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EXHIBIT 99.2
RISK FACTORS
FROM TIME TO TIME, WE OR OUR MANAGEMENT MAY MAKE FORWARD-LOOKING
STATEMENTS ABOUT OUR OPERATIONS. THESE STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES, AND OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY THAN THOSE
DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES ARE
DESCRIBED BELOW.
IN THIS DOCUMENT, THE WORDS "WE," "US," "OUR," AND "GENZYME" REFER TO
GENZYME CORPORATION AND ALL OF ITS OPERATING DIVISIONS TAKEN AS A WHOLE, AND
"OUR BOARD OF DIRECTORS" REFERS TO THE BOARD OF DIRECTORS OF GENZYME
CORPORATION. IN ADDITION, WE REFER TO OUR THREE OPERATING DIVISIONS AS FOLLOWS:
- GENZYME GENERAL DIVISION = "GENZYME GENERAL";
- GENZYME BIOSURGERY DIVISION = "GENZYME BIOSURGERY"; AND
- GENZYME MOLECULAR ONCOLOGY DIVISION = "GENZYME MOLECULAR ONCOLOGY."
RISKS RELATED TO GENZYME
THE FOLLOWING RISK FACTORS RELATE TO US GENERALLY AND AFFECT ALL OF OUR
DIVISIONS
A REDUCTION IN REVENUE FROM SALES OF PRODUCTS THAT TREAT GAUCHER DISEASE WOULD
HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
We generate a majority of our product revenue from sales of
enzyme-replacement products for patients with Gaucher disease. We entered this
market in 1991 with Ceredase enzyme. Because production of Ceredase enzyme was
subject to supply constraints, we developed Cerezyme 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 enzyme,
scientists engineer Chinese hamster ovary cells to produce human alpha
glucosidase. We stopped producing Ceredase enzyme, except for small quantities,
during 1998, after substantially all the patients who previously used Ceredase
enzyme converted to Cerezyme enzyme. Sales of Ceredase enzyme and Cerezyme
enzyme totaled $569.9 million for the year ended December 31, 2001, representing
approximately 51% of our consolidated revenues for that year.
Because our business is highly dependent on Cerezyme enzyme, a decline
in the growth rate of Cerezyme 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 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. Oxford Glycosciences plc,
for example, is developing Vevesca (OGT 918), a small molecule drug candidate
for the treatment of Gaucher disease. OGT-918 has been granted orphan drug
status in the United States for treatment in Gaucher and Fabry diseases, and has
been designated as an orphan medicinal product in the European Union for the
treatment of Gaucher disease. In 2001, Oxford Glycosciences submitted
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a Marketing Authorisation Application (MAA) to the European Agency for the
Evaluation of Medicinal Products (EMEA), as well as a new drug application (NDA)
to the FDA for OGT 918 for the oral treatment of Type 1 Gaucher disease.
Although orphan drug status for Cerezyne enzyme, which provided us with
exclusive marketing rights for Cerezyme enzyme in the United States, expired in
May 2001, we continue to have patents protecting our method of manufacturing
Cerezyme enzyme until 2010 and the composition of Cerezyme enzyme until 2013.
The expiration of market exclusivity and orphan drug status in May 2001 will
likely subject Cerezyme enzyme to increased competition, which may decrease the
amount of revenue we receive from this product or the growth of that revenue.
In addition, the patient population with Gaucher disease is limited.
Because a significant percentage of that population already uses Cerezyme
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 enzyme with other therapeutic products or reduce
the amount of Cerezyme enzyme prescribed, could result in a decline in Cerezyme
enzyme sales.
OUR FUTURE EARNINGS GROWTH WILL DEPEND ON OUR ABILITY TO INCREASE SALES OF
RENAGEL PHOSPHATE BINDER.
In November 1998, we launched, through a joint venture with GelTex,
Renagel 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 phosphate binder when administered to pre-dialysis patients. Our ability
to increase sales of Renagel phosphate binder will depend on a number of
factors, including:
- the results of additional clinical trials for additional indications
and expanded labeling;
- acceptance by the medical community of Renagel phosphate binder over
calcium-based phosphorous binders as the preferred treatment for
elevated serum phosphorous levels in dialysis patients;
- the availability of competing treatments serving the dialysis market;
- our ability to manufacture Renagel phosphate binder at a reasonable
price;
- the effectiveness of our sales force;
- our ability to manufacture Renagel phosphate binder in sufficient
quantities to meet demand;
- optimal dosing and patient compliance with respect to Renagel
phosphate binder;
- the content and timing of our submissions to and decisions by
regulatory authorities;
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- our ability to successfully expand manufacturing systems;
- the availability of reimbursement from third-party payors, 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.
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.
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LEGISLATIVE CHANGES MAY ADVERSELY IMPACT OUR BUSINESS.
The FDA has designated some of our products 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.
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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;
- 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 payors.
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, 2001, we had approximately $1.1 billion 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, including satisfaction of our obligations under
capital and operating leases; and
- strategic business initiatives.
We may further reduce available cash reserves to pay principal and
interest on the following debt:
- $575.0 million in principal under our 3% convertible subordinated
debentures due May 2021, the entire amount of which is allocated
to Genzyme General. These debentures may be converted into shares of
Genzyme General Stock. Holders of debentures may require us to
repurchase all or part of their debentures for cash on May 15, 2006,
2011 or 2016, at a price equal to 100% of the principal amount of the
debentures plus accrued interest through the date prior to the date
of purchase;
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- $234.0 million in principal under our revolving credit facility with
a syndicate of commercial banks, all of which is allocated to Genzyme
Biosurgery; and
- $10.0 million in principal under our 6.9% convertible subordinated
note in favor of UBS Warburg LLC, the entire amount of which is
allocated to Genzyme Biosurgery. This note matures in May 2003 and is
convertible into shares of Biosurgery 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.
To satisfy these and other commitments, we may 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 adequate
intellectual property protections, we may not be able to prevent third parties
from using our proprietary technologies. 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.
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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. 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;
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- 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's Synvisc viscosupplementation
product 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
may be required to pay substantial damages or settlement costs to the extent
that those damages or settlement costs are not covered 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
enzyme for the treatment of Fabry disease. We are aware of other companies
developing products for the treatment of Fabry disease. Transkaryotic Therapies
Inc. submitted its application for marketing approval for its product to the FDA
approximately one week before we submitted our application for Fabrazyme 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 enzyme, the Orphan Drug Act may preclude us from selling
Fabrazyme enzyme in the United States for up to seven years. Both Genzyme and
Transkaryotic Therapies received European Medicines Evaluation Agency, or EMEA,
approval for their respective Fabry disease therapies, and were granted the
European equivalent of orphan drug designation 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.
