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Exhibit 99.3
RISK FACTORS RELATING TO GENZYME SURGICAL PRODUCTS
DIVISION COMMON STOCK
The following are risk factors associated with owning shares of Genzyme
Surgical Products Division Common Stock, which we refer to as GZSP Stock.
It is especially important to keep these risk factors in mind when you read
forward-looking statements. These are statements that relate to future periods
and include statements about:
- product development activities and projected expenditures;
- receipt of regulatory approvals;
- plans for sales and marketing;
- estimated market size and shares;
- projected cash needs;
- financial results; and
- dividend policy.
Generally, the words "anticipates," "expects," "believes," "intends," "could,"
"may" and similar expressions identify forward-looking statements.
Forward-looking statements involve risks and uncertainties, and our actual
results could differ significantly from results discussed in the forward-looking
statements.
Throughout these risk factors, "we," us," "our," and "Genzyme" refer to
Genzyme Corporation and all of its business divisions collectively, and "our
board of directors" or "our board" refers to the board of directors of Genzyme.
A. RISKS RELATED TO GENZYME TRACKING STOCK
GZSP Stock is one of four series of our tracking stock. The following are
risks related to owning shares of our tracking stock.
FINANCIAL IMPACT ON ONE OF OUR DIVISIONS COULD ADVERSELY AFFECT OUR OTHER
DIVISIONS.
Neither Genzyme Surgical Products nor our other divisions are separate
legal entities. Holders of GZSP 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 and all of our businesses, assets and
liabilities.
For purposes of financial presentation, we allocate programs, products,
assets and liabilities among our four divisions. However, Genzyme continues to
own all of the assets and is responsible for all of the liabilities allocated to
each of the divisions. A holder of GZSP Stock, for example, would not have any
specific rights to the assets allocated to Genzyme Surgical Products 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.
You should read both our consolidated financial statements and the financial
statements of Genzyme Surgical Products included in the reports that we have
filed with the Securities and Exchange Commission (the "SEC").
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OUR BOARD OF DIRECTORS MAY TAKE ACTIONS THAT, WHILE IN THE BEST INTERESTS OF
GENZYME AS A WHOLE, HAVE AN UNEQUAL AND ADVERSE EFFECT ON ONE OR MORE SERIES OF
OUR STOCK.
There may be times when the interests of holders of each series of our
common stock diverge or appear to diverge. Massachusetts law does not define a
board of directors' duties in such a situation. However, based on the advice of
counsel, we believe that a Massachusetts court would conclude that a board of
directors owes an equal duty to all stockholders regardless of class or series
and does not have separate or additional duties to any group of stockholders.
That duty is the fiduciary duty to act in good faith and in a manner the board
reasonably believes to be in the best interests of the corporation. Under
Massachusetts law, if a disinterested and adequately informed board of directors
determines in good faith that an action would be in the corporation's best
interests, taking into account both the interests of holders of each series of
common stock as well as the alternatives reasonably available, then the board of
directors should be able to successfully defend against any stockholder claim
that such action could have an unequal effect on different series of common
stock. In March 1999, the Delaware Court of Chancery reached a similar
conclusion in two separate cases and dismissed, in each case, all stockholder
claims that the board of directors had violated its fiduciary duties under
Delaware law by approving actions that had a disparate impact on holders of
different classes of tracking stock. The court concluded in each case that even
where the decision of the board of directors affected holders of separate
classes of tracking stock differently, stockholders must allege facts sufficient
to indicate that a board of directors' approval was not based on the good faith
belief that such actions were in the corporation's best interests. While
Delaware case law is not binding on a Massachusetts court, we believe that a
Massachusetts court would be influenced by these decisions in addressing similar
issues. However, a Massachusetts court hearing such a case may apply principles
of Massachusetts law other than those described above or develop new principles
of Massachusetts law to decide such a case.
MEMBERS OF OUR BOARD OF DIRECTORS MAY FAVOR ONE SERIES OF STOCK OVER ANOTHER IF
THEY OWN A DISPROPORTIONATE AMOUNT OF THAT SERIES.
