Document/Exhibit Description Pages Size
1: 10-K Annual Report HTML 288K
2: EX-10.20 Material Contract 5 27K
3: EX-10.26 Material Contract 1 9K
4: EX-10.27 Material Contract 1 6K
5: EX-10.35 Material Contract 27 93K
6: EX-13.1 Annual or Quarterly Report to Security Holders HTML 1.52M
7: EX-13.2 Annual or Quarterly Report to Security Holders HTML 760K
8: EX-13.3 Annual or Quarterly Report to Security Holders HTML 494K
9: EX-13.4 Annual or Quarterly Report to Security Holders HTML 276K
10: EX-21 Subsidiaries of the Registrant 1 7K
11: EX-23 Consent of Experts or Counsel 1 12K
12: EX-99.2 Miscellaneous Exhibit 24 100K
13: EX-99.3 Miscellaneous Exhibit 1 8K
14: EX-99.4 Miscellaneous Exhibit 1 8K
Exhibit 99.2
FACTORS AFFECTING FUTURE OPERATING RESULTS
From time to time, we or our management may make forward-looking statements
about our operations. These statements are 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 substantial portion of our product revenue from sales of
enzyme-replacement products for patients with Gaucher disease. We entered this
market in 1991 with Ceredase(R) enzyme. Because production of Ceredase 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 $619.2 million for the year ended December 31, 2002, representing
approximately 47% 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 Zavesca(R), a small molecule drug candidate for the treatment of
Gaucher disease. Zavesca has been granted orphan drug status in the United
States for treatment of Gaucher and Fabry diseases, and has been designated as
an orphan medicinal product in the European Union for the treatment of Gaucher
disease. In July 2002, the FDA issued a "non-approvable" letter to Oxford
Glycosciences in response to its NDA for Zavesca; in November 2002, however, the
agency agreed to examine additional data in support of that NDA. Also in
November 2002, the European Commission approved Oxford GlycoSciences' MAA for
Zavesca as an oral therapy for use in patients with mild to moderate Type 1
Gaucher disease for whom enzyme replacement
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therapy is unsuitable. Oxford Glycosciences is required to submit follow-up
safety data on the product as a condition of such approval. In January 2003,
a licensee of Oxford Glycosciences submitted an application for approval of
Zavesca with the Israeli Ministry of Health.
Although orphan drug status for Cerezyme 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(R) PHOSPHATE BINDER.
We currently market Renagel phosphate binder, a non-absorbed phosphate
binder, which has been approved for use by patients with end-stage renal disease
undergoing a form of treatment known as hemodialysis. 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:
o 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;
o our ability to effectively manage wholesaler inventories and
maintain inventory management programs;
o the level of compliance with inventory management arrangements
with wholesalers;
o our ability to optimize dosing and improve patient compliance with
respect to Renagel phosphate binder;
o our ability to expand manufacturing capacity;
o our ability to manufacture Renagel phosphate binder in sufficient
quantities to meet demand;
o the results of additional clinical trials for additional
indications and expanded labeling;
o the availability of competing treatments serving the dialysis
market;
o our ability to manufacture Renagel phosphate binder at a
reasonable price;
o the effectiveness of our sales force;
o the content and timing of our submissions to and decisions by
regulatory authorities;
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o the availability of reimbursement from third-party payors, and the
extent of coverage; and
o the accuracy of available information about dialysis patient
populations and the accuracy of our expectations about growth in
this population.
GOVERNMENT REGULATION IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE
DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND SERVICES.
Our success will depend on our ability to satisfy regulatory requirements.
We may not receive required regulatory approvals on a timely basis or at all.
Government agencies heavily regulate the production and sale of healthcare
products and the provision of healthcare services. In particular, the 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:
o issuing warning letters;
o issuing fines and other civil penalties;
o suspending regulatory approvals;
o refusing approval of pending applications or supplements to
approved applications;
o suspending product sales in the United States and/or exports from
the United States;
o recalling products; and
o seizing products.
Furthermore, therapies that have received regulatory approval for commercial
sale may continue to face regulatory difficulties. The FDA and comparable
foreign regulatory agencies, for example, may require post-marketing clinical
trials or patient outcome studies. In addition, regulatory agencies subject a
marketed therapy, its manufacturer and the manufacturer's facilities to
continual review and periodic inspections. The discovery of previously unknown
problems with a therapy, the therapy's manufacturer or the facility used to
produce the therapy could prompt a regulatory authority to impose restrictions
on the therapy, manufacturer or facility, including withdrawal of the therapy
from the market.