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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 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 PAYORS, 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;
- shifting increasing payments for products and services through
copays, coinsurance and other risk sharing arrangements;
- 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.
Government and other third-party payors may not provide adequate
insurance coverage or reimbursement for our products and services, which could
impair our financial results. In addition, third-party payors 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 35% of our consolidated
revenues for the year ended December 31, 2001, 39% of our consolidated revenues
for the year ended December 31,
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2000 and 41% of our consolidated revenues for the year ended December 31, 1999.
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 the United Kingdom, 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;
- terrorist activities;
- 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
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particular division, an acquiror would 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.
RISKS RELATED TO GENZYME TRACKING STOCKS
WE HAVE THREE SERIES OF TRACKING STOCK DESIGNED TO REFLECT THE VALUE AND
TRACK THE PERFORMANCE OF OUR THREE OPERATING DIVISIONS AS FOLLOWS:
- GENZYME GENERAL STOCK DESIGNED TO TRACK THE PERFORMANCE OF GENZYME
GENERAL;
- BIOSURGERY STOCK DESIGNED TO TRACK THE PERFORMANCE OF GENZYME
BIOSURGERY; AND
- MOLECULAR ONCOLOGY STOCK DESIGNED TO TRACK THE PERFORMANCE OF GENZYME
MOLECULAR ONCOLOGY.
THE FOLLOWING ARE RISKS RELATED TO OWNING SHARES OF OUR TRACKING STOCK.
HOLDERS OF OUR TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY AND
UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE DIVISION COULD NEGATIVELY AFFECT THE
OTHER DIVISIONS.
Our divisions are not separate legal entities. Holders of Genzyme
General Stock, together with holders of our other series of tracking stock, are
stockholders of a single company and face all of the risks of an investment in
Genzyme.
For purposes of financial presentation, we allocate programs, products,
assets and liabilities among our three divisions. Genzyme Corporation and its
subsidiaries, however, own all of the assets and are responsible for all of the
liabilities of each division. A holder of Genzyme General Stock, for example,
does not have any specific rights to the assets allocated to Genzyme General in
our financial statements. Furthermore, if we are unable to satisfy one
division's liabilities out of the assets we allocate to that division, we may be
required to satisfy those liabilities with assets we have allocated to another
division. We encourage you to review our consolidated financial statements and
the financial statements of each of our divisions included in the reports that
we file with the SEC.
OUR BOARD OF DIRECTORS MAY TAKE ACTIONS THAT HAVE AN UNEQUAL AND ADVERSE EFFECT
ON THE HOLDERS OF ONE OR MORE SERIES OF OUR TRACKING STOCK.
At times, the interests of the holders of the different series of our
tracking stock may diverge or appear to diverge from each other. We are not
aware of any legal precedent
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interpreting the fiduciary duties of the directors of a Massachusetts
corporation in that situation. Recent cases in Delaware have established that a
Delaware court will afford considerable deference to business decisions that are
made in good faith by a disinterested and adequately informed board of directors
even when those decisions involve disparate treatment of different series of
tracking stock. These Delaware cases rely upon the premise that the board of
directors owes its fiduciary duties to the corporation and all of its
stockholders and does not owe separate duties to each class or series of
stockholders. If a Massachusetts court were to follow the reasoning in these
Delaware cases, a Genzyme stockholder may not be able to successfully challenge
an action by the board of directors that has a disadvantageous effect on a
particular series of our tracking stock.
MEMBERS OF OUR BOARD OF DIRECTORS MAY FAVOR ONE SERIES OF TRACKING STOCK OVER
ANOTHER IF THEY OWN A DISPROPORTIONATE AMOUNT OF THAT SERIES.
A member of our board of directors may own a disproportionate amount of
tracking stock in a particular series, or the value of his or her holdings of a
particular series of stock may be different from the value of his or her
holdings in another series. This disparate stock ownership may cause the board
member to favor one series of stock over another. Nevertheless, we believe that
a member of our board of directors could properly perform his or her fiduciary
responsibilities to all of our stockholders even if his or her interests in
shares of different series are disproportionate or of unequal values. Our board
of directors may create committees to review matters that raise
conflict-of-interest issues. If a committee is formed, it would report to the
full board of directors.
HOLDERS OF OUR TRACKING STOCK HAVE LIMITED DECISION-MAKING POWER BECAUSE THEY
HAVE LIMITED SEPARATE VOTING RIGHTS.
Holders of all series of our tracking stock vote together as a single
class on all matters requiring common stockholder approval, including the
election of directors. Holders of one series of tracking stock do not have the
right to vote on matters separately from the other series except in limited
circumstances. These circumstances are dictated by Massachusetts law, our
charter and our management and accounting policies. Therefore, stockholders of
one series of tracking stock generally could not make a proposal that would
require approval only of the holders of that series. Instead, they would have to
obtain approval from all common stockholders.
As of March 1, 2002, the relative voting power of our tracking stocks
was as follows:
<Table>
<Caption>
SERIES APPROXIMATE PERCENTAGE OF
TOTAL VOTING POWER
Genzyme General Stock ............................... 93%
Biosurgery Stock .................................... 5%
Molecular Oncology Stock ............................ 2%
</Table>
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THE VOTES PER SHARE OF OUR TRACKING STOCKS ARE ADJUSTED EVERY TWO YEARS.
Under our charter, Genzyme General Stock is entitled to one vote per
share, which is never adjusted. However, the votes per share of our other
tracking stocks are adjusted every two years. Specifically, on January 1, 2003
and every second anniversary thereafter, the vote per share to which each
tracking stock is entitled will be recalculated based on its fair market value
divided by the fair market value of a share of Genzyme General Stock, with "fair
market value" meaning the average closing price over the 20 consecutive trading
days beginning the 30th trading day preceding the January 1st adjustment date.
At the time of an adjustment, the per share voting power of any tracking stock
relative to the other series of tracking stock could decrease materially.
Additionally, during the intervening period between adjustments, the per share
voting power of each tracking stock will remain the same even though its market
price will fluctuate relative to--and could become materially greater than--the
market prices of the other tracking stocks. Currently, Biosurgery Stock is
entitled to 0.28 vote per share and Molecular Oncology Stock is entitled to 0.28
vote per share.
THE LIQUIDATION RIGHTS FOR OUR TRACKING STOCKS ARE NOT ADJUSTED TO REFLECT
CHANGES IN THEIR FAIR MARKET VALUES.