A member of our board may own a disproportionate amount of stock in a
particular series or the value of his or her stockholdings may be different from
the value of his or her stockholdings 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 could properly discharge his
or her fiduciary responsibilities even if his or her interests in shares of
different series were disproportionate or of unequal values. Our board members
may from time to time create committees to review matters that raise conflict-
of-interest issues. Any such committee would report to the full board on these
matters.
HOLDERS OF OUR TRACKING STOCK HAVE LIMITED DECISION-MAKING POWER DUE TO THE
STOCKS' LIMITED SEPARATE VOTING RIGHTS.
Holders of each series of our common stock vote together as a single class
on all matters requiring common stockholder approval, including the election of
directors. Holders of a series of common stock do not have the right to vote on
matters separately from another series except in limited circumstances, which
are provided for under Massachusetts law, our articles of organization and the
management and accounting policies adopted by our board of directors. Therefore,
stockholders of one series of common stock generally could not make a proposal
that would require approval only of the holders
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of that series. Instead, they would have to obtain approval from all common
stockholders. The holders of Genzyme General Division Common Stock (which we
refer to as GENZ Stock) hold a large majority of the stockholders' voting power.
Consequently, on matters requiring common stockholder approval, the holders of
GENZ Stock are likely to decide the outcome.
INVESTORS MAY BE REQUIRED TO EXCHANGE THEIR SHARES OF GZSP STOCK, GZMO
STOCK OR GZTR STOCK FOR CASH OR SHARES OF GENZ STOCK BELOW WHAT A THIRD
PARTY MIGHT PAY.
Our board of directors may at any time, in its sole discretion, decide to
exchange shares of GZSP Stock, Genzyme Molecular Oncology Division Common Stock
(which we refer to as GZMO Stock) or Genzyme Tissue Repair Division Common Stock
(which we refer to as GZTR Stock) for any combination of cash and shares of GENZ
Stock at a 30% premium over a series' then current market value. In addition, if
we transfer or sell to a third party all or substantially all of the assets of
Genzyme Surgical Products, Genzyme Molecular Oncology or Genzyme Tissue Repair,
we must exchange the shares of that division's tracking stock as follows:
THE AMOUNT OF CASH AND/OR
IF WE ARE TRANSFERRING OR GENZ STOCK GIVEN IN
SELLING ASSETS OF . . . THEN, WE MUST EXCHANGE . . . EXCHANGE WOULD EQUAL . . .
- ------------------------- ---------------------------- --------------------------
Genzyme Surgical each share of GZSP Stock for The market value of the
Products cash and/or shares of GENZ GZSP Stock being exchanged.
Stock.
Genzyme Molecular each share of GZMO Stock for a 30% premium over the
Oncology cash and/or shares of GENZ market value of the GZMO
Stock. Stock being exchanged.
Genzyme Tissue Repair each share of GZTR Stock for a 30% premium over the
cash and/or shares of GENZ market value of the GZTR
Stock. Stock being exchanged.
Consequently, holders of GZSP Stock, GZMO Stock and GZTR Stock may receive
an amount for their shares that is greater or less than the premium that a third
party buyer of the division's assets would pay. Our board's discretion to cause
such an exchange is described in our articles of organization. Furthermore, our
board may exchange shares of GZSP Stock into GENZ Stock in the event of certain
adverse tax developments, as discussed in the immediately following risk factor.
WE MAY EXCHANGE GENZ STOCK FOR GZSP STOCK IF A RECENT CLINTON
ADMINISTRATION PROPOSAL IMPOSING A CORPORATE LEVEL TAX ON THE ISSUANCE OF
TRACKING STOCK IS ADOPTED.
A recent tax proposal by the Clinton Administration would impose a
corporate level tax on issuances of tracking stock. If the proposal is enacted
into law or effected through Treasury Regulations, we could be taxed on an
amount up to the gain realized in future financings in which we sell tracking
stock, including the GZSP Stock. Also, any use of our tracking stock to acquire
other companies could be taxed. 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 our board's option for Genzyme General's
benefit. These or similarly adverse tax consequences could cause us to eliminate
tracking stock from our capital structure. We cannot predict, however, whether
Congress will enact, or the Treasury Department will issue regulations
effecting, this or a similar proposal.
