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GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 2003 TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number 0-14680

GENZYME CORPORATION
(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes ý    No o

The number of shares outstanding of each of the issuer's series of common stock as of April 30, 2003:

NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Form 10-Q contains forward-looking statements, including statements regarding our:

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projected timetables for the preclinical and clinical development of, regulatory submissions and approvals for, and market introduction of, our products and services;



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the entry into new collaborations and licensing agreements;



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estimates of the potential markets for our products and services, including the anticipated drivers for future growth;



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sales and marketing plans;



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assessments of competitors and potential competitors and the anticipated impact of potentially competitive products on our revenues;



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estimates of the capacity of, and the projected timetable of approvals for, manufacturing and other facilities to support our products and services;



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expected future revenues, operations and expenditures;



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allocations of revenue, expenses, liabilities and income tax benefits;



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maintenance of financial covenants contained in our revolving credit facility and our intention to refinance this facility in 2003;



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assessment of the outcome of litigation and other governmental proceedings;



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expectations concerning future dividends and stock option awards; and



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projected cash needs.

These statements are subject to risks and uncertainties, and our actual results may differ significantly from those that are described in this report. These risks and uncertainties include:

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



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our ability to manufacture sufficient amounts of our products for development and commercialization activities and to do so in a timely and cost-effective manner;



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



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the scope, validity and enforceability of patents and other proprietary rights held by third parties and their impact on our ability to commercialize our products and services;



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the accuracy of our estimates of the size and characteristics of the markets to be addressed by our products and services, including growth projections;



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market acceptance of our products and services;



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our ability to identify new patients for our products and services;



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our ability to identify new collaborators and licensees and to negotiate mutually satisfactory agreements with them;



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the accuracy of our information regarding the products and resources of our competitors and potential competitors;



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the content and timing of submissions to and decisions made by the Food and Drug Administration, commonly referred to as the FDA, and other regulatory agencies;

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decisions made by the U.S. Federal Trade Commission, commonly referred to as the FTC, the United States District Court, the United Kingdom Competition Appeal Tribunal and other judicial bodies;



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approval of the manufacturing facilities for Fabrazyme® and Aldurazyme® enzymes and Renagel® phosphate binder;



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the availability of reimbursement for our products and services from third-party payors, and the extent of such coverage;



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our ability to expand manufacturing capacity for Renagel phosphate binder and Myozyme™ enzyme;



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our ability to optimize dosing and improve patient compliance with Renagel phosphate binder;



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our ability to effectively manage wholesaler inventories of Renagel phosphate binder and the levels of compliance with our inventory management programs;



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our ability to establish and maintain strategic license, collaboration and distribution arrangements;



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the continued funding and operation of our joint ventures by our partners;



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our ability to successfully increase market penetration for Synvisc® viscosupplementation product as a treatment for osteoarthritis of the knee and to expand its use in other joints;



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our ability to increase market penetration in Europe for our Fabrazyme enzyme, Thyrogen® hormone and Renagel phosphate binder;



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decisions made by our board of directors with respect to dividends, stock option awards and other matters under our charter and management and accounting policies; and



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the possible disruption of our operations due to terrorist activities and armed conflict, including as a result of the disruption of operations of regulatory authorities, our subsidiaries, our manufacturing facilities and our customers, suppliers, distributors, couriers, collaborative partners, licensees and clinical trial sites.

        We have included more detailed descriptions of these risks and uncertainties in Exhibit 99.2, "Factors Affecting Future Operating Results," to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002. We encourage you to read those descriptions carefully. We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements. Holders of Genzyme General Stock, Biosurgery Stock and Molecular Oncology Stock are stockholders of Genzyme Corporation and are subject to all of the risks and uncertainties of Genzyme Corporation described in Exhibit 99.2 to our 2002 Form 10-K.

NOTE REGARDING REFERENCES TO GENZYME DIVISIONS AND SERIES OF STOCK

        Throughout this Form 10-Q, 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:

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Genzyme General Division = "Genzyme General;"



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Genzyme Biosurgery Division = "Genzyme Biosurgery;" and



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Genzyme Molecular Oncology Division = "Genzyme Molecular Oncology."

        We currently have three designated series of common stock. Each of these series is intended to reflect the value and track the performance of one of our divisions. We refer to each series of common stock as follows:

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



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



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

NOTE REGARDING INCORPORATION BY REFERENCE

        The Securities and Exchange Commission allows us to disclose important information to you by referring you to other documents we have filed with the SEC. The information that we refer you to is "incorporated by reference" into this Form 10-Q. Please read that information.

NOTE REGARDING TRADEMARKS

        Genzyme®, Cerezyme®, Fabrazyme®, Thyrogen®, Renagel®, Seprafilm®, Carticel®, Epicel®, Synvisc®, Hylaform® and Snowden-Pencer® are registered trademarks of Genzyme. Myozyme™, SAGE™ and Sepra™ are trademarks of Genzyme. Focal® and FocalSeal® are registered trademarks of Focal, Inc. Aldurazyme® is a registered trademark of BioMarin/Genzyme LLC. WelChol® is a registered trademark of Sankyo Pharma, Inc. NeuroCell™ is a trademark of Diacrin, Inc. Zavesca® is a registered trademark of Oxford GlycoSciences plc. All rights reserved.

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 2003
TABLE OF CONTENTS

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PART 1.    Financial Information

ITEM 1.    Financial Statements

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited, amounts in thousands)

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

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

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GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited, amounts in thousands, except par value amounts)

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

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GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

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

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Unaudited, Consolidated Financial Statements

1.    Description of Business

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

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Genzyme General, which develops and markets:



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therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and other specialty therapeutics;



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renal products, with a focus on products that treat patients suffering from renal diseases, including chronic renal failure;



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diagnostic products, with a focus on in vitro diagnostics; and



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other products and services, such as genetic testing services and pharmaceutical drug materials.



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Genzyme Biosurgery, which develops and markets biotherapeutic and biomaterial products, with an emphasis on products that meet medical needs in the orthopaedics, cardiovascular and broader surgical areas; and



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Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

2.    Basis of Presentation and Significant Accounting Policies

Basis of Presentation

        Our unaudited, consolidated financial statements for each period include the statements of operations, balance sheets and statements of cash flows of each of our divisions, and for our corporate operations taken as a whole. We eliminate all significant intracompany items and transactions in consolidation. We prepared our unaudited, consolidated financial statements following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by accounting principles generally accepted in the U.S. We have reclassified certain 2002 data to conform to our 2003 presentation.

        These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results. Since these are interim financial statements, you should also read our consolidated financial statements and notes included in our 2002 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

Net Income (Loss) Per Share

        We calculate earnings per share for each series of stock using the two-class method. To calculate basic earnings per share for each series of stock, we divide the earnings allocated to each series of stock by the weighted average number of outstanding shares of that series of stock during the applicable period. When we calculate diluted earnings per share, we also include in the denominator all potentially dilutive securities outstanding during the applicable period. We allocate our earnings to each

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series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Genzyme General Stock, as defined in our charter, is equal to the net income or loss of Genzyme General determined in accordance with accounting principles generally accepted in the U.S., and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies. Earnings attributable to Biosurgery Stock and Molecular Oncology Stock are defined similarly and, as such, are based on the net income or loss of the corresponding division as adjusted for the allocation of tax benefits.

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