If we were to dissolve, liquidate or wind up our affairs, other than as
part of a merger, business combination or sale of substantially all of our
assets, our stockholders would receive any remaining assets according to the
percentage of total liquidation units that they hold. The number of liquidation
units per share for each series of our tracking stock outstanding is as follows:
- each share of Genzyme General Stock has 100 liquidation units;
- each share of Biosurgery Stock has 100 liquidation units; and
- each share of Molecular Oncology Stock has 50 liquidation units.
Although we adjust liquidation units to prevent dilution in the event of
some subdivisions, combinations or distributions of common stock, we do not
adjust them to reflect changes in the relative market value or performance of
the divisions. Therefore, at the time of a dissolution, liquidation or winding
up, the relative liquidation units attributable to each series of tracking stock
may not correspond to the value of the underlying assets allocated to that
division.
OUR BOARD OF DIRECTORS MAY CHANGE OUR MANAGEMENT AND ACCOUNTING POLICIES TO THE
DETRIMENT OF ONE SERIES OF TRACKING STOCK WITHOUT STOCKHOLDER APPROVAL.
Our board of directors has adopted management and accounting policies
that are used to govern our business and to prepare our financial statements.
These policies cover the allocation of corporate expenses, assets and
liabilities and other accounting matters, and the reallocation of assets between
divisions and other matters. Our board of directors generally may modify or
rescind these policies or adopt new ones without stockholder approval. Any
revised policies could have different effects on each series of our tracking
stock and could be detrimental to one series as compared to another. The
discretion of our board of directors to make changes is
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limited only by the policies themselves and the board's fiduciary duty to all of
our stockholders. We encourage you to review the full text of our management and
accounting policies, a copy of which is attached as Exhibit 3 to our
Registration Statement on Form 8-A that we filed with the SEC on December 19,
2000.
OUR BOARD CAN REQUIRE INVESTORS TO EXCHANGE THEIR SHARES OF OUR TRACKING STOCK.
Our board of directors may at any time, in its sole discretion, decide
to exchange shares of Biosurgery Stock and/or Molecular Oncology Stock for any
combination of cash and shares of Genzyme General Stock at a 30% premium over
the exchanged stock's then current market value. At any time that all of a
division's assets are held through a wholly-owned subsidiary, our board can
choose to "spin off" that division by exchanging the outstanding shares of
tracking stock corresponding to that division for shares in the spun off
company, whereupon former tracking stockholders will no longer be Genzyme
stockholders.
If we transfer or sell to a third party all or substantially all of the
assets allocated to Genzyme Biosurgery or Genzyme Molecular Oncology, the board
would have to either redeem, make a dividend payment on or exchange outstanding
Biosurgery Stock or Molecular Oncology Stock, as applicable. Our board will have
sole discretion in deciding whether to effect that redemption, dividend payment
or exchange using Genzyme General Stock or any combination of cash or other
property regardless of the form of consideration paid by the buyer. However, our
charter will require that any exchange for Genzyme General Stock be at a 10%
premium to the exchanged series' average market price following public
announcement of the sale and that any payment of cash or other property be equal
in value to the sale's after-tax net proceeds.
Also, our board can exchange shares of Biosurgery Stock and/or Molecular
Oncology Stock into Genzyme General Stock at no premium to the exchanged stocks'
market value in the event of certain adverse tax developments, as discussed in
the immediately following risk factor.
WE MAY ELIMINATE TRACKING STOCK IF A CORPORATE OR SHAREHOLDER LEVEL TAX IS
IMPOSED ON THE ISSUANCE OR RECEIPT OF TRACKING STOCK.
In 1999, the Clinton Administration proposed tax legislation that would
have imposed a corporate level tax on issuances of tracking stock. In 2000, the
Clinton Administration proposed legislation that would tax stockholders upon the
receipt of tracking stock from the issuing corporation as a distribution or in a
tracking stock exchange. Congress has not enacted either of these proposals into
law. If similar proposals are enacted into law or effected through Treasury
Department regulations, we could be taxed on an amount up to the gain realized
in future financings in which we sell tracking stock, including Genzyme General
Stock. Also, any use of our tracking stock to acquire other companies could
result in a tax on us, the stockholders of the target company, or both. We also
may be taxed if we distribute to stockholders "designated" shares of tracking
stock, which are shares designated by the tracked division as issuable at the
option of our board for Genzyme General's benefit. In addition, stockholders
could be taxed if they receive a distribution of designated shares of tracking
stock or if they receive shares of tracking stock in exchange for other Genzyme
stock. These or similarly adverse tax consequences could cause us to eliminate
tracking stock from our capital structure. We cannot
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predict, however, whether Congress will enact legislation, or whether the
Treasury Department will issue regulations effecting these or similar proposals.
WE CANNOT ASSURE THAT TRACKING STOCK WILL "TRACK" THE PERFORMANCE OF THE
CORRESPONDING DIVISION.
Although we have attempted to design our tracking stocks to "track" the
performance of their corresponding divisions, we cannot assure that the market
prices of these stocks will indeed reflect that performance. The market may
assign values to a tracking stock that are based on factors other than a
corresponding division's reported financial performance. For instance, we cannot
be certain what, if any, valuation the market might place on the mandatory and
optional exchange features or the differing voting rights and liquidation units
of the tracking stocks. In addition, as discussed above under the subheading " -
Holders of our tracking stock are stockholders of a single company and
unfavorable financial trends affecting one division could negatively affect the
other divisions," financial developments in one division, particularly if
significant and/or adverse, may affect other divisions.
THE USE OF OPERATING LOSSES AT UNPROFITABLE DIVISIONS TO LOWER THE REPORTED TAX
LIABILITY OF OUR PROFITABLE DIVISIONS WILL CAUSE THE UNPROFITABLE DIVISIONS TO
REPORT LOWER EARNINGS IN THE FUTURE.
Genzyme Corporation, rather than our divisions, is liable for taxes.
Under our management and accounting policies, for financial reporting purposes
we generally allocate taxes among our divisions as if they were separate
taxpayers. However, our board of directors has adopted a policy that provides
that if any of our divisions is unable to use its operating losses or other
projected annual tax benefits to reduce its current or deferred income tax
expense, we may reallocate these losses or benefits to our profitable divisions
on a quarterly basis for financial reporting purposes. This will result in a
division with current losses (such as Genzyme Biosurgery and Genzyme Molecular
Oncology) reporting lower earnings available to its common stockholders in the
future than would be the case if that division had retained its historical
losses or other benefits in the form of a net operating loss carry forward.
THE NON-COMPETE POLICY AMONG OUR DIVISIONS MAY NOT COVER ALL OF THE ACTIVITIES
OF A PARTICULAR DIVISION.