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The GZSP Stock's terms provide that in the event of adverse tax
developments, we may exchange shares of GZSP Stock for shares of GENZ Stock
without any premium to the holders. Upon the exchange, a former holder of GZSP
Stock would no longer hold a security intended to reflect the value and track
the performance of assets and programs that were allocated to Genzyme Surgical
Products immediately prior to the exchange. Instead, he, she or it would hold a
security intended to reflect the value and track the performance of the assets
and programs allocated to Genzyme General, including the assets and programs
previously allocated to Genzyme Surgical Products.
THE LIQUIDATION UNITS FOR EACH SERIES OF COMMON STOCK ARE NOT ADJUSTED TO
REFLECT CHANGES IN THE SERIES' MARKET VALUE.
If we 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 will 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 common stock is as follows:
- each share of GZSP Stock has 61 liquidation units;
- each share of GENZ Stock has 100 liquidation units;
- each share of GZMO Stock has 25 liquidation units; and
- each share of GZTR Stock has 58 liquidation units.
Although liquidation units are adjusted to prevent dilution in the event of
certain subdivisions, combinations or distributions of common stock, they are
not adjusted 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 common stock
may not correspond to the value of the underlying assets of that division.
OUR BOARD OF DIRECTORS MAY CHANGE ITS MANAGEMENT AND ACCOUNTING POLICIES TO THE
DETRIMENT OF ONE SERIES OF COMMON 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 our corporate expenses, assets and liabilities
and other accounting matters, and the reallocation of assets between divisions
and other matters. Our board may generally modify or rescind these policies or
adopt new ones without stockholder approval. Any revised policies could have
different effects on each series of our common stock and could be detrimental to
one series as compared to another. Our board's discretion to make changes is
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 these policies.
OUR OTHER DIVISIONS MAY DEVELOP PRODUCTS IN THE FIELD OF BIOSURGERY OR SURGICAL
PRODUCTS THAT WILL NOT BE ALLOCATED TO GENZYME SURGICAL PRODUCTS AND MAY COMPETE
WITH ITS PRODUCTS.
Our board of directors has adopted a policy that no division engage in
another division's principal business other than through joint ventures or other
collaborative arrangements with more than one division and third parties. This
non-compete policy, however, does not cover the entire field of biosurgery or
surgical products. Therefore,
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Genzyme General, Genzyme Molecular Oncology and Genzyme Tissue Repair may
develop biosurgery or surgical products that will not be allocated to Genzyme
Surgical Products and that may compete with Genzyme Surgical Products' products.
For example, both Genzyme Surgical Products and the Pharmaceuticals business
unit of Genzyme General are investigating the use of certain biomaterials for
drug delivery purposes, and both may compete in this field. In addition, the
Therapeutics business unit of Genzyme General is developing recombinant human
antithrombin III for use in coronary artery bypass graft surgery under a joint
venture with Genzyme Transgenics Corporation. We encourage you to review the
full text of our non-compete policy.
THE USE OF OPERATING LOSSES TO LOWER THE TAX LIABILITY OF OUR PROFITABLE
DIVISIONS WILL CAUSE LOWER FUTURE EARNINGS AND FULL TAX BURDEN FOR THE DIVISIONS
GENERATING THESE OPERATING LOSSES.
Genzyme Corporation, rather than its 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 such 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 Surgical Products, Genzyme Molecular Oncology
and Genzyme Tissue Repair) 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
carryforward. We encourage you to review the full text of this policy.
WE CANNOT PREDICT HOW THE DISTRIBUTION OF THE GZSP STOCK WILL AFFECT THE MARKET
PRICE OF GENZ STOCK.
In March 1999, we issued a press release informing the investment community
that we intended to create a separate Surgical Products division with its own
series of tracking stock out of Genzyme General's existing surgical products
business. While this press release may have influenced the market prices of our
common stock, we cannot predict what further effect, if any, the upcoming
distribution of the GZSP Stock will have on the market price of the GENZ Stock
or of our other series of common stock.
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B. RISKS RELATED TO GENZYME SURGICAL PRODUCTS
The following risks and uncertainties may adversely affect the business of
Genzyme Surgical Products.
GENZYME SURGICAL PRODUCTS ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.
