Other income (expenses), net........... 33,293 844 11,306 3,845% (93)%
-------- -------- --------
Income (loss) before income taxes...... (7,462) 117,928 102,437 (106)% 15%
Provision for income taxes............. (55,478) (46,947) (39,870) 18% 18%
-------- -------- --------
Net income (loss)...................... $(62,940) $ 70,981 $ 62,567 (189)% 13%
======== ======== ========

REVENUES

00/99 99/98
% CHANGE % CHANGE
2000 1999 1998 INCREASE/(DECREASE) INCREASE/(DECREASE)
-------- -------- -------- ------------------- -------------------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Product revenue........................ $811,897 $683,482 $613,685 19% 11%
Service revenue........................ 84,482 79,448 74,791 6% 6%
-------- -------- --------
Total product and service revenue.... 896,379 762,930 688,476 17% 11%
Research and development revenue....... 6,941 9,358 20,859 (26)% (55)%
-------- -------- --------
Total revenues....................... $903,320 $772,288 $709,335 17% 9%
======== ======== ========

GCS-11

PRODUCT REVENUE

We derive product revenue from sales by Genzyme General of therapeutic,
diagnostic and other products, including Cerezyme-Registered Trademark- enzyme
and Ceredase-Registered Trademark- enzyme, and sales by Genzyme Biosurgery of
cardiothoracic, orthopaedics and biosurgical specialties, including
Seprafilm-TM- bioresorbable membrane.

00/99 99/98
% CHANGE % CHANGE
2000 1999 1998 INCREASE/(DECREASE) INCREASE/(DECREASE)
-------- -------- -------- ------------------- -------------------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Genzyme General:
Therapeutics......................... $600,304 $488,705 $413,645 23% 18%
Diagnostic products.................. 61,469 57,971 65,683 6% (12)%
Other................................ 28,254 24,825 30,399 14% (18)%
Genzyme Biosurgery:
Cardiothoracic....................... 76,406 77,966 74,545 (2)% 5%
Orthopaedics......................... 4,159 -- --
Biosurgical specialties.............. 41,305 34,015 29,413 21% 16%
-------- -------- --------
Total product revenues................. $811,897 $683,482 $613,685 19% 11%
======== ======== ========

2000 AS COMPARED TO 1999

The increase in sales of Cerezyme-Registered Trademark- enzyme in 2000 was
attributable to our identification of new Gaucher disease patients throughout
the world, coupled with significant investment in global infrastructure that
resulted in increased international sales. We also sell
Ceredase-Registered Trademark- enzyme for the treatment of Gaucher disease, but
we have successfully converted virtually all Gaucher disease patients to a
treatment regimen using Cerezyme-Registered Trademark- enzyme. Our operations
are highly dependent on sales of Cerezyme-Registered Trademark- enzyme and a
reduction in revenue from sale of this product would adversely affect our
results of operations. Revenue from Cerezyme-Registered Trademark- enzyme would
be impacted negatively if competitors successfully developed alternative
treatments for Gaucher disease and the alternative products gained market
approval and commercial acceptance. We are aware of companies that have
initiated efforts to develop competitive products and other companies may do so
in the future. Information on the growth of sales of
Cerezyme-Registered Trademark- enzyme and Ceredase-Registered Trademark- enzyme
in 2000 and their relationship to our total product revenues for each year is
provided in the table below:

00/99
% CHANGE
2000 1999 INCREASE/(DECREASE)
-------- -------- -------------------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Sales of Cerezyme-Registered Trademark- enzyme and
Ceredase-Registered Trademark- enzyme............ $536,868 $478,358 12%
% of total product revenue......................... 66% 70%

Although sales of our Gaucher disease therapies continue to increase, the
decline as a percentage of total product revenue is a trend we expect will
continue in 2001. We expect that growth in sales of
Renagel-Registered Trademark- phosphate binder (sevelamer hydrochloride) will
increase substantially in 2001, driven primarily by the accelerating adoption of
the product by nephrologists worldwide, coupled with an increase in prescribed
dosage levels. We began recording revenues from Renagel-Registered Trademark-
phosphate binder during the second quarter of 2000 under an amended distribution
arrangement with GelTex, who we have since acquired. Revenues from
Renagel-Registered Trademark- phosphate binder were previously recorded by the
joint venture. Renagel-Registered Trademark- phosphate binder is used to reduce
serum phosphorus levels in patients with end-stage renal disease on dialysis.
Revenues from sales of Renagel-Registered Trademark- phosphate binder include
sales of Renagel-Registered Trademark- capsules and a new tablet formulation,
which was launched in the United States in September 2000.

GCS-12

The increase in diagnostic products revenue for the period ended
December 31, 2000 as compared to the period ended December 31, 1999, resulted
primarily from increases in sales of HDL and LDL cholesterol testing products.

For Genzyme Biosurgery, cardiothoracic products include fluid management
(chest drainage) systems, surgical closures, biomaterials, and instruments for
conventional and minimally invasive cardiac surgery. The decrease in
cardiothoracic product revenue was due to competitive pricing pressures in the
chest drainage market. These factors were offset, in part, by the continued
growth in the minimally invasive cardiothoracic products and the revenue from
FocalSeal-Registered Trademark--L, which was added to the cardiothoracic product
line in 2000.

The increase in orthopaedics revenue was due to the continued growth in
sales of Carticel-Registered Trademark- chondrocytes and sales of
Synvisc-Registered Trademark-, which was added to the orthopaedics product line
in 2000 as a result of the acquisition of Biomatrix.

Biosurgical specialties revenue increased from continued growth in sales of
Seprafilm-TM- bioresorbable membrane and Sepramesh-TM- biosurgical composite,
which are used to limit the incidence and severity of post-operative adhesions.
An increase in revenues from Genzyme Biosurgery's Snowden-
Pencer-Registered Trademark- line of instruments for plastic surgery and
products sold to original equipment manufacturers, including sutures, also
contributed to the overall increase in biosurgical specialties product revenue.

1999 AS COMPARED TO 1998

Our increase in product revenue was largely due to:

- increased sales of Cerezyme-Registered Trademark- enzyme, attributable to
our identification of new Gaucher disease patients; and

- increased sales of Seprafilm-TM- bioresorbable membrane and instruments
for minimally invasive cardiac surgery.

For both 1999 and 1998, our product revenue consisted mainly of sales of
Cerezyme-Registered Trademark- enzyme and Ceredase-Registered Trademark- enzyme
as indicated in the table below:

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

Sales of Cerezyme-Registered Trademark- enzyme and
Ceredase-Registered Trademark- enzyme................. $478,358 $411,060 16%
% of total product revenue.............................. 70% 67%

Sales of Seprafilm-TM- bioresorbable membrane increased 43% to
$13.3 million in 1999 as compared to $9.3 million in 1998. The increase in
cardiothoracic product revenues in 1999 was primarily attributable to increased
sales of instruments for minimally invasive cardiac surgery.

The increases in product revenue were partially offset by a decrease in
diagnostic products revenue for 1999 as compared to 1998, which reflects the
sale of the research products business to Techne Corporation in July 1998 and
immunochemistry product line to an operating unit of Sybron Laboratory Products
Corporation in July 1999. Diagnostic products revenue includes royalties on
product sales by Techne's biotechnology group.

GCS-13

SERVICE REVENUE

We derive service revenue from four principal sources:

- genetic testing services performed by Genzyme General;

- Genzyme Biosurgery's Carticel-Registered Trademark- chondrocytes for the
treatment of cartilage damage;

- Genzyme Biosurgery's Epicel-Registered Trademark- skin grafts for the
treatment of severe burns; and

- genomics services using Genzyme Molecular Oncology's SAGE-TM- gene
expression technology.

00/99 99/98
INCREASE/ INCREASE/
(DECREASE) (DECREASE)
2000 1999 1998 % CHANGE % CHANGE
-------- -------- -------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Genzyme General.......................... $61,161 $57,223 $55,445 7% 3%
Genzyme Biosurgery....................... 23,321 20,305 17,117 15% 19%
Genzyme Molecular Oncology............... -- 1,920 2,229 (100)% (14)%
------- ------- -------
Total service revenue.................... $84,482 $79,448 $74,791 6% 6%
======= ======= =======

2000 AS COMPARED TO 1999

Our service revenue increased during 2000, as compared to 1999, as a result
of increases in genetic testing services as well as increased sales of
Carticel-Registered Trademark- chondrocytes and Epicel-Registered Trademark-
skin grafts. The increase in sales of Carticel-Registered Trademark-
chondrocytes was a result of continued increases in the numbers of patients
treated and surgeons trained as well as an increase in the number of insurance
reimbursement approvals. Sales of genomics services decreased during this period
as a result of a planned shift in genomics business focus from one in which
Genzyme Molecular Oncology provides services to third parties to one in which
Genzyme Molecular Oncology grants licenses under the SAGE-TM- gene expression
technology.

1999 AS COMPARED TO 1998

Our service revenue increased during 1999, as compared to 1998, as a result
of increases in the provision of genetic testing services as well as increased
sales of Carticel-Registered Trademark- chondrocytes and
Epicel-Registered Trademark- skin grafts. These increases are attributable to
the same factors to which the increases in 2000 are attributable. Sales of
genomics services decreased during this period as a result of a planned
reduction in the provision of genomics services using Genzyme Molecular
Oncology's SAGE-TM- gene expression technology.

INTERNATIONAL PRODUCT AND SERVICE REVENUE

A substantial portion of our revenue was generated outside of the United
States, as described in the following table. Most of this revenue was
attributable to sales of Cerezyme-Registered Trademark- enzyme. The following
table shows international product and service revenue:

00/99 99/98
INCREASE/ INCREASE/
(DECREASE) (DECREASE)
2000 1999 1998 % CHANGE % CHANGE
-------- -------- -------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Total international product and
service revenue..................... $350,996 $311,080 $281,744 13% 10%
======== ======== ========
% of total product and service
revenue............................. 39% 41% 41%

GCS-14

MARGINS

00/99 99/98
INCREASE/ INCREASE/
(DECREASE) (DECREASE)
2000 1999 1998 % CHANGE % CHANGE
-------- -------- -------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Product margin........................ $579,514 $501,145 $402,609 16% 24%
% of product revenue................ 71% 73% 66%
Service margin........................ 34,305 30,004 26,205 14% 14%
% of service revenue................ 41% 38% 35%
Total gross margin.................... $613,819 $531,149 $428,814 16% 24%
% of total product and service
revenues............................ 68% 70% 62%

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

Product margin for both the periods ended December 31, 2000 as compared to
December 31, 1999 and December 31, 1999 as compared to December 31, 1998
continued to increase primarily as a result of increased sales of
Cerezyme-Registered Trademark- enzyme in both 2000 and 1999 and
Renagel-Registered Trademark- phosphate binder in 2000. While this trend
continued, the decrease in product margin as a percentage of product revenue for
the period ended December 31, 2000 was attributable to the addition of
Renagel-Registered Trademark- phosphate binder, a lower margin product. In
addition, in the fourth quarter of 2000 we recorded a $1.5 million credit to
cost of products sold as a result of a reduction in a royalty liability to a
collaborator. This credit was taken when it became apparent that, based on the
contractual terms and timing of certain events, we would not be required to pay
that portion of the royalty obligation.

Product margin for products allocated to Genzyme Biosurgery increased during
the period due to sales of higher margin products such as instruments for
minimally invasive cardiac surgery.

During 1998, we also recorded a $25.2 million charge to cost of products
sold. The components of this charge were:

- a $14.8 million charge related to the operations of Genzyme General to
write down excess inventory used to make Ceredase-Registered Trademark-
enzyme. We took this charge following our determination that, based on the
status of our efforts to convert Gaucher disease patients to a treatment
regimen using Cerezyme-Registered Trademark- enzyme, our existing supply
of Ceredase-Registered Trademark- enzyme was sufficient to meet estimated
patient needs.

- a $10.4 million charge related to the operations of Genzyme Biosurgery to
write down our inventory of Sepra-TM- products to net realizable value.
The Sepra-TM- products are our line of products and product candidates
designed to limit post-operative adhesions. During the third quarter of
1998, we revised our forecasted sales of Sepra-TM- products and, in
accordance with our policy, analyzed the Sepra-TM- products inventory to
determine whether the carrying value exceeded the net realizable value.
The revised forecast showed slower sales growth as well as higher
manufacturing and sales and marketing costs than originally expected. In
addition, our inventory on-hand had a relatively high cost per unit
because production was significantly less than originally planned. As a
result, in the third quarter of 1998, we recorded a charge to cost of
products sold to write down our Sepra-TM- products inventory to net
realizable value.

Excluding the charges described above, the increases in product margin and
total gross margin during both periods were a result of increased efficiency and
process improvements in manufacturing as well as increased sales of
Cerezyme-Registered Trademark- enzyme.

GCS-15

Our service margin increased during both 2000 and 1999. These increases were
attributable to:

- an increase in sales of DNA and cancer testing services;

- increased sales of Carticel-Registered Trademark- chondrocytes; and

- a reduction in labor, materials and production costs for
Carticel-Registered Trademark- chondrocytes and Epicel-TM- skin grafts.

OPERATING EXPENSES

2000 AS COMPARED TO 1999

The increase in selling, general and administrative expenses for the period
ended December 31, 2000 as compared to the period ended December 31, 1999 is
primarily related to:

- increased staffing to support the growth in several of Genzyme General's
product lines, including Renagel-Registered Trademark- phosphate binder;

- increased expenditures to support the increased sales of
Cerezyme-Registered Trademark- enzyme and Thyrogen-Registered Trademark-
hormone; and

- increased spending for marketing of the cardiothoracic products, including
the launch of three new products for the cardiothoracic market and
corporate branding efforts associated with the creation of Genzyme
Biosurgery.

- In the fourth quarter of 2000, we reversed $2.6 million of our allowance
for bad debt, much of which had been accrued during 2000. This reversal
was made due to changes in circumstances regarding, and estimates for,
certain domestic and foreign receivables.

The increase in research and development expense for the period ended
December 31, 2000 as compared to the period ended December 31, 1999 is primarily
related to:

- a charge of $19.5 million during the first quarter of 2000 for the initial
amounts payable to Synpac (North Carolina), Inc. under a license agreement
granted to us by Synpac to develop and commercialize a human
alpha-glucosidase enzyme replacement therapy for Pompe disease, offset by
a $10.3 million research and development reimbursement from Pharming
Group, N.V.;

- a charge of $2.0 million in the third quarter of 2000, representing the
15% premium to the market price that we paid for ordinary shares of
Cambridge Antibody Technology Group plc concurrently with entry into a
strategic alliance to develop and commercialize human monoclonal
antibodies directed against TGF-b;

- increased spending on our program to develop Fabrazyme-TM- enzyme for the
treatment of Fabry disease;

- increased costs in connection with the operations of ATIII LLC, our
consolidated joint venture with Genzyme Transgenics Corporation to develop
and commercialize recombinant human antithrombin III;

- increased spending in our cell and gene therapy programs; and

- expenses in Genzyme Molecular Oncology directed toward its antigen
discovery, immunotherapy and antiangiogenesis programs, including the
initiation of three additional clinical trials.

GCS-16

1999 AS COMPARED TO 1998

The increase in selling, general and administrative expense in 1999 as
compared to 1998 was related to:

- increased expenditures to support the increased sales of
Cerezyme-Registered Trademark- enzyme;

- costs associated with the market introduction of
Thyrogen-Registered Trademark- hormone in January 1999;

- increased staffing to support the growth in several of Genzyme General's
product lines;

- a $3.0 million increase to the reserve for doubtful accounts in Genzyme
General's genetic testing business as a result of a comprehensive review
of contract receivable and self-pay receivables during 1999; and

- an increase in professional service fees and higher fringe benefit
expenses and costs in connection with the creation of Genzyme Surgical
Products as a separate division of Genzyme. Genzyme Surgical Products is
now part of Genzyme Biosurgery.

The increase in selling, general and administrative expense in 1999 as compared
to 1998 was partially offset by the following:

- reduced legal costs in 1999 associated with our prosecution and
maintenance of Genzyme Molecular Oncology's intellectual property
portfolio; and

- a one-time charge taken in 1998 to write off costs incurred in connection
with a public offering of shares of Molecular Oncology Stock that was not
completed.

The increase in research and development expense in 1999 as compared to 1998
was a result of:

- increased costs for the ATIII LLC joint venture;

- increased spending on Genzyme General's program to develop Fabrazyme-TM-
enzyme;

- increased spending on Genzyme General's cell and gene therapy programs;

- the initiation of a clinical trial for Genzyme Molecular Oncology's
melanoma tumor vaccine product;

- the increase in the number of research personnel and related expenses
required to support the continued development of Genzyme Molecular
Oncology's cancer vaccine and angiogenesis inhibitor programs;

- increased spending for Genzyme Biosurgery's cell and gene therapy programs
and the initiation of several clinical trials for its products;

- increased spending on the development programs for Genzyme Biosurgery's
surgical instruments and devices; and

- a $2.0 million milestone payment made by Genzyme Biosurgery to a
collaborator in June 1999.

The increase in research and development expense in 1999 as compared to 1998 was
partially offset by the following:

- the termination by Genzyme Biosurgery of its TGF-b and some of its other
research and development programs; and

- a $1.7 million charge taken by Genzyme Biosurgery in the third quarter of
1998 to write off certain costs related to equipment that it used to
manufacture the Sepra-TM- products.

GCS-17

In the fourth quarter of 1998, Genzyme General began amortizing a milestone
payment that it made to GelTex upon FDA approval of
Renagel-Registered Trademark- capsules. As a result, amortization of intangibles
increased slightly during 1999 as compared to 1998.

PURCHASE OF IN-PROCESS RESEARCH AND DEVELOPMENT

In connection with our acquisitions of GelTex and Biomatrix, we allocated
approximately $118.0 million and $82.1 million of the respective purchase prices
to in-process research and development, or IPR&D. Although management ultimately
is responsible for determining the fair value of the acquired IPR&D, we engaged
an independent third-party appraisal company to assist in the valuation of the
intangible assets acquired.

The fair value we assigned to purchased IPR&D was estimated by discounting,
to present value, the cash flows expected to result from each project once it
has reached technological feasibility. The discount rates we used were
consistent with the risks of each project, and ranged from 35% to 40%. In
estimating future cash flows, management considered other tangible and
intangible assets, including core technology, required for successful
exploitation of the technology resulting from each purchased IPR&D project and
adjusted future cash flows for a charge reflecting the contribution to value of
these assets. The value we assigned to purchased research and development was
the amount attributable to the efforts of the seller up to the time of
acquisition. We estimated this amount through application of the "stage of
completion" calculation, which calculation involves multiplying total estimated
revenue for IPR&D by the percentage of completion of each purchased research and
development project at the time of acquisition.

The significant assumptions underlying the valuations included potential
revenues, costs of completion, the timing of product approvals and the selection
of appropriate probability of success and discount rate. None of the GelTex or
Biomatrix IPR&D projects had reached technological feasibility at the date of
acquisition, nor did they have any alternative future use. Consequently, in
accordance with generally accepted accounting principles, the amount we
allocated to IPR&D was charged as an expense in our consolidated financial
statements for the year ended December 31, 2000. We are amortizing the remaining
acquired intangible assets arising from the acquisitions on a straight-line
basis over their estimated lives, which range from 1.5 years to 15 years.

GCS-18

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

VALUE AT ESTIMATED
ACQUISITION COST TO
DATE COMPLETE
PROGRAM PROGRAM DESCRIPTION DEVELOPMENT STATUS (IN MILLIONS) (IN MILLIONS)
- ----------------------- ------------------------------- ------------------------------- ------------- -------------

GELTEX:
Non-absorbed polymer phosphate - Clinical studies $ 19.7 $ 20.0
Renagel-Registered Trademark- binder for the treatment of scheduled for completion in
Phosphate Binder hyperphosphatemia 2002, 2003 and 2004

C. DIFFICILE Colitis Program to develop a toxin- - Phase 2 studies initiated 37.4 37.0
binding polymer for the in 2000
treatment and prevention of - Approval to market this
antibiotic induced C. DIFFICILE product in the U.S. is
colitis expected by 2005

Oral Mucositis Focuses on the development of a - IND expected to be filed 17.8 25.0
topical mouth rinse that in the fourth quarter of
combines barrier material and 2001
antimicrobial polymers to - Product launch expected
create an anti-infective in 2006
mechanism against oral
mucositis, a common side effect
of radiation therapy and
chemotherapy

DENSPM Focuses on the development of a - Phase 1 safety and dose- 3.4 30.0
compound for the treatment of ranging studies scheduled
mild to moderate psoriasis for 2001
- Product launch is
anticipated in 2005

Iron Chelation Focuses on the prevention and - Expect to file an IND in 15.7 31.0
treatment of transfusional or 2001
hereditary iron overload - Expected product launch
in 2006

Anti-Obesity Builds on GelTex's expertise in - Expect to file an IND 17.8 39.0
non-absorbed polymers and early in 2002
focuses on the development of a - Expected product launch
compound that will inhibit in 2006
lipase and bind fat

GT102-279 Second generation - Completion of clinical 6.2 N/A(1)
lipid-lowering compound with studies expected in late
attributes of GelTex's 2003 with product launch
WelChol-TM- lipid lowering expected in 2004
agent, but requires 50% fewer
tablets
------ ------
$118.0 $182.0
====== ======

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

(1) Future development costs will be funded by our collaboration partner.

BIOMATRIX:

Viscosupplementation Use of elastoviscous solutions - Expect to complete 33$.8 9.$5
and viscoelastic gels in clinical studies
disease conditions to demonstrating efficacy as
supplement tissues and body a treatment for chronic
fluids, alleviating pain and hip pain, with potential
restoring normal function market approval expected
in 2001

GCS-19

Viscoaugmentation Use of viscoelastic gels to - U.S. clinical studies for 8.6 6.8
provide scaffolding for tissue Hylaform-Registered Trademark-
regeneration or as an inert expected to be complete
elastic filler for tissues of in 2001 with product
the skin and the subcutaneous launch expected in late
and intermuscular connective 2001
tissues -
Hylagel-Registered Trademark-
Uro expected to be
submitted for FDA
approval and approval in
Canada and Europe in
2002, with product launch
expected in 2003

Viscoseparation Use of viscoelastic gels and - Clinical studies have 39.7 8.3
(Anti-Adhesion) membranes to separate tissues been initiated in the U.S.,
and to decrease formation of Germany, France, the
adhesions and excessive scars United Kingdom and
after surgery Belgium. Completion is
expected by the fourth
quarter of 2001, with
submissions for
regulatory approvals in
the United States, Canada
and Europe thereafter
- Expected product launch
in Europe by the second
quarter of 2002 and in
the United States by the
fourth quarter of 2002
------ ------
$ 82.1 $ 24.6
====== ======

We record our expenses related to the development of the acquired technology
as research and development expense until the time at which it reaches
technological feasibility. Given the inherent risk in developing early-stage
biotechnology products, we may never demonstrate the feasibility of that
technology. For more information about these risks, you should read the
subsection "--Factors Affecting Future Operating Results" below. In addition,
given the history of consolidation in the biotechnology industry, we expect that
we will complete additional acquisitions in the future. Some of these
acquisitions will probably result in a further investment by us in in-process
technology.

As of December 31, 2000, the technological feasibility of the projects had
not yet been reached and no significant departures from the assumptions included
in the valuation analysis had occurred. Substantial additional research and
development will be required prior to reaching technological feasibility. In
addition, each product needs to successfully complete a series of clinical
trials and to receive FDA or other regulatory approval prior to
commercialization. There can be no assurance that these projects will ever reach
feasibility or develop into products that can be marketed profitably, nor can
there be assurance we will be able to develop and commercialize these products
before our competitors. If these products are not successfully developed and do
not become commercially viable, our results of operations could be materially
affected.

In 1999, we acquired Peptimmune, Inc., a privately-held company whose lead
development program was a preclincal research stage program focused on a
treatment for pemphigus vulgaris, a rare genetic disease. Because the technology
acquired had narrow utility and no application to our ongoing programs, we
considered it to have no alternative future use. As a result, we allocated
$5.4 million of the purchase price to in-process technology. We recorded this
amount as a one-time charge to

GCS-20

operations in 1999. We will record our expenses related to the development of
the acquired technology as research and development expense until the time at
which it reaches technological feasibility.

CHARGE FOR IMPAIRED ASSETS

In 2000, we recorded a $4.3 million charge for abandoned equipment at our
Springfield Mills manufacturing facility located in the United Kingdom. The
write-off of equipment was related to the Sepra-TM- product line and did not
have other alternative uses. We allocated this charge to Genzyme Biosurgery.