Our board of directors has adopted a policy regarding competition among
our divisions. This non-compete policy requires that we develop certain products
and services within a given division, as opposed to another division, or through
joint ventures involving a given division, because the product or service is
within the field of activity of that division. This non-compete policy, however,
does not cover the entire field of activity of each division. We cannot
guarantee that all products and services we develop in a given field of activity
will be allocated to a division primarily engaged in that field of activity.
FUTURE SALES OR DISTRIBUTIONS OF DESIGNATED SHARES MAY SIGNIFICANTLY DILUTE YOUR
OWNERSHIP.
Our management and accounting policies require that we sell or
distribute any designated shares of a division that may be held by Genzyme
General, subject to certain limitations. Designated shares are created when cash
or other assets are transferred from Genzyme General to another division.
Proceeds from a sale or distribution will be allocated to Genzyme General
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but the issuance and sale may substantially dilute your ownership of the other
division. Circumstances under which designated shares will be sold or
distributed are described in our management and accounting policies, a copy of
which is attached as Exhibit 3 to our Registration Statement on Form 8-A that we
filed with the SEC on December 19, 2000.
RISK RELATING TO GENZYME GENERAL
THE FOLLOWING RISKS AND UNCERTAINTIES MAY ADVERSELY AFFECT THE BUSINESS
OF GENZYME GENERAL.
GENZYME GENERAL IS SUBSTANTIALLY DEPENDENT UPON SALES OF CEREZYME ENZYME.
Genzyme General derives a majority of its revenue from sales of Cerezyme
enzyme, our enzyme-replacement therapy for the treatment of Gaucher disease.
Accordingly, the risks described above under the heading "Management's
Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--A reduction in revenue from sales of products that treat Gaucher
disease would have an adverse effect on our business" included in this annual
report may also adversely affect the business of Genzyme General.
FUTURE INCREASES IN GENZYME GENERAL'S EARNINGS WILL DEPEND ON OUR ABILITY TO
INCREASE SALES OF RENAGEL PHOSPHATE BINDER
We encourage you to read the material under the heading "Management's
Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--Our future earnings growth will depend on our ability to increase sales
of Renagel brand phosphate binder" included in this annual report. That material
describes the factors on which the commercial success of Renagel phosphate
binder depends.
WE MAY NOT SUCCESSFULLY COMMERCIALIZE GENZYME GENERAL'S PRODUCT CANDIDATES.
Genzyme General is developing or collaborating on the development of
treatments for Fabry disease, mucopolysaccharidosis I (MPS-I) disease, and Pompe
disease, among others. Our ability to secure regulatory approvals for marketing
these product candidates is highly uncertain, as is our ability to successfully
commercialize those that receive regulatory approvals. Because the commercial
success of these product candidates will substantially determine future revenue
and profit at Genzyme General, we encourage you to review the factors described
under the heading "Management's Discussion and Analysis of Genzyme Corporation
and Subsidiaries' Financial Condition and Results of Operations-- Factors
Affecting Future Operating Results" included in this annual report for details
regarding risks that characterize commercialization of our biotechnology product
candidates.
GENZYME GENERAL MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE THYROGEN HORMONE.
In January 1999, Genzyme General launched U.S. sales of Thyrogen
recombinant thyroid stimulating hormone used to diagnose thyroid cancer. Genzyme
General began marketing Thyrogen hormone in Europe in 2001, and plans to
continue European product launches on a
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country-by-country basis as pricing and reimbursement approvals are obtained.
The commercial success of Thyrogen hormone will depend on a number of factors,
including:
- regulation by the FDA and other regulatory authorities;
- our ability to obtain regulatory approvals in foreign countries;
- the development and commercial success of competitive products; and
- the availability of reimbursement from third-party payers and the
extent of coverage.
Genzyme General cannot be sure that market penetration of Thyrogen hormone will
increase.
IF GENZYME GENERAL'S STRATEGIC ALLIANCES TO DEVELOP AND COMMERCIALIZE ITS
PRODUCTS ARE UNSUCCESSFUL, GENZYME GENERAL'S EARNINGS GROWTH WILL BE LIMITED.
Several of Genzyme General's strategic initiatives involve alliances
with other biotechnology companies. These include:
- an agreement with Biogen, Inc. for the marketing in Japan of AVONEX
(Interferon-beta 1a), Biogen's treatment for relapsing forms of
multiple sclerosis, following regulatory approval; and
- a joint venture with BioMarin for the development and
commercialization of alpha-L-iduronidase for the treatment of the
lysosomal storage disorder known as MPS-I.
Genzyme General plans to enter into additional alliances in the future. The
success of many of these arrangements is largely dependent on technology and
other intellectual property contributed by Genzyme General's strategic partners
to the alliances or the resources, efforts and skills of Genzyme General's
partners. Genzyme General's strategic partners may:
- terminate their agreements and Genzyme General's access to the
underlying intellectual property;
- fail to devote significant financial or other resources to the
alliances and thereby significantly hinder or delay development,
manufacturing or commercialization activities; and
- fail to successfully develop or commercialize any products.
- fail to maintain the financial resources necessary to continue
financing their portion of the development, manufacturing or
commercialization costs or their own operations.
If any of these alliances are terminated and Genzyme General loses
access to the underlying intellectual property, or if Genzyme General and its
partners are unable to successfully develop or commercialize products, Genzyme
General's future earnings will be adversely affected. For example, in August
2001, Genzyme General terminated its strategic
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alliance with Pharming Group for the development and commercialization of human
alpha-glucosidase produced using a Chinese hamster ovary cell line for the
treatment of Pompe disease as a result of Pharming Group's filing for
receivership. Although Genzyme General retained access to the intellectual
property licensed from Synpac (North Carolina), Inc. that was previously
sublicensed to the joint venture, it lost access to the intellectual property
licensed from Pharming Group in connection with this joint venture.
RISKS RELATING TO GENZYME BIOSURGERY
THE FOLLOWING RISKS AND UNCERTAINTIES MAY ADVERSELY AFFECT THE BUSINESS
OF GENZYME BIOSURGERY.
A FAILURE TO INCREASE SALES OF SYNVISC VISCOSUPPLEMENTATION PRODUCT COULD
HAVE A NEGATIVE EFFECT ON THE PRICE OF BIOSURGERY STOCK.
Genzyme Biosurgery expects to generate a substantial portion of its
product revenues from sales of Synvisc viscosupplementation product, a
treatment of osteoarthritis of the knee. Net product sales of Synvisc
viscosupplementation product totaled $83.3 million for the year ended
December 31, 2001, representing approximately 35% of Genzyme Biosurgery's
total revenues for that year and $0.1 million for the 13-day period beginning
December 18, 2000 (date of Genzyme Biosurgery's inception) to December 31,
2000, representing approximately 0.08% of Genzyme Biosurgery's total revenues
for that year.