Genzyme Surgical Products expects to have significant operating losses for
the next several years. It plans to spend substantial amounts of money on, among
other things:
- conducting research and development activities;
- pursuing regulatory approvals;
- conducting commercialization activities; and
- providing surgeon education and training.
We cannot guarantee that the efforts underlying these expenditures will be
successful or that Genzyme Surgical Products' operations will ever be
profitable. It may be years before the division generates any revenue from sales
of products currently under development.
We anticipate that Genzyme Surgical Products' current cash resources,
together with revenues generated from its products and distribution agreements,
will be sufficient to fund its operations through 2001. However, its cash needs
may differ from those planned because of many factors, including:
- the ability to become profitable;
- the results of research and development efforts;
- the ability to establish strategic alliances and licensing arrangements
for research and development programs;
- the achievement of milestones under strategic alliances;
- the ability to establish and maintain additional distribution
arrangements;
- the enforcement of patent and other intellectual property rights;
- market acceptance of novel approaches and therapies;
- the development of competitive products; and
- the ability to satisfy regulatory requirements of the FDA and other
government authorities.
Genzyme Surgical Products may require significant additional financing to
continue operations at anticipated levels. We cannot guarantee that it will be
able to obtain additional financing on favorable terms, if at all. If the
division has insufficient funds or is unable to raise additional funds, it may
delay, reduce or eliminate certain of its programs. It may also have to give
rights to third parties to attempt to commercialize technologies or products
that it would otherwise commercialize itself.
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BECAUSE THE DEVELOPMENT OF GENZYME SURGICAL PRODUCTS' THERAPEUTIC PRODUCTS WILL
INVOLVE A LENGTHY AND COMPLEX PROCESS, IT IS UNCERTAIN WHETHER THE DIVISION WILL
BE ABLE TO DEVELOP ANY MARKETABLE THERAPEUTIC PRODUCTS.
Prior to commercializing any of its therapeutic products, Genzyme Surgical
Products will need to:
- conduct substantial research and development;
- undertake pre-clinical and clinical testing; and
- pursue regulatory approvals.
We cannot guarantee that these efforts will be successful. Many of the
division's biomaterials, gene therapy and cell therapy products are currently in
pre-clinical development. If any of these products advance into clinical trials,
the trials may not support the safety or effectiveness of such products. Genzyme
Surgical Products may encounter problems in clinical trials that lead it to
delay or suspend the trials. Gene and cell therapies may cause serious side
effects that may preclude regulatory approval. To date, the FDA has not approved
the sale of any gene therapy products.
ANY MARKETABLE THERAPEUTIC PRODUCTS THAT THE DIVISION DEVELOPS MAY NOT BE
COMMERCIALLY SUCCESSFUL.
The commercial success of any marketable therapeutic product that Genzyme
Surgical Products develops will depend on many factors, including:
- regulation by the FDA and other government authorities;
- market acceptance by surgeons and hospital administrators;
- the effectiveness of Genzyme Surgical Products' sales force;
- the effectiveness of Genzyme Surgical Products' production and marketing
capabilities;
- the success of competitive products; and
- the availability of third party reimbursement.
For example, although the division continues to market Sepracoat(TM)
Coating Solution in Europe, in January 1998, it announced that it had
discontinued development of the product for abdominal surgery in the United
States after an FDA advisory committee recommended against approval of the
product. The division may stop developing other product candidates if there is
insufficient demand or if it encounters regulatory or development problems.
IF GENZYME SURGICAL PRODUCTS EXERCISES AN OPTION TO PURCHASE CERTAIN LIMITED
PARTNERSHIP INTERESTS, ITS CASH RESOURCES MAY DIMINISH AND THE RIGHTS OF ITS
STOCKHOLDERS MAY BE DILUTED.
In 1989, we organized Genzyme Development Partners, L.P., a special purpose
research and development entity, transferring to it certain technology and
commercial rights to the Sepra family of products. We have an option to purchase
the limited partnership interests in the partnership under certain circumstances
for approximately $26 million plus continuing royalties based on certain sales
of the Sepra products. We have allocated the purchase option to Genzyme Surgical
Products. The option's exercise price is payable in cash, shares of GENZ Stock
valued at a 5% discount to their then fair market
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value, or a combination of the two, as determined by Genzyme Surgical Products
when it exercises the option.