OTHER INCOME AND EXPENSES

00/99 99/98
INCREASE/ INCREASE/
(DECREASE) (DECREASE)
2000 1999 1998 % CHANGE % CHANGE
-------- -------- -------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Equity in net loss of unconsolidated
affiliates.......................... $(44,965) $(42,696) $(29,006) 5% 47%
Gain on affiliate sale of stock....... 22,689 6,683 2,369 240% 182%
Minority interest..................... 4,625 3,674 4,285 26% (14)%
Gain on sale of investments in equity
securities.......................... 23,173 1,963 3,391 1,080% (42)%
Gain on sale of product line.......... -- 8,018 31,202 N/A (74)%
Charge for impaired investments....... (7,300) (5,712) (3,397) 28% 68%
Other................................. 5,188 14,527 -- (64)% N/A
Investment income..................... 45,593 36,158 25,055 26% 44%
Interest expense...................... (15,710) (21,771) (22,593) (28)% (4)%
-------- -------- --------
Total other income, net............... $ 33,293 $ 844 $ 11,306 3,845% (93)%
======== ======== ========

GCS-21

EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATES

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

JOINT VENTURE PARTNER(S) EFFECTIVE DATE PRODUCT/INDICATION GENZYME DIVISION
- ------------- ------------------- ------------------- ------------------- -------------------

RenaGel LLC GelTex (1) June 1997 Renagel-Registered Trademark- Genzyme General
phosphate binder
for reduction of
serum phosphorus in
patients with end-
stage renal disease

BioMarin/Genzyme LLC BioMarin September 1998 Aldurazyme-TM- Genzyme General
Pharmaceutical Inc. enzyme for the
treatment of
mucopolysaccharidosis-
I

Pharming/Genzyme LLC Pharming Group, October 1998 Human alpha- Genzyme General
N.V. glucosidase for the
treatment of Pompe
disease (transgenic
product)

Genzyme/Pharming Pharming Group, June 2000 Human alpha- Genzyme General
Alliance LLC N.V. glucosidase for the
treatment of Pompe
disease (enzyme
replacement using
CHO cells)

Diacrin/Genzyme LLC Diacrin, Inc. October 1996 Products using Genzyme Biosurgery
porcine fetal cells (until May 1999);
for the treatment Genzyme General
of Parkinson's and (after May 1999)
Huntington's
diseases

StressGen/Genzyme StressGen July 1997 Stress gene Genzyme Molecular
LLC(2) Biotechnologies therapies for the Oncology
Corp.; Canadian treatment of cancer
Medical Discoveries
Fund Inc. (until
October 1999)

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

(1) We acquired GelTex in December 2000.

(2) StressGen/Genzyme LLC was dissolved in December 1999.

We also record a portion of the results of Genzyme Transgenics in equity in
net loss of unconsolidated affiliates.

Our equity in net loss of unconsolidated affiliates increased in both the
years ended December 31, 2000 as compared to December 31, 1999 and December 31,
1999 as compared to December 31, 1998 as a result of:

- increased losses from RenaGel LLC, our joint venture with GelTex to
develop and commercialize Renagel-Registered Trademark- capsules;

GCS-22

- increased losses from our joint venture with BioMarin to develop and
commercialize Aldurazyme-TM- enzyme for the treatment of
mucopolysaccharidosis-I, which was formed in September 1998;

- increased losses from our joint ventures with Pharming to develop a
therapy for Pompe disease; and

- increased losses from Genzyme Transgenics.

GAIN ON AFFILIATE SALE OF STOCK

In February 2000, Genzyme Transgenics, an unconsolidated affiliate,
completed an offering of 4.0 million shares of Genzyme Transgenics common stock,
resulting in net proceeds to Genzyme Transgenics of $75.0 million after the
exercise of the underwriters' overallotment option. In accordance with our
policy pertaining to affiliate sales of stock, we recognized a gain of
$20.3 million and recorded a net deferred tax expense of $3.9 million in the
first quarter of 2000. The deferred tax expense is net of a $3.4 million credit
for the reversal of the valuation allowance on a deferred tax asset. In
September 2000, we recorded an additional gain of $2.4 million on our investment
in Genzyme Transgenics as a result of the issuance of additional shares of
common stock by Genzyme Transgenics. As a result of Genzyme Transgenics' stock
issuances in 2000 and our disposition of shares of Genzyme Transgenics common
stock described below, our ownership interest in Genzyme Transgenics was reduced
to 26% at December 31, 2000 from 33% at December 31, 1999.

We recorded a $6.7 million gain in 1999 and a $2.4 million gain in 1998. The
issuance of additional shares by Genzyme Transgenics in 1999 reduced our
ownership interest in Genzyme Transgenics from 40% to 33%. The issuance of
additional shares by Genzyme Transgenics in 1998 reduced our ownership interest
in Genzyme Transgenics from 43% to 40%.

MINORITY INTEREST

Due to our combined direct and indirect ownership interest in ATIII LLC,
Genzyme General consolidates the results of ATIII LLC and records Genzyme
Transgenics' portion of the losses of that joint venture as minority interest.
Minority interest for both periods increased due to increased losses incurred by
ATIII LLC. The collaboration agreement relating to ATIII LLC provides that we
fund 70% in development costs, excluding facility costs, under this program, 50%
of all development costs thereafter, and 50% of all new facility costs to be
incurred by ATIII LLC. However, under an interim funding agreement, we shared
the costs of this program incurred between January 1, 2001 and February 2, 2001
equally with Genzyme Transgenics. Under this agreement, Genzyme Transgenics is
funding 100% of the costs incurred between February 3, 2001 and April 30, 2001
unless the agreement is terminated sooner. All profits of ATIII LLC will be
split equally; losses are allocated based on the amount of funding provided by
each venturer. Because Genzyme General's combined direct and indirect interest
in ATIII LLC is in excess of 50%, it consolidates the results of ATIII LLC and
records Genzyme Transgenics' portion of the ATIII LLC's losses as minority
interest. In 2000, ATIII LLC had losses of $14.8 million, of which Genzyme
Transgenics' portion was $4.6 million. ATIII LLC had losses of $12.2 million in
1999, of which Genzyme Transgenics' portion was $3.7 million. In 1998,
ATIII LLC had losses of $12.0 million, of which Genzyme Transgenics' portion was
$4.3 million.

GAIN ON SALE OF INVESTMENTS IN EQUITY SECURITIES

In June 2000, we recorded a gain of $5.5 million upon the sale of a portion
of our investment in Genzyme Transgenics common stock. During the second quarter
of 2000, the tax effect of this gain was fully offset by the reversal of a
$1.9 million valuation allowance related to previously recognized capital
losses. In the third and fourth quarters of 2000, we recorded gains of
$10.9 million and $1.3 million,

GCS-23

respectively, upon additional sales of portions of our investment in Genzyme
Transgenics common stock.

In June 2000, Celtrix Pharmaceuticals, Inc. was acquired by Insmed
Pharmaceuticals Inc., upon which our shares of Celtrix common stock were
exchanged on a 1-for-1 basis for shares of Insmed common stock. We recognized a
$7.6 million gain upon this exchange in the second quarter of 2000.

Genzyme General recorded gains of $2.0 million in January 1999 and
$3.4 million in December 1998 upon the sales of shares of Techne Corporation
common stock that it received when it sold its research products business to
Techne Corporation.

GAIN ON SALE OF PRODUCT LINE

There were no product line sales transacted during the year ended
December 31, 2000.

In July 1999, we recorded a gain of $0.5 million in connection with the sale
of our immunochemistry product lines to an operating unit of Sybron Laboratory
Products Corporation.

In June 1999, we recorded a gain of $7.5 million representing the receipt of
a payment of a note receivable that we received as partial consideration for the
sale of Genetic Design, Inc. in 1996. We had previously fully reserved the
amount of this note because we considered the repayment of the note to be
uncertain.

In July 1998, we recorded a gain of $31.2 million in connection with the
sale of our research products business to Techne.

CHARGE FOR IMPAIRED INVESTMENTS

We recorded a $7.3 million charge in 2000 in connection with our investment
in common stock of Focal, Inc. We allocate this investment to Genzyme
Biosurgery. We considered the decline in the value of this investment to be
other than temporary.

We also recorded a $5.7 million charge in 1999 in connection with our
investments in the common stock of Pharming Group N.V. and IntegraMed
America, Inc., and a $3.4 million charge in 1998 in connection with our
investment in Celtrix common stock because we considered the decline in the
value of those investments to be other than temporary. We allocate these
investments to Genzyme General. In connection with these assessments, we
concluded that substantial evidence existed that the value of the investments
would recover to at least our cost. This included continued positive progress in
the issuers' scientific programs, ongoing activity in our collaborations with
the issuers, and a lack of any substantial company-specific adverse events
causing the declines in value. However, given the significance and duration of
the declines as of the end of the applicable quarter, we concluded that it was
unclear over what period such price recoveries would take place and that,
accordingly, the positive evidence suggesting that the investments would recover
to at least our purchase price was not sufficient to overcome the presumption
that the current market price was the best indicator of the value each of these
investments.

OTHER

In December 2000, we recorded a $2.1 million charge in connection with our
uncertainty in collecting a note receivable that we issued in May 1999 to a
strategic collaborator. We concluded that collectibility was uncertain as a
result of the FDA's ruling to deny approval of the collaborator's New Drug
Application for a key product. The ruling has subsequently resulted in the
collaborator announcing that it will be taking steps to preserve cash by
reducing its workforce and other operating expenses.

GCS-24

In April 2000, we received net proceeds of approximately $5.1 million in
connection with the settlement of a lawsuit. The lawsuit, initiated in 1993,
pertained to insurance coverage for an accidental spill of
Ceredase-Registered Trademark- enzyme at a fill facility operated by a
contractor to us.

In December 1999, we recorded a net gain of $14.4 million upon receipt of a
payment associated with the termination of our agreement to acquire Cell
Genesys, Inc.

INVESTMENT INCOME

The increase in investment income for both the years ended December 31, 2000
as compared to December 31, 1999 and December 31, 1999 as compared to
December 31, 1998 was primarily attributable to higher average cash and
investment balances. The increase in cash balances was partially attributable to
our issuance in May 1998 of $250.0 million in principal of 5 1/4% convertible
subordinated notes coupled with increased cash generated from operations.

INTEREST EXPENSE

The decrease in interest expense for the year ended December 31, 2000 as
compared to the year ended December 31, 1999 is the result of our November 1999
repayment of $82.0 million outstanding under our revolving credit facility,
which had been allocated to Genzyme General.

The increase in interest expense for the year ended December 31, 1999 as
compared to the year ended December 31, 1998 is primarily the result of the
issuance of our 5 1/4% convertible subordinated notes.

TAX PROVISION

00/99 99/98
INCREASE/ INCREASE/
(DECREASE) (DECREASE)
2000 1999 1998 % CHANGE % CHANGE
-------- -------- -------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)

Provision for income taxes............ $(55,478) $(46,947) $(39,870) 18% 18%
Tax rate.............................. (743.5)% 40% 39%

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

- provision for state income taxes;

- use of a foreign sales corporation;

- nondeductible amortization of intangibles;

- use of tax credits; and

- share of losses of unconsolidated affiliates.

Our 2000 effective tax rate was adversely impacted by charges for purchased
research and development resulting from the December 2000 acquisitions of GelTex
and Biomatrix.

EARNINGS ALLOCATIONS

We allocate our earnings to each of our series of common stock based on the
earnings attributable to that series of stock. The earnings attributable to each
series of stock is defined in our charter as the net income or loss of the
corresponding division determined in accordance with generally accepted
accounting principles and as adjusted for tax benefits allocated to or from the
division in accordance

GCS-25

with our management and accounting policies. The earnings allocated to each
series of common stock are indicated in the table below:

2000 1999 1998
--------- --------- ---------
(AMOUNTS IN THOUSANDS)

Earnings allocated to:
Genzyme General Stock..................................... $ 121,455 $ 149,360 $ 121,053
Biosurgery Stock.......................................... (87,188) -- --
Molecular Oncology Stock.................................. (23,096) (28,832) (19,107)
Surgical Products Stock................................... (54,748) (20,514) --
Tissue Repair Stock....................................... (19,833) (30,040) (40,386)

We created Genzyme Biosurgery on December 18, 2000. Prior to this date, the
operations allocated to Genzyme Biosurgery were included in the operations
allocated to Genzyme Surgical Products and Genzyme Tissue Repair and as of that
date, the operations of Genzyme Surgical Products and Genzyme Tissue Repair
ceased. We created Genzyme Surgical Products on June 28, 1999. Prior to this
date, the operations of Genzyme Surgical Products were included in the
operations allocated to Genzyme General and, therefore, in the net income
allocated to Genzyme General Stock. The tax benefits associated with the losses
of Genzyme Surgical Products for the period from June 28, 1999 to December 31,
1999, which amounted to $6.9 million, continued to be allocated to Genzyme
General Stock. Our management and accounting policies provide that, if as of the
end of any fiscal quarter, a division can not use any projected annual tax
benefit attributable to it to offset or reduce its current or deferred income
tax expense, we may allocate the tax benefit to other divisions in proportion to
their taxable income without any compensating payments or allocation to the
division generating the benefit. Tax benefits allocated to Genzyme General,
which are included in earnings attributable to Genzyme General Stock, are as
follows:

2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Tax benefits allocated from:
Genzyme Molecular Oncology................................ $ 7,476 $ 7,812 $ 3,527
Genzyme Biosurgery........................................ 28,023 26,994 34,330
------- ------- -------
Total................................................... $35,499 $34,806 $37,857
======= ======= =======

These tax benefits represent 29%, 23% and 31% of earnings allocated to
Genzyme General Stock in 2000, 1999 and 1998, respectively. The amount of tax
benefits allocated to Genzyme General fluctuate based on the results of Genzyme
Molecular Oncology and Genzyme Biosurgery. If the losses of those divisions
decline, as they are expected to, then the tax benefits allocated to Genzyme
General will also decline.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000, we had cash, cash-equivalents, and short- and
long-term investments of $639.6 million, a decrease of $13.4 million from
December 31, 1999.

We generated $177.1 million in cash from our operations in 2000, as compared
to $204.0 million in 1999.

Our investing activities utilized $546.0 million in cash in 2000 as compared
to $182.2 million in 1999. This was primarily due to:

- $447.5 million in net cash used in the acquisition of GelTex;

- $196.3 million in cash used in the acquisition of Biomatrix;

GCS-26

- $75.4 million in cash used for capital expenditures; and

- $23.5 million in cash used to fund our investments in joint ventures.

Our purchase and sale of investments generated $200.9 million in net cash in
2000, as compared to using $70.6 million in 1999.

Our financing activities generated $475.6 million in cash in 2000 due to
$116.2 million of proceeds from the issuance of common stock and $350.0 million
of proceeds from the issuance of debt, as compared to using $8.2 million in
1999.

In November 2000, we exercised our option to purchase all of the outstanding
Class A limited partnership interests of Genzyme Development Partners, L.P. for
approximately $26.0 million in cash. We allocate our interest in Genzyme
Development Partners to Genzyme Biosurgery. We paid this amount in January 2001,
at which time significant control passed to Genzyme Biosurgery. We are also
required to pay royalties to the former holders of the Class A interests on
sales of the Sepra-TM- products for ten years.

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, $18.0 million was outstanding under the portion of the
facility that matures in December 2001. This amount was allocated to Genzyme
Biosurgery. In addition, $350.0 million was outstanding under the portion of the
facility that matures in December 2003, $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 $200.0 million of which was
allocated to Genzyme Biosurgery in connection with the financing of a portion of
the cash component of the Biomatrix merger consideration. Borrowings under this
facility bear interest at LIBOR plus a margin.

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

- product development and marketing;

- expanding facilities;

- working capital; and

- strategic business initiatives.

Our cash reserves may be further reduced to pay principal and interest on the
following debt:

- $368.0 million in principal under our revolving credit facility with a
syndicate of commercial banks;

- $10.0 million in principal under a 6.9% convertible subordinate note in
favor of UBS Warburg LLC that matures in May 2003 and is convertible into
shares of Biosurgery Stock;

- $21.2 million in principal under our 5% convertible subordinated
debentures that mature in August 2003 and are convertible into shares of
Genzyme General Stock; and

- $250.0 million in principal under our 5 1/4% convertible subordinated
notes that mature in June 2005 and are convertible into shares of Genzyme
General Stock, Biosurgery Stock and Molecular Oncology Stock.

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.

GCS-27

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

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as
amended by SFAS 137, is effective for our fiscal year beginning January 1, 2001.
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. At January 1, 2001, our derivative
instruments include:

- interest rate swaps;

- foreign currency forward contracts; and

- a limited number of investments, primarily warrants to purchase publicly
traded common stock, obtained through strategic collaborations.

Beginning on January 1, 2001, we will record all previously unrecognized
derivatives on our consolidated balance sheet as assets or liabilities. Further,
we will record a transition adjustment in our consolidated statement of
operations to record the fair value of derivatives held on that date, which will
be reported as the cumulative effect of a change in accounting principle. Our
interest rate swaps are part of designated hedging relationships, and our
foreign currency forward contracts are recorded in our December 31, 2000
consolidated balance sheet at fair value. Accordingly, a transition adjustment
will not be required for these instruments. We anticipate that the transition
adjustment related to our strategic investments will be approximately
$4.2 million, net of related tax effects.

EURO--THE NEW EUROPEAN CURRENCY

On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the Euro and adopted the Euro as their common legal currency. The Euro
trades on currency exchanges and is available for non-cash transactions. These
participating countries now issue sovereign debt exclusively in Euros, and have
redenominated their outstanding sovereign debt. These countries no longer
control their own monetary policies by directing independent interest rates for
their legacy currencies. Instead, the authority to direct monetary policy,
including money supply and official interest rates for the Euro, is exercised by
the new European Central Bank.

The legacy currencies of these 11 countries are scheduled to remain legal
tender in those countries as denominations of the Euro until January 1, 2002.
Until that date, public and private parties may pay for goods and services using
either the Euro or the participating country's legacy currency on a "no
compulsion, no prohibition" basis. We have formed committees to address the
business implications of the Euro conversion, communicate information about the
conversion throughout the organization, create global coordination among
functional areas and address specific accounting, treasury and tax issues
relating to the Euro. Our management believes that the Euro conversion will not
affect any of our outstanding foreign exchange forward contracts, or any other
material commercial contracts. Similarly, our management does not foresee any
increased currency exchange rate risk as a result of the Euro conversion.

We are assessing whether there are any long term competitive implications of
the Euro conversion. While no material risks have been identified to date,
individual European governments may pressure us to have consistent European
pricing, and individual customers and distributors in Europe may choose to begin
purchasing products in the country where the Euro price is lowest.

GCS-28

The Internal Revenue Service issued final regulations regarding the Euro
effective January 11, 2001 for tax years ending after July 29, 1998. The final
regulations generally provide that the conversion of a European country's
currency to the Euro will not trigger gains or losses on contracts we have that
are denominated in that currency or on our holdings of that currency.
Accordingly, we believe that there will be no material tax consequences of the
conversion.

Because our existing accounting and finance software is currently able to
use Euro-based accounts, we believe that the cost of upgrading software and
other information systems for the conversion will be immaterial.

MARKET RISK

We are exposed to potential loss from exposure to market risks represented
principally by changes in interest rates, foreign exchange rates, and equity
prices. At December 31, 2000 we held various derivative contracts in the form of
foreign exchange forwards and interest rate swaps. The derivatives contain no
leverage or option features. We also held a number of other financial
instruments, including investments in marketable securities, and had balances
outstanding under several debt securities.

INTEREST RATE RISK

We are exposed to potential loss due to changes in interest rates. The
principal interest rate exposure is to changes in domestic interest rates.
Investments with interest rate risk include short-term deposits with financial
institutions, and short-term and long-term investments in debt instruments. Debt
with interest rate risk includes fixed rate convertible debt and borrowings
under credit facilities.

To estimate the potential loss due to changes in interest rates, we
performed a sensitivity analysis for a one-day horizon. In order to estimate the
potential loss, we used an adverse change in interest rates of 100 basis points
across the yield curve at year-end. We used the following assumptions in
preparing the sensitivity analysis:

- convertibles that are "in-the-money" at year end are considered equity
securities and are excluded;

- convertibles that are "out-of-the-money" at year end are treated as fixed
rate debt securities and we assumed we will repay the principal amount in
full at maturity and we ignored the exercise of embedded equity option;
and

- financial instruments contain no other call or leverage features material
to our analysis.

On this basis, we estimate the potential loss in fair value from changes in
interest rates to be $8.4 million, virtually all of which is attributable to
Genzyme General. The estimate of potential loss does not include a separate
determination of potential losses due to changes in credit spreads. Our
investments are investment grade securities and deposits are with investment
grade financial institutions. We believe that the realization of losses due to
changes in credit spreads is unlikely. The potential loss estimated above on all
market risk sensitive instruments reflects a fair value loss on debt offset by a
fair value loss on assets. We expect to hold our debt to maturity or conversion,
whichever is sooner. Therefore, the realization of the potential loss on debt
obligations is unlikely.

FOREIGN EXCHANGE RISK

As a result of our worldwide operations, we face exposure to adverse
movements in foreign currency exchange rates, primarily to the Euro and its
component currencies, British pounds and Japanese yen. These exposures are
reflected in market risk sensitive instruments, including foreign currency
receivables and payables and foreign exchange forward contracts. During 2000,
our risk management strategy for foreign exchange exposure periodically included
the use of forward contracts.

GCS-29

As of December 31, 2000, we estimate the potential loss in fair value of the
forward contracts due to a 10% change in exchange rates to be $6.7 million,
virtually all of which is attributable to Genzyme General.

EQUITY PRICE RISK

We hold investments in a limited number of domestic and European equity
securities, substantially all of which are allocated to Genzyme General. We
estimate the potential loss in fair value due to a 10% decrease in equity prices
of each security held at year-end to be $11.9 million. This estimate assumes no
change in foreign exchange rates from year-end spot rates. The decrease in
potential equity risk is largely explained by the fact that the size of our
portfolio has decreased from a market value of $96 million to $119 million.

FACTORS AFFECTING FUTURE OPERATING RESULTS

The future operating results of Genzyme Corporation and its subsidiaries
could differ materially from the results described above due to the following
risks and uncertainties, which relate to us generally and affect all of our
operating 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-Registered Trademark- enzyme. Because production of
Ceredase-Registered Trademark- enzyme was subject to supply constraints, we
developed Cerezyme-Registered Trademark- 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-Registered Trademark- enzyme, scientists engineer Chinese hamster ovary
cells to produce human alpha glucocerebrosidase. We stopped producing
Ceredase-Registered Trademark- enzyme, except for small quantities, during 1998,
after substantially all the patients who previously used
Ceredase-Registered Trademark- enzyme converted to
Cerezyme-Registered Trademark- enzyme. Sales of Ceredase-Registered Trademark-
enzyme and Cerezyme-Registered Trademark- 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-Registered Trademark-
enzyme, a decline in the growth rate of Cerezyme-Registered Trademark- 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-Registered Trademark- 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-Registered Trademark- 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-Registered Trademark- enzyme with other
therapeutic products or reduce the amount of Cerezyme-Registered Trademark-
enzyme prescribed, could result in a decline in Cerezyme-Registered Trademark-
enzyme sales. Cerezyme-Registered Trademark- enzyme has orphan drug status,
providing us with exclusive marketing rights for Cerezyme-Registered Trademark-
enzyme in the United States until May 2001. We also have patents protecting our
method of manufacturing Cerezyme-Registered Trademark- enzyme until 2010 and the
composition of Cerezyme-Registered Trademark- enzyme until 2013. The expiration
of market exclusivity and orphan drug status in May 2001 will likely subject
Cerezyme-Registered Trademark- enzyme to increased competition which may
decrease the amount of revenue we receive from this product or the growth of
that revenue.

GCS-30

OUR ABILITY TO SIGNIFICANTLY INCREASE SALES OF RENAGEL-REGISTERED TRADEMARK-
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,
Renagel-Registered Trademark- 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-Registered Trademark- brand phosphate binder when
administered to pre-dialysis patients. The commercial success of
Renagel-Registered Trademark- brand phosphate binder is subject to substantial
uncertainty and will depend on a number of factors, including:

- the results of additional clinical trials for additional indications and
expanded labeling;

- our ability to increase market acceptance and sales of
Renagel-Registered Trademark- brand phosphate binder;

- market acceptance of a tablet formulation of Renagel-Registered Trademark-
brand phosphate binder, which was launched in September 2000 in the United
States;

- optimal dosing and patient compliance with respect to
Renagel-Registered Trademark- brand phosphate binder;

- the availability of competing treatments serving the dialysis market;

- the content and timing of our submissions to and decisions by regulatory
authorities;

- our ability to successfully retool and expand manufacturing systems;

- our ability to manufacture Renagel-Registered Trademark- brand phosphate
binder at a reasonable price;

- the availability of reimbursement from third-party payers, and the extent
of coverage; and

- 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 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:

- issuing warning letters;

- issuing fines and other civil penalties;

- suspending regulatory approvals;

- refusing approval of pending applications or supplements to approved
applications;

- suspending product sales in the United States and/or exports from the
United States;

- recalling products; and

- seizing products.

GCS-31

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-Registered Trademark- 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:

- the pricing of therapeutic products and medical devices in the United
States or internationally; and

- 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.

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:

- conduct substantial research and development;

- undertake preclinical and clinical testing; and

- 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:

- failure of the product in preclinical studies;

- clinical trial data that is insufficient to support the safety or
effectiveness of the product; or

- 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:

- regulation by the FDA and other government authorities;

GCS-32

- market acceptance by doctors and hospital administrators;

- the effectiveness of our sales force;

- the effectiveness of our production and marketing capabilities;

- the success of competitive products; and

- 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 OR
AVAILABLE ON TERMS FAVORABLE TO US.