Failure to achieve sales growth for Synvisc viscosupplementation
product may cause the value of Biosurgery Stock to decline. Revenues from
Synvisc viscosupplementation product could be impacted negatively if
competitive treatments for the symptoms of osteoarthritis of the knee are
deemed more efficacious, more convenient to use or cost effective. Products
competitive to Synvisc viscosupplementation product are currently being sold.
Some companies are developing competitive products, and other companies may
do so in the future.
The commercial success of Synvisc viscosupplementation product also
will depend on many other factors, including:
- THE AVAILABILITY OF THIRD-PARTY REIMBURSEMENT.
An important factor to achieving sales growth for Synvisc
viscosupplementation product is the availability of reimbursement
from third party payors, including managed care organizations,
private health insurers and government healthcare administrative
authorities. Genzyme Biosurgery has been generally successful in
obtaining and maintaining broad coverage and adequate
reimbursement in the United States for Synvisc
viscosupplementation product. Medicare carriers in all 50 states
provide benefits for Synvisc viscosupplementation product.
Approximately 90% of commercial insurers also cover the product.
Genzyme Biosurgery is working to expand existing coverage to plans
that do not provide benefits for Synvisc viscosupplementation
product and in situations where coverage policies may be limited
in scope. Outside the United States, reimbursement is often
provided by government healthcare administrative authorities.
Reimbursement is not offered by any such authority outside the
United States. Genzyme Biosurgery continues to seek coverage for
Synvisc viscosupplementation product from such authorities,
particularly in Canada, Europe and Australia. To manage and reduce
healthcare costs, third party payors increasingly seek
opportunities to contain healthcare costs. These efforts include
challenging the price of healthcare products, limiting coverage
and the level of coverage that will be provided, and shifting
reimbursable costs to other parties through copayment, coinsurance
and other risk sharing arrangements. We cannot guarantee that any
third-party payor that currently provides reimbursement for
Synvisc viscosupplementation product will continue to provide
coverage or reimbursement at adequate levels, or that additional
third-party payors will begin to provide coverage or reimbursement
at adequate levels.
- CONTINUED RELATIONS WITH MARKETING PARTNERS.
Genzyme Biosurgery has entered into several distribution agreements
for marketing and distributing Synvisc viscosupplementation product.
Genzyme Biosurgery has in the past and may in the future periodically
reacquire distribution rights in some territories if partners fail
to perform under agreements relating to these territories. Genzyme
Biosurgery may not be able to maintain or replace these marketing
partners. In this
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event, there may be disruptions in sales associated with
restructuring Genzyme Biosurgery's distribution arrangements.
The future commercial success of Synvisc viscosupplementation
product, as well as the other marketed products allocated to Genzyme
Biosurgery, is highly uncertain. For additional details concerning the risks
associated with commercializing novel biotechnology products, you should
review the factors described under the heading "Management's Discussion and
Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and
Results of Operations--Factors Affecting Future Operating Results" included
in this annual report.
THE COMMERCIAL SUCCESS OF CARTICEL CHONDROCYTES IS UNCERTAIN.
Carticel cartilage repair service involves a proprietary process for
growing autologous chondrocytes (a patient's own cartilage cells) to replace
those that are damaged or lost. Revenues from Carticel chondrocytes services
total $18.4 million for the year ended December 31, 2001, representing
approximately 8% of Genzyme Biosurgery's total revenue for that year. The
commercial success of Carticel chondrocytes will depend on many factors,
including the following:
- POSITIVE RESULTS FROM POST-MARKETING STUDIES.
If three ongoing post-marketing studies do not demonstrate that
treatment with Carticel chondrocytes is superior to the alternatives
studied, the FDA may suspend or withdraw its approval of Carticel
chondrocytes.
- FDA APPROVAL OF RELATED DEVICE.
Genzyme Biosurgery has developed a device to improve the procedure
for implanting Carticel chondrocytes and has filed for marketing
approval with the FDA. We cannot guarantee that the FDA will approve
this device, that this device will improve the procedure for
implanting Carticel chondrocytes, or that this device will gain
commercial acceptance.
- THE AVAILABILITY OF THIRD-PARTY REIMBURSEMENT.
Since the FDA approved Carticel chondrocytes, we have seen a
substantial increase in the number of third party payors who cover
it. Some third-party payers, however, do not cover Carticel
chondrocytes. We cannot guarantee that any third-party payers will
continue to cover it or that additional third-party payers will begin
to provide reimbursement.
Although FDA approval is a crucial factor in insurance plans
deciding to cover new treatments, a number of major insurance
plans also base such decisions on their own or third-party
evaluations of treatments. One independent association that
conducts evaluations is the Blue Cross Blue Shield Association.
The Blue Cross Blue Shield Association's Technology Assessment
Committee has issued an evaluation indicating that Carticel
chondrocytes do not meet all of its published criteria for new
treatments. We believe that Carticel chondrocytes do meet these
criteria and are discussing the evaluation with the Blue Cross
Blue Shield Association. While individual Blue Cross Blue Shield
plans representing more than 50% of Blue Cross Blue Shield
policyholders have provided policy coverage for Carticel
chondrocytes without a favorable evaluation by the Blue Cross Blue
Shield Association, many Blue Cross Blue Shield plans have delayed
approving coverage for Carticel chondrocytes under their policies
as a result of this unfavorable evaluation. Since these remaining
plans represent a significant percentage of insured lives in the
United States, this evaluation has continued to restrict our
access to a substantial portion of the market for Carticel
chondrocytes. Some payors that cover Carticel chondrocytes as a
matter of medical policy may nonetheless fail to provide separate
or adequate reimbursement. Thus, providers who elect to use
Carticel chondrocytes for patients who are insured by these payors
are forced to absorb most or all of the cost.
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- THE SUCCESS OF COMPETITIVE PRODUCTS.
The process we use to grow a patient's cartilage cells is not
patentable, and we do not yet have significant patent protection
covering the other processes used in providing Carticel
chondrocytes. Consequently, we cannot prevent a competitor from
developing the ability to grow cartilage cells and from offering a
product or service that is similar or superior to Carticel
chondrocytes. If a competitor were to develop such ability and
obtain FDA approval for a competitive product or service, Genzyme
Biosurgery's results of operations would be negatively impacted.