If Genzyme Surgical Products exercises this option, it will have to make
substantial cash payments or compensate Genzyme General with shares of GZSP
Stock for the GENZ Stock used, or both. If the division makes cash payments, its
cash resources would diminish. If it makes the payment in whole or in part in
shares of GENZ Stock, then our board of directors would need to approve the
issuance of GENZ Stock in return for Genzyme General receiving a number of GZSP
designated shares with a fair market value equal to the fair market value of the
shares of GENZ Stock. Those GZSP designated shares would be shares of GZSP Stock
that our board would have the option to issue from time to time with all
proceeds allocable to Genzyme General. Beginning on June 30, 2000, and on every
June 30th thereafter, we will have to distribute substantially all the GZSP
designated shares if the number of those shares exceeds the sum of 10% of the
GZSP Stock then outstanding plus all shares of GZSP Stock then issuable under
options, warrants or other securities either convertible into or exchangeable
for GZSP Stock.
We cannot guarantee that our board would authorize the issuance of shares
of GENZ Stock for payment of the option exercise price and the creation of any
GZSP designated shares. If our board did create and subsequently distribute or
otherwise dispose of any GZSP designated shares, this would substantially dilute
the rights of the holders of GZSP Stock and could significantly affect the
market price of GZSP Stock.
If Genzyme Surgical Products does not exercise the option, the partnership
would have the right to sell or otherwise transfer to a third party a license to
background technology that we granted to it. Such a sale or transfer may
terminate our joint venture with the partnership to manufacture and sell the
Sepra products in the United States and Canada. In addition, failure to exercise
the option would cause the joint venture to become terminable upon 90 days'
prior notice by either Genzyme or Genzyme Development Partners.
GENZYME SURGICAL PRODUCTS IS DEVOTING SIGNIFICANT RESOURCES TO DEVELOPING NOVEL
ALTERNATIVE PRODUCTS AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL.
Genzyme Surgical Products is devoting a significant amount of money to
developing products that will represent alternatives to traditional surgical
procedures or treatments. These products will likely require several years of
aggressive and costly marketing before they might become widely accepted by the
surgical community. Genzyme Surgical Products is developing products that are
designed to enable surgeons to perform minimally invasive cardiovascular
surgery. The medical conditions that can be treated with minimally invasive
cardiovascular surgery are currently being treated with widely accepted surgical
procedures such as coronary artery bypass grafting and catheter-based
treatments, including balloon angioplasty, atherectomy and coronary stenting. To
date, minimally invasive cardiovascular surgery has been performed on a limited
basis and its further
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adoption by the surgical community will partly depend upon Genzyme Surgical
Products' ability to educate cardiothoracic surgeons about its effectiveness and
to facilitate the training of cardiothoracic surgeons in minimally invasive
cardiovascular surgery techniques.
Similarly, until recently surgeons have not used products designed to
reduce the incidence and extent of postoperative adhesions. Since 1996, when
Seprafilm(R) Bioresorbable Membrane was introduced, market acceptance of
anti-adhesion products has been slow. To increase sales of the Sepra family of
products, the division has had to educate surgeons and hospital administrators
about the problems of, and costs associated with, adhesions and the benefit of
preventing adhesions. It has also had to train surgeons on the proper handling
and use of these products.
Gene and cell therapies also represent new approaches to the treatment of
cardiovascular disease, and Genzyme Surgical Products will need to overcome many
technical obstacles in developing products based upon gene and cell therapies.
We cannot guarantee that Genzyme Surgical Products' efforts in educating
and training the surgical community will result in the widespread adoption of
minimally invasive cardiovascular surgery, anti-adhesion products and gene and
cell therapies or that surgeons adopting these procedures and products will use
the division's products.
GENZYME SURGICAL PRODUCTS MAY FAIL TO ADEQUATELY PROTECT ITS PROPRIETARY
TECHNOLOGY WHICH WOULD ENABLE COMPETITORS TO TAKE ADVANTAGE OF ITS RESEARCH AND
DEVELOPMENT EFFORTS.
