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

FORM 10-Q

For the quarterly period ended September 30, 2002

or

For the transition period from                              to                             

Commission file number 0-14680

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

(617) 252-7500
(Registrant's telephone number, including area code)

        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

        The number of shares outstanding of each of the issuer's series of common stock as of October 31, 2002:

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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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;



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manufacturing plans and expectations concerning certain manufacturing expenditures;



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estimates of the capacity of manufacturing and other facilities to support our products and services;



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expected future revenues, expenses, margins, operations and expenditures;



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



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maintenance of financial covenants contained in our credit facility;



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cash reserves and ability to fund operations;



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estimates of sufficiency of inventory to support demand for our products;



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potential milestone payments to the former stockholders of Novazyme Pharmaceuticals, Inc.;



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beliefs concerning the application of federal antitrust laws to our acquisition of Novazyme; 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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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 U.S. Department of Health and Human Services Food and Drug Administration, commonly referred to as the FDA, other regulatory agencies and institutional review boards at clinical trial sites;



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the impact of the May 2001 expiration of orphan drug status for Cerezyme® and Ceredase® enzymes on our revenues from these products;

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the outcome of our ongoing discussions with the FDA in connection with our Biologics License Application, commonly referred to as a BLA, submission for Fabrazyme® enzyme;



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the ability of Genzyme Biosurgery and Genzyme Molecular Oncology to secure additional funding to continue operations;



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the outcome of the U.S. Federal Trade Commission's investigation concerning the application of federal antitrust laws to our acquisition of Novazyme;



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our ability to obtain reimbursement for our products and services from third-party payors, the extent of such coverage and the impact of proposed Center for Medicare and Medicaid Services regulations related to reimbursement;



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our ability to expand manufacturing capacity for Renagel® phosphate binder and our Pompe disease product candidate;



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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 to successfully implement 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 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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the outcome of the FDA's review of our BLA submission for Aldurazyme™ enzyme;



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our ability to obtain U.S. marketing approval for our cardiovascular diagnostic products;



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our ability to obtain European marketing approval for Cholestagel® (colesevelam hydrochloride);



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our ability to obtain U.S. marketing approval by specified dates for therapies for lysosomal storage disorders using certain technology we acquired from Novazyme;



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our ability to complete the manufacturing capacity expansion for hyaluronan at our Framingham, Massachusetts manufacturing facility and to do so in a timely and cost-effective manner; 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 our subsidiaries and our customers, suppliers, distributors, couriers, collaborative partners, licensees and clinical trial sites.

        For a further description of these risks and other uncertainties, we encourage you to carefully read Exhibit 99.2, "Factors Affecting Future Operating Results," to our Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as amended (our "2001 Form 10-K"). 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.

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."

        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 2001 Form 10-K.

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®, Ceredase®, Thyrogen®, Fabrazyme®, Seprafilm®, Carticel® and Epicel® are registered trademarks of Genzyme. SAGE™ and Sepra™ are trademarks of Genzyme. Renagel® and Cholestagel® are registered trademarks of GelTex Pharmaceuticals, Inc. Synvisc® and Hylaform® are registered trademarks of Genzyme Biosurgery Corporation. Focal® and FocalSeal® are registered trademarks of Focal, Inc. Snowden-Pencer® is a registered trademark of Snowden-Pencer, Inc. Aldurazyme™ is a trademark of BioMarin/Genzyme LLC. WelChol™ is a trademark of Sankyo Pharma, Inc. NeuroCell™ is a trademark of Diacrin, Inc. Zavesca™ is a trademark of Oxford GlycoSciences plc. EZETROL™ and ZETIA™ are trademarks of MSP Marketing Services© LLC. All rights reserved.

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 2002
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.

1

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

2

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands)

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

3

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.    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 corporate operations taken as a whole. We eliminate all significant interdivisional and intercompany 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 2001 data to conform to our 2002 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 the financial statements and notes included in our 2001 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.

2.    New Accounting Pronouncements

        In August 2001, the Financial Accounting Standards Board, commonly referred to as the FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 will be effective for our fiscal year ending December 31, 2003. We are in the process of assessing the effect of adopting SFAS No. 143 on our consolidated and combined financial statements.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and amends Accounting Principles Board Opinion No. 30 (APB No. 30), "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and was adopted by us, as required, on January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on our financial position or results of operations.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force, or EITF, Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost as defined in EITF Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. We will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 as required by the standard.

