GENZYME TRANSGENICS CORP - 10-K Annual Report

Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

_______________

FORM 10-K

Annual report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended January 3, 1999
Commission File No. 0-21794

GENZYME TRANSGENICS CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MASSACHUSETTS 04-3186494
------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

FIVE MOUNTAIN ROAD 01701
FRAMINGHAM, MASSACHUSETTS ----------
---------------------------------------- (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(508) 620-9700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
__________________

Securities registered pursuant to Section 12(b) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
_________________

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such filing
requirements for the past 90 days. YES X NO_____

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 16, 1999: $50,232,766

Number of shares of the Registrant's Common Stock outstanding as of
March 16, 1999: 18,709,831 -----------------

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 25, 1999 are incorporated by reference into Part III
of this Form 10-K.

ITEM 1.

BUSINESS

GENERAL

Genzyme Transgenics Corporation ("GTC" or the "Company") has established a
leadership position in the application of transgenic technology to the
development and production of genetically engineered proteins for therapeutic,
diagnostic and other biomedical uses, both in collaboration with pharmaceutical
and biotechnology companies and independently. To date, GTC has produced more
than 40 such proteins. For its lead compound, Antithrombin III ("AT-III"), the
Company has completed Phase I and Phase II human clinical trials, and has
initiated Phase III clinical studies. GTC also operates a leading contract
research organization ("CRO"), Primedica Corporation ("Primedica"), a wholly
owned subsidiary of GTC which provides services such as preclinical efficacy and
safety testing, IN VITRO testing and formulation development to pharmaceutical,
biotechnology, medical device and other companies. Revenues for Primedica were
$50.8 million in 1998, an increase of 17% from 1997. GTC's revenues from its
transgenic research and development totaled $11.6 million compared with $19.5
million for 1997. The decrease reflects the impact on revenue recognition of the
establishment, in January 1998, of the rh AT-III joint venture with Genzyme
Corporation ("Genzyme"). Had the rh AT-III program been structured on the same
basis during the year 1998, transgenic research revenues would have increased
approximately $713,000 from 1997.

GTC produces recombinant proteins transgenically by inserting, into the genetic
material of an animal embryo, a gene that directs the production of a desired
protein in the milk of female offspring. The Company believes that transgenic
production offers significant economic and technological advantages relative to
traditional protein production systems, including reduced capital expenditures
and lower direct production cost per unit for complex proteins. For proteins
currently derived from pooled human plasma, transgenic production provides an
alternative source, with reduced risk of transmission of human viruses and other
known adventitious agents. In the case of certain complex proteins, transgenic
production may represent the only technologically and economically feasible
method of commercial production. To date, GTC has expressed 17 proteins at
levels of one gram per liter or higher, substantially greater levels than those
typically achieved for comparable proteins in conventional cell culture systems.

GTC's most advanced product candidate is transgenic rh AT-III, a protein
normally present in human serum that, when bound to heparin acts as an
anticoagulant. Plasma-derived AT-III is an approved therapy for inherited AT-III
deficiency and for certain acquired deficiencies. Worldwide sales of
plasma-derived AT-III are approximately $200 million. The Company believes
transgenic AT-III may represent a more attractive product than plasma sourced
AT-III in light of safety considerations, the limited volume of AT-III available
from plasma and the impracticality of producing sufficient quantities of
recombinant AT-III by cell culture methods. GTC has expressed transgenic AT-III
in goats, demonstrating stable expression across multiple generations and
successive lactations. Further, GTC has purified transgenic AT-III to clinical
grade with attractive yields. Preclinical safety and efficacy studies, as well
as Phase I and Phase II human safety studies have been successfully completed.
GTC initiated Phase III clinical trials in the US and Europe for this product
beginning in the second quarter of 1998.

GTC is also currently working to develop transgenically produced therapeutic
antibodies with five corporate partners including Bristol-Myers Squibb,
Centocor, and BASF Knoll. Antibody production represents an area of particular
focus for the Company, since these therapeutics are likely to be required in
relatively large and repeated doses for chronic diseases such as rheumatoid
arthritis and cancer, and are, therefore, uniquely suited to transgenic
production. During 1998, the United States Patent and Trademark office issued a
patent to Genzyme Transgenics covering the production of monoclonal and
assembled antibodies at commercial levels in the milk of transgenic mammals.

Other plasma proteins under development by GTC include Human Serum Albumin
("HSA"), which is now being developed in conjunction with Fresenius AG. The
Company is also developing transgenic production processes for other proteins,
including the msp-1 protein for use in a malaria vaccine and insulin, and is in
commercial discussions with prospective partners for other products.

Primedica Corporation's CRO operations are focused on enabling its clients to
meet regulatory testing and other product development needs quickly and
effectively by offering a fully integrated line of services. Primedica's
laboratories focus on providing high value, scientifically differentiated
services to clients, including preclinical efficacy testing, experimental
surgery, photobiology and reproductive toxicology testing as well as formulation
development. Primedica uses its

3

technological capabilities to introduce new services that improve the ability of
its customers to develop their products successfully.

The Company's comprehensive programs link its preclinical and manufacturing
support services in order to reduce the time and expense of bringing new
therapeutics or other products to market.

As an outgrowth of production services performed for the National Cancer
Institute (the "NCI"), the Company has developed technology for the production
of idiotypic vaccines, in which proteins derived from a cancer patient's own
tumor cells, or blood plasma, are used to enhance the immune system's ability to
prevent the regrowth of tumors.

TRANSGENIC PRODUCTION

OVERVIEW AND STRATEGY

A growing number of recombinant proteins are being developed by pharmaceutical,
biotechnology and other companies for therapeutic, diagnostic and nutraceutical
applications. Many of these proteins have proven difficult or expensive to
produce in the quantities required using conventional methods, such as bacteria,
yeast or mammalian cell sources. Moreover, bacteria or yeast systems cannot
produce many complex proteins. While mammalian cells can produce most of these
complex proteins, they are generally more difficult and expensive to grow and
often produce lower volumes of protein, or the proteins may not be secreted by
the cells into the culture medium, thereby complicating recovery and
purification. Proteins produced by the Company transgenically have been
expressed at concentrations substantially greater than those typically achieved
using conventional methods.

Transgenic technology uses IN VITRO microinjection or other techniques to
introduce a genetically engineered segment of exogenous DNA (an "expression
vector") into the genetic material of a fertilized egg or early stage animal
embryo. Two types of genetic instructions are incorporated into the expression
vector: the coding sequence and the promoter sequence. Coding sequences instruct
the cells of the animal to express a specified protein. Promoter sequences
direct the expression of proteins at appropriate times and by specific tissues
or cell types. The modified embryo is then transferred to a recipient female.
Transgenes are successfully integrated into the genetic makeup of only a small
percentage of the embryos that are microinjected; therefore multiple
microinjection candidates are required. If successful, the resulting animal,
when mature and lactating, will express the desired protein. Once established in
the first generation of transgenic animals, the transgene is transmitted like
other genetic traits to future generations through traditional breeding with
either non-transgenic or other transgenic animals.

The Company believes transgenic production offers significant economic and
technological advantages over traditional methods of protein production,
including reduction in the total amount of required capital expenditures, lower
direct production cost per unit and reduced risk of transmission of human
viruses and other adventitious agents. For certain complex proteins, transgenic
production may represent the only technologically and economically feasible
method of commercial production. To date, the Company has produced such proteins
principally using goats, which offer an attractive combination of large milk
volumes, relatively short generational time periods and ease of handling and
milking.

GTC also believes that for certain proteins required in extremely large amounts,
the cloning of large dairy animals such as cows expressing the desired transgene
in their milk will speed transgenic biopharmaceutical development. In September
1997, GTC signed an exclusive, worldwide licensing agreement with Advanced Cell
Technologies, Inc. ("ACT") of Worcester, MA allowing GTC to utilize ACT
technology for the development of biopharmaceuticals and nutraceuticals in the
milk of cloned, transgenic dairy cows. ACT has developed proprietary technology,
which, when coupled with GTC's transgenic technology, will provide patentable
approaches to efficiently create cloned transgenic cows.