We are aware of at least three other companies that have
competitive cell-based therapies for cartilage repair in the
European market. Further, at least three other companies
are engaged in research on cultured cartilage cell products. Also,
several pharmaceutical and biotechnology companies are developing
alternative treatments for knee cartilage damage. One or more of
these companies may develop products or services superior to
Carticel chondrocytes.
- MARKET ACCEPTANCE BY ORTHOPAEDIC SURGEONS.
We are marketing Carticel chondrocytes to orthopaedic surgeons. We
cannot guarantee that we will train enough surgeons who incorporate
Carticel chondrocytes into their practice to make it commercially
successful.
- FLUCTUATING REVENUES DUE TO SEASONAL FACTORS.
We expect that the revenues from the sale of the Carticel
chondrocytes will fluctuate based on our success in penetrating the
market, the availability of competitive procedures and the
availability of third-party reimbursement. We cannot predict the
timing or magnitude of these fluctuations. Furthermore, we expect
that revenues from Carticel chondrocytes will be lower in the summer
months because fewer operations are typically performed during those
months.
- RELIANCE ON KEY COLLABORATORS.
Carticel chondrocytes were developed based on the work of a group of
Swedish physicians. Individuals who are familiar with the know-how
underlying Carticel chondrocytes through their association with these
physicians may disclose the information to our competitors. This
event could have an adverse effect on Genzyme Biosurgery's results of
operations.
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Genzyme Biosurgery maintains consulting and sponsored research
arrangements with the University of Gothenburg in Sweden and
certain physicians, including the two physicians who lead the
group that developed Carticel chondrocytes. The purpose of these
arrangements is to conduct additional research on Carticel
chondrocytes. The arrangements prohibit members of the research
team from disclosing any information proprietary to Genzyme
Biosurgery and require all inventions conceived or reduced to
practice during the course of such research program shall be
Genzyme Biosurgery's property.
GENZYME BIOSURGERY HAS AND WILL CONTINUE TO DEVOTE SIGNIFICANT RESOURCES TO
DEVELOP NOVEL PRODUCTS AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL.
Genzyme Biosurgery has devoted a significant amount of money to
developing products that will represent alternatives to traditional surgical
procedures or treatments. These products will likely require several years of
aggressive and costly marketing before they might become widely accepted by the
surgical community. Genzyme Biosurgery expects to develop products that are
designed to enable surgeons to perform minimally invasive cardiovascular
surgery. The medical conditions that can be treated with minimally invasive
cardiovascular surgery are currently being treated with widely accepted surgical
procedures such as coronary artery bypass grafting and catheter-based
treatments, including balloon angioplasty, atherectomy and coronary stenting. To
date, minimally invasive cardiovascular surgery has been performed on a limited
basis and its further adoption by the surgical community will partly depend on
Genzyme Biosurgery's ability to educate cardiothoracic surgeons about its
effectiveness and to facilitate the training of cardiothoracic surgeons in
minimally invasive cardiovascular surgery techniques.
Similarly, until recently surgeons have not used products designed to
reduce the incidence and extent of postoperative adhesions. Since 1996, when
Seprafilm adhesion barrier was introduced, market acceptance of anti-adhesion
products has been slow. To increase sales of the Sepra products, Genzyme
Biosurgery has had to educate surgeons and hospital administrators about the
problems of, and costs associated with, adhesions and the benefits of preventing
adhesions. Genzyme Biosurgery also has had to, and continues to have to, train
surgeons on the proper handling and use of these products.
We cannot guarantee that Genzyme Biosurgery's continued efforts in
educating and training the surgical community will result in the widespread
adoption of minimally invasive cardiovascular surgery and anti-adhesion products
or that surgeons adopting these procedures and products will use Genzyme
Biosurgery's products.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME BIOSURGERY'S GENE THERAPY PRODUCTS.
The death of a patient undergoing gene therapy using an adenoviral
vector to deliver a therapeutic gene has been widely publicized. Although this
patient was not part of a Genzyme Biosurgery clinical trial, deaths and any
other adverse events in the field of gene therapy that
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may occur in the future may result in greater governmental regulation and
potential regulatory delays relating to the testing or approval of Genzyme
Biosurgery's gene therapy products.
The commercial success of any gene therapy products that Genzyme
Biosurgery develops will depend in part on public acceptance of the use of gene
therapies for the prevention or treatment of human diseases. Public attitudes
may be influenced by claims that gene therapy is unsafe, and gene therapy may
not gain the acceptance of the public or the medical community. Negative public
reaction to gene therapy could result in:
- greater government regulation;
- stricter clinical trial oversight;
- tighter commercial product labeling requirements of gene therapies;
and
- a decrease in the demand for any gene therapy product that Genzyme
Biosurgery may develop.
BECAUSE GENZYME BIOSURGERY HAS SIGNIFICANT FIXED PAYMENTS, IT WILL NEED TO
DEVOTE A SUBSTANTIAL PORTION OF ITS CASH FLOW TO MAKE THE PAYMENTS AND MAY NEED
TO BORROW MONEY IN THE FUTURE TO MAKE DEBT PAYMENTS AND OPERATE ITS BUSINESS.
As of December 31, 2001, we had allocated to Genzyme Biosurgery
approximately $234.0 million borrowed under our corporate credit facility.
Genzyme Biosurgery will use a large part of its cash flow to make principal and
interest payments on this debt. If Genzyme Biosurgery's cash flow from
operations is insufficient to meet these obligations, we may need to borrow
additional funds on behalf of Genzyme Biosurgery to make these payments. We
cannot guarantee that such additional financing will be available or available
on favorable terms.
In addition to amounts borrowed under the credit facility, significant
cash obligations allocated to Genzyme Biosurgery include the following:
- GENZYME GENERAL.
Genzyme Biosurgery is obligated to pay back to Genzyme General
$20.0 million of the $25.0 million, plus accrued interest of 13.5%
per annum, Genzyme Biosurgery received from Genzyme General in
connection with the transfer to Genzyme General of Genzyme
Biosurgery's interest in Diacrin/Genzyme LLC. The refund
obligation arose because Diacrin/Genzyme LLC, our joint venture
with Diacrin, Inc., failed to initiate a phase 3 trial of
NeuroCell-PD for Parkinson's disease by June 30, 2001. This refund
is due by February 1, 2002.
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- UBS WARBURG LLC.
In connection with our acquisition of Biomatrix, we assumed a 6.9%
convertible subordinated note in favor of UBS Warburg LLC that
matures in May 2003. At December 31, 2001, $10.0 million principal
amount of this note remained outstanding, all of which we allocated
to Genzyme Biosurgery. Genzyme Biosurgery will use a part of its cash
flow to satisfy debt service on this note. If all or a portion of the
note is not converted at the option of the holder into Biosurgery
Stock, at maturity Genzyme Biosurgery's cash reserves will be
diminished by the amount necessary to repay the outstanding principal
of the note.