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:

- product development and marketing;

- expanding facilities and staff;

- working capital; and

- 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 royalties to the former
holders of the Class A interests on sales of the Sepra-TM- products for ten
years. We may further reduce available cash reserves to pay principal and
interest on the following debt:

- 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.

- 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.

- 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 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.

- 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.

GCS-33

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 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

GCS-34

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-TM- does not infringe
the patent licensed by us from Mount Sinai and that the Mount Sinai patent is
invalid. 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:

- pay monetary damages;

- stop commercial activities relating to the affected products or services;

- obtain a license in order to continue manufacturing or marketing the
affected products or services; or

- 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:

- diversion of management's time and attention;

- expenditure of large amounts of cash on legal fees, expenses and payment
of damages;

- decreased demand for our products and services; and

- 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-Registered Trademark- 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

GCS-35

by 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 enzyme, the European equivalent of the Orphan Drug Act may preclude us
from selling Fabrazyme 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-Registered Trademark- 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:

- challenging the prices charged for healthcare products and services;

- limiting both coverage and the amount of reimbursement for new therapeutic
products;

- denying or limiting coverage for products that are approved by the FDA,
but are considered experimental or investigational by third-party payers;
and

- 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.

GCS-36

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:

- fluctuations in currency exchange rates;

- the imposition of governmental controls;

- less favorable intellectual property or other applicable laws;

- the inability to obtain any necessary foreign regulatory approvals of
products in a timely manner;

- import and export license requirements;

- political instability;

- trade restrictions;

- changes in tariffs;

- difficulties in staffing and managing international operations; and

- 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
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

GCS-37

have to obtain control of the entire corporation. In addition, our board of
directors may, in its sole discretion:

- 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

- 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.

SUBSEQUENT EVENTS

In January, 2001, Focal, Inc. exercised its option to require us to purchase
$5.0 million in Focal common stock at a price of $2.06 per share, at which time
our investment in Focal became an equity interest. We have allocated these
shares to Genzyme Biosurgery. We are committed, at Focal's option, to make an
additional equity investment in June 2001 of up to $5.0 million, subject to
certain conditions.

In February 2001, we announced our intention to divest the
Snowden-Pencer-Registered Trademark- surgical instruments product lines. These
product lines include hand-held, reusable instruments and a line of high-quality
endoscopic instruments for general, plastic and gynecological surgery. We
allocate these product lines to Genzyme Biosurgery. We are currently assessing
which assets will be offered for sale. We also announced our intention to
terminate the production of Synvisc-Registered Trademark- in Canada and to sell
our manufacturing facility in Pointe-Claire, Canada. We expect both of these
transactions to be completed in the second half of 2001.

GCS-38

GENZYME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Revenues:
Net product sales......................................... $811,897 $683,482 $613,685
Net service sales......................................... 84,482 79,448 74,791
Revenue from research and development contracts:
Related parties......................................... 509 2,012 5,745
Other................................................... 6,432 7,346 15,114
-------- -------- --------
Total revenues........................................ 903,320 772,288 709,335
-------- -------- --------
Operating costs and expenses:
Cost of products sold..................................... 232,383 182,337 211,076
Cost of services sold..................................... 50,177 49,444 48,586
Selling, general and administrative....................... 264,551 242,797 215,203
Research and development (including research and
development related to contracts)....................... 169,478 150,516 119,005
Amortization of intangibles............................... 22,974 24,674 24,334
Purchase of in-process research and development........... 200,191 5,436 --
Charge for impaired asset................................. 4,321 -- --
-------- -------- --------
Total operating costs and expenses.................... 944,075 655,204 618,204
-------- -------- --------
Operating income (loss)..................................... (40,755) 117,084 91,131
-------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated affiliates........... (44,965) (42,696) (29,006)
Gain on affiliate sale of stock........................... 22,689 6,683 2,369
Gain on sale of investments in equity securities.......... 23,173 1,963 3,391
Minority interest......................................... 4,625 3,674 4,285
Gain on sale of product line.............................. -- 8,018 31,202
Charge for impaired investments........................... (7,300) (5,712) (3,397)
Other..................................................... 5,188 14,527 --
Investment income......................................... 45,593 36,158 25,055
Interest expense.......................................... (15,710) (21,771) (22,593)
-------- -------- --------
Total other income (expenses)......................... 33,293 844 11,306
-------- -------- --------
Income (loss) before income taxes........................... (7,462) 117,928 102,437
Provision for income taxes.................................. (55,478) (46,947) (39,870)
-------- -------- --------
Net income (loss)........................................... $(62,940) $ 70,981 $ 62,567
======== ======== ========
Comprehensive income (loss), net of tax:
Net income (loss)......................................... $(62,940) $ 70,981 $ 62,567
-------- -------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments.................. (14,569) (14,883) 7,681
-------- -------- --------
Unrealized gains (losses) on securities:
Unrealized gains (losses) arising during the period... 9,876 24,946 (6,043)
Reclassification adjustment for losses included in net
income.............................................. 3,788 2,092 2,100
-------- -------- --------
Unrealized gains (losses) on securities, net........ 13,664 27,038 (3,943)
-------- -------- --------
Other comprehensive income (loss)......................... (905) 12,155 3,738
-------- -------- --------
Comprehensive income (loss)............................... $(63,845) $ 83,136 $ 66,305
======== ======== ========

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

GCS-39

GENZYME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

NET INCOME PER SHARE:
ALLOCATED TO GENZYME GENERAL STOCK:
Genzyme General net income................................ $ 85,956 $142,077 $133,052
Genzyme Surgical Products net loss........................ -- (27,523) (49,856)
Tax benefit allocated from Genzyme Molecular Oncology..... 7,476 7,812 3,527
Tax benefit allocated from Genzyme Biosurgery............. 28,023 26,994 34,330
-------- -------- --------
Net income allocated to Genzyme General Stock............. $121,455 $149,360 $121,053
======== ======== ========
Net income per share of Genzyme General Stock:
Basic................................................... $ 1.41 $ 1.80 $ 1.53
======== ======== ========
Diluted................................................. $ 1.35 $ 1.71 $ 1.48
======== ======== ========
Weighted average shares outstanding:
Basic................................................... 86,131 83,092 79,063
======== ======== ========
Diluted................................................. 89,683 93,228 85,822
======== ======== ========
ALLOCATED TO BIOSURGERY STOCK:
Genzyme Biosurgery net loss............................... $(87,636)
Allocated tax benefit..................................... 448
--------
Net loss allocated to Biosurgery Stock.................... $(87,188)
========
Net loss per share of Biosurgery Stock--basic and
diluted................................................. $ (2.40)
========
Weighted average shares outstanding....................... 36,359
========
ALLOCATED TO MOLECULAR ONCOLOGY STOCK:
Net loss.................................................. $(23,096) $(28,832) $(19,107)
======== ======== ========
Net loss per share of Molecular Oncology Stock--basic and
diluted................................................. $ (1.60) $ (2.25) $ (3.81)
======== ======== ========
Weighted average shares outstanding....................... 14,446 12,826 5,019
======== ======== ========
ALLOCATED TO SURGICAL PRODUCTS STOCK:
Net loss.................................................. $(54,748) $(20,514)
======== ========
Net loss per share of Surgical Products Stock--basic and
diluted................................................. $ (3.67) $ (1.38)
======== ========
Weighted average shares outstanding....................... 14,900 14,835
======== ========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss.................................................. $(19,833) $(30,040) $(40,386)
======== ======== ========
Net loss per share of Tissue Repair Stock--basic and
diluted................................................. $ (0.69) $ (1.26) $ (1.99)
======== ======== ========
Weighted average shares outstanding....................... 28,716 23,807 20,277
======== ======== ========

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

GCS-40

GENZYME CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT SHARE AMOUNTS)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 236,213 $ 130,156
Short-term investments.................................... 104,586 255,846
Accounts receivable, net.................................. 205,094 166,803
Inventories............................................... 170,341 117,269
Prepaid expenses and other current assets................. 37,681 18,918
Deferred tax assets--current.............................. 46,836 41,195
---------- ----------
Total current assets.................................... 800,751 730,187
Property, plant and equipment, net........................ 504,412 383,181
Long-term investments..................................... 298,841 266,988
Notes receivable--related party........................... 10,350 --
Intangibles, net.......................................... 1,539,782 253,153
Deferred tax assets--noncurrent........................... -- 18,631
Investments in equity securities.......................... 121,251 97,859
Other noncurrent assets................................... 42,713 37,283
---------- ----------
Total assets............................................ $3,318,100 $1,787,282
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 26,165 $ 27,853
Accrued expenses.......................................... 139,683 73,359
Income taxes payable...................................... 46,745 27,946
Deferred revenue.......................................... 8,609 3,700
Current portion of long-term debt and capital lease
obligations............................................. 19,897 5,080
---------- ----------
Total current liabilities............................... 241,099 137,938
Long-term debt and capital lease obligations................ 391,560 18,000
Convertible notes and debentures............................ 273,680 272,622
Deferred tax liability...................................... 230,384 --
Other noncurrent liabilities................................ 6,236 2,330
---------- ----------
Total liabilities....................................... 1,142,959 430,890
---------- ----------
Commitments and contingencies (See Notes)
Stockholders' equity:
Preferred Stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding............ -- --
Preferred Stock, Series A Junior Participating, $0.01
par value, 2,000,000 shares authorized; no shares
issued and outstanding at both December 31, 2000 and
1999.................................................. -- --
Preferred Stock, Series B Junior Participating, $0.01
par value, 1,000,000 shares authorized at
December 31, 2000, 400,000 shares authorized at
December 31, 1999; no shares issued and outstanding at
both December 31, 2000 and 1999....................... -- --
Preferred Stock, Series C Junior Participating, $0.01
par value, 400,000 shares authorized; no shares issued
and outstanding at both December 31, 2000 and 1999.... -- --

GCS-41

GENZYME CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT SHARE AMOUNTS)

Preferred Stock, Series D Junior Participating, $0.01
par value, 0 shares authorized at December 31, 2000,
600,000 shares authorized at December 31, 1999; no
shares issued and outstanding at both December 31,
2000 and 1999......................................... -- --
Common Stock, $0.01 par value, 390,000,000 shares
authorized; 147,894,033 issued and 147,787,675 shares
outstanding:
Genzyme General Stock, $0.01 par value, 200,000,000
shares authorized; 95,590,819 shares issued and
95,484,461 shares outstanding at December 31, 2000 and
84,351,662 shares issued and 84,245,304 shares
outstanding at December 31, 1999...................... 956 844
Biosurgery Stock, $0.01 par value, 100,000,000 shares
authorized, 36,397,854 shares issued and outstanding
at December 31, 2000.................................. 364 --
Molecular Oncology Stock, $0.01 par value, 40,000,000
shares authorized; 15,905,360 shares issued and
outstanding on December 31, 2000 and 13,421,018 shares
issued and outstanding at December 31, 1999........... 159 134
Surgical Products Stock, $0.01 par value, 0 shares
authorized at December 31, 2000, 60,000,000 shares
authorized at December 31, 1999; 0 shares outstanding
at December 31, 2000, 14,835,161 shares issued and
outstanding at December 31, 1999...................... -- 148
Tissue Repair Stock, $0.01 par value, 0 shares
authorized at December 31, 2000, 40,000,000 shares
authorized at December 31, 1999; 0 shares outstanding
at December 31, 2000, 28,503,728 shares issued and
28,498,729 shares outstanding at December 31, 1999.... -- 285
Treasury common stock, at cost:
Genzyme General Stock, 106,358 shares at both December 31,
2000 and 1999........................................... (901) (901)
Additional paid-in capital--Genzyme General Stock........... 1,269,284 636,128
Additional paid-in capital--Biosurgery Stock................ 823,353 --
Additional paid-in capital--Molecular Oncology Stock........ 111,484 67,672
Additional paid-in capital--Surgical Products Stock......... -- 376,123
Additional paid-in capital--Tissue Repair Stock............. -- 217,103
Deferred compensation....................................... (9,943) (134)
Notes receivable from stockholders.......................... (14,760) --
Retained earnings (accumulated deficit)..................... (5,738) 57,202
Accumulated other comprehensive income...................... 883 1,788
---------- ----------
Total stockholders' equity.................................. 2,175,141 1,356,392
---------- ----------
Total liabilities and stockholders' equity.................. $3,318,100 $1,787,282
========== ==========

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

GCS-42

GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $(62,940) $ 70,981 $ 62,567
Reconciliation of net income (loss) to net cash provided by
operating activities:.....................................
Depreciation and amortization............................. 57,930 62,652 58,869
Loss on disposal of fixed assets.......................... 532 971 108
Non-cash compensation expense............................. 2,185 58 8,740
Equity in loss of unconsolidated affiliates............... 44,965 42,696 29,006
Accrued interest/amortization of marketable securities.... 2,507 (1,647) (6,923)
Provisions for bad debts and inventory.................... 4,277 13,031 5,848
Notes received from a collaborator........................ (10,350) -- --
Accretion of debt conversion feature...................... -- -- 3,025
Gain on affiliate sale of stock........................... (22,689) (6,683) (2,369)
Minority interest in net loss of subsidiary............... (4,625) (3,674) (4,285)
Gain on sale of product line.............................. -- (8,018) (31,202)
Gain on sale of investments in equity securities.......... (23,173) (1,963) (3,391)
Charge for impaired investments........................... 7,300 5,712 3,397
Deferred income tax benefit............................... (6,580) (6,061) (5,669)
Charge for in-process research and development............ 200,191 5,436 --
Other..................................................... 2,677 1,827 26
Increase (decrease) in cash from working capital:
Accounts receivable..................................... (34,064) (18,682) (46,215)
Inventories............................................. (9,549) (1,691) 34,049
Prepaid expenses and other assets....................... (8,768) 12,215 (11,987)
Accounts payable, accrued expenses, income taxes payable
and deferred revenue.................................. 37,268 36,851 17,509
-------- -------- --------
Net cash provided by operating activities............. 177,094 204,011 111,103
-------- -------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................... (553,506) (509,177) (441,487)
Sales and maturities of investments......................... 754,437 438,530 136,605
Purchase of investments in equity securities................ (29,102) (17,700) (25,783)
Proceeds from sale of investments in equity securities...... 33,124 11,090 9,564
Purchase of property, plant and equipment................... (75,441) (57,724) (39,467)
Sale of property, plant and equipment....................... 26 188 1,262
Proceeds from sale of product line.......................... -- 5,000 24,760
Acquisitions, net of acquired cash.......................... (643,779) (6,500) (9,949)
Purchase of technology rights............................... (75) (11,400) (15,100)
Investments in unconsolidated affiliates.................... (23,497) (46,621) (21,974)
Loans to affiliates......................................... -- -- (1,000)
Proceeds from notes receivable.............................. -- 8,360 --
Repayment of loans by affiliates............................ -- -- 3,019
Final distribution from joint venture....................... -- 881 --
Other....................................................... (8,160) 2,859 (5,592)
-------- -------- --------
Net cash used in investing activities................. (545,973) (182,214) (385,142)
-------- -------- --------

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

GCS-43

GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock...................... $116,181 $ 59,986 $ 76,860
Proceeds from issuance of debt.............................. 350,000 5,000 250,000
Payments of debt............................................ (5,000) (85,081) (38,833)
Bank overdraft.............................................. 12,306 9,625 --
Other....................................................... 2,076 2,289 1,884
-------- -------- --------
Net cash provided by (used in) financing activities..... 475,563 (8,181) 289,911

Effect of exchange rate changes on cash..................... (627) (2,072) 334
-------- -------- --------
Increase in cash and cash equivalents....................... 106,057 11,544 16,206
Cash and cash equivalents at beginning of period............ 130,156 118,612 102,406
-------- -------- --------
Cash and cash equivalents at end of period.................. $236,213 $130,156 $118,612
======== ======== ========
Supplemental disclosures of cash flows:
Cash paid during the year for:
Interest.................................................. $ 15,998 $ 20,151 $ 17,385
Income taxes.............................................. $ 34,014 $ 30,992 $ 24,463

Supplemental disclosures of non-cash transactions:
Other gains and charges--Note B.
Dispositions of assets--Note C.
Acquisitions--Note D.
Investment in unconsolidated affiliate--Note I.
5% convertible subordinated note--Note K.
Warrants--Note L.
Distributions of designated shares--Note L.

In conjunction with the acquisitions of GelTex and Biomatrix, liabilities were
assumed as follows:

Fair value of assets acquired............................... $ 994,481
Goodwill.................................................... 561,896
Acquired in-process research and development................ 200,191
Deferred compensation....................................... 10,272
Issuance of common stock and options........................ (774,458)
Net cash paid for acquisition and acquisition costs......... (660,187)
Liabilities for exit activities and integration............. (6,716)
Net deferred tax liability assumed.......................... (246,591)
---------
Net liabilities assumed................................... $ 78,888
---------

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

GCS-44

GENZYME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

SHARES (IN THOUSANDS) DOLLARS (IN THOUSANDS)
------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------

COMMON STOCKS:
GENZYME GENERAL STOCK:
Balance at beginning of year................ 84,352 81,394 77,693 $ 844 $ 814 $ 777
Issuance of Genzyme General Stock under
stock plans............................... 3,353 2,958 3,694 33 30 37
Shares issued for acquisition of GelTex..... 7,886 -- -- 79 --
Exercise of warrants........................ -- -- 7 -- -- --
------- ------ ------ ----- ----- -----
Balance at end of year...................... 95,591 84,352 81,394 $ 956 $ 844 $ 814
======= ====== ====== ===== ===== =====
BIOSURGERY STOCK:
Balance at beginning of year................ -- -- -- $ -- $ -- $ --
Conversion of Surgical Products Stock to
Biosurgery Stock upon creation of Genzyme
Biosurgery................................ 9,092 -- -- 91 -- --
Conversion of Tissue Repair Stock to
Biosurgery Stock upon creation of Genzyme
Biosurgery................................ 9,679 -- -- 97 -- --
Shares issued for acquisition of
Biomatrix................................. 17,581 -- -- 176 -- --
Issuance of Biosurgery Stock under stock
plans..................................... 46 -- -- -- -- --
------- ------ ------ ----- ----- -----
Balance at end of year...................... 36,398 -- -- $ 364 $ -- $ --
======= ====== ====== ===== ===== =====
MOLECULAR ONCOLOGY STOCK:
Balance at beginning of year................ 13,421 12,648 3,929 $ 134 $ 126 $ 39
Issuance of Molecular Oncology Stock under
stock plans............................... 345 129 1 4 2 --
Exercise of warrants........................ -- -- 1 -- -- --
Issuance of Molecular Oncology designated
shares.................................... -- 27 8,717 -- -- 87
Sales of Molecular Oncology Stock........... 2,139 -- -- 21 -- --
Issuance of Molecular Oncology Stock in
connection with the purchase of joint
venture interest.......................... -- 617 -- -- 6 --
------- ------ ------ ----- ----- -----
Balance at end of year...................... 15,905 13,421 12,648 $ 159 $ 134 $ 126
======= ====== ====== ===== ===== =====

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

GCS-45

GENZYME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)

SHARES (IN THOUSANDS) DOLLARS (IN THOUSANDS)
------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------

SURGICAL PRODUCTS STOCK:
Balance at beginning of year................ 14,835 -- -- $ 148 $ -- $ --
Initial distribution of Surgical Products
designated shares......................... -- 14,792 -- -- 148 --
Issuance of Surgical Products Stock under
stock plans............................... 169 43 -- 2 -- --
Conversion of Surgical Products Stock to
Biosurgery Stock upon creation of Genzyme
Biosurgery................................ (15,004) -- -- (150) -- --
------- ------ ------ ----- ----- -----
Balance at end of year...................... -- 14,835 -- $ -- $ 148 --
======= ====== ====== ===== ===== =====
TISSUE REPAIR STOCK:
Balance at beginning of year................ 28,504 20,921 19,941 $ 285 $ 209 $ 199
Issuance of Tissue Repair Stock under stock
plans..................................... 374 325 756 4 3 8
Issuance of Tissue Repair Stock in
connection with conversion of 6%
convertible note.......................... -- 7,258 224 -- 73 2
Conversion of Tissue Repair Stock to
Biosurgery Stock upon creation of Genzyme
Biosurgery................................ (28,878) -- -- (289) -- --
------- ------ ------ ----- ----- -----
Balance at end of year...................... -- 28,504 20,921 $ -- $ 285 $ 209
======= ====== ====== ===== ===== =====
TREASURY COMMON STOCK (AT COST):
GENZYME GENERAL STOCK:
Balance at beginning of year................ (106) (106) (106) $(901) $(901) $(901)
Purchases................................... -- -- -- -- -- --
------- ------ ------ ----- ----- -----
Balance at end of year...................... (106) (106) (106) $(901) $(901) $(901)
======= ====== ====== ===== ===== =====

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

GCS-46

GENZYME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)

2000 1999 1998
---------- -------- --------
(AMOUNTS IN THOUSANDS)

ADDITIONAL PAID-IN CAPITAL:
GENZYME GENERAL STOCK:
Balance at beginning of year............................ $ 636,128 $959,019 $895,587
Issuance of Genzyme General Stock under stock plans..... 85,427 59,587 74,323
Exercise of warrants.................................... -- -- 289
Allocation to Genzyme Tissue Repair for Tissue Repair
designated shares..................................... (9,910) (4,937) --
Tax benefit from disqualified dispositions.............. 17,041 24,238 18,561
Allocation of cash to Genzyme Molecular Oncology for
Molecular Oncology designated shares.................. (15,000) -- (5,000)
Allocation to Genzyme Surgical Products................. -- (376,271) --
Exchange of 6% debentures convertible into shares of
Molecular Oncology Stock for 5% debentures convertible
into shares of Genzyme General Stock.................. -- -- (19,802)
Acquistion of GelTex.................................... 554,063 -- --
Stock based compensation expense........................ 1,536 -- --
Conversion of note receivable from Genzyme Molecular
Oncology into Molecular Oncology designated shares.... -- -- (2,696)
Transfer of interest in joint venture from Genzyme
Tissue Repair......................................... -- (25,000) --
Loss on purchase of facility from Genzyme Tissue
Repair................................................ -- -- (711)
Payment to Genzyme Tissue Repair for research program... -- (100) (250)
Other................................................... (1) (408) (1,282)
---------- -------- --------
Balance at end of year.................................. $1,269,284 $636,128 $959,019
========== ======== ========
BIOSURGERY STOCK:
Balance at beginning of year............................ $ -- $ -- $ --
Issuance of Biosurgery Stock under stock plans.......... 298 -- --
Conversion of Surgical Products Stock to Biosurgery
Stock upon creation of Genzyme Biosurgery............. 377,090 -- --
Conversion of Tissue Repair Stock to Biosurgery Stock
upon creation of Genzyme Biosurgery................... 228,288 -- --
Acquisition of Biomatrix................................ 217,719
Other................................................... (42) -- --
---------- -------- --------
Balance at end of year.................................. $ 823,353 $ -- $ --
========== ======== ========

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

GCS-47

GENZYME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)

2000 1999 1998
---------- -------- --------
(AMOUNTS IN THOUSANDS)

MOLECULAR ONCOLOGY STOCK:
Balance at beginning of year............................ $ 67,672 $ 63,427 $ 34,517
Issuance of Molecular Oncology Stock under stock
plans................................................. 1,829 306 7
Issuance of Molecular Oncology Stock in connection with
dividend of Molecular Oncology designated shares...... -- -- (87)
Conversion of note payable to Genzyme General into
Molecular Oncology designated shares.................. -- -- 2,696
Exchange of 6% debentures convertible into shares of
Molecular Oncology Stock for 5% debentures convertible
into shares of Genzyme General Stock.................. -- -- 19,802
Allocation of cash from Genzyme General for Molecular
Oncology designated shares............................ 15,000 -- 5,000
Shares of Molecular Oncology Stock...................... 26,980 -- --
Shares issued upon purchase of joint venture interest... -- 3,929 --
Stock compensation expense (unearned compensation),
net................................................... 3 10 113
Other................................................... -- -- 1,379
---------- -------- --------
Balance at end of year.................................. $ 111,484 $ 67,672 $ 63,427
========== ======== ========
SURGICAL PRODUCTS STOCK:
Balance at beginning of year.............................. $ 376,123 $ -- $ --
Allocation from Genzyme General........................... -- 376,271 --
Issuance of Surgical Products Stock under stock plans..... 908 -- --
Conversion of Surgical Products Stock to Biosurgery Stock
upon creation of Genzyme Biosurgery..................... (377,031) -- --
Initial distribution of Surgical Products designated
shares.................................................. -- (148) --
---------- -------- --------
Balance at end of year.................................... $ -- $376,123 $ --
========== ======== ========
TISSUE REPAIR STOCK:
Balance at beginning of year.............................. $ 217,103 $174,198 $170,430
Issuance of Tissue Repair Stock under stock plans......... 794 458 2,101
Issuance of Tissue Repair Stock in connection with
conversion of 6% convertible note....................... -- 12,410 598
Gain on transfer of interest in joint venture to Genzyme
General................................................. -- 25,000 --
Gain on transfer of facility.............................. -- 711
Payment from Genzyme General for research program......... -- 100 250
Issuance of Tissue Repair Stock in connection with
research program........................................ 289 -- --
Allocation from Genzyme General for Tissue Repair
designated shares....................................... 9,910 4,937 --
Conversion of Tissue Repair Stock to Biosurgery Stock upon
creation of Genzyme Biosurgery.......................... (228,096) -- --
Stock compensation expense (unearned compensation), net... -- -- 108
---------- -------- --------
Balance at end of year.................................... $ -- $217,103 $174,198
========== ======== ========

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

GCS-48

GENZYME CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)

2000 1999 1998
---------- -------- --------
(AMOUNTS IN THOUSANDS)

RETAINED EARNINGS (ACCUMULATED DEFICIT):
Balance at beginning of year.............................. $ 57,202 $(13,779) $(76,346)
Net income................................................ (62,940) 70,981 62,567
---------- -------- --------
Balance at end of year.................................... $ (5,738) $ 57,202 $(13,779)
========== ======== ========
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX:
Balance at beginning of year.............................. $ 1,788 $(10,367) $(12,005)
Foreign currency translation adjustments.................. (14,569) (14,883) 7,681
Change in unrealized gains (losses) on investments........ 13,664 27,038 (6,043)
---------- -------- --------
Accumulated other comprehensive income (loss)............. $ 883 $ 1,788 $(10,367)
========== ======== ========
NOTES RECEIVABLE FROM STOCKHOLDERS:
Balance at beginning of year.............................. $ -- $ -- $ --
Notes acquired in connection with Biomatrix acquisition... (14,760)
---------- -------- --------
Balance at end of year.................................. $ (14,760) $ -- $ --
========== ======== ========
DEFERRED COMPENSATION:
Balance at beginning of year.............................. $ (134) (192) (240)
Deferred compensation associated with GelTex
acquisition............................................. (10,206) -- --
Deferred compensation associated with Biomatrix
acquisition............................................. (66) -- --
Amortization of deferred compensation..................... 463 58 48
---------- -------- --------
Balance at end of year.................................. $ (9,943) $ (134) $ (192)
========== ======== ========

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

GCS-49

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

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

- Genzyme General, which develops and markets:

- therapeutic products, with an expanding focus on products to treat
patients suffering from lysosomal storage disorders and other specialty
therapeutics;

- diagnostic products, with a focus on IN VITRO diagnostics; and

- other products and services, such as genetic testing and lipids and
peptides for drug delivery.