GTC's strategy is to commercially produce proteins by use of transgenic
technology both by (i) entering into contracts with biotechnology and
pharmaceutical companies to utilize the Company's transgenic services in
exchange for revenue, royalties and, possibly, marketing rights to the resulting
product and (ii) independently identifying proteins in the public domain,
proteins covered by lapsing patents and proprietary proteins available for
license which represent attractive candidates for transgenic production and
funding development of such proteins itself or seeking corporate partner
funding.

GTC has entered into funding contracts for the development of AT-III, other
plasma proteins, certain monoclonal antibodies and other products.

4

ACHIEVEMENTS TO DATE:

Over the past few years, GTC has shown the feasibility of transgenic protein
production by the achievement of the following specific milestones:

- -- To date, GTC has produced more than 40 different transgenic proteins in
animals, 17 at concentrations of one gram per liter or greater and one
protein in excess of 35 grams per liter, levels often many times higher
than those achievable in other production systems.

- -- GTC maintains a herd of over 1,500 goats at its facility in
Massachusetts as well as an additional 150 goats at Tufts University
School of Veterinary Medicine ("Tufts"). A significant number of the
goats in these herds are transgenic.

- -- Stability of expression has been demonstrated across lactations, and,
for two proteins, across two generations expressing the same transgene.

- -- Together with Genzyme, GTC has been able to achieve clinical grade
purity for a transgenically produced protein at high recovery levels.
This transgenic protein has been extensively characterized and its
pharmacodynamic properties in animal models have been shown to be
comparable to those of the same protein from other sources.

- -- GTC filed an IND with the US Food and Drug Administration (the "FDA")
for its lead product AT-III, completed a Phase I human safety clinical
trial, completed a Phase II dosing clinical trial and initiated a Phase
III program in patients undergoing cardiac surgery requiring
cardiopulmonary bypass ("CPB") in May 1998.

- -- During 1998, GTC entered into 10 new alliances with corporate partners.

- -- The US Patent and Trademark office issued three new patents to the
Company during 1998; one covering its purification technology, one on
the production of monoclonal and assembled antibodies in the milk of
transgenic mammals, and one covering the production of rh AT-III in the
milk of transgenic goats.

TRANSGENIC PRODUCTS UNDER DEVELOPMENT

ANTITHROMBIN III. AT-III is a protein normally found in human serum that when
bound to heparin acts as an anticoagulant. Decreased levels of AT-III are found
in individuals who have either a hereditary or an acquired deficiency of AT-III.
The hereditary deficiency has an incidence rate of 1 in 2,000 to 1 in 20,000.
Individuals with hereditary AT-III deficiency have an increased tendency towards
blood clots (thromboses) and are treated with AT-III protein replacement therapy
during periods when they are at high risk for clots, such as during surgery.
Acquired AT-III deficiency occurs in many disease states as a result of several
possible causes, including a decrease in the amount of AT-III produced, an
increase in the rate of AT-III consumption or an abnormal loss of AT-III from
the circulation. Examples of such conditions include acute liver failure,
disseminated intravascular coagulation, sepsis and septic shock, burns, multiple
organ failure, bone marrow and other organ transplantation and hemodialysis.

Plasma-derived AT-III is approved for use in Europe and Japan for treatment of
both acquired and hereditary AT-III deficiency. In the United States,
plasma-derived AT-III is currently approved for use only for hereditary AT-III
deficiency. The annual worldwide market for plasma-derived AT-III is
approximately $200 million.

GTC believes transgenic AT-III may represent a more attractive product in light
of the risks of viral transmission from pooled plasma products in general, the
limited volume of AT-III currently available from plasma and the impracticality
of producing sufficient quantities of recombinant AT-III in cell culture
systems. The Company also believes that a lower cost, higher volume alternative
to plasma-derived AT-III will further expand the use of AT-III in clinical
settings.

GTC has produced multiple transgenic goats carrying the AT-III gene and has
selected a founder goat from which a production herd is being generated. This
genetic line expresses AT-III at levels of approximately two grams per liter.
The processes for production and purification have been implemented and result
in a product that is purified to clinical grade at attractive yields.
Preclinical safety and efficacy studies for AT-III have been successfully
completed. The Company filed an IND with the FDA for the use of transgenic
AT-III as a potential treatment for AT-III deficiency that occurs during certain
vascular surgeries, including cardiopulmonary artery bypass grafting ("CABG"),
and a Phase II clinical study for

5

this indication was completed. The study confirmed the safety profile of AT-III
at all doses administered and supported its ability to enhance anticoagulation
in CABG patients. Two placebo-controlled Phase III clinical trials were begun
during the second quarter of 1998 to access the activity of AT-III in restoring
heparin sensitivity among heparin-resistant patients undergoing cardiac surgery
requiring CPB. A third concurrent trial is comparing the physiological activity
of transgenic AT-III with that of plasma-derived AT-III.

GTC is developing recombinant human AT-III under a license from Behringwerke AG,
subject to a royalty obligation. In March 1996, the Company entered into a
Convertible Debt and Development Funding Agreement (the "Agreement") with
Genzyme under which Genzyme agreed to provide a revolving line of credit
("Genzyme Credit Line") in the amount of $10 million and agreed to fund
development costs of the AT-III program. During 1996, Genzyme converted
$1,673,000 of debt to equity under this agreement, reducing the availability to
$8.3 million. The availability under the Genzyme Credit Line was subsequently
reduced in March 1998 to $6.3 million in connection with a preferred stock
offering.

In March 1996, GTC and Genzyme signed an agreement pursuant to which Genzyme
funded the development of AT-III through the first quarter of 1997. Genzyme was
granted co-marketing rights to transgenic AT-III in Europe and the United
States, subject to its entering into a further agreement with GTC by March 31,
1997. SMI Genzyme Ltd., a joint venture between GTC and Sumitomo Metal
Industries Ltd. (the "SMIG JV"), which contributed development funding for
AT-III through December 1995, retains marketing rights to transgenic AT-III in
Asia. In January 1997, the Company reached agreement with the SMIG JV under
which GTC subsequently received milestone payments for the development of AT-III
which totaled $4.4 million. In January 1998, GTC and Genzyme established a joint
venture ("ATIII LLC") for the marketing and distribution of rh AT-III in all
territories other than Asia. Under the terms of the ATIII LLC, Genzyme agreed to
provide 70 percent of the first $33 million of rh AT-III development costs other
than facility costs. GTC agreed to fund the other 30 percent of those costs,
with both companies sharing equally in facility costs and any development costs
exceeding that level. Both companies agreed to contribute manufacturing,
marketing and other resources to the ATIII LLC at cost, and will split profits
from the product sales equally.

MONOCLONAL ANTIBODIES. Monoclonal antibodies are immune system proteins that can
find and attach to specific biological targets in the body. Recent advances in
developing humanized and human antibodies, single chain antibodies and
conjugated antibodies have added to the potential value of these therapeutic
agents. More than 50 monoclonal antibodies are now in clinical trials sponsored
by pharmaceutical and biotechnology companies with many more in development as
therapeutics for cancer, cardiovascular disease, immune system disorders and for
use against a wide variety of infectious agents, such as viruses and bacterial
infections.

Monoclonal antibodies and assembled antibodies are a major area of focus for
GTC. During 1998, the Company received a US patent granting it exclusive rights
to the production of monoclonal and assembled antibodies in commercial
quantities in the milk of transgenic mammals. To date, the company has produced
13 antibodies, and is currently actively working with five different partners,
including Centocor, Bristol-Myers Squibb, BASF/Knoll, Progenics, and an unnamed
West Coast biotechnology company to develop therapeutic antibodies for diseases
including rheumatoid arthritis, cancer, psoriasis and AIDS. GTC anticipates
entering the clinic with the first transgenically-produced version of a
therapeutic antibody during 1999.

HUMAN SERUM ALBUMIN ("HSA"). HSA is the protein principally responsible for
maintaining oncotic pressure, plasma volume and the balance of fluids in blood.
It is critical to the transport of amino acids, fatty acids, enzymes and
hormones in the blood stream. The therapeutic use of HSA is indicated in
situations of blood loss and decreased blood albumin levels which can occur
during shock, serious burns, pre- and post-operative conditions and gastric and
intestinal malfunctions. HSA is currently produced by human plasma
fractionation, with current worldwide sales in excess of $1.3 billion.