Genzyme Surgical Products' long-term success largely depends on its ability
to market technologically competitive products. It can prevent unauthorized
third parties from using proprietary rights relating to its products and
services only if these rights are covered by patents or are kept confidential as
trade secrets.
We cannot guarantee that the division's proprietary technology is
adequately protected against unauthorized use by third parties. Third party
patent rights and pending patent applications filed by third parties, if issued,
may cover some of the products the division is developing or testing. As a
result, the division may be required to obtain licenses from the holders of
these patents in order to test, use or market certain products and services. We
cannot guarantee that these licenses will be available on acceptable terms, if
at all.
We cannot guarantee that the patents issued or licensed to Genzyme and
attributed to Genzyme Surgical Products will remain free from challenge by third
parties. If we become involved in litigation to defend ourselves in patent suits
brought by third parties involving the intellectual property used by Genzyme
Surgical Products or if we initiate such suits, it could consume a substantial
portion of that division's resources. Any legal action against us or the
division's strategic partners claiming damages or seeking to stop commercial
activities relating to the division's products and processes could subject us
and therefore the division to potential liability for damages.
Congress recently imposed restrictions on the ability of medical device
manufacturers to enforce certain patent claims relating to surgical and medical
methods against medical practitioners. These restrictions may prevent us from
adequately protecting the division's proprietary procedures against unauthorized
use by medical practitioners.
The division also relies upon trade secrets, proprietary know-how and
continuing technological innovation to remain competitive. We cannot guarantee
that other parties will not independently develop such know-how or otherwise
obtain access to the division's technology. While Genzyme Surgical Products'
employees, consultants and corporate
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partners with access to proprietary information are generally required to enter
into confidentiality agreements, we cannot guarantee that these agreements will
be honored. In addition, some of the division's consultants have developed
portions of the division's proprietary technology at universities or in
governmental laboratories. These universities or governmental authorities may
claim rights to the intellectual property arising out of the research performed
at the university or governmental laboratory.
REGULATION BY GOVERNMENT AGENCIES IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON
THE DEVELOPMENT OF GENZYME SURGICAL PRODUCTS' THERAPEUTIC PRODUCTS.
Genzyme Surgical Products' ability to successfully satisfy regulatory
requirements will significantly determine its future success. We cannot
guarantee that any required regulatory approvals will be granted or that they
will be granted on a timely basis. The production and sale of health care
products and provision of health care services are highly regulated. In
particular, 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 product or service can first be
sold, limit how a product or service may be used or adversely impact third party
reimbursement.
COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT
GENZYME SURGICAL PRODUCTS' PERFORMANCE.
The human health care products and services industry is extremely
competitive. Major medical device and technology companies compete or may
compete with Genzyme Surgical Products. These include such companies as:
- Atrium Medical Corporation and Sherwood-Davis & Geck, a division of Tyco
International, Ltd. in the cardiovascular chest drainage and fluid
management market;
- The Ethicon division of Johnson & Johnson Ltd. and U.S. Surgical
Corporation, a division of Tyco in the cardiovascular closure market;
- CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical, Guidant
Corporation, Baxter Healthcare Corporation and Ethicon in the minimally
invasive cardiovascular surgery market;
- Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc. and
Gliatech, Inc. in the anti-adhesion market; and
- Karl Storz Endoscopy America, Inc., Scanlan International, Inc., Pilling
Weck Surgical Instruments and the Codman division of Johnson & Johnson
Ltd. in the reusable instruments market.
These competitors may have superior research and development, marketing and
production capabilities. Some competitors also may have greater financial
resources than Genzyme Surgical Products. The division is likely to incur
significant costs developing and marketing new products without any guarantee
that they will be commercially successful. The future success of the division
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 the division's ability to successfully market its products to
some significant purchasers. The
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current trend among hospitals and other significant consumers of surgical
devices is to combine into larger purchasing groups to increase their purchasing
power and thus reduce their purchase price for surgical devices. Partly in
response to this development, surgical device manufacturers have been
consolidating to be able to offer a more comprehensive product line to these
larger purchasing groups. In order to successfully market its products to larger
purchasing groups, Genzyme Surgical Products may have to expand its product
lines or enter into joint marketing or distribution agreements with other
manufacturers of surgical devices. We cannot guarantee that the division will be
able to employ either of these initiatives or that, when employed, these
initiatives will increase the marketability of its products.