We currently have three series of common stock designed to reflect the value
and track the performance of one of our divisions. We refer to our series of
common stock as follows:

- Genzyme General Division Common Stock = "Genzyme General Stock;"

- Genzyme Biosurgery Division Common Stock = "Biosurgery Stock;" and

- Genzyme Molecular Oncology Division Common Stock = "Molecular Oncology
Stock."

GCS-50

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION

Our consolidated financial statements for each period include the balance
sheets, results of operations and cash flows of each of our divisions and
corporate operations taken as a whole. We eliminate all significant intracompany
items and transactions in consolidation. We have reclassified certain 1999 and
1998 data to conform with our 2000 presentation.

TRACKING STOCKS

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

- factors the assets and liabilities and income or losses attributable to a
division into the determination of the amount available to pay dividends
on the associated tracking stock; and

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

To determine earnings per share, we allocate our earnings to each series of
our common stock based on the earnings attributable to that series of stock. The
earnings attributable to each series of stock is defined in our charter as the
net income or loss of the corresponding division determined in accordance with
generally accepted accounting principles and as adjusted for tax benefits
allocated to or from that division in accordance with our management and
accounting policies. Our charter also requires that all of our income and
expenses be allocated among our divisions in a reasonable and consistent manner.
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.

Because the earnings allocated to each series of stock are based on the
income or losses attributable to each corresponding division, we include
financial statements and management's discussion and analysis for the
corporation as well as for each of our divisions to aid investors in evaluating
Genzyme's performance and the performance of each of its divisions.

While each tracking stock is designed to reflect each division's
performance, it is common stock of Genzyme Corporation and not of a division;
each division is not a company or legal entity, and therefore does not and
cannot issue stock. Consequently, holders of each tracking stock have no
specific rights to assets allocated to each division. Genzyme Corporation
continues to hold title to all of the assets allocated to the corresponding
division and is responsible for all of its liabilities, regardless of what it
deems for financial statement presentation purposes as allocated to any
division. Holders of each tracking stock, as common stockholders, are therefore
subject to the risks of investing in the businesses, assets and liabilities of
Genzyme as a whole. For instance, the assets allocated to each division are
subject to company-wide claims of creditors, product liability plaintiffs and
stockholder

GCS-51

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
litigation. Also, in the event of a Genzyme liquidation, insolvency or similar
event, holders of each tracking stock would only have the rights of common
stockholders in the combined assets of Genzyme.

ALLOCATION POLICY

Our charter sets forth what operations and assets were initially allocated
to each division 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 our 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 are
filed as Exhibit 99.1 to this annual report. Our charter requires that all of
our assets and liabilities be allocated among our divisions. Our board of
directors, however, retains considerable discretion in determining the types,
magnitude and extent of allocations to each series of common stock without
shareholder approval.

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 in activities which directly benefit a division are allocated to
that 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 that
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 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
also allocates long-term debt and strategic investments.

PRINCIPLES OF CONSOLIDATION

We use the equity method to account for investments in entities in which we
have a substantial ownership interest (20% to 50%), or in which we participate
in policy decisions. Our consolidated net income includes our share of the
earnings of these entities. We report at fair value investments in entities in
which our ownership interest is less than 20% unless fair value is not readily
determinable (see "Investments" below).

GCS-52

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DIVIDEND POLICY

We have never paid a cash dividend on shares of our stock. We currently
intend to retain our earnings to finance future growth and do not anticipate
paying any cash dividends on our stock in the foreseeable future.

USE OF ESTIMATES

Under generally accepted accounting principles, we are required to make
certain estimates and assumptions that affect reported amounts of assets,
liabilities, revenues, expenses, and disclosure of contingent assets and
liabilities in our financial statements. Our actual results could differ from
these estimates.

FINANCIAL INSTRUMENTS

A number of financial instruments subject us to significant credit risk,
including cash and cash equivalents, current and non-current investments, and
accounts receivable. We generally invest our cash in investment-grade securities
to mitigate risk.

CASH AND CASH EQUIVALENTS

We value our cash and cash equivalents at cost plus accrued interest, which
we believe approximates their market value. Our cash equivalents consist
principally of money market funds and municipal notes with initial maturities of
three months or less.

INVESTMENTS

We classify our investments with remaining maturities of 12 months or less
as short-term investments. We classify our investments with remaining maturities
of greater than twelve months as long-term investments.

We classify our investments in debt securities as either held-to-maturity or
available-for-sale based on facts and circumstances present at the time we
purchase the securities. We report available-for-sale investments at fair value
as of each balance sheet date and include any unrealized holding gains and
losses (the adjustment to fair value) in stockholders' equity. Realized gains
and losses are determined on the specific identification method and are included
in investment income. If any adjustment to fair value reflects a decline in the
value of the investment, we consider all available evidence to evaluate the
extent to which the decline is "other than temporary" and mark the investment to
market through a charge to our statement of operations. As of each balance sheet
date presented, we classified all of our investments in debt securities as
available-for-sale.

We classify all of our equity investments as available-for-sale. If our
investment is in a publicly traded security, we calculate fair value based on
market quotations. Investments in equity securities for which fair value is not
readily determinable are carried at cost, subject to review for impairment.

INVENTORIES

We value inventories at cost or, if lower, fair value. We determine cost
using the first-in, first-out method.

GCS-53

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
We analyze our inventory levels quarterly and write down:

- inventory that has become obsolete;

- inventory that has a cost basis in excess of its expected net realizable
value; and

- inventory in excess of expected requirements.

Inventory with a life in excess of its shelf life is disposed of and the
related costs are written off.

We capitalize inventory produced for commercial sale, which may result in
the capitalization of inventory that has not been approved for sale. If a
product is not approved for sale, it would result in the write-off of the
inventory and a charge to earnings. At December 31, 2000, we have capitalized
$8.1 million of inventory that has not been approved for commercial sale.

PROPERTY, PLANT AND EQUIPMENT

We record property, plant and equipment at cost. When we dispose of these
assets, we remove the related cost and accumulated depreciation and amortization
from the related accounts on our balance sheet and include any resulting gain or
loss in our statement of operations.

We generally compute depreciation using the straight-line method over the
estimated useful lives of the assets. We compute useful lives as follows:

- plant and equipment--three to ten years;

- furniture and fixtures--five to seven years; and

- buildings--20 to 40 years.

We depreciate certain specialized manufacturing equipment and facilities
allocated to Genzyme General over their remaining useful lives using the
units-of-production method. We evaluate the remaining life and recoverability of
this equipment periodically based on the appropriate facts and circumstances.

We amortize leasehold improvements over their useful life or, if shorter,
the term of the applicable lease.

For products we expect to be commercialized, we capitalize, to
construction-in-progress, the costs we incur in validating the manufacturing
process. We begin this capitalization when we consider the product to have
demonstrated technological feasibility and end this capitalization when the
asset is substantially complete and ready for its intended use. These
capitalized costs include incremental labor and direct material, and incremental
fixed overhead and interest. We generally depreciate these costs using the
units-of-production method.

INTANGIBLES

Our intangible assets consist of:

- goodwill;

- covenants not to compete;

- customer lists; and

- patents, trademarks, trade names and other technology rights.

GCS-54

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
We amortize intangible assets using the straight-line method over useful
lives of 1.5 to 40 years.

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

We evaluate the recoverability of our intangible and other long-lived assets
when the facts and circumstances suggest that these assets may be impaired. When
we conduct such an evaluation we consider several factors including operating
results, business plans, economic projections, strategic plans and market
emphasis. Our evaluations also compare expected cumulative, undiscounted
operating incomes or cash flows of these assets with the net book values of the
related intangible assets. We charge unrealizable intangible and long-lived
asset values to operations if our evaluations indicate that the value of these
assets are impaired.

TRANSLATION OF FOREIGN CURRENCIES

We translate the financial statements of our foreign subsidiaries from local
currency into U.S. dollars using:

- the current exchange rate at each balance sheet date for assets and
liabilities; and

- the average exchange rate prevailing during each period for revenues and
expenses.

We consider the local currency for all of our foreign subsidiaries to be the
functional currency for that subsidiary. As a result, we included translation
adjustments for these subsidiaries in stockholders' equity. We also record as a
charge or credit to stockholders' equity exchange gains and losses on
intercompany balances that are of a long-term investment nature. Our
stockholders' equity includes cumulative foreign currency adjustments of
$(34.2) million at December 31, 2000 and $19.7 million at December 31, 1999.

Gains and losses on all other foreign currency transactions are included in
our results of operations, although these amounts are not material to our
financial statements.

FOREIGN CURRENCY HEDGING

We periodically enter into forward contracts to reduce our foreign currency
exchange risk. On each balance sheet date, we revalue these contracts using the
exchange rates that are then in effect. We include in net income all gains and
losses resulting from these revaluations.

INTEREST RATE HEDGE AGREEMENTS

We use interest rate hedge agreements to mitigate the interest rate risks
and costs that are inherent in our debt portfolio. We enter into these
agreements primarily to change the fixed/variable interest rate mix of the
portfolio, which reduces our exposure to movements in interest rates. We do not
hold or issue derivative financial instruments for trading purposes. We
recognize in income any differential that we may receive or pay under contracts
designated as hedges. This recognition occurs over the life of the applicable
contract as an adjustment to interest expense. We estimate the fair value of
interest rate hedge agreements based on the amount it would cost to terminate
the agreements.

REVENUE RECOGNITION

We recognize revenue from product sales when we ship the product and title
and risk of loss has passed, net of any applicable third party contractual
allowances and rebates. We recognize revenue from service sales when we have
finished providing the service. We recognize revenue from research

GCS-55

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and development contracts over the term of the applicable contract and as we
incur costs related to that contract. We recognize non-refundable up-front
license fees over the related performance period or at the time we have no
remaining performance obligations. Milestone payments are recognized as revenue
upon achievement of the milestone only if there are no remaining performance
obligations and the fees are non-refundable.

We receive royalties related to the manufacture, sale or use of our products
or technologies under license arrangements with third parties. For those
arrangements where royalties are reasonably estimable, we recognize revenue
based on estimates of royalties earned during the applicable period and adjust
for differences between the estimated and actual royalties in the following
quarter. Historically, these adjustments have not been material. For those
arrangements where royalties are not reasonably estimable, we recognize revenue
upon receipt of royalty statements from the licensee.

We believe our revenue recognition policies are in compliance with Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements."

RESEARCH AND DEVELOPMENT

We expense research and development costs in the period incurred. We also
expense the cost of purchased technology in the period of purchase if we believe
that the technology has not demonstrated technological feasibility and that it
does not have an alternative future use.

ISSUANCE OF STOCK BY A SUBSIDIARY OR AN AFFILIATE

We include gains on the issuance of stock by our subsidiaries and affiliates
in net income unless that subsidiary or affiliate is a research and development,
start-up or development stage company or an entity whose viability as a going
concern is under consideration. In those situations, we account for the change
in our equity ownership of that subsidiary or affiliate as an equity
transaction.

INCOME TAXES

We use the asset and liability method of accounting for deferred income
taxes. Our provision for income taxes includes income taxes currently payable
and those deferred because of temporary differences between the financial
statement and tax bases of assets and liabilities.

We file a consolidated return and allocate income taxes to each division
based upon the financial statement income, taxable income, credits and other
amounts properly allocable to each division under generally accepted accounting
principles as if it were a separate taxpayer. We assess the realizability of our
deferred tax assets at the division level. As a result, our consolidated tax
provision may not equal the sum of the divisions' tax provisions.

We have not provided for possible U.S. taxes on the undistributed earnings
of foreign subsidiaries. We do not believe it is practicable to determine the
tax liability associated with the repatriation of our foreign earnings because
it is our policy to indefinitely reinvest these earnings in non-U.S. operations.
At December 31, 2000, these undistributed foreign earnings totaled approximately
$13.3 million.

NET INCOME (LOSS) PER SHARE

We calculate earnings per share for each series of stock using the two-class
method. To calculate basic earnings per share for each series of stock, we
divide the earnings allocated to each series of stock by the weighted average
number of outstanding shares of that series of stock during the

GCS-56

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
applicable period. When we calculate diluted earnings per share, we also include
in the denominator all potentially dilutive securities outstanding during the
applicable period. We allocate our earnings to each series of our common stock
based on the earnings attributable to that series of stock. The earnings
attributable to Genzyme General Stock, as defined in our charter, is equal to
the net income or loss of Genzyme General determined in accordance with
generally accepted accounting principles and as adjusted for tax benefits
allocated to or from Genzyme General in accordance with our management and
accounting policies. Earnings attributable to Biosurgery Stock, Molecular
Oncology Stock, Surgical Products Stock and Tissue Repair Stock are defined
similarly and, as such, are based on the net income or loss of the corresponding
division as adjusted for the allocation of tax benefits.

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

YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Tax benefits allocated from:
Genzyme Biosurgery.......................................... $28,023 $26,994 $34,330
Genzyme Molecular Oncology.................................. 7,476 7,812 3,527
------- ------- -------
Total....................................................... $35,499 $34,806 $37,857
======= ======= =======

In future periods, Genzyme Biosurgery or Genzyme Molecular Oncology may
recognize deferred tax assets in the calculation of their respective tax
provisions determined on a separate division basis in accordance with generally
accepted accounting principles. However, to the extent the benefit of those
deferred tax assets has been previously allocated to Genzyme General in
accordance with the management and accounting policies, the benefit will be
reflected as a reduction of net income in determining net income attributable to
Biosurgery Stock or Molecular Oncology Stock. As of December 31, 2000, the total
tax benefits previously allocated to Genzyme General were (in thousands):

Genzyme Biosurgery.......................................... $168,719
Genzyme Molecular Oncology.................................. 24,524

GCS-57

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth our computation of basic and diluted net
income per share of Genzyme General Stock:

2000 1999 1998
--------- ---------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Genzyme General net income.................................. $ 85,956 $ 142,077 $133,052
Genzyme Surgical Products net loss.......................... -- (27,523) (49,856)
Tax benefit allocated from Genzyme Biosurgery............... 28,023 26,994 34,330
Tax benefit allocated from Genzyme Molecular Oncology....... 7,476 7,812 3,527
-------- --------- --------
Net income allocated to Genzyme General Stock--basic........ 121,455 149,360 121,053
Effect of dilutive securities (net of tax) (1):
5 1/4% convertible subordinated notes (2):
Interest expense........................................ -- 8,375 4,911
Amortization of purchasers' discount and offering
costs................................................. -- 597 348
5% convertible subordinated debentures (3):
Interest expense........................................ -- 676 258
Amortization of debt offering costs..................... -- 113 434
-------- --------- --------
Net income allocated to Genzyme General Stock--diluted...... $121,455 $ 159,121 $127,004
======== ========= ========
Shares used in net income per common share--basic........... 86,131 83,092 79,063
Effect of dilutive securities:
Employee and director stock options (4)................. 3,552 3,173 2,661
Warrants................................................ -- 20 10
5 1/4% convertible subordinated notes (1,2)............. -- 6,313 3,874
5% convertible subordinated debentures (1,3)............ -- 630 214
-------- --------- --------
Dilutive potential common shares.......................... 3,552 10,136 6,759
-------- --------- --------
Shares used in net income per common share--diluted......... 89,683 93,228 85,822
======== ========= ========
Net income per share of Genzyme General Stock:
Basic..................................................... $ 1.41 $ 1.80 $ 1.53
======== ========= ========
Diluted................................................... $ 1.35 $ 1.71 $ 1.48
======== ========= ========

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

(1) The effect of the assumed conversion of the convertible subordinated notes
and debentures has been excluded for the year ended December 31, 2000 as the
effect was anti-dilutive.

(2) We issued these notes in May 1998 and are amortizing the purchasers'
discount and offering costs of approximately $7.0 million over the term of
these notes, which mature in June 2005.

(3) We issued these debentures in August 1998 and are amortizing the offering
costs of approximately $0.9 million over the term of these debentures, which
mature in August 2003.

GCS-58

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(4) We did not include the securities described in the following table in the
computation of Genzyme General's diluted earnings per share for each period
because these securities had an exercise price greater than the average
market price of Genzyme General Stock:

DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Shares of Genzyme General Stock issuable for options*....... 1,746 2,094 2,827
Shares of Genzyme General Stock issuable for warrants....... 46 26 40
----- ----- -----
Total shares with exercise prices greater than the average
market price of
Genzyme General Stock during the period................... 1,792 2,120 2,867
===== ===== =====

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

* These options had exercise price ranges of $51.88--$100.44 in 2000,
$48.06--$62.33 in 1999 and $28.67--$47.88 in 1998.

BIOSURGERY STOCK:

We created Biosurgery Stock on December 18, 2000. We created Genzyme
Biosurgery by combining the businesses of Genzyme Surgical Products and Genzyme
Tissue Repair as well as the acquired businesses of Biomatrix. Accordingly, we
amended our charter to create Biosurgery Stock and eliminate Surgical Products
Stock and Tissue Repair Stock. Each outstanding share of, and option to
purchase, Surgical Products Stock was converted into the right to receive 0.6060
of a share of, or option to purchase, Biosurgery Stock, and each outstanding
share of, and option to purchase, Tissue Repair Stock was converted into the
right to receive 0.3352 of a share of, or option to purchase, Biosurgery Stock.

Net loss allocated to Biosurgery Stock for the year ended December 31, 2000
consists of the net loss of Genzyme Biosurgery from December 18, 2000, the date
Biosurgery Stock was initially issued, through December 31, 2000. Prior to
December 18, 2000, the losses of Genzyme Surgical Products and Genzyme Tissue
Repair, which were combined to form Genzyme Biosurgery, were allocated to
Surgical Products Stock and Tissue Repair Stock.

For all periods presented, basic and diluted net loss per share of
Biosurgery Stock are the same. We did not include the securities described in
the following table in the computation of Biosurgery

GCS-59

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock diluted net loss per share for each period because these securities would
have an anti-dilutive effect due to the net loss allocated to Biosurgery Stock.

DECEMBER 31,
2000(1)
------------
(AMOUNTS IN
THOUSANDS)

Shares of Biosurgery Stock issuable for options............. 4,739
Warrants to purchase Biosurgery Stock....................... 3
Biosurgery designated shares issuable upon conversion of
5 1/4% convertible subordinated notes allocated to Genzyme
General(2)................................................ 685
Biosurgery designated shares reserved for options(2)........ 111
Biosurgery designated shares(2)............................. 1,195
Shares issuable upon conversion of 6.9% convertible
subordinated note allocated to Genzyme Biosurgery(3)...... 358
-----
Total shares excluded from the calculation of diluted net
loss per share of Biosurgery Stock........................ 7,091
=====

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

(1) For the period from December 18, 2000 through December 31, 2000.

(2) Biosurgery designated shares are shares of Biosurgery Stock that are not
issued and outstanding, but which our board of directors may issue, sell or
distribute without allocating the proceeds to Genzyme Biosurgery. As of
December 31, 2000, there were 1,990,364 Biosurgery designated shares.

MOLECULAR ONCOLOGY STOCK:

In accounting for the acquisition of PharmaGenics, Inc. in June of 1997,
Genzyme Molecular Oncology recorded a valuation allowance against a
$2.9 million tax asset related to acquired net operating losses. This was due to
the application of our policy of accounting for income taxes at the divisional
level as if each division were a separate taxpayer. As a result, Genzyme
Molecular Oncology recorded an additional $2.9 million of goodwill that was not
recorded at the consolidated level. The amortization of this goodwill increases
the loss of Genzyme Molecular Oncology and, therefore, the loss allocated to
Molecular Oncology Stock. This additional amortization amounted to approximately
$0.5 million in 2000, and $1.0 million in 1999 and 1998. Amortization of this
goodwill was completed in June 2000.

For all periods presented, basic and diluted net loss per share of Molecular
Oncology Stock are the same. We did not include the securities described in the
following table in the computation of

GCS-60

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Molecular Oncology Stock diluted net loss per share for each period because
these securities would have an anti-dilutive effect due to the net loss
allocated to Molecular Oncology Stock.

DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Shares of Molecular Oncology Stock issuable for options..... 862 1,809 1,158
Warrants to purchase Molecular Oncology Stock............... 10 10 10
Molecular Oncology designated shares issuable upon
conversion of 5 1/4% convertible subordinated notes
allocated to Genzyme General(1)........................... 682 682 682
Molecular Oncology designated shares(1)..................... 1,318 1,006 728
----- ----- -----
Total shares excluded from the calculation of diluted net
loss per share of Molecular Oncology Stock................ 2,872 3,507 2,578
===== ===== =====

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

(1) Molecular Oncology designated shares are shares of Molecular Oncology Stock
that are not issued and outstanding, but which our board of directors may
issue, sell or distribute without allocating the proceeds to Genzyme
Molecular Oncology. As of December 31, 2000, there were 2,000,198 Molecular
Oncology designated shares.

SURGICAL PRODUCTS STOCK:

Basic and diluted net loss per share of Surgical Products Stock is the same.
We did not include the securities described in the following table in the
computation of Surgical Products Stock diluted net loss per share for each
period because these securities would have an anti-dilutive effect due to the
net loss allocated to Surgical Products Stock.

DECEMBER 31,
-------------------
2000(1) 1999(2)
-------- --------
(AMOUNTS IN
THOUSANDS)

Shares of Surgical Products Stock issuable for options...... 450 2,991
Surgical Products designated shares issuable upon conversion
of 5 1/4% convertible subordinated notes allocated to
Genzyme General(3)........................................ 1,130 1,130
----- -----
Total shares excluded from the calculation of diluted net
loss per share of Surgical Products Stock(4).............. 1,580 4,121
===== =====

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

(1) For the period from January 1, 2000 through December 18, 2000.

(2) For the period from June 28, 1999 through December 31, 1999.

(3) Surgical Products designated shares were shares of Surgical Products Stock
that were not issued and outstanding, but which our board of directors could
have issued, sold or distributed without allocating the proceeds to Genzyme
Surgical Products. As of December 31, 2000, there were no Surgical Products
designated shares outstanding because these shares were converted into
Biosurgery designated shares.

GCS-61

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(4) On December 18, 2000, in connection with the merger of Biomatrix, we
converted all of the existing shares of Surgical Products Stock into shares
of Biosurgery Stock. Each share of Surgical Products Stock was converted
into 0.6060 of a share of Biosurgery Stock. In the aggregate, we converted
approximately 15.0 million shares of Surgical Products Stock into shares of
Biosurgery Stock.

TISSUE REPAIR STOCK:

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

DECEMBER 31,
------------------------------
2000(1) 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Shares of Tissue Repair Stock issuable for options.......... 2,934 4,176 3,398
Tissue Repair designated shares (2)......................... 1,285 2,238 716
Shares of Tissue Repair Stock issuable upon conversion of 5%
convertible subordinated note............................. -- -- 7,810
----- ----- ------
Total shares excluded from the calculation of diluted net
loss per share of Tissue Repair Stock (3)................. 4,219 6,414 11,924
===== ===== ======

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

(1) For the period from January 1, 2000 through December 18, 2000.