For HSA and all human blood sourced products, the theoretical risk of virus
transmission, including HIV and hepatitis, remains a concern despite efforts to
improve screening and purification techniques.

GTC has expressed transgenic HSA in mice at levels equivalent to or greater than
35 grams per liter. Because the Company has demonstrated that the mouse system
is highly predictive to that of dairy animals, the Company believes it will be
able to produce transgenic HSA in cows at commercial scale. An individual dairy
cow will produce approximately 8,000 liters of milk per year, or an estimated 80
kilograms of albumin per year. This level of productivity should provide GTC
with the ability to produce HSA at costs competitive with albumin sourced from
human blood. The Company believes that HSA is not the subject of any composition
of matter patent, and has entered into an agreement with Fresenius AG of Bad
Homburg, Germany, to further develop and commercialize transgenic HSA. Also,
during 1998, GTC further refined its purification

6

process for transgenic HSA and developed a detailed economic model for its
commercial production.

OTHER PROTEINS

MALARIA VACCINE. GTC's transgenic expression system has the potential to express
the correct, immunogenic protein for use as a malaria vaccine both economically
and on a large scale. Malaria is a disease that has an annual incidence of more
than 300 million people worldwide and results in several million deaths
annually. GTC is working with the U.S. National Institutes of Health (the "NIH")
and the Federal Malaria Vaccine Coordinating Committee to express a malaria
protein, which is considered a promising vaccine candidate and to examine the
options for commercializing the vaccine. The Company has entered into a CRADA
with the NIH and during 1998 achieved high level expression of the candidate
vaccine malaria antigen, MSP-1, in the milk of transgenic mice.

SECOND GENERATION BIOPHARMACEUTICALS

GTC has a program to identify and develop unique transgenic constructs which may
represent line extensions for recombinant biotherapeutics. These drugs, many of
which have established significant markets, may become vulnerable to competition
from novel versions which may be more cost effective and/or demonstrate improved
efficacy, allow more convenient routes of administration, or have extended
clinical applications. GTC is in discussions with both generic and proprietary
pharmaceutical and biotechnology companies with strategic and product-specific
interests in the second generation biopharmaceuticals program. In 1998, GTC
signed an agreement with Eli Lilly to develop and potentially commercialize a
novel second generation biotherapeutic for which GTC provides the intellectual
property and know how.

PRIMEDICA CORPORATION CRO SERVICES

OVERVIEW

Contract research organizations provide testing and development services to
pharmaceutical, biotechnology, medical device and other companies, as well as to
certain government agencies. The industry is divided generally into companies
which conduct human clinical trials and those providing non-clinical services,
including preclinical testing, clinical trial support and other development
services. The worldwide revenues for non-clinical CRO services were in excess of
$1 billion in 1998.

The growth of the CRO market has been influenced by several factors. First, cost
control pressures on large pharmaceutical firms are leading them to focus on
core competencies, often resulting in a reduction in the size and capacity of
in-house, non-clinical testing departments. Second, emerging biotechnology and
medical device companies often have and can afford little infrastructure
dedicated to such functions. Third, new scientific developments continue to lead
to new fields of safety testing. Fourth, regulatory changes have mandated
additional testing requirements. Fifth, the need for services, such as efficacy
models and formulation development, increases as pharmaceutical companies
venture further from their traditional bases in search of breakthrough products.

Primedica believes that it has a broader set of value-added services than any of
its competitors and is differentiated by its ability to offer comprehensive
development programs. The Company has the ability to perform virtually all of
the safety, efficacy and quality control testing, as well as to provide the
regulatory affairs expertise necessary to bring a client's early research-stage
product through preclinical testing.

OPERATIONS AND TECHNICAL CAPABILITIES

GTC acquired its CRO capabilities through the acquisitions of TSI Corporation
("TSI") in October 1994 and BioDevelopment Laboratories, Inc. ("BDL") in June
1995. In February 1998, GTC reorganized its CRO businesses under its wholly
owned subsidiary, Primedica, to provide a unified identity and a dedicated
structure for further growth of its CRO business. Primedica conducts its CRO
services through five laboratories located in Worcester, Massachusetts; Horsham,
Pennsylvania; Redfield, Arkansas; Rockville, Maryland and Cambridge,
Massachusetts. GTC expects to use Primedica as a vehicle to pursue acquisitions
and facilitate other transactions driving growth and profitability. This
business currently employs approximately 500 people. Primedica's laboratories
focus on providing high value, scientifically differentiated services to its
clients. Fields in which Primedica provides contract services include:

7

- -- PRODUCT SAFETY TESTING. Primedica conducts safety studies on multiple
animal species using toxicological, pathological and specialty
endpoints, such as physiologic, pharmacologic and mechanistic
evaluations, and is a recognized world leader in conducting and
evaluating reproductive and developmental toxicology studies.

- -- METABOLISM AND PHARMACOKINETICS. Primedica's metabolism group evaluates
the distribution and impact of a drug and its metabolites using
sophisticated sampling techniques, metabolite profiling and
identification, tissue distribution studies, and other techniques to
determine tissue half-life, clearance rates, and potential sites of
drug toxicity after systemic exposure.

- -- COMPREHENSIVE MANUFACTURING SERVICES. Primedica specializes in
biopharmaceutical process development and manufacturing for
small-to-moderate batch sizes. These services include early cell line
development and optimization, production, down stream processing and
fill and finish services.

- -- DELIVERY AND DEVELOPMENT TECHNOLOGY SERVICES. These services include
targeted and controlled drug delivery, feasibility and preformulation
support, as well as formulation development for various routes of
administration.

Primedica believes the key to sustaining superior performance in this field will
be in providing services in a close, collaborative relationship in which
customers are able to receive scientific services from Primedica at levels equal
to or greater than that which they could receive from an in-house department.
Toward this end, Primedica has also made significant investments in people,
technology and programs since its acquisition of TSI, including an increase in
the number of doctoral level employees by 42% since the acquisition. Primedica
believes that its testing services strategy has been validated by the growth in
its business since the acquisition of TSI in October 1994. Revenues for the
Company's testing and production services in 1998 were $50.8, million
representing a 17% increase compared to 1997.

IDIOTYPIC CANCER VACCINES

Primedica's Rockville Laboratories have been producing experimental cancer
vaccines for B-cell lymphoma and Myeloma for the NCI under contract since 1993.
These vaccines have shown preliminary efficacy in early clinical trials. In
1997, the Company signed a letter of intent to enter into a CRADA with the NCI
to expand these clinical trials and to gain development rights to the program.

Idiotypic cancer vaccines are autologous therapeutics, requiring that for
lymphoma immunoglobulin be harvested from individual patients and expanded in
separate cell cultures. For Myeloma, immunoglobulin is harvested directly from
patient serum. Vaccines are produced at the NCI and Primedica and are given to
patients upon the completion of chemotherapy. The vaccine activates the
patient's immune system to destroy cancer cells which remain after traditional
chemotherapy regimens.

The principal clinical focus of the work today is on B-cell lymphoma, with
secondary efforts on multiple myeloma and other related malignancies. There are
over 40,000 newly diagnosed cases of B-cell lymphoma in the United States each
year. Most patients initially respond favorably to chemotherapy, but the cancer
has a 70% to 90% mortality rate, with patients typically relapsing within two to
three and one half years.

Idiotypic vaccines produced by GTC have shown promising results. In results
reported at the American Society of Hematology meeting in December 1998, 18 of
21 patients with lymphoma treated with the vaccine following an initial
chemotherapy regimen remain disease free to intervals ranging from 19 to 42
months post-chemotherapy. GTC actively continues to seek a corporate partner for
the continued development and commercialization of its cancer vaccines and
expects to enter pivotal trials, pending funding, in 1999.

RELATIONSHIP WITH GENZYME

EQUITY POSITION. Genzyme is the largest single stockholder of the Company,
currently holding 7,428,365 shares of Common Stock, representing approximately
40% of the outstanding GTC Common Stock. Genzyme also holds two Common Stock
Purchase Warrants (the "Genzyme Warrants") exercisable for 145,000 and 288,000
shares of Common Stock at prices of approximately $2.84 and $4.875 per share,
respectively, the market price of the Common Stock at the time the Genzyme
warrants were issued.