LEGISLATIVE CHANGES MAY ADVERSELY IMPACT OUR BUSINESS.
The FDA has designated some of our products 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
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of the drug. If the Orphan Drug Act is amended in this manner, any drugs for
which we have been granted exclusive marketing rights under the Orphan Drug Act
will face increased competition, which may decrease the amount of revenue we
receive from these products. In addition, the U.S. government has shown
significant interest in pursuing healthcare reform. Any government-adopted
reform measures could adversely affect:
o the pricing of therapeutic products and medical devices in the
United States or internationally; and
o the amount of reimbursement available from governmental agencies
or other third-party payors.
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:
o conduct substantial research and development;
o undertake preclinical and clinical testing;
o develop and scale-up manufacturing processes; and
o pursue regulatory approvals.
This process involves a high degree of risk and takes several years. Our
product development efforts may fail for many reasons, including:
o failure of the product in preclinical studies;
o clinical trial data that is insufficient to support the safety or
effectiveness of the product;
o our inability to manufacture sufficient quantities of product
for development or commercialization activities in a timely or
cost-efficient manner; or
o our failure to obtain the required regulatory approvals.
For these reasons, and others, we may not successfully commercialize any of the
products we are currently developing.
ANY MARKETABLE PRODUCTS THAT WE DEVELOP MAY NOT BE COMMERCIALLY SUCCESSFUL.
Even if we obtain regulatory approval for any of our development-stage
products, those products may not be accepted by the market or approved for
reimbursement by third-party payors. A number of factors may affect the rate and
level of market acceptance of these products, including:
o regulation by the FDA and other government authorities;
o market acceptance by doctors and hospital administrators;
o the effectiveness of our sales force and our distributors;
o the effectiveness of our production and marketing capabilities;
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o the success of competitive products; and
o 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, 2002, we had approximately $1.2 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:
o product development and marketing;
o expanding existing and constructing new facilities;
o expanding staff;
o working capital, including satisfaction of our obligations under
capital and operating leases; and
o strategic business initiatives.
We may further reduce available cash reserves to pay principal and interest on
the following debt:
o $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;
o $284.0 million in principal under our revolving credit facility
with a syndicate of commercial banks, all of which is allocated to
Genzyme Biosurgery and which is due in December 2003; and
o $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.
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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.
WE MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS OR OTHERS IN ORDER
TO DEVELOP AND COMMERCIALIZE SOME OF OUR PRODUCTS AND SERVICES, AND IT IS
UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE.
Third-party patents may cover some of the products or services that we
or our strategic partners are developing or testing. For example, the USPTO
has issued several patents generally relating to human recombinant
alpha-L-iduronidase, the enzyme on which Aldurazyme enzyme is based. These
patents are owned or controlled by one of our competitors. We believe that
these patents do not validly cover the manufacture, use or sale of Aldurazyme
enzyme. In addition, we are aware of a recently-issued United States patent
owned by Columbia University relating to the manufacture of recombinant
proteins in CHO cells. While we are currently licensed under that patent, we
are evaluating its validity to determine whether we will be required to
maintain that license and pay the associated royalty in order to manufacture
certain of our enzyme replacement therapies.
A United States patent is entitled to a presumption of validity, and we
cannot guarantee that, if we were to elect to challenge the validity of such
a patent, we would be successful in doing so. In addition, even if we are
successful in challenging the validity of a patent, the challenge itself may
be expensive and require significant management attention.
To the extent valid third party patent rights cover our products or
services, we or our strategic collaborators would 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
products 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:
o pay monetary damages;
o stop commercial activities relating to the affected products or
services;
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o obtain a license in order to continue manufacturing or marketing
the affected products or services; or
o compete in the market with a substantially similar product.
Uncertainties resulting from the initiation and continuation of any
litigation could limit our ability to continue some of our operations. In
addition, a court may require that we pay expenses or damages and litigation
could disrupt our commercial activities.
WE MAY BE LIABLE FOR PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE.
Individuals who use our products or services, including those we acquire in
business combinations, may bring product liability claims against us or our
subsidiaries. While we have taken, and continue to take, what we believe are
appropriate precautions, we may be unable to avoid significant liability
exposure. We have only limited amounts of product liability insurance, which may
not provide sufficient coverage against any product liability claims. We may be
unable to obtain additional insurance in the future, or we may be unable to do
so on acceptable terms. Any additional insurance we do obtain may not provide
adequate coverage against any asserted claims. In addition, regardless of merit
or eventual outcome, product liability claims may result in:
o diversion of management's time and attention;
o expenditure of large amounts of cash on legal fees, expenses and
payment of damages;
o decreased demand for our products and services; and
o injury to our reputation.