3.    Acquisitions

        In September 2001, we acquired Novazyme, a privately-held developer of biotherapies for the treatment of lysosomal storage disorders, or LSDs, and in June 2001, we acquired Wyntek

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Diagnostics, Inc., a privately-held provider of point of care rapid diagnostic tests for pregnancy and infectious diseases. We accounted for the acquisitions as purchases and allocated both to Genzyme General. Also, in June 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock not previously acquired. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery.

        The following unaudited pro forma financial summary is presented as if the acquisitions of Novazyme, Focal and Wyntek were completed as of January 1, 2001. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated on those dates, or of the future operations of the combined entities. Material nonrecurring charges related to these acquisitions, such as acquired in-process research and development, or IPR&D, charges of $86.8 million resulting from the acquisition of Novazyme and $8.8 million resulting from the acquisition of Wyntek, are not reflected in the following pro forma financial summary.

Unaudited Pro Forma Financial Summary:

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        The staff of the U.S. Federal Trade Commission, which is known as the FTC, is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there are costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

4.    Inventories (amounts in thousands)

        At September 30, 2002, our total inventories include approximately $6.9 million of inventory for products that have not yet been approved for sale.

5.    Goodwill and Other Intangible Assets

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by us effective at the beginning of fiscal year 2002.

Goodwill

        Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, we ceased amortizing goodwill. At January 1, 2002, our gross goodwill totaled $799.5 million, including $4.3 million of acquired workforce intangible assets previously classified as other intangible assets at December 31, 2001, net of related deferred tax liabilities, of which $1.6 million was allocated to our Therapeutics reporting segment, $0.8 million was allocated to our Diagnostic Products reporting segment and $1.8 million was allocated to Genzyme Biosurgery.

        In November 2001, we sold our Snowden-Pencer® line of surgical instruments, a component of Genzyme Biosurgery, and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, "Accounting for the Impairment of Long-Lived

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Assets and Long-Lived Assets to be Disposed Of," did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, in the three months ended March 31, 2002, upon adoption of SFAS No. 142, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations for Genzyme Biosurgery for the three months ended March 31, 2002.

        We completed the transitional and annual impairment tests for the $605.1 million of net goodwill related to our other reporting units in the nine months ended September 30, 2002, as provided by SFAS No. 142, and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstance suggest that the carrying value of an asset may not be recoverable.

        The following table contains the changes in our net goodwill during the nine months ended September 30, 2002 (amounts in thousands):

(1)

Adjustments for our Therapeutics reporting segment include:

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$1.6 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of GelTex Pharmaceuticals, Inc. reclassified as required by SFAS No. 142; and

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$0.8 million to adjust goodwill resulting from increased integration and exit activity costs related to our acquisition of Novazyme.

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(2)

During the quarter ended September 30, 2002, we created our Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel® phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, goodwill amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of our Therapeutics reporting segment. We have reclassified our 2001 goodwill disclosures by segment to conform to our 2002 presentation.

Adjustments for our Renal reporting segment resulted from a reclassification related to our acquisition of GelTex.

(3)

Adjustments for our Diagnostic Products reporting segment represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of Wyntek, reclassified as required by SFAS No. 142.

(4)

Adjustments for Genzyme Biosurgery represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisitions of Focal and Biomatrix Inc., reclassified as required by SFAS No. 142.

(5)

Impairment for Genzyme Biosurgery represents the impairment charge we recorded in the three months ended March 31, 2002, in accordance with the transitional provisions of SFAS No. 142, related to the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit.

Other Intangible Assets

        The following table contains information on our other intangible assets for the periods presented (amounts in thousands):

        All of our other intangible assets are amortized over their estimated useful lives. Total amortization expense for our other intangible assets was:

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$17.9 million for the three months ended September 30, 2002;



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$17.9 million for the three months ended September 30, 2001;



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$53.7 million for the nine months ended September 30, 2002; and



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$51.8 million for the nine months ended September 30, 2001.

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Amortization expense for each quarter presented includes $0.3 million related to the amortization of a non-compete agreement which is charged to cost of products sold. Amortization expense for both the three and nine months ended September 30, 2001 excludes the expense related to the amortization of goodwill.

        The estimated future amortization expense for other intangible assets as of September 30, 2002 for the remainder of fiscal year 2002 and the five succeeding fiscal years is as follows (unaudited, amounts in thousands):

Adjusted Net Income (Loss)

        The following table presents the impact SFAS No. 142 would have had on our amortization of intangibles expense, net income (loss) and net income (loss) per share had the standard been in effect for the three and nine months ended September 30, 2001 (unaudited, amounts in thousands, except per share amounts):