GENZYME BIOSURGERY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE.
Genzyme Biosurgery expects to have operating losses before
amortization of intangibles through at least the second quarter of 2002 as it
continues to spend substantial amounts of money on, among other things,
conducting research, development, regulatory and commercialization activities
to support its expanded product lines. This strategy involves risks, which
include supporting higher levels of operating expenses, attracting and
retaining employees, and dealing with other management difficulties that
arise from rapid growth and operating loss. If Genzyme Biosurgery cannot
increase revenues and/or reduce operating expenses effectively, it may not
become profitable.
IF GENZYME BIOSURGERY FAILS TO OBTAIN CAPITAL NECESSARY TO FUND ITS OPERATIONS,
IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS.
We anticipate that Genzyme Biosurgery's current cash resources, together
with revenues generated from product and service sales, will be sufficient to
fund its operations through at least the fourth quarter of 2002.
Genzyme Biosurgery's cash needs may differ from those planned because of
many factors, including the:
- results of research and development efforts;
- ability to establish and maintain strategic alliances;
- ability to enter into and maintain licensing arrangements and
additional distribution arrangements;
- ability to share costs of product development with research and
marketing partners;
- achievement of milestones under strategic alliances;
- costs involved in enforcing patent claims and other intellectual
property rights;
- market acceptance of novel approaches and therapies;
- success of its initiatives to reduce expenses and streamline its
operations;
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- development of competitive products; and
- ability to satisfy regulatory requirements of the FDA and other
government authorities.
Genzyme Biosurgery will require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that Genzyme
Biosurgery will be able to obtain any additional financing, extend any existing
financing arrangement, or obtain either on terms we consider favorable. If
Genzyme Biosurgery has insufficient funds or is unable to raise additional
funds, it may delay, scale back or eliminate certain of its programs. Genzyme
Biosurgery may also have to sell to, or co-develop with third parties, rights to
commercialize technologies or products that it would otherwise have sought to
commercialize itself.
CHANGES IN GENZYME BIOSURGERY'S MANUFACTURING CAPABILITIES COULD SIGNIFICANTLY
REDUCE ITS ABILITY TO DELIVER ITS PRODUCTS.
Genzyme Biosurgery is engaged in the production of a wide variety of
products and services. Genzyme Biosurgery's manufacturing processes are highly
complex and are regulated by the government. It is possible that Genzyme
Biosurgery will have problems maintaining or expanding its facilities in the
future. These problems could cause delays in production or delivery. Any
significant disruption in Genzyme Biosurgery's manufacturing operations or in
its ability to manufacture products cost effectively could have an adverse
effect on its business, results of operations and financial condition.
COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT
GENZYME BIOSURGERY'S PERFORMANCE.
The human health care products and services industry is extremely
competitive. Major medical device and technology companies compete or may
compete with Genzyme Biosurgery. These include such companies as:
- Atrium Medical Corporation and Sherwood-Davis & Geck, a division of
Tyco International, Ltd., in the cardiovascular fluid management
market;
- Ethicon Inc., a Johnson & Johnson company, and U.S. Surgical
Corporation, a division of Tyco, in the cardiovascular closure
market;
- CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical, Guidant
Corporation, Baxter Healthcare Corporation and Ethicon in the
minimally invasive cardiovascular surgery market;
- Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc. and
Gliatech, Inc. in the anti-adhesion market; and
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- Fidia S.p.A., Q-Med AB, Sanofi and OrthoLogic Corp., Anika
Therapeutics, Inc., Zimmer, Inc., and Seikagiku Corporation,
Bio-Technology General Corp. and Smith & Nephew in the
viscosupplementation product market.
These competitors may have superior research and development, marketing
and production capabilities. Some competitors also may have greater financial
resources than Genzyme Biosurgery. The division is likely to incur significant
costs developing and marketing new products without any guarantee that they will
be competitively successful in one or more markets. The future success of
Genzyme Biosurgery will depend on its ability to effectively develop and market
its products against those of its competitors.
THE TREND TOWARD CONSOLIDATION IN THE SURGICAL DEVICES INDUSTRY MAY ADVERSELY
AFFECT GENZYME BIOSURGERY'S ABILITY TO MARKET SUCCESSFULLY ITS PRODUCTS TO SOME
SIGNIFICANT PURCHASERS.
The current trend among hospitals and other significant consumers of
surgical devices is to combine into larger purchasing groups to increase their
purchasing power and thus reduce their purchase price for surgical devices.
Partly in response to this development, surgical device manufacturers have been
consolidating to be able to offer more comprehensive product lines to these
larger purchasing groups. In order to market successfully its products to larger
purchasing groups, Genzyme Biosurgery may have to expand its product lines or
enter into joint marketing or distribution agreements with other manufacturers
of surgical devices. We cannot guarantee that Genzyme Biosurgery will be able to
employ either of these initiatives or that, when employed, these initiatives
will increase the marketability of its products.
WE FACE LITIGATION THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON GENZYME
BIOSURGERY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We encourage you to read the material under the heading "Management's
Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial
Condition and Results of Operations--Factors Affecting Future Operating
Results--In connection with our acquisition of Biomatrix, we assumed litigation
faced by Biomatrix" included in this annual report. That material describes a
securities lawsuit filed against Biomatrix prior to our acquisition of
Biomatrix.
RISKS RELATING TO GENZYME MOLECULAR ONCOLOGY
THE FOLLOWING RISKS AND UNCERTAINTIES MAY ADVERSELY AFFECT THE BUSINESS
OF GENZYME MOLECULAR ONCOLOGY.
GENZYME MOLECULAR ONCOLOGY MAY NEVER BE ABLE TO SUCCESSFULLY DEVELOP OR
COMMERCIALIZE ANY OF ITS CANCER THERAPIES.
Genzyme Molecular Oncology does not have any cancer therapies on the
market and its only therapies in clinical development are at an early stage.
Before commercializing any cancer therapies, Genzyme Molecular Oncology will
need to conduct substantial additional research and development, including, in
some cases, the replication of studies performed by third parties, undertake
preclinical and clinical testing and obtain regulatory approvals. This process
involves
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a high degree of uncertainty and may take several years. Its product development
efforts may fail for many reasons, including: the product fails in preclinical
studies; clinical trials may not support the safety or effectiveness of the
product; or we fail to obtain the required regulatory approvals. We cannot
guarantee that Genzyme Molecular Oncology will successfully develop any
particular product or that any product it successfully develops will gain market
acceptance.