(2) Tissue Repair designated shares were shares of Tissue Repair Stock that were
not issued and outstanding, but which our board of directors could have
issued, sold or distributed without allocating the proceeds to Genzyme
Tissue Repair. As of December 31, 2000, there were no Tissue Repair
designated shares outstanding because these shares were converted into
Biosurgery designated shares.

(3) On December 18, 2000, in connection with the merger of Biomatrix, we
converted all of the existing shares of Tissue Repair Stock into shares of
Biosurgery Stock. Each share of Tissue Repair Stock was converted into
0.3352 of a share of Biosurgery Stock. In the aggregate, we converted
28,877,743 shares of Tissue Repair Stock into shares of Biosurgery Stock.

COMPREHENSIVE INCOME

Comprehensive income consists of net income and all changes in equity from
non-shareholder sources, including changes in unrealized gains and losses on
investments and foreign currency translation adjustments, net of taxes.

ACCOUNTING FOR STOCK BASED COMPENSATION

Stock options issued to employees under our stock option plans are accounted
for in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. Accordingly, no
compensation expense is recorded for options issued to

GCS-62

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
employees in fixed amounts and with fixed exercise prices at least equal to the
fair market value of our common stock at the date of grant. We apply the
provisions of SFAS 123, "Accounting for Stock-Based Compensation," through
disclosure only, in Note L to these consolidated financial statements. All
stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS 123 and Emerging Issues Task Force Issue No. 96-18,
"Accounting for Equity Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."

NEW ACCOUNTING PRONOUNCEMENTS

- interest rate swaps;

- foreign currency forward contracts; and

- a limited number of investments, primarily warrants to purchase publicly
traded common stock, obtained through strategic collaborations.

UNCERTAINTIES

We are subject to risks and uncertainties common to companies in the
biotechnology industry. These risks and uncertainties may affect our future
results, and include:

- our ability to successfully complete preclinical and clinical development
of our products and services;

- our ability to manufacture sufficient amounts of our products for
development and commercialization activities;

- our ability to obtain timely regulatory approval of our products and
services;

- our ability to obtain, maintain and successfully enforce adequate patent
and other proprietary rights protection of our products and services;

- the content and timing of decisions made by the FDA and other regulatory
agencies regarding our products and services;

GCS-63

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- our ability to manufacture sufficient quantities of products for
development and commercialization activities;

- our ability to maintain adequate insurance coverage for any claims that
may be asserted against us;

- the accuracy of our estimates of the size and characteristics of the
markets to be addressed by our products and services;

- market acceptance of our products and services;

- our ability to obtain reimbursement for our products and services by third
party payers, and the extent of such coverage;

- our ability to establish and maintain licenses, strategic collaborations
and distribution arrangements;

- the continued funding of our joint ventures; and

- the accuracy of our information regarding the products and resources of
our competitors and potential competitors.

NOTE B. OTHER GAINS AND CHARGES

During 2000, we recorded gains of $22.7 million relating to public offerings
of common stock by our unconsolidated affiliate, Genzyme Transgenics. We
recorded this gain as gain on affiliate sale of stock and allocated it to
Genzyme General.

During the fourth quarter of 1999, we recorded a net gain of $14.4 million
upon receipt of a payment associated with the termination of our agreement to
acquire Cell Genesys, Inc. We allocated this gain to Genzyme General.

GCS-64

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B. OTHER GAINS AND CHARGES (CONTINUED)
During the third quarter of 1998, we recorded a $25.2 million charge to cost
of products sold. The components of this charge are:

- a $10.4 million charge related to the operations of Genzyme Surgical
Products to write down our inventory of Sepra-TM- products to net
realizable value. During the third quarter of 1998, we revised our
forecasted sales of Sepra-TM- products and, in accordance with our policy,
analyzed the Sepra-TM- products inventory to determine whether the
carrying value exceeded the net realizable value. The revised forecast
showed slower sales growth as well as higher manufacturing and sales and
marketing costs than originally expected. In addition, our inventory
on-hand had a relatively high cost per unit because production was
significantly less than originally planned. As a result, in the third
quarter of 1998, we recorded a charge to cost of products sold to write
down our Sepra-TM- products inventory to net realizable value.

NOTE C. DISPOSITIONS OF ASSETS

SYBRON LABORATORY PRODUCTS

In July 1999, we sold the assets of our immunochemistry product line to an
operating unit of Sybron Laboratory Products Corp. for $5.0 million in cash. We
recorded a gain of $0.5 million in connection with the sale of this product
line. The immunochemistry product line had been allocated to Genzyme General.

LABORATORY CORPORATION OF AMERICA

In 1996, we sold Genetic Design to Laboratory Corporation of America. A
portion of the purchase price was a note for which we previously had fully
reserved because of uncertainty regarding collection. In April 1999, we received
an $8.4 million payment on that note and recorded a $7.5 million gain in
connection with that payment. Genetic Design had been allocated to Genzyme
General.

TECHNE

In July 1998, we sold the assets of our research products business to Techne
Corporation in exchange for:

- $24.8 million in cash;

- approximately 987,000 shares of Techne common stock; and

- royalties on product sales by Techne's biotechnology group through
June 2003.

In 1998, we recorded a $31.2 million gain in connection with the sale of
this business and an additional $3.4 million gain upon the sale of a portion of
our investment in Techne common stock. We recorded these gains as gain on sale
of equity investments. In 1999, we recorded a gain of $2.0 million

GCS-65

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE C. DISPOSITIONS OF ASSETS (CONTINUED)
upon the sale of our remaining shares of Techne common stock. The research
products business had been allocated to Genzyme General.

NOTE D. ACQUISITIONS

ACQUISITION OF GELTEX

On December 14, 2000, we acquired GelTex, a public company engaged in
developing therapeutic products based on polymer technology. We accounted for
the acquisition as a purchase and allocated it to Genzyme General. Accordingly,
the results of operations of GelTex are included in our consolidated financial
statements and the combined financial statements of Genzyme General from the
date of acquisition.

The purchase price and the allocation of the purchase price to the fair
value of the acquired tangible and intangible assets and liabilities is as
follows (in thousands):

Cash paid (net of cash acquired)............................ $ 447,495
Issuance of 7.9 million shares of Genzyme General Stock..... 491,181
Issuance of options and warrants to purchase 1.6 million
shares of Genzyme General Stock........................... 62,882
Existing equity investment in GelTex........................ 2,500
Acquisition costs........................................... 4,321
----------
Total purchase price........................................ $1,008,379
==========
Short-term investments...................................... $ 75,338
Current assets.............................................. 32,825
Property, plant and equipment............................... 45,477
Intangible assets (to be amortized straight-line over five
to 15 years).............................................. 465,109
Goodwill (to be amortized straight-line over 15 years)...... 449,634
In-process research and development......................... 118,048
Deferred tax asset.......................................... 35,016
Deferred compensation....................................... 10,206
Assumed liabilities......................................... (47,789)
Deferred tax liability...................................... (175,485)
----------
Allocated purchase price.................................... $1,008,379
==========

The 7.9 million shares of Genzyme General Stock issued in exchange for
outstanding shares of GelTex common stock were valued at $491.2 million using
the average trading price of Genzyme General Stock over three days before and
after the September 11, 2000 announcement of the merger. Options and warrants to
purchase approximately 1.6 million shares of Genzyme General Stock were valued
at $62.9 million using the Black-Scholes model. In accordance with FIN 44, the
intrinsic value of the portion of the unvested options related to the future
service period of $10.2 million has been allocated to deferred compensation in
stockholders' equity. The unvested portion is being amortized to operating
expense over the remaining vesting period of approximately one year.

As part of the acquisition of GelTex, we acquired all of GelTex's interest
in RenaGel LLC, our joint venture with GelTex. Prior to the acquisition of
GelTex, we accounted for the investment in

GCS-66

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE D. ACQUISITIONS (CONTINUED)
RenaGel LLC under the equity method. Because we already owned a 50% interest in
RenaGel LLC, the assets of RenaGel LLC were adjusted to fair value only to the
extent of the 50% interest we acquired.

ACQUISITION OF BIOMATRIX AND FORMATION OF GENZYME BIOSURGERY

On December 18, 2000, we acquired Biomatrix, a public company engaged in the
development and manufacture of viscoelastic biomaterials for use in orthopaedic
and other medical applications.

At the time of the acquisition, we created Genzyme Biosurgery as a new
division. We reallocated the businesses of Genzyme Surgical Products and Genzyme
Tissue Repair to Genzyme Biosurgery and allocated the acquired businesses of
Biomatrix to Genzyme Biosurgery. As a result of this transaction, we amended our
charter to create Biosurgery Stock and eliminate Surgical Products Stock and
Tissue Repair Stock. Each outstanding share of, or option to purchase, Surgical
Products Stock was converted into the right to receive 0.6060 of a share of, or
option to purchase, Biosurgery Stock and each outstanding share of, or option to
purchase, Tissue Repair Stock was converted into the right to receive 0.3352 of
a share of, or option to purchase, Biosurgery Stock.

We accounted for the acquisition as a purchase and, accordingly, the results
of operations of Biomatrix are included in our consolidated financial statements
and in the combined financial statements of Genzyme Biosurgery from the date of
acquisition.

The purchase price and the allocation of the purchase price to the fair
value of the acquired tangible and intangible assets and liabilities is as
follows (in thousands):

Cash paid (net of cash acquired)............................ $ 196,284
Issuance of 17.5 million shares of Genzyme Biosurgery
Stock..................................................... 206,522
Issuance of options and warrants to purchase 1.7 million
shares of Genzyme Biosurgery Stock........................ 11,373
Acquisition costs........................................... 12,087
---------
Total purchase price........................................ $ 426,266
=========
Current assets.............................................. $ 37,639
Property, plant and equipment............................... 38,479
Intangible assets (to be amortized straight-line over 1.5 to
11 years)................................................. 284,854
Goodwill (to be amortized straight-line over 11 years)...... 112,262
In-process research and development......................... 82,143
Deferred tax asset.......................................... 922
Deferred compensation....................................... 66
Assumed liabilities......................................... (31,099)
Liabilities for exit activities and integration............. (6,716)
Notes receivable from stockholders.......................... 14,760
Deferred tax liability...................................... (107,044)
---------
Allocated purchase price.................................... $ 426,266
=========

The value of the 17.5 million shares of Biosurgery Stock issued in exchange
for all of the outstanding shares of Biomatrix common stock were valued using
the combined five day average closing

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GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE D. ACQUISITIONS (CONTINUED)
prices of Surgical Products Stock and Tissue Repair Stock, divided by the
exchange ratios. Options and warrants to purchase approximately 1.7 million
shares of Genzyme Biosurgery Stock were valued at $11.4 million using the
Black-Scholes model. The intrinsic value of the portion of the unvested options
related to the future service period was DE MINIMIS.

At the date of acquisition, we began to formulate plans for certain exit and
integration activities including workforce reductions and the closure of
Biomatrix's Canadian facility. Accordingly, we recorded liabilities of
$6.7 million for severance and related costs at the date of acquisition and we
assigned Biomatrix's Canadian facility a value equal to the estimated amount to
be obtained upon disposal or sale. We expect that the termination of employees
and the facility closure will be substantially complete within one year. At
December 31, 2000, $0.8 million has been spent in respect of this liability.

In connection with the purchases of GelTex and Biomatrix, we allocated
approximately $118.0 million and $82.1 million of the respective purchase prices
to IPR&D. Although management ultimately is responsible for determining the fair
value of the acquired IPR&D, we engaged an independent third-party appraisal
company to assist in the valuation of the intangible assets acquired.

The fair value we assigned to purchased IPR&D was estimated by discounting,
to present value, the cash flows expected to result from each project once it
has reached technological feasibility. The discount rates we used were
consistent with the risks of each project, and ranged from 35% to 40%. In
estimating future cash flows, our management considered other tangible and
intangible assets, including core technology, required for successful
exploitation of the technology resulting from each purchased IPR&D project and
adjusted future cash flows for a charge reflecting the contribution to value of
these assets. The value we assigned to purchased research and development was
the amount attributable to the efforts of the seller up to the time of
acquisition. We estimated this amount through application of the "stage of
completion" calculation, which calculation involves multiplying total estimated
revenue for IPR&D by the percentage of completion of each purchased research and
development project at the time of acquisition.

GCS-68

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE D. ACQUISITIONS (CONTINUED)
Below is a brief description of the IPR&D projects, including an estimation
of when management believes we may realize revenues from the sale of these
products in the respective application.

GELTEX:
Non-absorbed polymer phosphate - Clinical studies $ 19.7 $ 20.0
RenaGel-Registered Trademark- binder for the treatment of scheduled for completion in
Phosphate Binder hyperphosphatemia 2002, 2003 and 2004

Iron Chelation Focuses on the prevention and - Expect to file an IND in 15.7 31.0
treatment of transfusional or 2001
hereditary iron overload - Expected product launch
in 2006

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

(1) Future development costs will be funded by our collaboration partner.

GCS-69

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE D. ACQUISITIONS (CONTINUED)

BIOMATRIX:
Viscosupplementation Use of elastoviscous solutions - Expect to complete $ 33.8 $ 9.5
and viscoelastic gels in clinical studies
disease conditions to demonstrating efficacy as
supplement tissues and body a treatment for chronic
fluids, alleviating pain and hip pain, with potential
restoring normal function market approval expected
in 2001

Viscoaugmentation Use of viscoelastic gels to - U.S. clinical studies of 8.6 6.8
provide scaffolding for tissue Hylaform-Registered Trademark-
regeneration or as an inert expected to be complete
elastic filler for tissues of in 2001 with product
the skin and the subcutaneous launch expected in late
and intermuscular connective 2001
tissues -
Hylagel-Registered Trademark-
Uro expected to be
submitted for FDA
approval and approval in
Canada and Europe in
2002, with product launch
expected in 2003

GCS-70

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE D. ACQUISITIONS (CONTINUED)
The following unaudited pro forma financial summary is presented as if the
acquisitions of GelTex and Biomatrix were completed as of January 1, 2000 and
1999, respectively. The unaudited pro forma combined results are not necessarily
indicative of the actual results that would have occurred had the acquisitions
been consummated at these dates, or of the future operations of the combined
entities. Nonrecurring charges, such as the acquired in-process research and
development charge of $200.1 million, are not reflected in the following pro
forma financial summary.

FOR THE YEARS ENDED
DECEMBER 31,
----------------------
2000 1999
----------- --------
(AMOUNTS IN THOUSANDS)

Total revenues.............................................. $ 1,023,277 $881,889
Net income.................................................. 9,482 (67,234)
Net income allocated to Genzyme General Stock............... 144,160 60,015
Net income per share allocated to Genzyme General Stock:
Basic..................................................... 1.55 0.67
Diluted................................................... 1.48 0.65
Net loss allocated to Genzyme Biosurgery Stock.............. (112,261) (99,427)
Net loss per share allocated to Genzyme Biosurgery
Stock--basic and diluted.................................. (3.08) (2.97)

Prior to the acquisition, Biomatrix sold 744,000 shares of its common stock
to certain of its employees, directors and consultants in exchange for ten-year,
full recourse promissory notes. The notes accrue interest at rates ranging from
5.30% to 7.18% and mature at various dates from May 2007 through September 2009,
upon which all outstanding principal and accrued interest becomes payable. As a
result of the acquisition, these shares were converted into 532,853 shares of
Biosurgery Stock and we recorded $14.7 million of outstanding principal and
accrued interest to stockholders' equity because the notes were received in
exchange for the issuance of stock.

ACQUISITION OF PEPTIMMUNE

In July 1999, we acquired Peptimmune, Inc., a privately-held company whose
lead development program focuses on a treatment for pemphigus vulgaris. We
allocated this acquisition to Genzyme General and accounted for it as a
purchase. We allocated the aggregate purchase price of $6.5 million and assumed
liabilities of $0.3 million to the tangible and intangible assets we acquired
from Peptimmune based on their respective fair values (amounts in thousands):

Property, plant & equipment................................. $ 128
Deferred tax asset.......................................... 1,229
In-process technology....................................... 5,436
-------
Total................................................... $ 6,793
=======

The $5.4 million allocated to in-process research and development represents
the value we assigned to Peptimmune's programs that were still in the
development stage and for which there was no alternative future use. We recorded
this amount as a charge to operations. As of December 31, 2000, these products
are still under development.

GCS-71

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE E. DERIVATIVE FINANCIAL INSTRUMENTS

We periodically enter into interest rate swap contracts to reduce borrowing
costs by effectively modifying the interest rate under our debt instruments. We
generally enter into these contracts concurrently with the issuance of the debt
they are intended to modify. The notional amount, interest payment and maturity
dates of these contracts generally match the principal, interest payment and
maturity dates of the related debt. As a result, any market risk or opportunity
associated with a swap contract is fully offset by the opposite market impact on
the related debt. We record the net payments that we make or receive under these
contracts as interest expense.

At December 31, 2000, we had two open interest rate hedge agreements for
which the fair value was $1.4 million in favor of the bank. We had no
outstanding interest rate hedge agreements at December 31, 1999.

We periodically enter into forward contracts to reduce our foreign currency
exchange risk. On each balance sheet date, we revolve these contracts using the
exchange rates that are in effect. We include in net income all gains and losses
resulting from these revolutions. We had $61.5 million outstanding in foreign
currency contracts at December 31, 2000 and $6.0 million at December 31, 1999.
The 2000 contracts were denominated in Euros and Austrian schillings and had an
aggregate fair value of ($1.7) million at December 31, 2000. The 1999 contracts
were denominated in Euros and had a fair value of $0.7 million at December 31,
1999. We allocated these contracts to Genzyme General.

NOTE F. ACCOUNTS RECEIVABLE AND INTANGIBLE ASSETS

Our trade receivables primarily represent amounts due from distributors,
healthcare service providers, and companies and institutions engaged in
research, development or production of pharmaceutical and biopharmaceutical
products. We perform credit evaluations of our customers on an ongoing basis and
generally do not require collateral. We state accounts receivable at fair value
after reflecting an allowance for doubtful accounts. This allowance was
$20.7 million at December 31, 2000 and $20.3 million at December 31, 1999.

GCS-72

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F. ACCOUNTS RECEIVABLE AND INTANGIBLE ASSETS (CONTINUED)
The following table contains information on our intangible assets for the
periods presented:

WEIGHTED WEIGHTED
AVERAGE AVERAGE
ESTIMATED ESTIMATED
USEFUL USEFUL
DECEMBER 31, LIFE DECEMBER 31, LIFE
2000 (YEARS) 1999 (YEARS)
------------ --------- ------------ ---------
(AMOUNTS IN THOUSANDS, EXCEPT USEFUL LIFE DATA)

Trademarks....................................... $ 101,150 24 $ 45,878 40
Goodwill......................................... 771,819 18 210,728 29
License fees..................................... 26,040 15 25,982 15
Distribution agreements.......................... 13,950 8 N/A N/A
Customer lists................................... 8,324 10 8,324 10
Completed technology............................. 520,108 13 20,000 3
Non-compete agreements........................... 6,640 5 6,000 5
Patents.......................................... 191,928 13 16,279 12
Other............................................ 9,816 5 5,145 4
---------- --------
$1,649,775 338,336
Less accumulated amortization.................... (109,993) (85,183)
---------- --------
Intangible assets, net........................... $1,539,782 $253,153
========== ========

GCS-73

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE G. INVENTORIES

DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)

Raw materials............................................... $ 51,545 $ 39,958
Work-in-process............................................. 73,520 44,559
Finished products........................................... 45,276 32,752
-------- --------
Total....................................................... $170,341 $117,269
======== ========

NOTE H. PROPERTY, PLANT AND EQUIPMENT

DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)

Plant and equipment......................................... $ 261,096 $ 246,068
Land and buildings.......................................... 252,789 188,892
Leasehold improvements...................................... 106,384 93,159
Furniture and fixtures...................................... 20,570 17,374
Construction-in-progress.................................... 94,098 28,371
--------- ---------
737,960 573,864
Less accumulated depreciation............................... (233,538) (190,683)
--------- ---------
Property, plant and equipment, net.......................... $ 504,412 $ 383,181
========= =========

Our depreciation expense was $35.6 million in 2000 and $40.7 million in
1999.

We attribute our fixed assets among our operating divisions based on use.

We capitalize costs we have incurred in validating the manufacturing process
for products which have reached technological feasibility. As of December 31,
2000, capitalized validation costs, net of accumulated depreciation, were $11.6
million. We have capitalized the following amounts of interest costs incurred in
financing the construction of our manufacturing facilities:

2000 1999 1998
- ------------ ------------ ------------

$2.7 million $1.0 million $0.7 million

Our estimated cost of completion for assets under construction as of
December 31, 2000 is $47.8 million.

GCS-74

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. INVESTMENTS

MARKETABLE SECURITIES

DECEMBER 31,
-------------------------------------------------
2000 1999
----------------------- -----------------------
COST MARKET VALUE COST MARKET VALUE
-------- ------------ -------- ------------
(AMOUNTS IN THOUSANDS)

Cash equivalents(1):
Corporate notes............................... $ 50,922 $ 50,922 $ 51,038 $ 51,023
Money market fund............................. 148,577 148,577 26,527 26,527
-------- -------- -------- --------
$199,499 $199,499 $ 77,565 $ 77,550
-------- -------- -------- --------
Short-term:
Corporate notes............................... $ 90,930 $ 91,133 $252,711 $251,779
Federal....................................... 13,175 13,207 4,065 4,067
U.S. Treasury notes........................... 246 246 -- --
-------- -------- -------- --------
$104,351 $104,586 $256,776 $255,846
-------- -------- -------- --------
Long-term:
Corporate notes............................... $186,904 $190,542 $175,080 $172,387
Federal....................................... 99,549 100,803 4,081 4,026
U.S. Treasury notes........................... 7,432 7,496 90,904 90,575
-------- -------- -------- --------
$293,885 $298,841 $270,065 $266,988
-------- -------- -------- --------
$597,735 $602,926 $604,406 $600,384
======== ======== ======== ========
Investments in equity securities.............. $ 74,299 $121,251 $ 63,983 $ 97,859
======== ======== ======== ========

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

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

We attribute marketable securities among our operating divisions.

REALIZED AND UNREALIZED GAINS AND LOSSES ON MARKETABLE SECURITIES AND EQUITY
INVESTMENTS

During 2000, we recorded gains of $16.4 million resulting from sales of
portions of our investment in Genzyme Transgenics common stock. We also
recognized a $7.6 million gain resulting from the acquisition of Celtrix
Pharmaceutics, Inc. by Insmed Pharmaceuticals, Inc., in which our shares of
Celtrix common stock were exchanged on a 1-for-1 basis for shares of Insmed
common stock. The tax effect of these gains was offset by the reversal of a
$1.9 million valuation allowance related to previously recognized capital
losses. We allocate these investments to Genzyme General.

In 2000, we determined that our investment in the common stock of Focal,
Inc. was permanently impaired and recorded a charge to operations of
$7.3 million. We allocate this investment to Genzyme Biosurgery.

We recorded gains of $2.0 million in 1999 and $3.4 million in 1998 upon the
sale of our investment in shares of Techne common stock. We also recorded a
$5.7 million charge in 1999 in connection with our investments in the common
stock of Pharming and IntegraMed America, Inc. and a $3.4 million charge in 1998
in connection with our investment in the common stock of Celtrix because we

GCS-75

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. INVESTMENTS (CONTINUED)
considered the decline in the value of those investments to be other than
temporary. We allocate these investments to Genzyme General. In connection with
these assessments, we concluded that evidence existed that the value of the
investments would recover to at least our cost. This included continued positive
progress in the issuers' scientific programs, ongoing activity in our
collaborations with the issuers, and a lack of any substantial company-specific
adverse events causing the declines in value. However, given the significance
and duration of the declines as of the end of the applicable quarter, we
concluded that it was unclear over what period such price recoveries would take
place and that, accordingly, the positive evidence suggesting that the
investments would recover to at least our purchase price was not sufficient to
overcome the presumption that the current market price was the best indicator of
the value of these investments.

We record gross unrealized holding gains and losses in stockholders' equity.
The following table sets forth the amount we recorded:

DECEMBER 31,
-----------------------------
2000 1999
------------- -------------

Unrealized holding gains.................................... $60.7 million $37.1 million
Unrealized holding losses................................... $ 7.9 million $ 6.9 million

The following table contains information regarding the range of contractual
maturities of our investments in debt securities:

Within 1 year................................... $303,849 $304,085 $334,341 $333,396
1-2 years....................................... 85,712 86,686 168,704 166,152
2-10 years...................................... 208,174 212,155 101,361 100,836
-------- -------- -------- --------
$597,735 $602,926 $604,406 $600,384
======== ======== ======== ========

GCS-76

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. INVESTMENTS (CONTINUED)
We attribute strategic investments in equity securities of unconsolidated
entities among our operating divisions. All of the investments included in the
following table are allocated to Genzyme General except for our investment in
Focal, Inc., which we allocate to Genzyme Biosurgery.