RAPID TECHNOLOGICAL CHANGE COULD MAKE THE DIVISION'S PRODUCTS OBSOLETE.
The fields of biotechnology, biosurgery and surgical instrumentation are
characterized by significant and rapid technological change. Although Genzyme
Surgical Products attempts to expand its technological capabilities in order to
remain competitive, research, discoveries and innovations by others may make its
products obsolete.
GENZYME SURGICAL PRODUCTS MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM
COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A
FAILURE TO ENTER INTO FUTURE COLLABORATIONS.
Genzyme Surgical Products' strategy to develop and commercialize certain of
its products, in particular its gene and cell therapies for the treatment of
cardiovascular disease, includes entering into various arrangements with both
academic collaborators and corporate partners and licensees. The division may
depend on the success of these parties in performing research, pre-clinical and
clinical testing and marketing. These arrangements may require the division to
transfer certain important rights to these collaborators and licensees. While we
believe that the division's collaborators and licensees will want to perform
their contractual responsibilities, in some cases the amount and timing of
resources that they devote to their collaborations with the division, and the
ability to terminate the collaboration, will be controlled by the collaborators
and licensees. As a result, we cannot guarantee that the division will receive
revenues or profits from these arrangements, that any of its strategic alliances
will continue or not terminate early, or that it will be able to enter into
future collaborations.
YOU MAY HAVE DIFFICULTY SELLING GZSP STOCK IF AN ACTIVE PUBLIC MARKET DOES NOT
DEVELOP.
Prior to this distribution of GZSP Stock, there has been no public market
for GZSP Stock. An active public market for this stock may not develop or be
sustained after this distribution. Without active trading in GZSP Stock, you may
be unable to sell any shares of this stock and thus liquidate any portion of
your GZSP Stock holdings.
BECAUSE THE MARKET PRICE OF GZSP STOCK IS LIKELY TO BE VOLATILE, YOU MAY LOSE A
SIGNIFICANT AMOUNT OF THE VALUE OF YOUR GZSP STOCK.
We have determined the initial value of GZSP Stock through consultations
with our financial advisors. This initial value is not necessarily indicative of
the market price at which GZSP Stock will trade after this distribution. Some of
our large institutional stockholders may be forced immediately to sell some or
all of the shares of GZSP Stock they receive in the distribution if their
investment guidelines restrict their investing in entities with Genzyme Surgical
Products' market capitalization. In addition, a significant
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portion of other holders of GENZ Stock may, for various reasons, choose not to
retain the GZSP Stock they receive. Significant selling would depress the GZSP
Stock's market price. The market price for GZSP Stock likely will also vary
widely as a result of several factors, including:
- announcements of technological innovations or new commercial products by
Genzyme Surgical Products or by its competitors;
- governmental regulatory initiatives;
- patent or proprietary rights developments;
- public concern as to the safety or other implications of biotechnology
products;
- adoption of legislation relating to tracking stock; and
- general market conditions.
This volatility could lead to the loss of a significant amount of the value
of GZSP Stock.
FUTURE SALES OR DISTRIBUTIONS OF GZSP DESIGNATED SHARES MAY DILUTE YOUR
OWNERSHIP OF GZSP STOCK SIGNIFICANTLY.
Our management and accounting policies require us to sell or distribute any
GZSP designated shares that may be created subject to certain limitations.
Proceeds from a sale or distribution will not be allocated to Genzyme Surgical
Products and the issuance and sale may substantially dilute your ownership of
GZSP Stock. In addition, we may sell additional shares of GZSP Stock in
the future to finance the operations of the division.
C. RISKS RELATED TO GENZYME, INCLUDING THE OTHER GENZYME DIVISIONS
Holders of GZSP Stock are stockholders of Genzyme. Liabilities or
contingencies of the divisions of Genzyme other than Genzyme Surgical Products
that affect Genzyme's resources or financial condition could affect the
financial condition or results of operations of Genzyme Surgical Products.