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 effectively develop and market 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(R) enzyme for the treatment of Fabry disease. We are aware of other
companies developing products for the treatment of Fabry disease. Transkaryotic
Therapies Inc. also has an application for marketing approval for its product
pending before the FDA, which was originally filed shortly 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 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.
IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS OR
SERVICES MAY BECOME OBSOLETE.
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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
payors, 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 payors are increasingly attempting to
contain healthcare costs by:
o challenging the prices charged for healthcare products and
services;
o limiting both coverage and the amount of reimbursement for new
therapeutic products;
o shifting payments for products and services through co-pays,
coinsurance and other risk sharing arrangements;
o denying or limiting coverage for products that are approved by the
FDA, but are considered experimental or investigational by
third-party payors; and
o refusing in some cases to provide coverage when an approved
product is used for disease indications in a way that has not
received FDA marketing approval.
Government and other third-party 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 approximately 40% of our
consolidated revenues for the year ended December 31, 2002. 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, the European Union, Latin America 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:
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o economic problems that disrupt foreign healthcare payment
systems;
o fluctuations in currency exchange rates;
o the imposition of governmental controls;
o less favorable intellectual property or other applicable laws;
o the inability to obtain any necessary foreign regulatory approvals
of products in a timely manner;
o import and export license requirements;
o political instability;
o terrorist activities;
o trade restrictions;
o changes in tariffs;
o difficulties in staffing and managing international operations;
and
o longer payment cycles.
A significant portion of our business is conducted in currencies other than
our reporting currency, the U.S. dollar. We recognize foreign currency gains or
losses arising from our operations in the period in which we incur those gains
or losses. As a result, currency fluctuations among the U.S. dollar and the
currencies in which we do business have caused foreign currency transaction
gains and losses in the past and will likely do so in the future. Because of the
number of currencies involved, the variability of currency exposures and the
potential volatility of currency exchange rates, we may suffer significant
foreign currency transaction losses in the future due to the effect of exchange
rate fluctuations on our future operating results.
SEVERAL ANTI-TAKEOVER PROVISIONS MAY DEPRIVE OUR STOCKHOLDERS OF THE OPPORTUNITY
TO RECEIVE A PREMIUM FOR THEIR SHARES UPON A CHANGE IN CONTROL.
Provisions of Massachusetts law and our charter, by-laws and shareholder
rights plan could delay or prevent a change in control of Genzyme or a change in
our management. Our tracking stock structure may also deprive our stockholders
of the opportunity to receive a premium for their shares upon a change in
control because, in order to obtain control of a particular division, an
acquiror would have to obtain control of the entire corporation. In addition,
our board of directors may, in its sole discretion:
o exchange shares of Molecular Oncology Stock or Biosurgery Stock
for Genzyme General Stock at a 30% premium over the market value
of the exchanged shares; and
o issue shares of undesignated preferred stock from time to time in
one or more series.
Either of these board actions could increase the cost of an acquisition of
Genzyme and thus discourage a takeover attempt.
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RISKS RELATED TO GENZYME TRACKING STOCKS
We have three series of common stock designed to reflect the value and
track the performance of our three operating divisions as follows:
o Genzyme General Stock--designed to track the performance of
Genzyme General;
o Biosurgery Stock--designed to track the performance of Genzyme
Biosurgery; and
o 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 Biosurgery Stock, for example, does
not have any specific rights to the assets allocated to Genzyme Biosurgery in
our financial statements. Furthermore, if we are unable to satisfy one
division's liabilities out of the assets we allocate to that division, we may be
required to satisfy those liabilities with assets we have allocated to another
division. 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 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
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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, 2003, the relative voting power of our tracking stocks
was as follows:
[Download Table]
APPROXIMATE PERCENTAGE OF
SERIES VOTING POWER
------ -------------------------
Genzyme General Stock 98%
Biosurgery Stock 1.5%
Molecular Oncology Stock 0.5%
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 0.08 vote per
share and Molecular Oncology Stock is entitled to 0.07 vote per share.
THE LIQUIDATION RIGHTS FOR OUR TRACKING STOCKS ARE NOT ADJUSTED TO REFLECT
CHANGES IN THEIR MARKET VALUES.