DECEMBER 31, 2000
---------------------------------
ADJUSTED MARKET UNREALIZED
COST VALUE GAIN/(LOSS)
-------- -------- -----------
(AMOUNTS IN THOUSANDS)

Abiomed, Inc................................................ $15,804 $ 55,962 $40,158
Aronex Pharmaceutical Inc................................... 1,693 1,879 186
BioMarin Pharmaceutical Inc................................. 18,000 20,370 2,370
Cambridge Antibody Technology Group plc..................... 18,147 17,014 (1,133)
Crucell, N.V................................................ 576 1,985 1,409
Dyax Corporation............................................ 3,000 11,671 8,671
Focal, Inc. (1)............................................. 1,603 1,603 --
Healthcare Ventures, L.P.................................... 1,553 1,553 --
Pharming Group, N.V. (2).................................... 8,496 6,187 (2,309)
Targeted Genetics Corporation............................... 5,427 3,027 (2,400)
------- -------- -------
Total..................................................... $74,299 $121,251 $46,952
======= ======== =======

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

Total....................................................... $63,374 $97,859 $34,485
======= ======= =======

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

(1) In December 2000, we determined that a portion of our investment in Focal
was permanently impaired and recorded a charge to operations of
$7.3 million.

(2) Our investment in Cambridge Antibody Technology Group plc is denominated in
British pounds sterling and our investment in Pharming is denominated in
Euros. We translated these investments into U.S. dollars at the current
exchange rates for each of these currencies on December 31, 2000.

GENZYME TRANSGENICS CORPORATION

At December 31, 2000, we owned approximately 26% of the outstanding common
stock of Genzyme Transgenics and record in net loss of unconsolidated affiliates
our portion of its results. We refer to Genzyme Transgenics in this note as GTC.
Our portion of GTC's net losses was $2.1 million in 2000, $7.1 million in 1999
and $7.3 million in 1998. The fair market value of our investment in GTC common
stock was $110.8 million on December 31, 2000 and $93.8 million on December 31,
1999.

In February 2000, we converted $6.6 million in shares of Series B
convertible preferred stock of GTC into 1,048,021 shares of GTC common stock.

Our Chairman and Chief Executive Officer is a director of GTC. One
additional member of our board of directors is also a director of GTC.

GCS-77

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. INVESTMENTS (CONTINUED)
The following table contains condensed statement of operations and balance
sheet data for GTC:

YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Revenues.................................................... $ 88,149 $ 68,784 $ 62,412
Operating loss.............................................. (10,239) (2,666) (19,365)
Net loss.................................................... (13,143) (18,761) (19,950)

AT DECEMBER 31,
-------------------
2000 1999
-------- --------
(AMOUNTS IN
THOUSANDS)

Current assets.............................................. $92,396 $29,604
Noncurrent assets........................................... 68,181 54,708
Current liabilities......................................... 38,237 43,471
Noncurrent liabilities...................................... 6,660 14,676

AGREEMENTS WITH GTC

We have a number of agreements with GTC, including the following:

- services agreement under which GTC pays us for services provided by us,
including treasury, data processing and laboratory support services.

- sublease agreement under which we sublease a portion of one of our
facilities in Framingham, Massachusetts; and

- research and development agreement under which each of the parties
performs research services for the other.

During 2000, we received approximately $1.8 million from GTC under these
agreements. At December 31, 2000, GTC owed Genzyme $1.3 million under these
agreements.

We have guaranteed GTC's obligations under a $17.5 million revolving credit
facility and a $7.1 million term loan with a commercial bank. In exchange for
this guarantee, GTC issued us a warrant to purchase up to 288,000 shares of GTC
common stock at an exercise price of $4.875 per share. All of these shares are
currently exercisable. GTC also issued us a warrant to purchase 145,000 shares
of GTC common stock at an exercise price of $2.84375 per share in connection
with our guarantee of GTC's obligations under a prior credit facility. All of
the shares subject to this warrant are exercisable.

ATIII LLC. In 1998, we formed ATIII LLC, a joint venture with GTC for the
development and commercialization of transgenic recombinant human antithrombin
III. The collaboration agreement provides that we fund 70% of the first
$33.0 million in development costs, excluding facility costs, under this
program, 50% of all development costs thereafter, and 50% of all new facility
costs to be incurred by ATIII LLC. However, under an interim funding agreement,
we shared the costs of this program incurred between January 1, 2001 and
February 2, 2001 equally with GTC. Under this agreement, GTC is funding 100% of
the costs incurred between February 3, 2001 and April 30, 2001

GCS-78

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. INVESTMENTS (CONTINUED)
unless the agreement is terminated sooner. All profits of ATIII LLC will be
split equally; losses are allocated based on the amount of funding provided by
each venturer. As our combined direct and indirect interest in ATIII LLC is in
excess of 50%, we consolidate the results of ATIII LLC and record GTC's portion
of the ATIII LLC's losses as minority interest. We allocate our ownership
interest in ATIII LLC to Genzyme General.

Under the agreement which established ATIII LLC joint venture in 1998, we
initially owned a 3.7% interest in ATIII LLC and GTC owned a 96.3% interest. In
accordance with the executed purchase agreement, GTC sold and assigned a 46.3%
ownership interest in ATIII LLC to us so that we each own 50% of the venture. In
connection with the purchase agreement, we have agreed to pay to GTC:

- $2.5 million after the second consecutive quarter in which net sales of
collaboration products for such quarter exceed $5 million; and

- $10.0 million on the first full approval, if and when approved by the FDA
of a major market country or by the European Union's European Medicines
Evaluation Agency, or EMEA, of:

- a biologics license application filed by ATIII LLC for the use of
transgenic ATIII for the treatment of sepsis; or

- an amendment to the BLA previously filed by ATIII LLC and approved by
the FDA of a major market country or by the EMEA to add sepsis as an
indication for transgenic ATIII.

As of December 31, 2000, none of the above milestone events have been achieved
and no payments have been made.

DYAX CORP.

We have two license agreements with Dyax Corp. for Dyax's phage display
technology. We pay annual license maintenance fees of $50,000 for this license.
We will also make milestone payments and pay royalties on net sales of
diagnostic and therapeutic products discovered, made or developed using the
licensed technology. We also sublease office and laboratory space in Cambridge,
Massachusetts to Dyax. Current rent under this sublease is $53,943 per month.

In October 1998, we entered into a collaboration agreement with Dyax to
develop and commercialize one of Dyax's proprietary compounds for the treatment
of chronic inflammatory diseases. Dyax will fund the first $6.0 million in
development costs, and the parties will split all subsequent development costs
equally. In connection with that agreement, we made an investment of
$3.0 million in the convertible preferred stock of Dyax and made a $3.0 million
line of credit available to help Dyax fund its operations. To date, Dyax has not
borrowed any money under the line of credit. We will make milestone payments to
Dyax upon FDA approval of products that arise out of the collaboration, and we
will share equally with Dyax all profits from the sale of these products.

One of our directors is chairman and chief executive officer of Dyax and
three of our directors are directors of Dyax.

GCS-79

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. INVESTMENTS (CONTINUED)
INVESTMENTS IN JOINT VENTURES

Except as described below, we own a 50% interest in the following joint
ventures:

EFFECTIVE
JOINT VENTURE PARTNER(S) DATE PRODUCT/INDICATION GENZYME DIVISION
- --------------------- --------------------- -------------- --------------------- ---------------------

RenaGel LLC GelTex (1) June 1997 Renagel-Registered Trademark- Genzyme General
phosphate binder for
the reduction of
serum phosphorus in
patients with
end-stage renal
disease

BioMarin/Genzyme LLC BioMarin September 1998 Alpha-L-iduronidase Genzyme General
Pharmaceutical Inc. for the treatment of
mucopolysaccharidosis-I

Pharming/Genzyme LLC Pharming Group, N.V. October 1998 Human alpha- Genzyme General
glucosidase for the
treatment of Pompe
disease (transgenic
product)

Genzyme/Pharming Pharming Group, N.V. June 2000 Human alpha- Genzyme General
Alliance LLC glucosidase for the
treatment of Pompe
disease (enzyme
replacement using CHO
cells)

Diacrin/Genzyme LLC Diacrin, Inc. (2) October 1996 Products using Genzyme Biosurgery
porcine fetal cells (until May 1999);
for the treatment of General Genzyme
Parkinson's Repair (after May 1999)
and Huntington's
diseases

StressGen/Genzyme LLC StressGen July 1997 Stress gene therapies Genzyme Molecular
(3) Biotechnologies for the treatment of Oncology
Corp.; Canadian cancer
Medical Discoveries
Fund Inc. (until
October 1999)

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

(1) We acquired GelTex in December 2000.

(2) Our Chairman and Chief Executive Officer is a director of Diacrin.

(3) StressGen/Genzyme LLC was dissolved in December 1999.

In July 1997, together with StressGen Biotechnologies Corp. and the Canadian
Medical Discoveries Fund, Inc., or CMDF, we established StressGen/Genzyme LLC, a
joint venture to develop stress gene therapies for the treatment of cancer.
Because CMDF had the right to require StressGen and Genzyme to purchase its
membership interest in the joint venture, we recorded 50% of the net

GCS-80

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. INVESTMENTS (CONTINUED)
operating losses of the joint venture. As of December 31, 1998, our portion of
the cumulative losses of StressGen/Genzyme LLC exceeded our initial capital
contribution to the joint venture by $1.2 million and, as a result, we recorded
the $1.2 million as a liability.

For the period January through August 1999, we recorded an additional
$0.8 million of losses from the joint venture increasing the liability related
to the joint venture to $2.0 million. In August 1999, CMDF exercised its put
right and StressGen and Genzyme were required to purchase its membership
interest in the joint venture at an aggregate price of $10.0 million (Canadian)
As a result, Genzyme was obligated to repurchase one-half of the CMDF's interest
in the joint venture for approximately $3.9 million ($5.0 million Canadian). To
record the exercise of the put option, we recorded:

- a $1.9 million increase to our liability related to the joint venture,
thus increasing the liability to $3.9 million;

- a $0.9 million increase to our investment in joint venture to reflect our
50% interest in the net assets of the joint venture; and

- a $1.0 million charge to equity in net loss of unconsolidated affiliates
because, at that time, it was expected that the joint venture would be
dissolved and the joint venture interest would have no value beyond the
cash it held.

We completed the repurchase of CMDF's interest in October 1999 by issuing to
CMDF 617,200 shares of Molecular Oncology Stock at a price of $6.375 per share.
The purchase price was calculated in accordance with the joint venture
agreements based on the market price of Molecular Oncology Stock over a period
prior to the repurchase. To record the repurchase, we increased stockholders'
equity by $3.9 million to reflect the issuance of the shares of Molecular
Oncology Stock and decreased our liability related to the joint venture by
$3.9 million to zero.

We dissolved StressGen/Genzyme LLC in December 1999 and in connection with
the dissolution the joint venture received a cash distribution of $0.9 million,
which was equal to Genzyme's investment in the joint venture at that time.

We do not present summary financial information for StressGen/Genzyme LLC
because we do not consider the impact of its activities to be material to our
operations for the years ended December 31, 1999 and 1998.

The following tables describe:

- the amount of funding we have provided to each joint venture and
unconsolidated affiliate to date;

- amounts due to us by each joint venture and unconsolidated affiliate as of
December 31, 2000 for services we provided on behalf of the joint venture,
which we have recorded on our balance sheet as prepaids and other current
assets;

- our portion of the losses of each joint venture and unconsolidated
affiliate for the periods presented, which we have recorded as charges to
equity in net loss of unconsolidated affiliates in our statement of
operations; and

GCS-81

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. INVESTMENTS (CONTINUED)
- total net losses of each joint venture and unconsolidated affiliate for
the periods presented.

TOTAL FUNDING RECEIVABLES
AS OF AS OF
JOINT VENTURE/ DECEMBER 31, DECEMBER 31,
UNCONSOLIDATED AFFILIATE 2000 2000
- ------------------------------------------------------------ ------------- ------------
(AMOUNTS IN MILLIONS)

RenaGel LLC (1)............................................. $ 33.3 $ --
BioMarin/Genzyme LLC........................................ 19.5 1.1
Pharming/Genzyme LLC........................................ 17.0 1.4
Genzyme/Pharming Alliance LLC............................... -- 2.9
Diacrin/Genzyme LLC......................................... 29.7 2.2
StressGen/Genzyme LLC....................................... 0.7 --
Genzyme Transgenics Corporation............................. -- 1.3
Other....................................................... -- 0.2
------ ----
Totals...................................................... $100.2 $9.1
====== ====

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

(1) As part of this joint venture, we made payments to GelTex of $10.0 million
in 1999 and $15.0 million in 1998 in exchange for certain technology access
rights. We capitalized these payments and are amortizing these amounts over
15 years.

OUR PORTION OF
THE NET LOSSES
FROM OUR
UNCONSOLIDATED TOTAL LOSSES OF OUR
AFFILIATES UNCONSOLIDATED AFFILIATES
JOINT VENTURE/ ------------------- ------------------------------
UNCONSOLIDATED AFFILIATE 2000 1999 1998 2000 1999 1998
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS) (AMOUNTS IN MILLIONS)

RenaGel LLC.......................................... $(15.9) $ (8.1) $ (7.6) $(10.7) $(15.9) $(15.1)
BioMarin/Genzyme LLC................................. (12.6) (7.0) (0.9) (25.3) (13.9) (1.8)
Pharming/Genzyme LLC................................. (6.6) (10.3) (4.0) (13.3) (10.7) (4.1)
Genzyme/Pharming Alliance LLC........................ (1.5) -- -- (2.9) -- --
Diacrin/Genzyme LLC.................................. (6.2) (8.0) (7.7) (8.2) (10.7) (9.6)
StressGen/Genzyme LLC (1)............................ -- (1.9) (1.6) -- (1.3) (3.4)
Genzyme Transgenics Corporation...................... (2.1) (7.1) (7.3) (13.1) (18.8) (20.0)
Other................................................ (0.1) (0.3) 0.1 (0.1) -- (0.2)
------ ------ ------ ------ ------ ------
Totals............................................... $(45.0) $(42.7) $(29.0) $(73.6) $(71.3) $(54.2)
====== ====== ====== ====== ====== ======

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

(1) Because CMDF had the right to require us to repurchase the fund's interest
in the joint venture, we recorded 50% of the losses incurred by the joint
venture. When the fund exercised its repurchase right in August 1999, we
recorded a $1.0 million charge to our statement of operations in connection
with the repurchase.

GCS-82

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE I. INVESTMENTS (CONTINUED)
Condensed financial information for our joint ventures and unconsolidated
affiliates, including the allocation of losses, is summarized below:

FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
(AMOUNTS IN THOUSANDS)

Revenue..................................................... $ 135,257 $ 89,884 $ 62,638
Gross profit................................................ 33,212 20,828 2,256
Operating expenses.......................................... (206,012) (145,717) (113,569)
Net loss.................................................... (73,549) (71,343) (54,186)

DECEMBER 31,
-------------------
2000 1999
-------- --------
(AMOUNTS IN
THOUSANDS)

Current assets.............................................. $113,596 $57,897
Noncurrent assets........................................... 83,555 62,865
Current liabilities......................................... 58,895 56,626
Noncurrent liabilities...................................... 6,660 14,676

NOTE J. ACCRUED EXPENSES

DECEMBER 31,
-------------------
2000 1999
-------- --------
(AMOUNTS IN
THOUSANDS)

Compensation................................................ $ 33,134 $25,909
Distributor fees............................................ 3,499 --
Professional fees........................................... 4,845 3,908
Purchase accrual............................................ 11,468 --
Restructuring costs......................................... 5,970 --
Acquisition costs........................................... 13,595 --
Payable to joint ventures................................... 7,743 --
Royalties................................................... 10,810 7,667
Rebates..................................................... 6,482 7,125
Other....................................................... 42,137 28,750
-------- -------
$139,683 $73,359
======== =======

NOTE K. LONG-TERM DEBT AND LEASES

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

While Genzyme Corporation is responsible for repaying all long-term debt and
capital lease obligations, we allocate these obligations to our operating
divisions for financial reporting purposes based on the intended use of the
funds.

GCS-83

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K. LONG-TERM DEBT AND LEASES (CONTINUED)
Our long-term debt consists of the following:

DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)

5 1/4% convertible subordinated notes due in June 2005...... $250,000 $250,000
Revolving credit facility maturing in November 2002......... -- 23,000
Revolving credit facility maturing in December 2003......... 350,000 --
Revolving credit facility maturing in December 2001......... 18,000 --
5% convertible subordinated debentures due in August 2003... 23,680 22,622
6.9% convertible subordinated note due in May 2003.......... 10,000 --
Notes payable............................................... 5,493 --
Capital lease obligations................................... 27,964 80
-------- --------
685,137 295,702
Less current portion........................................ (19,897) (5,080)
-------- --------
$665,240 $290,622
======== ========

Over the next five years, we will be required to repay the following
principal amounts on our long-term debt (excluding capital leases):

2001 2002 2003 2004 2005 AFTER 2005
- --------------------- -------------- -------------- -------------- -------------- --------------

$ 19.9 million $ 6.0 million $384.2 million -- $275.0 million --

5 1/4% CONVERTIBLE SUBORDINATED NOTES

In May 1998, we issued $250.0 million in principal of 5 1/4% convertible
subordinated notes due June 2005. After deducting the initial purchasers'
discount and offering costs, we received $243.0 million in proceeds from this
issuance.

We pay interest on the notes on June 1 and December 1 of each year and made
the first interest payment in December 1998. The notes are convertible into one
share of Genzyme General Stock, 0.10805 share of Molecular Oncology Stock and
0.10848 share of Biosurgery Stock at a price of $39.60 and contain anti-dilution
adjustments. We may redeem all or part of the notes at our option after
June 10, 2001 at the following prices (expressed as a percentage of the
principal amount), plus accrued interest:

ON OR BEFORE 5/31/02 6/1/02--5/31/03 6/1/03--5/31/04 ON OR AFTER 6/1/04
- -------------------- --------------- --------------- ------------------

102.63 % 101.75% 100.88% 100.00%

The fair value of these notes at December 31, 2000 was $589.7 million.

REVOLVING CREDIT FACILITY

In December 2000, we refinanced our then-existing bank credit facilities
with a $500.0 million bank credit facility of which $150.0 million matures in
December 2001 and $350.0 million matures in

GCS-84

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K. LONG-TERM DEBT AND LEASES (CONTINUED)
December 2003. Loans under the new credit facility bear interest at LIBOR plus
an applicable margin pursuant to the terms and conditions defined in the credit
agreement.

At December 31, 2000, $18.0 million was outstanding under the portion of
facility that matures in December 2001. This amount was allocated to Genzyme
Biosurgery. In addition, $350.0 million was outstanding under the portion of the
facility that matures in December 2003. Of this amount, $150.0 million was
allocated to Genzyme General and $200.0 million was allocated to Genzyme
Biosurgery. The interest rate on these borrowings was approximately 7.7%.

5% CONVERTIBLE SUBORDINATED DEBENTURES

In August 1997, we issued $20.0 million in principal of 6% convertible
subordinated debentures. These debentures were convertible into shares of
Molecular Oncology Stock at a discount to the market value of that stock. We
recorded charges to interest expense of $1.9 million in 1998 and $0.9 million in
1997 to reflect the accretion to fair value of the conversion feature of the 6%
debentures. In accordance with the terms of these debentures, they were
exchanged in August 1998 for $21.2 million in principal of 5% convertible
subordinated debentures due August 2003. These debentures are convertible into
shares of Genzyme General Stock. In November 1998 we reserved approximately 3.0
million Molecular Oncology designated shares for issuance in connection with
this exchange. In October 1999 we increased the number of Molecular Oncology
designated shares reserved in connection with this exchange by approximately
0.3 million.

6.9% CONVERTIBLE SUBORDINATED NOTE

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. We will use a portion of
the cash allocated to Genzyme Biosurgery to satisfy debt service on this note.

NOTES PAYABLE

In connection with our acquisition of GelTex, we assumed notes payable, with
maturities in June and September 2002, aggregating $5.4 million.

In 1999, we repaid the remaining $3.1 million of principal and accrued
interest of $0.1 million under our mortgage note due in December 2000. This
obligation had been allocated to Genzyme General.

CAPITAL LEASE

In connection with our acquisition of GelTex on December 14, 2000, we
assumed a capital lease obligation pursuant to an October 1998 lease agreement
for the construction of GelTex's administrative offices. The lease provides for
the lessor to fund the construction of the facility in exchange for
interest-only lease payments equal to the total amount funded by the lessor
multiplied by the LIBOR rate plus 1.8%. The construction was completed in
October 1999 and the construction costs funded by the lessor aggregated
$25.0 million. After giving effect to an interest swap agreement, we make
monthly interest payments of $187,000 based on a fixed rate of 8.99% and an
outstanding principal amount of $25.0 million. Therefore, we will make annual
interest payments under this lease of approximately

GCS-85

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE K. LONG-TERM DEBT AND LEASES (CONTINUED)
$2.2 million each year through 2005. The $25.0 million capital lease obligation
and corresponding building is recorded in our consolidated balance sheet at
December 31, 2000. The building is being depreciated over its estimated useful
life.

During the term of the lease, we have the option to purchase the building
and improvements for a purchase price equal to the total amount funded by the
lessor of $25.0 million, plus any accrued and unpaid lease payments and certain
other cost, which aggregate amount is referred to as the Purchase Option Price.
At the end of the lease term of October 31, 2005, we have the option to:

- purchase the building and improvements for the Purchase Option Price;

- arrange for the facility to be purchased by a third party; or

- return the building and improvements to the lessor.

In the case of the latter two options, however, we are contingently liable to
the extent the lessor is not able to realize 85% of the Purchase Option Price
upon the sale or disposition of the property.

In December 2000, in connection with the merger with Biomatrix, we assumed
the remaining principal balance of $1.5 million due under a $2.3 million capital
lease that Biomatrix had entered into with GE Capital in December 1998. The
lease has a five-year term, a coupon rate of 7.4%, and is payable in equal
monthly installments. Certain of the machinery and equipment we acquired through
the merger is pledged as collateral for this financing.

OPERATING LEASES

We lease facilities and personal property under non-cancellable operating
leases with terms in excess of one year. Our total expense under operating
leases was:

2000 1999 1998
- ----------------- ------------- -------------

$21.1 million $22.2 million $18.4 million

Over the next five years, we will be required to repay the following amounts
under non-cancellable operating leases:

2001 2002 2003 2004 2005 AFTER 2005
- ------------- ------------- ------------- ------------- ------------- -------------

$19.6 million $18.5 million $16.5 million $15.9 million $11.3 million $94.0 million

In June 1992, we entered into a 65-year land lease with an unaffiliated
lessor. Our expenses under this lease were $1.5 million in each of 2000, 1999
and 1998. Our rent under this lease increases every five years based on the
Consumer Price Index or, at a minimum of 3% per year.

In August 2000, we entered into an agreement to lease a significant portion
of a multi-use urban complex in Cambridge, Massachusetts for our new corporate
headquarters. The lessor will fund the construction of the complex, except that
we will fund certain leasehold improvements to be made to the portion of the
building leased by us. Our lease payments will be determined as a function of
the aggregate project costs incurred by the lessor and the resulting rentable
space of the complex, plus common area charges. Payments under the lease will
commence upon completion of construction, which we estimate to be in 2003. The
lease term is for fifteen years and may be extended for two successive ten-year
periods. The lease also provides us with an option, exercisable on or before
July 1, 2003, to lease an additional building on mutually acceptable terms.

GCS-86

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY

COMMON STOCK

We currently have three series of common stock--Genzyme General Stock,
Biosurgery Stock and Molecular Oncology Stock--which we refer to as "tracking
stock." Unlike typical common stock, each of our tracking stocks is designed to
track the financial performance of a specific subset of our business operations
and its related allocated assets, rather than operations and assets of our
entire company.

The chief mechanism intended to cause our tracking stock to "track" the
financial performance of a corresponding division are special provisions in our
charter governing dividends and distributions. The provisions governing
dividends provide that our board of directors has discretion to decide if and
when to declare dividends, subject to certain limitations. To the extent that
the following amount does not exceed the funds that would be legally available
for dividends under Massachusetts law, the dividend limit for a stock
corresponding to a division is the greater of:

- the amount that would be legally available for dividends under
Massachusetts law if the division were a separate corporation; or

- the amount by which the greater of the fair value of the division's
allocated net assets, or its allocated paid-in capital plus allocated
earnings, exceeds its corresponding stock's par value, preferred stock
preferences and debt obligations.

Within these parameters, and other general limits under our charter and
Massachusetts law, the amount of any dividend payment will be at the board of
directors' discretion. To date, we have never paid or declared a cash dividend
on shares of any of our series of common stock, nor do we anticipate doing so in
the foreseeable future. Unless declared, no dividends accrue on our tracking
stocks.

Our charter also requires that distributions be made to holders of
Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the
assets allocated to that stock's corresponding division are sold to a third
party. This mandatory distribution can be in the form of a dividend, a
redemption of the division's related tracking stock or an exchange of that
tracking stock for Genzyme General Stock, as chosen by our board of directors in
its discretion. The distribution, if by dividend or redemption, must equal in
value the net after-tax proceeds received from the sale. If our board of
directors chooses to make the distribution by issuing Genzyme General Stock in
exchange for the selling division's related tracking stock, then the exchange
must be effected at a 10% premium to the corresponding tracking stock's average
market price following announcement of the sale.