Four million of Genzyme's shares in GTC were acquired in 1993 at the time of the
Company's organization in exchange for

8

the transfer of certain assets to the Company. In February 1995, 500,000 shares
were sold to Genzyme at $8.00 per share, upon exercise by GTC of a put agreement
entered into at the time of the Company's initial public offering. Genzyme
received 1,333,333 shares in 1995 and 219,565 shares in 1996 in exchange for
conversion of debt at the then current market prices. In July 1995, 475,467
shares were issued to Genzyme in exchange for shares of Genzyme common stock
delivered as a portion of the consideration for the acquisition of BDL. The
remaining 900,000 shares were purchased by Genzyme as part of GTC's 1996 public
offering. The Genzyme Warrants, which expire on July 3, 2005 and December 28,
2008, were issued to Genzyme in consideration of Genzyme's guarantees of the
Company's indebtedness to commercial banks as discussed below. All of the shares
held by Genzyme are entitled to certain registration rights.

ARRANGEMENTS REGARDING TECHNOLOGY AND PRODUCT DEVELOPMENT. GTC and Genzyme have
entered into a number of agreements regarding technology and product
development, as discussed below.

TECHNOLOGY TRANSFER AGREEMENT. Under the Technology Transfer Agreement dated May
1, 1993, Genzyme transferred substantially all of its transgenic assets and
liabilities to GTC, including its ownership interest in the Joint Venture,
assigned its relevant contracts, and licensed to the Company technology owned or
controlled by it and relating to the production of recombinant proteins in the
milk of transgenic animals (the "Field") and the purification of proteins
produced in that matter. The license is worldwide and royalty free as to
Genzyme, although GTC is obligated to Genzyme's licensors for any royalties due
them. As long as Genzyme owns less than 50% of GTC, Genzyme may use the
transferred technology, or any other technology it subsequently acquires
relating to the Field, without any royalty obligation to the Company, provided
Genzyme may not offer transgenic production services to third parties.

R&D AGREEMENT. Pursuant to a Research and Development Agreement dated May 1,
1993 (the "R&D Agreement"), Genzyme and GTC agreed, until December 31, 1998, to
provide research and development services to the other relating, in the case of
GTC, to transgenic production of recombinant proteins and, in the case of
Genzyme, to the purification of such proteins. Each company receives payments
from the other equal to the performing party's fully allocated cost of such
services, which can be no less than 80% of the annual budgets established by the
parties under the R&D Agreement, plus, in most cases, a fee equal to 10% of such
costs. The parties are continuing under this agreement and are currently
negotiating an extension of the agreement.

ATIII LLC. On January 1, 1998, a definitive collaboration agreement for the
ATIII LLC joint venture between the Company and Genzyme was executed. Under the
terms of the agreement, Genzyme will provide 70% of the first $33 million of
development costs, excluding facility costs, under this program. The Company
will fund the other 30% of these costs. Development costs in excess of these
amounts will be funded equally by the partners. The Company and Genzyme will
also make capital contributions to ATIII LLC sufficient to pay 50% each of all
new facility costs to be incurred. In addition to the funding, both partners
will contribute manufacturing, marketing and other resources to ATIII LLC at
cost. Under the agreement to establish the joint venture, Genzyme and the
Company were the only members and owned 3.7% and 96.3% interest, respectively.
In accordance with the executed purchase agreement, the Company sold and
assigned a 46.3% ownership interest to Genzyme so that Genzyme and GTC each
owned 50% of the venture. The purchase price includes milestone payments of
$12,500,000 from Genzyme to the Company if and when the product has been
approved by the United States Food and Drug Administration and certain sales
levels have been reached. Profits and losses are shared according to ownership
percentages. These agreements cover all territories other than Asia (see Note 11
to the consolidated financial statements appearing in this report).

OTHER ARRANGEMENTS. GTC and Genzyme have also entered into the following other
arrangements:

SERVICES AGREEMENT. Under a services agreement between GTC and Genzyme (the
"Services Agreement"), GTC pays Genzyme a fixed monthly fee for basic laboratory
and administrative support services provided by Genzyme. The monthly fee is
adjusted annually, based on the services to be provided and changes in Genzyme's
cost of providing the services. The Services Agreement is self-renewing annually
and may be terminated upon 90 days notice by either party to the other party.

LEASE. GTC leases a portion of Genzyme's facilities in Framingham, Massachusetts
(the "Lease"). GTC paid Genzyme $411,000 under the Lease in 1998. This lease
expired in May 1998, at which time the lease automatically renewed for one year
and continues to do so annually until terminated by either party on 90 days
notice.

CREDIT LINE GUARANTY, TERM LOAN GUARANTY AND LIEN. The Company obtained a
credit line in July 1995 and a term loan in December 1995 with a commercial
bank, each secured by Genzyme's guaranty of the Company's obligations
thereunder (up to $9.8 million at December 28, 1997). In December 1998, GTC
refinanced the credit line and term loan with another bank and Genzyme
increased the amount of its guaranty (up to $24.6 million at January 3,
1999). The Company has agreed to

9

reimburse Genzyme for any liability Genzyme may incur under such guaranty and
has granted Genzyme a first lien on all of the Company's assets to secure such
obligation. In consideration of Genzyme's agreement to provide these guarantees,
the Company issued warrants to purchase 145,000 and 288,000 shares of the
Company's common stock at prices per share of $2.84 and $4.875, respectively
(the Company's common stock's market prices at the dates of the Credit Lines)
each with a ten-year term.

OTHER STRATEGIC COLLABORATIONS

TUFTS UNIVERSITY SCHOOL OF VETERINARY MEDICINE. Pursuant to a cooperation and
licensing agreement, Tufts has agreed to work exclusively with GTC until
September 2000 in developing commercial applications of transgenic protein
production in milk. Tufts has also granted GTC a perpetual, non-exclusive
license to use certain proprietary microinjection technology and animal
husbandry techniques. Sales of products derived from transgenic goats produced
by Tufts, or from their offspring, are subject to royalties payable to Tufts.
The Company maintains a herd of approximately 150 goats at Tufts' facility in
Grafton, Massachusetts.

SMIG JV. GTC holds an interest in the SMIG JV which, in March 1994, increased to
22% after an additional $1.2 million cash investment by the Company. In October
1995, GTC contributed approximately $807,000 to maintain its 22% interest. The
SMIG JV and GTC are parties to a research and development agreement under which
the SMIG JV funded GTC's research into transgenic production of AT-III through
October 1995 and certain research on other proteins (the "Funded Proteins")
through October 1996. GTC has granted to the SMIG JV an exclusive license in
Asia to use GTC's transgenic technology to market and sell transgenic animals
and to sell Funded Proteins until the later of 2008 or the expiration of any
applicable Japanese patent, subject to various reciprocal royalty obligations.
In January 1997, the Company reached agreement with the SMIG JV under which GTC
received milestone payments of $4.4 million (see Note 11 to the consolidated
financial statements appearing in this report).

PATENTS AND PROPRIETARY RIGHTS

GTC has filed a number of patent applications which cover relevant portions of
its transgenic technology, several of which are covered by cross-licensing
agreements. GTC holds an exclusive license from Genzyme to rights under a number
of patent applications on file in the United States and corresponding foreign
patent applications relating to certain aspects of its technology. GTC has a
broad patent issued by the European Patent Office which grants the full range of
claims presented in GTC's application covering the basic method of protein
production in milk, as well as any promoter used to do so. Other GTC
applications as to specific proteins, classes of proteins, techniques to enhance
expression and purification technologies remain pending. During 1998, the United
States Patent and Trademark Office awarded GTC three patents, one covering the
purification of proteins from the milk of transgenic animals, another relating
to the production of monoclonal and assembled antibodies at commercial levels in
the milk of transgenic mammals, and one covering the production of rh AT-III in
the milk of transgenic goats.

GTC has exclusive and nonexclusive licenses to technologies owned by other
parties, including DNX, Inc. as to microinjection, Stanford University as to
gene transfer, and Centeon L.L.C., as the successor to Behringwerke AG as to
AT-III, as well as promoter cross-licenses in place with PPL Therapeutics PLC
("PPL") and Pharming B.V. ("Pharming"). Certain of the licenses require GTC to
pay royalties on sales of products which may be derived from or produced using
the licensed technology. The licenses generally extend for the life of any
applicable patent.