GENZYME MOLECULAR ONCOLOGY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.
Genzyme Molecular Oncology has not generated significant revenues to
date and does not expect to do so for several years. As of December 31, 2001,
Genzyme Molecular Oncology had an accumulated deficit of approximately $121.8
million. We expect Genzyme Molecular Oncology to have significant operating
losses for the next several years. Genzyme Molecular Oncology plans to spend
substantial amounts of money on, among other things: research and development;
preclinical and clinical testing; and pursuing regulatory approvals. We cannot
guarantee that the efforts underlying these expenditures will be successful or
that Genzyme Molecular Oncology's operations will ever be profitable.
IF GENZYME MOLECULAR ONCOLOGY FAILS TO OBTAIN THE CAPITAL NECESSARY TO FUND
ITS OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE
CLINICAL TRIALS.
We anticipate that Genzyme Molecular Oncology's current cash
resources, together with amounts available from the following sources, will
be sufficient to fund its operations through the third quarter of 2004:
- committed research funding from collaborators;
- the $11.0 million remaining under the interdivisional financing
arrangement with Genzyme General; and
- amounts available to Genzyme Molecular Oncology under our
revolving credit facility.
Genzyme Molecular Oncology plans to spend substantial amounts of
funds on, among other things:
- research and development;
- preclinical and clinical testing;
- pursuing regulatory approvals; and
- working capital.
Genzyme Molecular Oncology's cash needs may differ from those
planned, however, because of many factors, including the:
- results of research and development and clinical testing;
- achievement of milestones under existing licensing arrangements;
- ability to establish and maintain additional strategic
collaborations and licensing arrangements;
- costs involved in enforcing patent claims and other intellectual
property rights;
- market acceptance of novel approaches and therapies;
- development of competing products and services; and
- ability to satisfy regulatory requirements of the FDA and other
government authorities.
Genzyme Molecular Oncology may require significant additional
financing to continue operations at anticipated levels. We cannot guarantee
that Genzyme Molecular Oncology will be able to obtain any additional
financing, extend any existing financing arrangement, or obtain either on
terms that we consider favorable. If Genzyme Molecular Oncology has
insufficient funds or is unable to raise additional funds, it may delay,
reduce or eliminate certain of its programs. Genzyme Molecular Oncology may
also have to sell or give to third parties rights to commercialize
technologies or products that it would otherwise have sought to commercialize
itself.
GENZYME MOLECULAR ONCOLOGY MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM
COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A
FAILURE TO ENTER INTO FUTURE COLLABORATIONS.
Genzyme Molecular Oncology's strategy to develop and commercialize some
of its products and services includes entering into various arrangements with
academic and corporate collaborators and licensees. It depends on the success of
these parties in performing research, preclinical and clinical testing and
marketing. These arrangements may require Genzyme Molecular Oncology to transfer
important rights to its corporate collaborators and licensees. These
collaborators and licensees could choose not to devote resources to these
arrangements or, under certain circumstances, may terminate them early. In
addition, these collaborators and licensees, outside of their arrangements with
Genzyme Molecular Oncology, may develop technologies or products that are
competitive with those that Genzyme Molecular Oncology is developing. As a
result, we cannot guarantee that Genzyme Molecular Oncology will receive
revenues from these relationships or that any of its strategic collaborations
will continue or not terminate early. In addition, we cannot guarantee that
Genzyme Molecular Oncology will be able to enter into collaborations in the
future.
GENZYME MOLECULAR ONCOLOGY MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM
COMPETITORS IN ORDER TO DEVELOP AND COMMERCIALIZE SOME OF ITS PRODUCTS AND
SERVICES, AND IT IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE.
Third party patent rights and pending patent applications filed by third
parties, if issued, may cover some of the products Genzyme Molecular Oncology is
developing or testing. As a result, Genzyme Molecular Oncology may be required
to obtain licenses from the holders of these patents in order to use or sell
certain products and services. We cannot guarantee that these licenses will be
made available on acceptable terms or at all. If these licenses are not
available, Genzyme Molecular Oncology's ability to commercialize its products
and services may be impaired.
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In its cancer vaccine program, Genzyme Molecular Oncology is in the
process of evaluating the therapeutic administration of peptide products and
genes that encode specific tumor antigens, including MART-1 and gp100. Genzyme
Molecular Oncology is aware of two issued U.S. patents directed to the gene that
encodes MART-1. While it has obtained rights under one of these patents, Genzyme
Molecular Oncology is still in the process of evaluating the scope and validity
of the other to determine whether it needs to obtain a license. Genzyme
Molecular Oncology is also evaluating an issued U.S. patent covering the gene
that encodes gp100 and three published Patent Cooperation Treaty applications by
three different applicants that may cover antigens derived from gp100. Genzyme
Molecular Oncology is in the process of evaluating the scope and validity of
these patents and patent applications to determine whether it needs to obtain
licenses.
GENZYME MOLECULAR ONCOLOGY MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION
OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.
If Genzyme Molecular Oncology or one of its strategic collaborators
initiates litigation to enforce Genzyme Molecular Oncology's patent or license
rights, or is required to defend these rights in response to third party claims,
its business or financial position may be negatively affected. Genzyme Molecular
Oncology has licensed its p53 gene therapy rights to Schering-Plough. These
patent rights are the subject of an interference proceeding in the U.S. and an
opposition proceeding in Europe. Adverse determinations in these proceedings may
negatively affect Genzyme Molecular Oncology's ability to receive future
milestones and product royalties under its agreement with Schering-Plough.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME MOLECULAR ONCOLOGY'S GENE THERAPY
PRODUCTS.
The death of a patient undergoing gene therapy using an adenoviral
vector to deliver a therapeutic gene has been widely publicized. Although this
patient was not part of a Genzyme Molecular Oncology clinical trial, deaths and
any other adverse events in the field of gene therapy that may occur in the
future may result in greater governmental regulation and potential regulatory
delays relating to the testing or approval of Genzyme Molecular Oncology's gene
therapy products.
The commercial success of any gene therapy products that Genzyme
Molecular Oncology develops will depend in part on public acceptance of the use
of gene therapies for the prevention or treatment of human diseases. Public
attitudes may be influenced by claims that gene therapy is unsafe, and gene
therapy may not gain the acceptance of the public or the medical community.
Negative public reaction to gene therapy could result in:
- greater government regulation;
- stricter clinical trial oversight;
- tighter commercial product labeling requirements of gene therapies;
and
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- a decrease in the demand for any gene therapy product that Genzyme
Molecular Oncology may develop.
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