While tracking stock is designed to reflect a division's performance, it is
common stock of the entire company. Therefore, a holder of tracking stock is a
common stockholder subject to risks of investing in the business, assets and
liabilities of Genzyme as a whole. For instance, the assets allocated to any
division are nonetheless 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, a holder of tracking stock would have
no direct claim against the assets allocated to the corresponding tracked
division; a holder of tracking stock would only have the rights of a common
stockholder in the combined assets of Genzyme, subject also to the Genzyme
charter's allocation of liquidation units as discussed below under the
subheading "Liquidation Units."

GCS-87

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)
RIGHTS OF COMMON STOCK

VOTING RIGHTS

Genzyme General Stock is entitled to one vote per share, which is never
adjusted. However, the votes per share of our other series of common stock are
adjusted every two years. Specifically, on January 1, 2003 and every second
anniversary thereafter, the vote per share to which each series is entitled is
recalculated based on that stock's fair market value divided by the fair market
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. Currently, each series of
common stock is entitled the following vote per share:

SERIES VOTE PER SHARE
- ------ --------------

Genzyme General Stock....................................... 1.00
Biosurgery Stock............................................ 0.14
Molecular Oncology Stock.................................... 0.14

LIQUIDATION UNITS

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. Each series of our common stock is
entitled to the following liquidation units:

SERIES UNITS
- ------ --------

Genzyme General Stock....................................... 100
Biosurgery Stock............................................ 50
Molecular Oncology Stock.................................... 25

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 tracked divisions.

PREFERRED STOCK

Our charter permits us to issue shares of preferred stock at any time in one
or more series. Our board of directors will establish the preferences, voting
powers, qualifications, and special or relative rights or privileges of any
series of preferred stock before it is issued.

STOCK RIGHTS

Under our shareholder rights plan, each outstanding share of Genzyme General
Stock, Biosurgery Stock and Molecular Oncology Stock also represents one
preferred stock purchase right for that series of stock. When the stock purchase
rights become exercisable, the holders of our common stock will be entitled to
purchase the following:

- Genzyme General stock right: one share of Series A Junior Participating
Preferred Stock, par value $.01 per share, for $300.00;

GCS-88

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)
- Biosurgery stock right: one share of Series B Junior Participating
Preferred Stock, par value $.01 per share, for $80.00; and

- Molecular Oncology stock right: one share of Series C Junior Participating
Preferred Stock, par value $.01 per share, for $26.00.

A stock purchase right becomes exercisable either:

- ten days after our board of directors announces that a third party has
become the owner of 15% or more of the total voting power of our
outstanding common stock combined, or

- ten business days after a third party announces or initiates a tender or
exchange offer that would result in that party owning 15% or more of the
total voting power of our outstanding common stock combined.

In either case, the board of directors can extend the ten-day delay. These stock
purchase rights expire in March 2009.

STOCK OFFERING

In July 2000, we sold 1,607,400 shares of Molecular Oncology Stock to a
limited number of purchasers at a price of $12.91 per share. We received
approximately $20.7 million of net proceeds from the offering, which we
allocated to Genzyme Molecular Oncology. The proceeds of this offering will be
used primarily to fund Genzyme Molecular Oncology's research, preclinical and
clinical development programs, and for its working capital and general corporate
purposes.

DIRECTORS' DEFERRED COMPENSATION PLAN

Each member of our board of directors who is not also one of our officers or
employees may defer receipt of all or a portion of the cash compensation payable
to him or her as a director and receive either cash or stock in the future.
Under this plan, the director may defer his or her compensation until his or her
services as a director cease or until another date specified by the director.

Under a deferral agreement, a participant indicates the percentage of
deferral to allocate to cash and stock, upon which a cash deferral account and a
stock deferral account is established. The cash account bears interest at the
rate paid on 90-day Treasury bills with interest payable quarterly.

The stock account is for amounts invested in hypothetical shares of Genzyme
General Stock, Biosurgery Stock or Molecular Oncology Stock. Under the deferral
agreement, a participant directs us how to allocate amounts among each series of
stock. These amounts will be converted into shares quarterly at the average
closing price of the stock for all trading days during the quarter, for each
series of stock.

Distributions are paid in a lump sum or in annual installments for up to
five years. Payments begin the year following a director's termination of
service or, subject to certain restrictions, a year elected by the participant.
As of December 31, 2000, one of the seven eligible directors was participating
in this plan.

We have reserved the following numbers of shares to cover distributions
credited to stock accounts under the plan:

- 50,000 shares of Genzyme General Stock;

GCS-89

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)
- 63,820 shares of Biosurgery Stock; and

- 50,000 shares of Molecular Oncology Stock.

We had not made any distributions under this plan as of December 31, 2000.

EQUITY PLANS

At December 31, 2000, we had reserved the following numbers of shares for
issuance under our 1990 Equity Incentive Plan, 1997 Equity Incentive Plan, 1998
Director Stock Option Plan, and 1999 Employee Stock Purchase Plan:

- 13,362,417 shares of Genzyme General Stock;

- 6,057,434 shares of Biosurgery Stock; and

- 3,666,035 shares of Molecular Oncology Stock.

STOCK OPTIONS

The following number of shares are currently authorized and available for
grant under our 1990 Equity Incentive Plan and 1997 Equity Incentive Plan:

- 13,055,426 shares of Genzyme General Stock;

- 5,678,294 shares of Biosurgery Stock; and

- 3,285,864 shares of Molecular Oncology Stock.

The purpose of these two plans is to attract and retain key employees and
consultants, provide an incentive for them to achieve long-range performance
goals, and enable them to participate in our long-term growth. Under these two
plans, we grant stock options with exercise prices not less than fair market
value at date of grant. The plans provide for the grant of stock appreciation
rights, performance shares, restricted stock and stock units. Each of these
instruments has a maximum term of ten years and generally vest over four years.
The compensation committee of our board determines the terms and conditions of
each award, including who is eligible to receive awards, the form of payment of
the exercise price, the number of shares granted and the exercise date. No
incentive stock options may be granted under the 1997 plan. After March 15,
2000, no incentive stock options may be granted under the 1990 plan.

The following number of shares are currently authorized and available for
grant under our 1998 Director Stock Option Plan:

- 233,000 shares of Genzyme General Stock;

- 127,639 shares of Biosurgery Stock; and

- 140,000 shares of Molecular Oncology Stock.

Options under our 1998 Director Stock Option Plan are automatically granted with
an exercise price at fair market value to non-employee members of our board of
directors when they are elected or re-elected as directors. These options expire
ten years after the initial grant date and vest as to one-third of each grant on
the date of each annual stockholders meeting following the date of grant.

GCS-90

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)
The following table depicts activity under our various stock option plans:

WEIGHTED
SHARES UNDER AVERAGE NUMBER
OPTION EXERCISE PRICE EXERCISABLE
------------ -------------- -----------

GENZYME GENERAL STOCK:
Outstanding at December 31, 1997......................... 13,347,267 $22.22 6,982,224
Granted................................................ 2,482,222 29.61
Exercised.............................................. (3,319,203) 20.11
Forfeited and cancelled................................ (917,556) 27.21
-----------
Outstanding at December 31, 1998......................... 11,592,730 24.00 5,579,267
Granted................................................ 1,647,719 43.43
Granted--premium price................................. 1,272,376 58.97
Exercised.............................................. (2,526,838) 20.63
Forfeited and cancelled................................ (376,480) 30.22
-----------
Outstanding at December 31, 1999......................... 11,609,507 $31.11 5,633,053
Granted................................................ 3,864,928 46.88
Granted--premium price................................. 101,380 56.46
Exercised.............................................. (3,091,951) 26.40
Forfeited and cancelled................................ (403,509) 42.42
-----------
Outstanding at December 31, 2000......................... 12,080,355 $37.19 5,361,684
===========
BIOSURGERY STOCK:
Outstanding at December 18, 2000......................... --
Conversion from Surgical Products Stock options........ 1,794,684 11.02
Conversion from Tissue Repair Stock options............ 1,258,952 24.28
Assumed from Biomatrix................................. 1,706,639 16.79
Exercised.............................................. (717) 5.59
Forfeited and cancelled................................ (19,640) 23.61
-----------
Outstanding at December 31, 2000......................... 4,739,918 $16.65 2,444,601
===========
MOLECULAR ONCOLOGY STOCK:
Outstanding at June 18, 1997............................. --
Granted................................................ 826,334 $ 7.00
-----------
Outstanding at December 31, 1997......................... 826,334 7.00 180,063
Granted................................................ 386,867 6.83
Exercised.............................................. (886) 7.00
Forfeited and cancelled................................ (54,530) 7.00
-----------
Outstanding at December 31, 1998......................... 1,157,785 6.96 391,044
Granted................................................ 286,363 3.46
Granted--premium price................................. 402,615 5.39
Exercised.............................................. (362) 3.50
Forfeited and cancelled................................ (37,291) 6.67
-----------
Outstanding at December 31, 1999......................... 1,809,110 $ 6.14 656,648
Granted................................................ 603,061 12.65

GCS-91

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)

WEIGHTED
SHARES UNDER AVERAGE NUMBER
OPTION EXERCISE PRICE EXERCISABLE
------------ -------------- -----------

Granted--premium price................................. 32,167 23.19
Exercised.............................................. (211,113) 6.66
Forfeited and cancelled................................ (82,214) 6.84
-----------
Outstanding at December 31, 2000......................... 2,151,011 $ 8.13 834,955
===========
SURGICAL PRODUCTS STOCK:
Outstanding at June 28, 1999........................... --
Granted................................................ 3,050,690 $ 6.65
Exercised.............................................. -- --
Forfeited and cancelled................................ (60,120) 6.69
-----------
Outstanding at December 31, 1999......................... 2,990,570 6.65 563,048
Granted................................................ 47,900 10.64
Exercised.............................................. (63,194) 6.69
Forfeited and cancelled................................ (13,751) 7.02
Conversion to Biosurgery Stock options................. (2,961,525) 6.69
-----------
Outstanding at December 31, 2000......................... --
===========
TISSUE REPAIR STOCK:
Outstanding at December 31, 1997......................... 2,776,762 $10.50 1,084,532
Granted................................................ 996,019 5.44
Exercised.............................................. (71,491) 4.83
Forfeited and cancelled................................ (303,344) 10.47
-----------
Outstanding at December 31, 1998......................... 3,397,946 9.13 1,464,732
Granted................................................ 667,120 2.22
Granted--premium price................................. 402,615 7.71
Exercised.............................................. (357) 2.09
Forfeited and cancelled................................ (291,558) 7.49
-----------
Outstanding at December 31, 1999......................... 4,175,766 8.02 1,905,031
Granted................................................ 47,217 6.41
Exercised.............................................. (71,615) 4.47
Forfeited and cancelled................................ (395,545) 6.76
Conversion to Biosurgery Stock options................. (3,755,823) 8.14
-----------
Outstanding at December 31, 2000......................... --
===========

GCS-92

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)

In 2000, we granted the following stock options with exercise prices above
fair market value:

- 101,380 shares of Genzyme General Stock at 120% of fair market value on
the date of grant; and

- 32,167 shares of Molecular Oncology Stock at 120% of fair market value on
the date of grant.

The total exercise proceeds for all options outstanding at December 31, 2000
is:

- $448.7 million for Genzyme General Stock;

- $77.8 million for Biosurgery Stock, and

- $17.5 million for Molecular Oncology Stock.

The following table contains information regarding the range of option
prices as of December 31, 2000:

GENZYME GENERAL STOCK:

WEIGHTED EXERCISABLE
AVERAGE -------------------------------
NUMBER REMAINING WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AS OF 12/31/00 LIFE EXERCISE PRICE AS OF 12/31/00 EXERCISE PRICE
- ---------------------- -------------- ----------- -------------- -------------- --------------

$ 0.17-$22.95 2,629,926 4.07 $15.84 1,554,460 $16.07
23.00-30.25 3,074,545 5.89 27.71 2,322,746 27.82
30.26-41.19 2,429,057 7.54 36.39 1,218,545 34.85
41.42-58.88 3,166,377 8.74 54.71 245,719 51.59
59.00-100.44 780,450 9.59 78.34 20,214 72.16
- ---------------------- ---------- ---- ------ --------- ------
$ 0.17-$100.44 12,080,355 6.81 $37.19 5,361,684 $27.29
====================== ========== ==== ====== ========= ======

BIOSURGERY STOCK:

WEIGHTED EXERCISABLE
AVERAGE -------------------------------
NUMBER REMAINING WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AS OF 12/31/00 LIFE EXERCISE PRICE AS OF 12/31/00 EXERCISE PRICE
- ----------------------- -------------- ----------- -------------- -------------- --------------

$ 1.00-$11.00 833,478 6.63 $ 7.63 356,396 $ 7.04
11.04-11.04 1,645,194 8.65 11.04 647,308 11.04
12.03-19.39 1,013,986 6.87 16.47 667,365 16.47
19.50-36.55 1,028,625 7.49 27.27 704,706 28.26
36.73-76.82 218,635 5.17 50.53 68,826 49.74
- ----------------------- --------- ---- ------ --------- ------
$ 1.00-$76.82 4,739,918 7.52 $16.65 2,444,601 $18.12
======================= ========= ==== ====== ========= ======

GCS-93

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)
MOLECULAR ONCOLOGY STOCK:

WEIGHTED EXERCISABLE
AVERAGE -------------------------------
NUMBER REMAINING WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AS OF 12/31/00 LIFE EXERCISE PRICE AS OF 12/31/00 EXERCISE PRICE
- --------------------- -------------- ----------- -------------- -------------- --------------

$ 2.31-$5.38 588,884 8.18 $ 4.67 75,936 $ 3.46
5.75-5.75 10,000 8.10 5.75 -- --
7.00-7.00 933,226 6.98 7.00 652,270 7.00
7.50-12.73 573,560 9.38 12.59 106,749 12.73
13.69-26.85 45,341 9.39 20.52 -- --
- --------------------- --------- ---- ------ ------- ------
$ 2.31-$26.85 2,151,011 8.01 $ 8.13 834,955 $ 7.21
===================== ========= ==== ====== ======= ======

EMPLOYEE STOCK PURCHASE PLAN

Our 1999 Employee Stock Purchase Plan is an amendment and replacement of our
1990 Employee Stock Purchase Plan. This plan allows full-time employees to
purchase our stock at a discount. The number of shares authorized for purchase
under the plan are:

- 589,299 shares of Genzyme General Stock;

- 470,600 shares of Biosurgery Stock; and

- 500,000 shares of Molecular Oncology Stock.

We place limitations on the number of shares of each series of stock that
can be purchased under the plan in a given year.

The following table shows the shares purchased by employees under both
plans:

GENZYME GENERAL BIOSURGERY MOLECULAR ONCOLOGY SURGICAL PRODUCTS TISSUE REPAIR
SHARES ISSUED STOCK STOCK STOCK STOCK STOCK
- ------------- --------------- ---------- ------------------ ----------------- -------------

1998.................... 388,048 0 0 0 515,936
1999.................... 313,180 0 126,066 0 208,375
2000.................... 277,490 44,482 133,763 106,222 174,166
Available for purchase
as of December 31,
2000.................. 73,991 251,501 240,171 0 0

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 and the 1997
Equity Incentive 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.

GCS-94

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)
The following table sets forth our net income (loss) data as if compensation
expense for our stock-based compensation plans was determined in accordance with
SFAS 123, "Accounting for Stock-Based Compensation," based on the fair value at
the grant dates of the awards. The resulting compensation expense would be
allocated to each division in accordance with our allocation policies:

2000 1999 1998
---------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

CONSOLIDATED:
Net income (loss):
As reported............................................. $ (62,940) $70,981 $62,567
Pro forma............................................... $ (95,666) $46,382 $43,986
ALLOCATED TO GENZYME GENERAL STOCK:
Basic income per share:
As reported............................................. $ 1.41 $ 1.80 $ 1.53
Pro forma............................................... $ 1.12 $ 1.59 $ 1.36
Diluted income per share:
As reported............................................. $ 1.35 $ 1.71 $ 1.48
Pro forma............................................... $ 1.07 $ 1.52 $ 1.32
ALLOCATED TO BIOSURGERY STOCK:
Basic and diluted loss per share:
As reported............................................. $ (2.40) -- --
Pro forma............................................... $ (2.40) -- --
ALLOCATED TO MOLECULAR ONCOLOGY STOCK:
Basic and diluted loss per share:
As reported............................................. $ (1.60) $ (2.25) $ (3.81)
Pro forma............................................... $ (1.80) $ (2.34) $ (3.99)
ALLOCATED TO SURGICAL PRODUCTS STOCK:
Basic and diluted loss per share:
As reported............................................. $ (3.67) $ (1.38) --
Pro forma............................................... $ (3.82) $ (1.53) --
ALLOCATED TO TISSUE REPAIR STOCK:
Basic and diluted loss per share:
As reported............................................. $ (0.69) $ (1.26) $ (1.99)
Pro forma............................................... $ (0.76) $ (1.40) $ (2.19)

GCS-95

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)
We estimate the fair value of each option grant using the Black-Scholes
option-pricing model. In computing these pro forma amounts, we used the
following assumptions:

RISK-FREE DIVIDEND TERM OF GRANT
INTEREST RATE VOLATILITY YIELD (IN YEARS) AVERAGE FAIR VALUE
------------- ---------- -------- ------------- ------------------

GENZYME GENERAL STOCK:
2000................................... 6.78% 48% 0 5 $53.23
1999................................... 5.58% 45% 0 5 $20.31
1998................................... 5.59% 44% 0 4 $12.87
BIOSURGERY STOCK:
2000................................... 6.78% 58% 0 5 $ 6.68
MOLECULAR ONCOLOGY STOCK:
2000................................... 6.78% 94% 0 5 $ 9.76
1999................................... 5.58% 70% 0 5 $ 2.16
1998................................... 5.59% 70% 0 4 $ 3.92
SURGICAL PRODUCTS STOCK:
2000................................... 6.78% 58% 0 5 $ 9.95
1999................................... 5.58% 42% 0 5 $ 2.99
TISSUE REPAIR STOCK:
2000................................... 6.78% 58% 0 5 $ 8.21
1999................................... 5.58% 68% 0 5 $ 1.36
1998................................... 5.59% 73% 0 4 $ 3.27

WARRANTS

Upon our acquisition of GelTex in December 2000, we assumed warrants to
purchase GelTex common stock that we converted into warrants to purchase
46,590 shares of Genzyme General Stock for an aggregate purchase price of
$1.5 million. These warrants expire between 2001 and 2002.

In 1997, we sold warrants to purchase a total of 120,000 shares of Genzyme
General Stock for an aggregate purchase price of $1.0 million (Canadian). All of
these warrants were cancelled in August 1999 when the Canadian Medical
Discoveries Fund exercised its right to require us to repurchase the fund's
interest in StressGen/Genzyme LLC.

Activity for Genzyme General Stock warrants is summarized below:

WARRANTS EXERCISE PRICE
-------- --------------

Outstanding at December 31, 1998............................ 120,000 $30.18
Cancelled................................................. (120,000) 30.18
-------- ------
Outstanding at December 31, 1999............................ 0 0
Assumed from GelTex......................................... 46,590 33.12
-------- ------
Outstanding at December 31, 2000............................ 46,590 $33.12
======== ======

In connection with the execution of a technology license agreement in March
2000, we issued a warrant to purchase 10,000 shares of Tissue Repair Stock at a
price of $7.641 per share. Upon the formation of Genzyme Biosurgery, the warrant
converted in accordance with its terms into a warrant to

GCS-96

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)
purchase 3,352 shares of Biosurgery Stock at a price of $22.795 per share. The
warrant expires in March 2005. The holder has not converted any portion of the
warrant for Biosurgery Stock.

When we acquired PharmaGenics in 1997, we assumed a warrant that expires in
2001. This warrant is exercisable into 9,563 shares of Molecular Oncology Stock
at $8.04 per share.

DESIGNATED SHARES

Designated shares are authorized shares of Biosurgery Stock and Molecular
Oncology Stock that are not issued and outstanding, but which our board of
directors may issue, sell or distribute without allocating the proceeds or
benefits to the division that the series of stock tracks. Designated shares are
not eligible to receive dividends and cannot be voted by us. We create
designated shares when we transfer cash or other assets from Genzyme General to
Genzyme Biosurgery or Genzyme Molecular Oncology or from other interdivision
transactions. Our board of directors may issue designated shares:

- as a stock dividend to the holders of Genzyme General Stock;

- by selling the shares in a public or private sale and allocating all of
the proceeds to Genzyme General; and

- when convertible securities are converted, the proceeds of which will be
allocated to Genzyme General.

DISTRIBUTION OF DESIGNATED SHARES

We will distribute designated shares of Molecular Oncology Stock, and
Biosurgery Stock each year to holders of Genzyme General Stock if the number of
designated shares of a particular series exceeds 10% of the number of shares of
that series issued and outstanding as of the following dates:

- November 30th for Molecular Oncology Stock; and

- September 30th for Biosurgery Stock.

We will not distribute an amount of designated shares equal to the sum of:

- the designated shares reserved for issuance upon the exercise or
conversion of Genzyme General convertible securities; and

- the number of designated shares our board of directors reserved as of
November 30th for Molecular Oncology Stock and September 30th for
Biosurgery Stock for sale not later than six months after these dates.

Any proceeds from the sale of designated shares will be allocated to Genzyme
General.

GCS-97

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)
Designated share activity is summarized in the following table:

MOLECULAR SURGICAL TISSUE
BIOSURGERY ONCOLOGY PRODUCTS REPAIR
DESIGNATED DESIGNATED DESIGNATED DESIGNATED
SHARES SHARES SHARES SHARES
---------- ---------- ----------- ----------

Balance at December 31, 1997................... -- 6,000,000 -- 885,053
Debenture exchange........................... -- 3,028,571 -- --
Credit facility exchange..................... -- 385,972 -- --
Increase from interdivision cash
allocation................................. -- 714,286 -- --
Dividend distribution........................ -- (8,717,485) -- --
Stock options exercised...................... -- -- -- (167,064)
Stock warrants exercised..................... -- (1,352) -- (1,721)
--------- ---------- ----------- ----------
Balance at December 31, 1998................... -- 1,409,992 -- 716,268
Established.................................. -- -- 16,000,000 --
Dividend distribution........................ -- -- (14,835,161) --
Debenture adjustment......................... -- 278,245 --
Increase from interdivision cash
allocation................................. -- -- -- 1,633,399
Stock options exercised...................... -- -- -- (111,614)
--------- ---------- ----------- ----------
Balance at December 31, 1999................... -- 1,688,237 1,164,839 2,238,053
Increase from equity line.................... -- 676,254 -- 1,692,657
Repayment of portion of interdivision cash
allocation................................. -- (364,293)
Stock options exercised...................... (517) -- -- (97,209)
Conversion to Biosurgery designated shares... -- -- (1,164,839) (3,833,501)
Conversion from Surgical Products designated
shares..................................... 705,892 -- -- --
Conversion from Tissue Repair designated
shares..................................... 1,284,989 -- -- --
--------- ---------- ----------- ----------
Balance at December 31, 2000................... 1,990,364 2,000,198 0 0
========= ========== =========== ==========

In connection with our creation of Genzyme Biosurgery in December 2000, each
Surgical Products designated share was converted into 0.6060 of a Biosurgery
designated share and each Tissue Repair designated share was converted into
0.3352 of a Biosurgery designated share.

In October 1999, we adjusted the number of Molecular Oncology designated
shares reserved in connection with the exchange in August 1998 of 6% debentures
convertible into Molecular Oncology Stock into 5% debentures convertible into
Genzyme General Stock. We made this adjustment based on the fair market value of
Molecular Oncology Stock on October 16, 1999 in accordance with the terms of the
exchange established by our board.

In June 1999, we distributed Surgical Products designated shares to holders
of Genzyme General Stock.

In November 1998, we distributed Molecular Oncology designated shares to
holders of Genzyme General Stock.

GCS-98

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE L. STOCKHOLDERS' EQUITY (CONTINUED)
Prior to our acquisition of PharmaGenics, we made a credit facility
available to fund PharmaGenics' operating costs pending completion of the
acquisition. When the acquisition was completed, the $2,450,000 drawn by
PharmaGenics under this facility became a liability allocated to Genzyme
Molecular Oncology. In September 1998, our board of directors approved the
exchange of that credit facility to Genzyme General, plus accrued interest of
$246,080, for Molecular Oncology designated shares based on the fair market
value of the Molecular Oncology Stock. We reclassified the amount of the note
and the accrued interest to division equity upon the exchange.