Therefore, you should review the following risks as well as the risks and
uncertainties 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 on pages 41
through 44 of Exhibit 13.1 of Genzyme's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
A REDUCTION IN REVENUES FROM SALES OF PRODUCTS WHICH TREAT GAUCHER DISEASE WOULD
AVERSELY AFFECT OUR BUSINESS.
Genzyme, through Genzyme General, generates a majority of its product
revenues from sales of enzyme-replacement products for patients with Gaucher
disease. Genzyme General entered this market in 1991 with Ceredase(R) enzyme.
Because production of Ceredase(R) enzyme was subject to supply constraints, the
division developed Cerezyme(R) enzyme, a recombinant form of the enzyme. Genzyme
General stopped producing Ceredase(R) enzyme, except for small quantities,
during 1998, after substantially all the patients previously using Ceredase(R)
enzyme had converted to Cerezyme(R) enzyme. Sales of
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Cerezyme(R) enzyme and Ceredase(R) enzyme totaled $411.1 million for the year
ended December 31, 1998, representing approximately 67% of our product revenues
for that year.
Because our business is highly dependent on Cerezyme(R) enzyme, a reduction
in revenue from sales of this product would adversely affect our results of
operations. Revenues from Cerezyme(R) enzyme would be negatively impacted if
competitors developed alternative treatments for Gaucher disease and these
alternative products gained commercial acceptance. Certain companies have
initiated efforts to develop competitive products and other companies may do so
in the future.
WE MAY REQUIRE SIGNIFICANT ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE ON
FAVORABLE TERMS, IF AT ALL.
As of March 31, 1999, we had approximately $629.2 million in cash, cash
equivalents and short- and long-term investments (excluding investments in
equity securities).
Although we currently have substantial cash resources and positive cash
flow, we intend to use substantial portions for:
- product development and marketing;
- expanding facilities; and
- working capital as Genzyme grows.
We will further reduce available cash reserves to pay principal and
interest on the following debt:
- As of March 31, 1999, we owed approximately $100 million under a $225
million revolving credit facility with a group of commercial banks. Of
this outstanding amount, we have allocated $82 million to Genzyme General
and $18 million to Genzyme Tissue Repair. Amounts borrowed under this
revolving credit facility bear interest at a floating rate based upon an
applicable margin above the London InterBank Offered Rate. We must repay
all borrowings under this facility on November 15, 1999. We intend to
renew this credit line, although we cannot guarantee that we will be able
to do so on the same or as favorable terms, if at all.
- In February 1997, we issued a $13 million convertible note, the entire
principal amount of which is allocated to Genzyme Tissue Repair. This
convertible note bears interest at an annual rate of 5% and matures on
February 27, 2000, but the holders of these convertible notes may
exchange principal, and under some circumstances interest, on the note
for shares of GZTR Stock. As of May 31, 1999, $7.93 million of principal
on this convertible note was outstanding.
- In August 1998, we issued $21.2 million in 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 GENZ Stock.
- In May 1998, we issued $250 million in 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, but the holders of these notes may exchange principal on
the notes for shares of GENZ Stock, shares of GZMO Stock and, after this
distribution, shares of GZSP Stock.
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To satisfy these and other commitments, we may 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
favorable terms.
SEVERAL ANTI-TAKEOVER PROVISIONS MAY DEPRIVE OUR STOCKHOLDERS OF THE OPPORTUNITY
TO RECEIVE A PREMIUM FOR THEIR SHARES UPON A CHANGE IN CONTROL.
Certain provisions of Massachusetts law and our articles of organization,
bylaws and stockholder rights plan could delay or prevent a change in control of
Genzyme or a change in Genzyme's management.
Our tracking stock structure may also deprive our stockholders of the
opportunity to receive a premium for their shares upon a change in control
because, in order to obtain control of a particular division, an acquiror would
have to obtain control of Genzyme. In addition, our board of directors may, in
its sole discretion, (1) exchange shares of GZSP Stock, GZMO Stock or GZTR Stock
for GENZ Stock at a 30% premium over the market value of the respective shares
being so exchanged and (2) issue shares of undesignated common and 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 take
over attempt.
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