If we were to dissolve, liquidate or wind up our affairs, other than as
part of a merger, business combination or sale of substantially all of our
assets, our stockholders would receive any remaining assets according to the
percentage of total liquidation units that they hold. The number of liquidation
units per share for each series of our tracking stock outstanding is as follows:
o each share of Genzyme General Stock has 100 liquidation units;
o each share of Biosurgery Stock has 100 liquidation units; and
11
o 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 SHAREHOLDER 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 shareholder 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 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, as amended on June 6, 2001.
OUR BOARD OF DIRECTORS 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
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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 predict, however, whether Congress will
enact legislation, or whether the Treasury Department will issue regulations
effecting these or similar proposals.
WE CANNOT ASSURE YOU 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.
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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 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, as amended on June 6, 2001.
RISKS RELATING TO GENZYME GENERAL
The following risks and uncertainties may adversely affect the business of
Genzyme General.
GENZYME GENERAL IS SUBSTANTIALLY DEPENDENT UPON SALES OF CEREZYME 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. The risks described in that section 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. The risks described in that section may also adversely affect
the business of Genzyme General.
WE MAY NOT SUCCESSFULLY COMMERCIALIZE GENZYME GENERAL'S PRODUCT CANDIDATES.
Genzyme General is developing or collaborating on the development of
treatments for, among other things, Fabry disease, MPS I and Pompe disease. 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, Israel and Brazil in 2000
and Canada in 2001, and plans to continue
14
launching the product on a 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:
o regulation by the FDA and other regulatory authorities;
o our ability to obtain regulatory approvals in foreign countries;
o the development and commercial success of competitive products;
and
o the availability of reimbursement from third-party payers 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:
o 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
o a joint venture with BioMarin for the development and
commercialization of Aldurazyme enzyme 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:
o terminate their agreements and Genzyme General's access to the
underlying intellectual property;
o fail to devote significant financial or other resources to the
alliances and thereby significantly hinder or delay development,
manufacturing or commercialization activities;
o fail to successfully develop or commercialize any products; or
o 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.
GENZYME GENERAL 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.
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 - We may be required to license technology from competitors or others
in order to develop and commercialize some of its products and services, and
it is uncertain whether these license will be available" included in this
annual report. The risks described in that section may also adversely affect
the business of Genzyme General.
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RISKS RELATED TO GENZYME BIOSURGERY
Biosurgery Stock is intended to track the value and reflect the performance
of Genzyme Biosurgery. Accordingly, you should carefully consider the following
factors that may adversely affect the business of Genzyme Biosurgery.
A FAILURE TO INCREASE SALES OF SYNVISC VISCOSUPPLEMENTATION PRODUCT COULD HAVE A
NEGATIVE EFFECT ON GENZYME BIOSURGERY'S BUSINESS.
Genzyme Biosurgery expects to generate a substantial portion of its product
revenues from sales of Synvisc viscosupplementation product. Net product sales
of Synvisc viscosupplementation product totaled $89.8 million for the year ended
December 31, 2002, representing approximately 37% of Genzyme Biosurgery's total
revenues for that year.
Failure to achieve sales growth for Synvisc viscosupplementation product
may adversely affect Genzyme Biosurgery's business. 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
co-payment, 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
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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 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 above under the heading "--Risks Related to Genzyme."
THE COMMERCIAL SUCCESS OF CARTICEL(R) 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. The commercial success of Carticel chondrocytes
will depend on many factors, including the following:
o positive results from post-marketing studies;
o FDA approval of a device to improve the procedure for implanting
Carticel chondrocytes;
o the availability of third-party reimbursement;
o market acceptance by orthopaedic surgeons;
o our continuing relationship with key collaborators; and
o the success of competitive products.
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.
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(R) adhesion barrier was
17
introduced, market acceptance of anti-adhesion products has been slow. To
increase sales of the Sepra(TM) 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.
Recent adverse events in gene therapy clinical trials may result in greater
governmental regulation, increased development costs 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:
o greater government regulation;
o stricter clinical trial oversight;
o tighter commercial product labeling requirements of gene
therapies; and
o a decrease in the demand for any gene therapy product that Genzyme
Biosurgery may develop.
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, 2002, we had allocated to Genzyme Biosurgery
approximately $284.0 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, which is due in December 2003. 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 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, 2002, $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.
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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 2003 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 its products and distribution agreements and the $3
million remaining under the interdivisional financing arrangement with Genzyme
General, will be sufficient to fund its operations and capital requirements
through the first half of 2003.