The Company also relies upon trade secrets, know how and continuing
technological advances to develop and maintain its competitive position. In an
effort to maintain the confidentiality and ownership of trade secrets and
proprietary information, the Company requires employees, consultants and certain
collaborators to execute confidentiality and invention assignment agreements
upon commencement of a relationship with the Company.

COMPETITION

TRANSGENICS

10

Many companies, including biotechnology and pharmaceutical companies, are
actively engaged in seeking efficient methods of producing proteins for
therapeutic or diagnostic applications. Two other companies known to GTC are
extensively engaged in the application of transgenic technology for the
production of proteins: Pharming and PPL. Pharming, based in the Netherlands, is
primarily engaged in the development of recombinant proteins in the milk of
transgenic cows, which are most suitable for extremely high volume protein
production. PPL, which is based in Scotland, utilizes primarily sheep for
transgenic protein production.

TESTING SERVICES

The worldwide markets for testing services, manufacturing support services and
related development services are highly fragmented, involving several hundred
companies, as well as universities and governmental bodies. Competition in these
markets is based primarily on technological capabilities and reputation for
quality of products and services offered and perceived financial stability. In
certain market segments, price is also a significant competitive factor.

GOVERNMENT REGULATION

TRANSGENICS

The manufacturing and marketing of GTC's potential products, and certain areas
of research related to them, are subject to regulation by governmental
authorities in the United States, including the FDA, the U.S. Department of
Agriculture (the "USDA") and the Environmental Protection Agency (the "EPA").
Comparable authorities are involved in other countries.

To GTC's knowledge, no protein produced in the milk of a transgenic animal has
been submitted for final regulatory approval. However, the FDA issued its Points
to Consider in August 1995. Earlier in 1995, comparable guidelines were issued
by European regulatory authorities. GTC believes that its programs
satisfactorily address the issues raised by these documents and generally views
them as a very positive milestone in the acceptance of the transgenic form of
production. Based on discussions with the FDA and others, GTC expects that the
basic U.S. regulatory framework for the transgenic production of recombinant
proteins in animals will be similar to that described in the Points to Consider.

The anticipated approval process will be a two-part process, governing, first,
the approval of an individual pharmaceutical product as safe and effective and,
second, the approval of the manufacturing process as complying with applicable
FDA current Good Manufacturing Processes ("GMPs"). There can be no assurance,
however, that there will not be any delays in product development or FDA
approval due to issues arising from the breeding of transgenic animals and the
use of proteins derived from such animals.

With respect to therapeutic products, generally the standard FDA approval
process includes preclinical laboratory and animal testing, submission of an IND
to the FDA, appropriate human clinical trials to establish safety and
effectiveness and submission of a New Drug Application prior to market
introduction. The Company generally expects the same process to apply to
transgenically produced products and has already submitted a U.S. IND for AT-III
and has initiated clinical trials in the U.S. GTC expects the approval process
for various proteins to be undertaken either by the Company, by a collaborator
for which the Company is producing proteins, or jointly, depending upon the
nature of the relationship involved.

Approval for the production facilities to be used in producing a therapeutic
product will be subject to both the requirements for Biologics License
Applications and the Points to Consider.

TESTING SERVICES

Primedica and its customers are subject to a variety of regulatory requirements
intended to ensure the quality and integrity of their products and services. The
industry standard for conducting non-clinical testing is embodied in regulations
called Good Laboratory Practices ("GLPs"). GLPs have been adopted by the EPA and
the FDA and a number of foreign regulatory bodies. To help ensure compliance,
the Company maintains a strict quality assurance program at each site to audit
test data and conduct regular inspections of testing procedures and facilities.
Primedica also complies with FDA-established current GMPs at its Rockville and
Cambridge laboratories.

Primedica also maintains certain licenses and permits issued by federal, state
and local authorities relating to the operation of its current laboratory and
testing facilities, including those required for hazardous waste disposal, the
purchase, use and disposal of radioactive isotopes and the use of animals in
testing and research. These licenses and permits include licenses

11

from the U.S. Nuclear Regulatory Commission for the purchase, use and disposal
of small amounts of short-lived radioactive isotopes for research purposes.
Primedica also has registered with the Massachusetts Department of Environmental
Protection and the EPA as a Very Small Quantity Hazardous Waste Generator in
connection with its disposal of certain organic hazardous wastes used in
connection with its molecular biology and biomedical research. These wastes are
disposed of through a licensed hazardous waste transporter. The use and disposal
of chemicals is regulated under the Toxic Substances Control Act and other state
and federal legislation.

Each of Primedica's laboratories is licensed by the USDA and state and local
authorities to house and use laboratory animals for biomedical research
purposes. The ability to continue using animals in testing and research in
dependent on continued compliance with the requirements of such licenses.
Primedica's Argus, Worcester and Rockville laboratories are also registered with
the U.S. Public Health Service to conduct biomedical research on laboratory
animals funded by the National Institute for Health ("NIH") and other federal
agencies. Primedica's Argus, Worcester and Redfield laboratories are also
licensed by federal and state drug enforcement agencies to procure and use
controlled substances in research programs involving laboratory animals.

The Company's operations are also subject to federal, state and local laws,
rules, regulations and policies governing the use, generation, manufacture,
storage, air emission, effluent discharge, handling and disposal of certain
materials and waste, including, but not limited to, animal waste and waste
water.

RESEARCH AND DEVELOPMENT COSTS

During its fiscal years ended January 3, 1999, December 29, 1997, and December
29, 1996, GTC spent $16,641,000, $17,840,000, and $8,684,000, respectively, on
research and development. These costs include labor, materials and supplies, and
overhead, the cost of operating the transgenics production facility, as well as
certain subcontracted research projects.

EMPLOYEES

As of January 3, 1999, GTC employed 621 people. Of these, 462 were engaged in
operations, 32 were engaged in research and development, and 127 were engaged in
marketing and general administration. Of GTC's employees, approximately 51 have
Ph.D. degrees, 3 have M.D. degrees and 16 have D.V.M. degrees. None of GTC's
employees are covered by collective bargaining agreements. GTC believes its
employee relations are satisfactory.

ITEM 1A.

EXECUTIVE OFFICERS OF THE REGISTRANT

The current executive officers of the Company are as follows:

NAME AGE POSITION
---- --- --------

James A. Geraghty ........................ 44 Chairman of the Board

Sandra Nusinoff Lehrman, M.D. ............ 51 President and Chief Executive Officer

John B. Green ............................ 45 Vice President, Chief Financial Officer and Treasurer

Harry M. Meade ........................... 52 Vice President, Transgenics Research

Peter H. Glick ........................... 35 President, Primedica Corporation

Executive officers of the Company are elected by the Board of Directors on an
annual basis and serve at the discretion of the Board of Directors.

Mr. Geraghty was the President and Chief Executive Officer of GTC from the date
of its incorporation in February 1993 until July 1998. He has been a director of
GTC since February 1993 and has been Chairman of the Board since January 1998.
Mr. Geraghty joined Genzyme in September 1992, where he was a Vice President for
Corporate Development and the General Manager of the transgenics business unit
until the incorporation of the Company.

12

Dr. Lehrman has been President and Chief Executive Officer since July 1998.
Prior to joining GTC, from 1983 to 1994 Dr. Lehrman held several positions at
Wellcome PLC, the last being International Director, Biotechnology and Vice
President, General Manager of Burroughs Wellcome Mfg., Inc., a biopharmaceutical
production subsidiary. She also served as Vice President, Drug Development for
Triangle Pharmaceuticals until July 1996 and President of CytoTherapeutics,
Inc., before joining GTC.

Mr. Green has been the Vice President and Chief Financial Officer of GTC since
December 1994 and Treasurer since August 1997. He has also served as Vice
President and Treasurer of TSI since March 1993 and as its Chief Financial
Officer since December 1994. Prior to that, he was Vice President and Assistant
Treasurer of TSI from December 1989.

Dr. Meade has been Vice President, Transgenics Research for GTC since August
1994 and has served as Research Director of GTC since May 1993. Prior to joining
GTC, Dr. Meade was a Scientific Fellow at Genzyme, where he was responsible for
directing the transgenic molecular biology program. From 1981 to March 1990,
when he joined Genzyme, Dr. Meade was a Senior Scientist at Biogen, Inc., a
biotechnology company, where he worked on the technology relating to the
production of proteins in milk and was an inventor on the first issued patent
covering this process.