INTERDIVISIONAL FINANCING ARRANGEMENTS

GENZYME BIOSURGERY

At December 31, 2000, $10.0 million of Genzyme General's cash remained
available to Genzyme Biosurgery under a $20.0 million interdivisional financing
arrangement with Genzyme General. This arrangement was assumed by Genzyme
Biosurgery from Genzyme Tissue Repair upon the formation of Genzyme Biosurgery
in December 2000. Under the terms of this arrangement, Genzyme Biosurgery may
draw down funds as needed each quarter in exchange for Genzyme Biosurgery
designated shares based on the fair market value of Biosurgery Stock (as defined
in our charter) at the time of the draw. In each of March and September 2000,
Genzyme Tissue Repair made $5.0 million draws under this arrangement in exchange
for an aggregate of 1,692,657 Tissue Repair designated shares. Upon the
formation of Genzyme Biosurgery, these shares were converted into 567,379
Biosurgery designated shares.

GENZYME MOLECULAR ONCOLOGY

In August 1998, our board of directors made $30.0 million of Genzyme
General's cash available to Genzyme Molecular Oncology. Under the terms of this
arrangement, Genzyme Molecular Oncology may draw down funds as needed each
quarter in exchange for Genzyme Molecular Oncology designated shares based on
the fair market value of Molecular Oncology Stock (as defined in our charter) at
the time of the draw. In April 2000, Genzyme Molecular Oncology drew
$15.0 million of cash under this arrangement with Genzyme General in exchange
for 676,254 Genzyme Molecular Oncology designated shares. These funds will be
used primarily to fund research, preclinical and clinical development programs,
and for working capital and general corporate purposes. As of December 31, 2000,
$15.0 million remained available to Genzyme Molecular Oncology under this
arrangement.

GCS-99

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE M. RESEARCH AND DEVELOPMENT AGREEMENTS

Our revenues from research and development agreements with related parties
include the following:

2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Genzyme Transgenics Corporation...................... $509 $1,516 $3,568
StressGen/Genzyme LLC................................ -- 496 2,177
---- ------ ------
$509 $2,012 $5,745
==== ====== ======

We allocate all of our research and development agreements with
unconsolidated affiliates to our operating divisions based on the business to
which the research relates.

GENZYME TRANSGENICS CORPORATION. Note I., "Investments," contains
disclosure regarding our relationship with Genzyme Transgenics.

JOINT VENTURES. Note I., "Investments," contains disclosure regarding the
following joint ventures:

- RenaGel LLC;

- BioMarin/Genzyme LLC;

- Pharming/Genzyme LLC;

- Genzyme/Pharming Alliance LLC;

- Diacrin/Genzyme LLC;

- ATIII LLC; and

- StressGen/Genzyme LLC.

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

In November 2000, we exercised our option to purchase all of the outstanding
Class A limited partnership interests of GDP for approximately $26.0 millon in
cash. We paid this amount in January 2001, at which time significant control
will pass to Genzyme Biosurgery. We are also required to pay royalties to the
former holders of the Class A interests on sales of the Sepra-TM- products for
ten years. This purchase will be allocated to Genzyme Biosurgery.

NOTE N. 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, 2000 which, if adversely decided, would
have a material adverse effect on our results of operations, financial
condition, or liquidity.

GCS-100

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE O. INCOME TAXES

Our income (loss) before income taxes and the related income tax expense
(benefit) are as follows for the year ended:

DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Domestic(1)................................................. $(20,791) $101,548 $ 92,923
Foreign..................................................... 13,329 16,380 9,514
-------- -------- --------
Total................................................... $ (7,462) $117,928 $102,437
======== ======== ========
Currently payable:
Federal................................................... $ 55,469 $ 41,638 $ 32,501
State..................................................... 2,982 2,990 6,375
Foreign................................................... 3,607 5,733 4,016
-------- -------- --------
Total................................................... $ 62,058 $ 50,361 $ 42,892
======== ======== ========
Deferred:
Federal................................................... $ (6,320) $ (3,036) $ (2,180)
State..................................................... (260) (378) (842)
-------- -------- --------
Total................................................... (6,580) (3,414) $ (3,022)
======== ======== ========
Provision for income taxes................................ $ 55,478 $ 46,947 $ 39,870
======== ======== ========

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

(1) Includes charges for purchased research and development of $200.2 million in
2000 and $5.4 million in 1999.

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

2000 1999 1998
-------- -------- --------

Tax at U.S. statutory rate.................................. 35.0% 35.0% 35.0%
Losses in less than 80% owned subsidiaries with no current
tax benefit............................................... (1.8) 0.2 1.7
State taxes, net............................................ 1.0 1.3 3.5
Foreign sales corporation................................... (4.1) (4.0) (3.2)
Nondeductible amortization.................................. 2.1 3.3 4.2
Benefit of tax credits...................................... (2.0) (3.3) (3.9)
Nondeductible interest and other............................ (1.4) 3.9 1.6
------ ---- ----
Effective tax rate before certain charges................... 28.8% 36.4% 38.9%
------ ---- ----
Charge for impaired investment.............................. -- 1.7%
Charge for purchased research and development............... (772.3) 1.7% --
------ ---- ----
Effective tax rate.......................................... (743.5)% 39.8% 38.9%
====== ==== ====

GCS-101

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE O. INCOME TAXES (CONTINUED)
The components of net deferred tax assets are described in the following
table:

DECEMBER 31,
----------------------
2000 1999
---------- ---------
(AMOUNTS IN THOUSANDS)

Deferred tax assets:
Net operating loss carryforwards.......................... $ 35,769 $ 5,568
Tax credits............................................... 13,304 10,648
Intangible amortization................................... -- 38,757
Investments in unconsolidated subsidiaries................ -- 3,396
Realized and unrealized capital losses.................... -- 11,405
Reserves, accruals and other.............................. 56,946 48,531
--------- --------
Gross deferred tax asset.................................... 106,019 118,305
Valuation allowance......................................... (13,592) (18,963)
--------- --------
92,427 99,342
Deferred tax liabilities:
Depreciable assets........................................ (23,297) (24,736)
Realized and unrealized capital gains..................... (7,530) (12,686)
Investments in consolidated subsidiaries.................. (4,396) --
Deferred gain............................................. (878) (878)
Intangible amortization................................... (239,874) (1,213)
--------- --------
Net deferred tax asset.................................... $(183,548) $ 59,829
========= ========

As a result of uncertainty surrounding our ability to realize certain
favorable tax attributes that primarily relate to capital losses from the
purchase of in-process research and development, we placed valuation allowances
of $13.6 million in 2000 and $19.0 million in 1999 against otherwise
recognizable deferred tax assets.

Our ability to realize the benefit of net deferred tax assets is dependent
on our generating sufficient taxable income before loss carryforwards expire.
While it is not assured, we believe that it is more likely than not that we will
be able to realize all of our net deferred tax assets. The amount we can
realize, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.

For U.S. income tax purposes, we had net operating loss carryforwards of
$105.1 million in 2000 and $15.9 million in 1999. Our net operating loss
carryforwards expire between 2003 and 2020. Prior to expiration, our ability to
use these carryforwards may be limited under U.S. tax laws, specifically
Section 382 of the Internal Revenue Code.

Approximately, $10.3 million of the tax carryforwards we have available for
federal income tax purposes relate to exercises of non-qualified stock options
and disqualifying dispositions of incentive stock options. The tax benefits from
stock exercises under these plans, if realized, will be credited to additional
paid-in capital.

GCS-102

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE P. BENEFIT PLANS

We have a 401(k) plan that covers nearly all of our employees. We also
maintain a separate 401(k) plan for the former employees of Deknatel Snowden
Pencer, Inc., which we acquired in 1996. These plans permit qualifying employees
to make contributions up to a specified percentage of their compensation, and we
match a portion of those contributions. We contributed the following amounts to
the 401(k) plans:

2000 1999 1998
------------ ------------ ------------

Allocated to Genzyme General.......................... $1.5 million $3.9 million $3.0 million
Allocated to Genzyme Biosurgery....................... 2.6 million 0.9 million 0.9 million
------------ ------------ ------------
$4.1 million $4.8 million $3.9 million
============ ============ ============

We also maintain defined-benefit pension plans for qualifying employees of a
number of our foreign subsidiaries and qualifying former employees of Deknatel
Snowden Pencer. We fund pension costs as they are accrued. Our expense related
to these plans was:

2000 1999 1998
------------ ------------ ------------

Allocated to Genzyme General.......................... $1.0 million $1.3 million $0.8 million
Allocated to Genzyme Biosurgery....................... 0.6 million 0.5 million 0.3 million
------------ ------------ ------------
$1.6 million $1.8 million $1.1 million
============ ============ ============

We do not present actuarial and other disclosures for these plans because we
do not consider them to be material.

NOTE Q. SEGMENT INFORMATION

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

- Therapeutics, which develops, manufactures and distributes human
therapeutic products for significant unmet medical needs. The business
derives substantially all of its revenue from sales of
Cerezyme-Registered Trademark- enzyme;

- Diagnostic Products, which provides diagnostic products to niche markets
focusing on IN VITRO diagnostics;

GCS-103

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE Q. SEGMENT INFORMATION (CONTINUED)
We have provided information concerning the operations in these reportable
segments in the following table:

DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Revenues:
Genzyme General:
Therapeutics(1)......................................... $600,679 $488,705 $413,645
Diagnostics Products.................................... 61,469 57,971 65,683
Other................................................... 89,371 86,409 85,846
Eliminations/Adjustments(2)............................. 964 2,281 4,145
-------- -------- --------
Total Genzyme General................................. 752,483 635,366 569,319

Genzyme Molecular Oncology................................ 5,671 4,619 19,407
Genzyme Biosurgery(3)..................................... 145,214 132,353 121,075
Eliminations/Adjustments(4)............................... (48) (50) (466)
-------- -------- --------
Total....................................................... $903,320 $772,288 $709,335
======== ======== ========
Depreciation and amortization expense:
Genzyme General:
Therapeutics(1,5)....................................... $ 8,913 $ 13,069 $ 10,862
Diagnostics Products.................................... 4,940 1,909 4,715
Other................................................... 7,226 6,422 11,470
Eliminations/Adjustments(2)............................. 20,127 20,835 10,711
-------- -------- --------
Total Genzyme General................................. 41,206 42,235 37,758

Genzyme Molecular Oncology................................ 5,572 12,057 12,354
Genzyme Biosurgery(3,5)................................... 11,622 9,367 10,206
Eliminations/Adjustments(6)............................... (470) (1,007) (1,449)
-------- -------- --------
Total....................................................... $ 57,930 $ 62,652 $ 58,869
======== ======== ========
Equity in net loss of unconsolidated affiliates:
Genzyme General:
Therapeutics(1,7)....................................... $(42,801) $(30,094) $(12,480)
Diagnostics Products.................................... -- -- --
Other................................................... (64) 56 (107)
Eliminations/Adjustments(8)............................. (2,100) (7,385) (7,152)
-------- -------- --------
Total Genzyme General................................. (44,965) (37,423) (19,739)
Genzyme Molecular Oncology................................ -- (1,870) (1,647)
Genzyme Biosurgery........................................ -- (3,403) (7,620)
Eliminations/Adjustments.................................. -- -- --
-------- -------- --------
Total....................................................... $(44,965) $(42,696) $(29,006)
======== ======== ========

GCS-104

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE Q. SEGMENT INFORMATION (CONTINUED)

DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)

Income tax (expense) benefits:
Genzyme General:
Therapeutics(1)......................................... $(53,046) $(84,859) $(76,606)
Diagnostics Products.................................... (2,056) (2,485) (13,755)
Other................................................... 1,006 2,952 2,134
Eliminations/Adjustments................................ (38,543) (8) 7,853
-------- -------- --------
Genzyme General tax provision......................... (92,639) (84,400) (80,374)

Genzyme Molecular Oncology................................ 1,214 2,647 2,647
Genzyme Biosurgery(3)..................................... -- -- --
Eliminations/Adjustments.................................. 35,947 34,806 37,857
-------- -------- --------
Total....................................................... $ 55,478 $(46,947) $(39,870)
======== ======== ========
Net income (loss):
Genzyme General:
Therapeutics(1,9)....................................... $ 94,065 $133,854 $120,832
Diagnostics Products(10)................................ 3,004 3,915 21,694
Other(11)............................................... (1,790) (4,661) (3,367)
Eliminations/Adjustments(12)............................ (9,323) 8,969 (6,107)
-------- -------- --------
Net income for Genzyme General........................ 85,956 142,077 133,052

Genzyme Molecular Oncology................................ (23,096) (28,832) (19,107)
Genzyme Biosurgery(3,13).................................. (162,217) (78,077) (90,242)
Eliminations/Adjustments(14).............................. 36,867 35,813 38,864
-------- -------- --------
Total....................................................... $(62,490) $ 70,981 $ 62,567
======== ======== ========

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

(1) On December 14, 2000 we acquired GelTex, a developer of therapeutic products
based on polymer technology. We allocated the acquistion to Genzyme General.
The operations of GelTex is included our Therapeutics segment for the period
from December 14, 2000 through December 31, 2000. See Note E.,
"Acquisitions," above.

(2) Includes primarily amounts related to Genzyme General's research and
development and administrative activities that we do not specifically
allocate to a particular segment of Genzyme General.

(3) On December 18, 2000, we acquired Biomatrix, a company that develops,
manufactures, markets and sells a series of proprietary viscoelastic
products called hylans that are used in therapeutic medical applications and
skin care. We allocated the acquisition to Genzyme Biosurgery. The
operations of Biomatrix is included in the results of Genzyme Biosurgery for
the period from December 19, 2000 through December 31, 2000. See Note E.,
"Acquisitions," above.

(4) Represents the elimination of interdivisional revenue.

(5) Depreciation and amortization expense in 2000 includes the amortization of
the intangible assets generated from the acquisition of GelTex for the
period from December 14, 2000 through

GCS-105

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE Q. SEGMENT INFORMATION (CONTINUED)
December 31, 2000 and from the acquisition of Biomatrix for the period from
December 19, 2000 through December 31, 2000. See Note E., "Acquisitions,"
above.

(6) Consists primarily of a difference in amortization due to $2.9 million of
additional goodwill associated with the PharmaGenics acquisition allocated
to the Genzyme Molecular Oncology level as compared to amounts recorded at
the consolidated level and other adjustments related to our corporate
activities that we do not specifically allocate to a particular segment. The
difference in the amortization results from the application of our policy to
account for income taxes at the divisional level as if each division was a
separate taxpayer.

(7) Equity in net loss of unconsolidated affiliates for Therapeutics in 2000
includes our 50% portion of the losses of RenaGel LLC through December 13,
2000. In connection with the acquisition of GelTex, we acquired GelTex's 50%
interest in RenaGel LLC and, as a result, consolidated the activities of the
joint venture for the period from December 14, 2000 through December 31,
2000. See Note E., "Acquisitions," above.

(8) Represents our portion of the net loss of Genzyme Transgenics, an
unconsolidated affiliate, which we do not specifically allocate to a
particular segment of Genzyme General.

(9) Therapeutics net loss includes charges for in-process technology of
$118.0 million in 2000 related to the acquisition of GelTex and
$5.4 million in 1999 related to the acquisition of Peptimmune. See Note D.
"Acquisitions," above. Therapeutics' net income for 1998 includes a
$14.8 million pre-tax charge to write down excess inventory used to make
Ceredase-Registered Trademark- enzyme. See Note C., "Special Charges,"
above.

(10) Diagnostic Products' net income for 1999 and 1998 includes pre-tax gains on
the sale of product lines of $0.5 million in 1999 and $31.2 million in 1998.
See Note D., "Disposition of Assets," above.

(11) Other income for Genzyme General for 1999 includes a $7.5 million pre-tax
gain on the sale of a product line. See Note D., "Disposition of Assets,"
above.

(12) Includes the net income (loss) of Genzyme General's corporate
administrative and research and development activities which we do not
specifically allocate to a particular segment of Genzyme General including
the following (pre-tax):

- gains on affiliate sale of stock of $22.7 million in 2000,
$6.7 million in 1999 and $2.4 million in 1998, recognized in accordance
with our policy pertaining to affiliate sales of stock, all of which
resulted from the sale of common stock by Genzyme Transgenics;

- net gains on sales of investment in equity securities of
$23..2 million in 2000, $2.0 million in 1999 and $3.4 million in 1998
resulting from sales of a portion of our investment portfolio in each
period; and

- in 2000, net proceeds of $5.1 million received in connection with the
settlement of a lawsuit and in 1999, a $14.4 million gain upon receipt
of a payment associated with the termination of the agreement to
acquire Cell Genesys.

(13) The net loss for Genzyme Biosurgery in 2000 includes charges for in-process
technology of $82.1 million in 2000 related to the acquisition of Biomatrix.
See Note D., "Acquisitions," above. Genzyme Biosurgery's net loss in 2000
includes a $4.3 million charge for the write-off of abandoned equipment at
our Springfield Mills manufacturing facility located in the United Kingdom,
and a $10.4 million charge to cost of goods sold in 1998 to reduce the
inventory for its Sepra-TM- products to net realizable value. See Note C.,
"Special Charges," above.

GCS-106

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE Q. SEGMENT INFORMATION (CONTINUED)
(14) Includes income tax benefits that have not been recognized in the tax
provisions of any of the divisions. Also includes the elimination of
interdivisional revenues and expenses and a difference in amortization due
to $2.9 million of additional goodwill associated with the PharmaGenics
acquisition allocated to Genzyme Molecular Oncology as compared to amounts
recorded at the corporate level. The difference in the amortization results
from the application of our policy to account for income taxes at the
divisional level as if each division was a separate taxpayer.

DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)

Segment Assets:
Genzyme General(1):
Therapeutics(2)......................................... $1,341,656 $ 338,960
Diagnostics Products.................................... 89,236 40,266
Other................................................... 77,153 83,088
Eliminations/Adjustments(3)............................. 991,008 937,269
---------- ----------
Total Genzyme General................................. 2,499,053 1,399,583
Genzyme Molecular Oncology.............................. 30,752 9,692
Genzyme Biosurgery(4)................................... 811,600 390,572
Eliminations/Adjustments(5)............................. (23,305) (12,565)
---------- ----------
Total....................................................... $3,318,100 $1,787,282
========== ==========

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

(1) Segment assets for Genzyme General include primarily accounts receivable,
inventory and certain fixed and intangible assets.

(2) Segment assets for Therapeutics include $1.1 billion of additional assets
resulting from the acquisition of GelTex, including $465.1 million of
intangible assets and $449.6 million of goodwill. See Note E.,
"Acquisitions," above.

(3) Eliminations/Adjustments for Genzyme General consists of the differences
between the total assets for Genzyme General's segments and the total
combined assets for Genzyme General.

(4) Segment assets for Genzyme Biosurgery include $488.9 million of additional
assets resulting from the acquisition of Biomatrix, including
$284.9 million of intangible assets, $112.3 million of goodwill and
$38.5 million of property, plant and equipment. See Note E., "Acquisitions,"
above.

(5) Represents the elimination of inter-divisional stock balances.

(6) The Other category includes amounts attributable to our genetic testing and
pharmaceuticals businesses, both of which operate within Genzyme General.

Eliminations/Adjustments consists of the differences between:

- the segments' net income and our consolidated net income; and

- total segment assets and our consolidated total assets.

The amount in Eliminations/Adjustments for net income consists primarily of
interest income, interest expense and other income and expense items that we
do not specifically allocate to a

GCS-107

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE Q. SEGMENT INFORMATION (CONTINUED)
particular segment. The amounts in Eliminations/Adjustments for segment
assets consist of the following:

DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)

Cash, cash equivalents, and short- and long-term
investments............................................... $339,259 $513,905
Deferred tax assets-current................................. 46,836 41,195
Intangibles, net............................................ 30,197 33,871
Property, plant and equipment, net.......................... 332,423 172,165
Investment in equity securities............................. 119,648 94,719
Deferred tax assets-noncurrent.............................. -- 18,631
Other....................................................... 99,340 50,218
-------- --------
Total Eliminations / Adjustments.......................... $967,703 $924,704
======== ========

We operate in the healthcare industry and we manufacture and market our
products primarily in the United States and Europe. Our principal manufacturing
facilities are located in the United States, United Kingdom, Switzerland and
Germany. We purchase products from our subsidiaries in the United Kingdom and
Switzerland for sale to customers in the United States. We set transfer prices
from our foreign subsidiaries to allow us to produce profit margins commensurate
with our sales and marketing effort. Our subsidiary in the Netherlands is our
primary distributor of therapeutic products in Europe.

The following table contains certain financial information by geographic
area:

DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- ----------
(AMOUNTS IN THOUSANDS)

Revenues:
U.S....................................................... $550,756 $512,304 $ 485,864
Europe.................................................... 248,487 184,169 171,302
Other..................................................... 104,077 75,815 52,169
-------- -------- ----------
Total................................................. $903,320 $772,288 $ 709,335
======== ======== ==========
Long-lived assets:
U.S....................................................... $926,790 $732,771 $ 970,898
Other..................................................... 50,778 52,540 57,247
-------- -------- ----------
Total................................................. $977,568 $785,311 $1,028,145
======== ======== ==========

Our results of operations are highly dependent on sales of
Ceredase-Registered Trademark- and Cerezyme-Registered Trademark- enzymes. Sales
of these products represented 66% of product revenue in 2000, 70% of product
revenue in 1999 and 67% of product revenue in 1998. We sell these products
directly to physicians, hospitals and treatment centers as well as through an
unaffiliated distributor. Distributor sales represented 28% of
Ceredase-Registered Trademark- and Cerezyme-Registered Trademark- enzyme
revenues in each of 2000, 1999 and 1998. We believe that our credit risk
associated with trade receivables is mitigated as a result of the fact that we
sell these products to a large number of customers in a number of different
industries and over a broad geographic area.

GCS-108

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE R. QUARTERLY RESULTS (UNAUDITED)

1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
2000 2000 2000 2000(1)
----------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Net revenue..................................... $208,130 $223,913 $227,359 $243,918
Gross profit.................................... 145,277 157,176 150,815 160,551
Net income...................................... 31,819 49,492 34,421 (178,671)
Income per share:
Allocated to Genzyme General
Basic....................................... $ 0.61 $ 0.84 $ 0.69 $ (0.68)
Diluted..................................... $ 0.57 $ 0.77 $ 0.64 $ (0.68)
Allocated to Molecular Oncology Stock:
Basic and diluted........................... $ (0.37) $ (0.54) $ (0.37) $ (0.33)
Allocated to Biosurgery Stock:
Basic and diluted........................... N/A N/A N/A $ (2.40)
Allocated to Surgical Products Stock:
Basic and diluted........................... $ (0.68) $ (0.70) $ (0.93) $ (1.36)
Allocated to Tissue Repair Stock:
Basic and diluted........................... $ (0.17) $ (0.14) $ (0.19) $ (0.18)

1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
1999 1999 1999 1999
----------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Net revenue..................................... $183,744 $186,684 $191,415 $210,445
Gross profit.................................... 126,526 128,683 133,404 142,536
Net income...................................... 16,057 6,291 13,778 34,855
Income per share:
Allocated to Genzyme General Stock:
Basic....................................... $ 0.40 $ 0.28 $ 0.46 $ 0.66
Diluted..................................... $ 0.38 $ 0.28 $ 0.43 $ 0.62
Allocated to Molecular Oncology Stock:
Basic and diluted........................... $ (0.56) $ (0.64) $ (0.60) $ (0.46)
Allocated to Surgical Products Stock:
Basic and diluted........................... N/A $ (0.06) $ (0.74) $ (0.59)
Allocated to Tissue Repair Stock:
Basic and diluted........................... $ (0.44) $ (0.37) $ (0.25) $ (0.22)

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

(1) Includes the reversal of reserves in the fourth quarter of 2000 totalling
$4.1 million, before taxes, that were established in the prior three
quarters of 2000. These reserves were considered in excess of requirements
at December 31, 2000.

GCS-109

GENZYME CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE S. SUBSEQUENT EVENTS

In January 2001, Focal, Inc. exercised its option to require us to purchase
$5.0 million of Focal common stock at a price of $2.06 per share. We have
allocated these shares to Genzyme Biosurgery. We are committed, at Focal's
option, to make an additional equity investment in June 2001 of up to
$5.0 million, subject to certain conditions.

In February 2001, we announced our intention to divest the
Snowden-Pencer-Registered Trademark- surgical instruments product lines. These
product lines include hand-held, reusable instruments and a line of high-quality
endoscopic instruments for general, plastic and gynecological surgery. We
allocate these product lines to Genzyme Biosurgery. We are currently assessing
which assets will be offered for sale. We also announced our intention to
terminate the production of Synvisc-Registered Trademark- in Canada and sell its
manufacturing facility in Pointe-Claire, Canada. We expect to complete these
transactions in the second half of 2001.

GCS-110

REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Stockholders of Genzyme Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Genzyme
Corporation and its subsidiaries at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. 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
consolidated 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 of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 23, 2001

GCS-111

GENZYME CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

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

Year ended December 31, 2000:
Allowance for doubtful
accounts................... $20,285,000 $ 4,608,000 $3,388,000(1) $ 7,570,000 $20,711,000
Year ended December 31, 1999:
Allowance for doubtful
accounts................... $11,299,000 $12,775,000 $ 0 $ 3,789,000 $20,285,000
Year ended December 31, 1998:
Allowance for doubtful
accounts................... $ 9,731,000 $ 5,482,000 $ 0 $ 3,914,000 $11,299,000

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

(1) Reserve acquired in GelTex acquisition.

GCS-112