Genzyme Biosurgery intends to use substantial portions of its available
cash for:
o research and development;
o product development and marketing, including for Synvisc
viscosupplementation product;
o improving manufacturing efficiency;
o enforcing patent and other intellectual property rights;
o transactional activity related to acquiring and disposing of
assets
o consolidating facilities and related relocation activities; and
o working capital.
Genzyme Biosurgery's cash needs may differ from those planned because of
many factors, including the:
o results of research and development efforts;
o ability to establish and maintain strategic alliances;
o ability to enter into and maintain licensing arrangements and
additional distribution arrangements;
o ability to share costs of product development with research and
marketing partners;
o costs involved in enforcing patent claims and other intellectual
property rights;
o costs involved in defending or setting post-closing retained
liabilities in connection with our sale of the Snowden-Pencer line
of surgical instruments;
o market acceptance of novel approaches and therapies;
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o success of its initiatives to reduce expenses and streamline its
operations;
o development of competitive products; and
o 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 we 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:
o Atrium Medical Corporation and a division of Tyco International,
Ltd., in the cardiovascular fluid management market;
o Ethicon Inc., a Johnson & Johnson company, and U.S. Surgical
Corporation, a division of Tyco, in the cardiovascular closure
market;
o CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical,
Guidant Corporation and Ethicon in the minimally invasive
cardiovascular surgery market;
o Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc.
and Gliatech, Inc. in the anti-adhesion market; and
o Fidia S.p.A., Q-Med AB, Sanofi and OrthoLogic Corp., Anika
Therapeutics, Inc., 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.
20
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.
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 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, 2002, Genzyme
Molecular Oncology had an accumulated deficit of approximately $145.5 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 end of 2003:
o committed research funding from collaborators;
21
o the $11 million remaining under the interdivisional financing
arrangement with Genzyme General; and
o 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:
o research and development;
o preclinical and clinical testing;
o pursuing regulatory approvals; and
o working capital.
Genzyme Molecular Oncology's cash needs may differ from those planned,
however, because of many factors, including the: o results of research and
development and clinical testing;
o achievement of milestones under existing licensing arrangements;
o ability to establish and maintain additional strategic
collaborations and licensing arrangements;
o costs involved in enforcing patent claims and other intellectual
property rights;
o market acceptance of novel approaches and therapies;
o development of competing products and services; and
o ability to satisfy regulatory requirements of the FDA and other
government authorities.
Genzyme Molecular Oncology will 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.
22
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 THIRD
PARTIES IN ORDER TO DEVELOP AND COMMERCIALIZE SOME OF ITS PRODUCTS AND
SERVICES, AND IT IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE.
Third party patent rights and pending patent applications filed by third
parties, if issued, may cover some of the products Genzyme Molecular Oncology is
developing or testing. As a result, Genzyme Molecular Oncology may be required
to obtain licenses from the holders of these patents in order to use or sell
certain products and services. We cannot guarantee that these licenses will be
made available on acceptable terms or at all. If these licenses are not
available, Genzyme Molecular Oncology's ability to commercialize its products
and services may be impaired.
In its cancer vaccine program, Genzyme Molecular Oncology is in the process
of evaluating the therapeutic administration of peptide products and genes that
encode specific tumor antigens, including MART-1 and gp100. Genzyme Molecular
Oncology is aware of two issued U.S. patents directed to the gene that encodes
MART-1. While it has obtained rights under one of these patents, Genzyme
Molecular Oncology is still in the process of evaluating the scope and validity
of the other to determine whether it needs to obtain a license. Genzyme
Molecular Oncology is also evaluating an issued U.S. patent covering the gene
that encodes gp100 and three published Patent Cooperation Treaty applications by
three different applicants that may cover antigens derived from gp100. Genzyme
Molecular Oncology is in the process of evaluating the scope and validity of
these patents and patent applications to determine whether it needs to obtain
licenses.
GENZYME MOLECULAR ONCOLOGY MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION
OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.
If Genzyme Molecular Oncology or one of its strategic collaborators
initiates litigation to enforce Genzyme Molecular Oncology's patent or license
rights, or 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.
Recent adverse events in gene therapy clinical trials may result in greater
governmental regulation, increased development costs, 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:
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o greater government regulation;
o stricter clinical trial oversight;
o tighter commercial product labeling requirements of gene
therapies; and
o a decrease in the demand for any gene therapy product that Genzyme
Molecular Oncology may develop.
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Dates Referenced Herein and Documents Incorporated by Reference
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