Mr. Glick has been President, Primedica Corporation, a wholly-owned subsidiary
of GTC, since February 1998 and has served as Vice President, Marketing and
Corporate Development of GTC since June 1995. Prior to that he was Vice
President, Corporate Development of GTC from October 1994, and of TSI from June
1993. From January 1994 to January 1996, he also served as President of
Primedica's Rockville Laboratories subsidiary. From November 1991 to May 1993,
he was Director, Corporate Development of TSI. Prior to joining TSI, he was a
strategy consultant at Bain & Company.

ITEM 2. PROPERTIES

GTC's headquarters and research facilities for the transgenics segment are
located in approximately 9,100 square feet of laboratory and office space leased
from Genzyme in Framingham, Massachusetts. This lease expired in May 1998, at
which time the lease automatically renewed, and continues to renew annually, on
a year-to-year basis until terminated by either party on 90 days' notice. (See
"Item 1 - Business--Relationship with Genzyme.")

GTC owns a 383-acre commercial production facility in central Massachusetts.
This facility contains 106,793 square feet of production, laboratory and
administrative space dedicated to its transgenic segment. The facility also
currently houses more than 1,500 goats. GTC believes its and Genzyme's current
facilities are adequate for significant further development of commercial
transgenic products. GTC also currently utilizes animal housing, care and
treatment facilities operated by Tufts in Massachusetts.

Primedica also owns or leases sites for each of its testing laboratories. The
Company's Worcester laboratories occupy two facilities in Worcester,
Massachusetts, the largest of which is an approximately 107,600 square foot
preclinical testing facility, leased through March 2005. In addition, Primedica
owns an adjacent building that consists of 46,800 square feet, of which 28,100
square feet of space has been renovated for preclinical testing. The remaining
18,700 square feet, of which 16,000 square feet is unrenovated shell space, is
available for future expansion.

In addition, Primedica owns and occupies a 68,000 square-foot preclinical
testing facility in Redfield, Arkansas; leases a 55,000 square-foot facility in
Horsham, Pennsylvania consisting of a 38,000 square foot preclinical testing
facility and 16,000 square feet of unrenovated expansion space, under a lease
which expires in June 2002; operates its formulation business in a 10,500
square-foot laboratory facility in Cambridge, Massachusetts under a lease that
expires in October 2002; and occupies a 27,000 square-foot laboratory and office
facility in Rockville, Maryland, under a lease expiring in December 2000 and
leases 5,000 square feet of office space located in Milford, Massachusetts under
a lease expiring in October 2001.

ITEM 3. LEGAL PROCEEDINGS

GTC is not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of fiscal year 1998, no matter was submitted to a vote
of the security holders of the Company.

13

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The Common Stock of GTC commenced trading on July 9, 1993 in the Nasdaq National
Market System under the symbol GZTC. Quarterly high and low sales prices for the
stock as reported by the Nasdaq National Market System are shown below.

HIGH LOW
---- ---

1997:
1st Quarter 10 1/4 6
2nd Quarter 9 1/4 6 3/8
3rd Quarter 12 3/16 8
4th Quarter 14 8 1/4

1998:
1st Quarter 13 1/2 9
2nd Quarter 12 1/4 7 11/16
3rd Quarter 8 4
4th Quarter 7 1/4 2 1/16

On March 16, 1999, there were approximately 781 shareholders of GTC of record.

The Company has never paid a cash dividend on its Common Stock and currently
expects that future earnings will be retained for use in its business.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below as of January 3, 1999 and December
28, 1997 and for each of the three fiscal years in the period ended January 3,
1999 are derived from the Company's consolidated financial statements included
elsewhere in this Report, which have been audited by PricewaterhouseCoopers LLP,
independent accountants. The selected financial data set forth below as
of December 29, 1996 and December 31, 1995 and 1994, and for the years ended
December 31, 1995 and 1994 are derived from audited consolidated financial
statements not included in this Report.

14

This data should be read in conjunction with the Company's consolidated
financial statements and related notes thereto under Item 8 of this Report and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 of this Report.

SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands except per share data)

FOR THE FISCAL YEARS ENDED
----------------------------------------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 31, DECEMBER 31,
1999 1997 1996 1995 1994
---------- ------------ ------------ ------------ ------------

STATEMENT OF OPERATIONS DATA:

Revenues:
Services $ 50,816 $ 43,417 $ 38,496 $ 38,496 $ 4,465

Sponsored research and development 11,596 19,521 8,338 6,022 4,097

Products -- -- -- -- 909
----------- ----------- ----------- ----------- -----------
62,412 62,938 46,834 32,421 9,471
Costs and expenses:

Services 43,668 36,989 33,356 24,250 5,157

Research and development 16,641 17,840 8,684 6,394 4,671

Products -- -- -- -- 841

Selling, general and administrative 16,184 15,650 11,691 8,919 3,596

Equity in loss of Joint Venture 4,285 811 356 713 582

Impairment of investment in Joint
Venture -- -- -- -- 58
----------- ----------- ----------- ----------- -----------
80,778 71,290 54,087 40,276 14,905
----------- ----------- ----------- ----------- -----------
Loss from continuing operations (18,366) (8,352) (7,253) (7,855) (5,434)

Other income and (expenses):

Interest income 280 136 85 32 238

Interest expense (1,379) (1,129) (1,138) (1,007) (263)

Other income 100 50 587 780 --
----------- ----------- ----------- ----------- -----------
Loss from continuing operations before
income taxes (19,365) (9,295) (7,719) (8,050) (5,459)

Provision (benefit) for income taxes 225 48 27 (2,346) 7
----------- ----------- ----------- ----------- -----------
Loss from continuing operations $ (19,590) $ (9,343) $ (7,746) $ (5,704) $ (5,466)

Discontinued operations
Income from discontinued clinical
operations
(less applicable taxes of $239
and $21) -- -- -- 412 182

Gain on disposal of clinical
operations
(less applicable income taxes of
$3,401) -- -- -- 1,159 --
----------- ----------- ----------- ----------- -----------
Net loss $ (19,590) $ (9,343) $ (7,746) $ (4,133) $ (5,284)
Dividends to preferred shareholders (1,156) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net loss to common shareholders $ (20,746) $ (9,343) $ (7,746) $ (4,133) $ (5,284)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net loss to common shareholders per
weighted average number of common
shares (basic and diluted):
From continuing operations $ (1.15) $ (0.54) $ (0.52) $ (0.48) $ (0.83)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net loss $ (1.15) $ (0.54) $ (0.52) $ (0.35) $ (0.80)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average number of shares
outstanding (basic and diluted) 17,978,677 17,253,292 14,801,725 11,788,542 6,598,545

JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 31, DECEMBER 31,
1999 1997 1996 1995 1994
---------- ------------ ------------ ------------ ------------

BALANCE SHEET DATA:

Cash and cash equivalents $11,740 $ 6,383 $ 8,894 $ 5,825 $ 816

Short-term investments -- -- -- -- 2,231

Working capital (deficit) (4,319) (8,423) (116) (7,011) (7,858)

Total assets 83,337 70,980 66,704 58,042 47,993

Long-term liabilities 10,397 10,779 6,742 7,179 9,082

Stockholders' equity 36,204 27,378 35,204 27,288 19,424

There were no cash dividends paid for any period presented.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

YEAR ENDED JANUARY 3, 1999 AS COMPARED TO YEAR ENDED DECEMBER 28, 1997

15

Total revenues for 1998 were $62.4 million, compared with $62.9 million in 1997,
a decrease of $500,000 or 1%. Service revenues increased to $50.8 million in
1998 from 43.4 million in 1997, an increase of $7.4 million or 17%. Research and
development revenues decreased to $11.6 million in 1998 from $19.5 million in
1997, a decrease of $7.9 million or 41%. The decrease reflects the impact on
revenue of the establishment, in January 1998, of the joint venture ("ATIII
LLC") for the development of recombinant human antithrombin III (AT-III") with
Genzyme Corporation ("Genzyme"). Had the AT-III program been structured on the
same basis during 1998 as during 1997, research and development revenues for
1998 would have increased by approximately $713,000 or 4%.

Cost of services in 1998 were $43.7 million compared to $37.0 million in 1997,
an increase of 18%, due, primarily, to increased service volumes. Sponsored
research and development expenses decreased to $10.5 million in 1998 from $12.6
million in 1997, a decrease of $2.1 million or 17%. The decrease is due to the
impact of the formation of ATIII LLC. In 1997, the full cost of the AT-III
development program, including subcontractor costs, was reflected by the Company
as sponsored research and development expense and, to the extent that the
program was funded, as sponsored research and development revenue. With the
formation of ATIII LLC in 1998, all funding and subcontractor costs are being
recorded directly by ATIII LLC. Costs incurred by the Company for the AT-III
development program are being funded by ATIII LLC and, therefore, only these
costs are being recorded equally as sponsored research and development revenue
and sponsored research and development expense. Had the AT-III development
program been structured on the same basis during 1998 as during 1997, the
sponsored research and development expenses would have increased by
approximately $6.6 million over the 1997 rate. Internal research and development
expenses increased to $6.2 million in 1998 from $5.3 million in 1997, an
increase of $900,000 or 17%. The increase is due to increased work on the cancer
vaccine program and increased activity on internal research programs.

Gross profit, defined as revenues less service costs and research and
development costs, in 1998 amounted to $2.1 million versus $8.1 million in 1997.
The decrease is primarily due to $4.4 million of transgenic milestones from the
joint venture with Sumitomo Metals Industries, LTD ("SMIG JV") recorded in 1997
in connection with the AT-III program, a $1.5 million milestone from
Bristol-Myers Squibb in 1997 relating to the BR96 collaboration. Additionally,
an increase of $900,000 in internal R&D was offset by an increase of $700,000 in
services gross profit. Gross profit on services for 1998 was $7.1 million, a
gross margin of 14%, versus $6.4 million, a gross margin of 15% in 1997. The
decrease in gross margin is due to increased revenue recognized on contracts not
signed until the first quarter of 1997 but for which costs had previously been
incurred and recognized, partially offset by improved utilization in 1998 due to
increased revenues.

Selling, general and administrative ("S,G &A") expenses increased to $16.2
million in 1998 from $15.7 million in 1997, an increase of $500,000 or 3%. The
increase is due to the increased marketing effort and additional costs
associated with the name change for Primedica as well as the addition of
administrative personnel required to support the growth in transgenic research
and development programs.

Interest income increased to $280,000 in 1998, from $136,000 in 1997, due to an
increase in funds available for investment as a result of proceeds received from
the preferred stock offering in the first quarter of 1998 and the sale of common
stock in a registered direct offering in the second quarter of 1998. Interest
expense increased to $1.4 million in 1998, from $1.1 million in 1997. Of the
1998 total, $1,144,000 represents interest incurred by the testing service
operations, $101,000 represents interest for the financing of the transgenic
production facility and $134,000 represents interest incurred under the
Convertible Debt and Development Funding Agreement with Genzyme ("Genzyme Credit
Line") (see Item 8 and Note 4 to the consolidated financial statements appearing
in this report).

The Company recognized $100,000 of non-operating income in 1998 compared to
$50,000 in 1997. The 1998 amount represents an earnout payment in connection
with the sale in 1995 of the TSI Center for Diagnostic Products Inc.
("CDP").

The Company recognized $4.3 million of joint venture losses incurred on ATIII
LLC during 1998. In 1997, the Company incurred $811,000 of losses on the SMIG JV
(see Item 8 and Note 11 to the consolidated financial statements appearing in
this report).

YEAR ENDED DECEMBER 28, 1997 AS COMPARED TO YEAR ENDED DECEMBER 29, 1996

Total revenues for 1997 were $62.9 million, compared with $46.8 million in 1996,
an increase of $16.1 million or 34%. Service revenues increased to $43.4 million
in 1997 from $38.5 million in 1996, an increase of $4.9 million or 13%.
Sponsored research and development revenues increased to $19.5 million in 1997
from $8.3 million in 1996, an increase of

16

$11.2 million or 135%, due primarily to an increase in activity and revenues
related to the funding received from Genzyme in the development of the lead
compound, AT-III, the achievement of $4.4 million in milestones from the SMIG
JV, the achievement of a $1.5 million milestone from Bristol-Meyers Squibb
related to the BR96 collaboration and increased commercial activity.

Cost of services in 1997 was $37 million compared to $33.4 million in 1996, an
increase of $3.6 million or 11%, due, primarily, to the increased service
volumes. Sponsored research and development expenses increased to $12.6 million
in 1997 from $7.9 million in 1996, an increase of $4.7 million or 59%. The
increase is due to the operating costs of a manufacturing facility coming
on-line for the production of AT-III clinical trial material and increased
activity in commercial programs. Internal research and development increased to
$5.3 million in 1997 from $828,000 in 1996, an increase of 540%. The increase is
due to the cancer vaccine program being initiated in 1997 and increased internal
research.

Gross profit in 1997 amounted to $8.1 million versus $4.8 million in 1996. Gross
profit on services in 1997 was $6.4 million, a gross margin of 15%, versus $5.1
million, a gross margin of 13%, in 1996. The improvement in the services margins
was primarily due to increased services revenues.

SG&A expenses increased to $15.7 million in 1997 from $11.7 million in 1996, an
increase of $4 million or 34%. The increase is due to an increase in the sales
and marketing effort and to the addition of administrative personnel required to
support the growth in transgenic research and development programs, $434,000 of
transaction costs on uncompleted merger and acquisition activities as well as
$326,000 in one-time personnel-related charges.

Interest income increased to $136,000 in 1997, from $85,000 in 1996, due to the
investment of funds from the Company's secondary public offering and receipt of
interest on funds that were held in escrow last year. Interest expense was
essentially unchanged year to year at $1.1 million. Of the 1997 total, $962,000
represents interest incurred by the testing service operations, $161,000
represents interest for the financing of the transgenic production facility and
$6,000 represents interest incurred under the Genzyme Credit Line (see Item 8
and Note 4 to the consolidated financial statements appearing in this report).

The Company recognized $50,000 of non-operating income in 1997 compared to
$587,000 in 1996, a decrease of $537,000 or 91%. Of the 1996 total, $538,000
represents the collection of the final payments of the promissory note received
in connection with the 1995 sale of the CDP.

The Company recognized $811,000 of joint venture losses in 1997 compared to
$356,000 in 1996. The increase was due to additional research by the SMIG JV
including increased research funding to the Company (see Item 8 and Note 11 to
the consolidated financial statements appearing in this report).

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and cash equivalents of $11.7 million at January 3, 1999.
During 1998, the Company had a $5.4 million net increase in cash. Sources of
funds during the period include net proceeds of $18.9 million from the issuance
of preferred stock, net proceeds of $6.4 million from the issuance of common
stock, $1.6 million of proceeds received from employee stock purchase and stock
option plans, $2.2 million of proceeds from issuance of long-term debt and $5.1
million in net borrowings under a commercial bank revolving line of credit. Cash
inflows were offset by $8.0 million of cash used in operations (due primarily to
the net loss of $19.6 million, of which $10.1 million represented non-cash
charges), $6.0 million invested in capital equipment for further expansion of
the transgenic production facility and the expansion of the laboratory
facilities, $6.0 million used to pay down the Genzyme revolving line of credit,
$4.4 million invested in ATIII LLC and $4.1 million used to pay down long-term
debt.

In March 1998, the Company completed a $20 million private placement of Series A
Convertible Preferred Stock (the "Preferred Stock") to three institutional
investors. The Preferred Stock matures in three years, callable in cash or
common stock at the sole discretion of the Company, and commencing on December
21, 1998 became convertible into common stock at the lower of the average of any
5 day closing bid prices selected by the holder, in the 20 trading days
immediately preceding the conversion date or $14.55. Conversion is subject to
maximum share limitations, and if holders are unable to convert a portion of
preferred stock due to these limitations, a dividend equal to 10% per annum of
the face amount of the unconverted preferred stock, payable in cash or preferred
stock at the Company's sole option will accrue (see Item 8 and Note 5 to the
consolidated financial statements appearing in this report). As a result of this
financing, the amount of the

17

revolving line of credit from Genzyme Corporation established under a May 1996
agreement (the "Genzyme Credit Line") was reduced to approximately $6.3 million.

In May 1998, the Company completed a private placement of 603,300 shares of
common stock at $10.80 per share in a registered direct offering to a single
purchaser raising approximately $6.4 million in new equity.

In December 1998, GTC refinanced its bank line of credit and a term loan with a
new commercial bank. The credit line was increased to $17.5 million (the "New
Credit Line") for a three year term expiring in December 2001. Under the New
Credit Line, borrowing capacity was increased by $10 million to $17.5 million, a
portion of which may be utilized for letters of credit. Availability under the
term loan, which provides financing for facilities expansion (the "New Term
Loan"), was increased by $5 million to $7.1 million. As of January 3, 1999,
approximately $11.1 million was outstanding and $4.9 million was available under
the New Credit Line while approximately $1.8 million was outstanding and $5.3
million was available under the New Term Loan. A standby letter of credit with a
face amount of $1.5 million has been issued under the New Credit Line to support
a major facility lease. No amounts were due under the standby letter of credit
as of January 3, 1999. The Company has outstanding debt of $11.8 million payable
through 2012 and operating leases with future minimum payments of $9.2 million
through 2005. The Company has entered into a collaboration agreement for the
ATIII LLC joint venture under which it has committed to fund 30% of development
costs until Genzyme has contributed $33 million and 50% of development costs
thereafter, as well as 50% of all new facility costs (see Item 8 and Notes 2, 9
and 11 to the consolidated financial statements appearing in this report).

Also in December 1998, the Company obtained an additional $5 million lease
commitment pursuant to an equipment lease agreement from a commercial leasing
company which was fully available at January 3, 1999.

The Company had a working capital deficit of $4.3 million at January 3, 1999
compared to a deficit of $8.4 million at December 28, 1997. As of January 3,
1999, the Company had approximately $4.9 million available under the New Credit
Line, $6.3 million available under the Genzyme Credit Line, $5.3 million
available on the New Term Loan and $5 million available under various capital
lease lines. Under the Company's 1999 operating plan, existing cash balances,
along with funds available under bank and lease lines and the Genzyme Credit
Line, are expected to be sufficient to fund the Company into the year 2000. The
Company continues to consider various alternative future financing strategies,
such as collaborative arrangements, public or private sales of its securities,
including securities in certain subsidiaries, additional mortgage or lease
financing, asset sales and other sources.

Management's current expectations regarding the sufficiency of the Company's
cash resources are forward-looking statements, and the Company's cash
requirements may vary materially from such expectations. Such forward-looking
statements are dependent on several factors, including the results of the
Company's testing services business, the ability of the Company to enter into
any transgenic research and development collaborations in the future and the
terms of such collaborations, the results of research and development and
preclinical and clinical testing, competitive and technological advances and
regulatory requirements. If the Company experiences increased losses, the
Company may have to seek additional financing through collaborative arrangements
or from public or private sales of its securities, including equity securities.
There can be no assurance that additional funding will be available on terms
acceptable to the Company, if at all. If additional financing cannot be obtained
on acceptable terms, to continue its operations the Company could be forced to
delay, scale back or eliminate certain of its research and development programs
or to enter into license agreements with third parties for the commercialization
of technologies or products that the Company would otherwise undertake itself.

IMPACT OF YEAR 2000

Certain companies may face problems if the computer processors and software upon
which they directly or indirectly rely are unable to process date values
correctly upon the turn of the millennium ("Year 2000"). Such a system failure
and corruption of data of the Company or its customers or suppliers could
disrupt the Company's operations, including, among other things a temporary
inability to process transactions or engage in other business activities or to
receive information or services from suppliers.

The Company has appointed a Year 2000 task force to address the issues and
assess the potential impact of the Year 2000 problem. The task force is
evaluating the Company's financial systems, computers, software and other
equipment to ensure that the programs and systems will be Year 2000 compliant.
The Company presently believes that its computer systems, software and other
equipment will be Year 2000 compliant by the Summer of 1999. The Company has
spent approximately $100,000 and estimates that it will spend approximately
$300,000 to $400,000 in capital replacement of computers,

18

equipment and software upgrades. The Company will incur another $100,000 to
$200,000 for costs of implementation. The Company will initiate communications
with third party suppliers and is requesting that they represent that their
products and services are to be Year 2000 compliant and that they have a program
to test for compliance. Additionally, the Company is assessing those vendors
that are not Year 2000 compliant and is in the process of finding alternative
vendors that are compliant.

Because the Company currently anticipates that it will achieve Year 2000
compliance, it has not formulated a contingency plan. However, should the
Company determine there is significant risk that it may be unable to adhere to
its compliance timetable, it will assess reasonably likely scenarios resulting
from noncompliance and establish a contingency plan to address such scenarios.

The Company's ability to achieve Year 2000 compliance is subject to various
uncertainties including the Company's ability to successfully identify systems
and programs not Year 2000 compliant, the nature and amount of programming
required to correct or replace affected programs, the availability and magnitude
of labor and consulting costs and the success of the Company's business
partners, vendors and clients in addressing the Year 2000 issue. Therefore,
while the financial impact of implementing Year 2000 compliance remediation has
not been and is not anticipated to be material to the Company's business,
financial position or results of operations, the Company can make no assurances
with respect to the costs of remediation efforts not yet incurred. Additionally,
the Company cannot be certain that it will achieve adequate Year 2000 compliance
in a timely manner or that any impact of a failure to achieve such compliance
will not have a material adverse effect on the Company's business, financial
condition or results of operation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has certain financial instruments at January 3, 1999, including a
guaranty, two revolving lines of credit, a letter of credit and various loans
outstanding which are sensitive to changes in interest rates. The Company has a
guaranty by Genzyme Corporation, obtained in December 1998, of the Company's
credit facility with a commercial bank, whose carrying value of $969,000
approximates fair value. Also, the Company has revolving lines of credit with a
commercial bank and with Genzyme Corporation totaling $23.8 million, which
accrue interest at a variable rate. At January 3, 1999, $11.1 million is
outstanding under the lines and the weighted average interest rate is 2.03%. As
part of the revolving credit facility at a commercial bank, the Company has been
issued a $1.5 million standby letter of credit in support of a major facility
lease, of which none has been drawn down at January 3, 1999. Additionally, the
Company has various loans outstanding. These instruments are not leveraged and
are held for purposes other than trading.

For the various loans outstanding, the table below presents the principal cash
flows that exist by maturity date and the related average interest rate.

1999 2000 2001 2002 2003 THEREAFTER TOTAL
---- ---- ---- ---- ---- ---------- -----

Fixed rate debt ($ in 000's) 661 510 919 422 461 2,145 5,118

Average interest rate on fixed rate debt 9.2% 9.3% 9.0% 9.0% 9.0% 8.5%

Variable rate debt ($ in 000's) 184 183 1,469 -- -- -- 1,836

The interest rate of the variable debt was 7.75% at January 3, 1999. At January
3, 1999, the fair value of these loans approximates carrying value.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES

FINANCIAL STATEMENTS

Response to this item is submitted as a separate section of this report
immediately following Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

19

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

This information is set forth in part under the captions "ELECTION OF DIRECTORS"
and "SECTION 16 (a) BENEFICIAL REPORTING COMPLIANCE" in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders to be held on May 25, 1999
(the "Proxy Statement") which are incorporated herein by reference, and the
remainder of such information is set forth under the caption "EXECUTIVE OFFICERS
OF THE REGISTRANT" in Part I, Item 1A hereof.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the caption "EXECUTIVE COMPENSATION" in the
Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "SHARE OWNERSHIP" in the Proxy
Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the captions "EXECUTIVE EMPLOYMENT AGREEMENTS"
and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the Proxy
Statement is incorporated herein by reference. See also, Notes 2, 6 and 10 to
the Consolidated Financial Statements included herewith.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The Company's Financial Statements and the ATIII LLC Financial
Statements appear as a separate section of this report immediately
following Item 14.

All other schedules have been omitted because the required information
is not applicable or not present in amounts sufficient to required
submission of the schedule, or because the information required is
in the consolidated financial statements or the notes thereto.

The Exhibits to this report are listed below under Part IV, Item
14(c) hereof.

(b) Reports on Form 8-K

No reports on Form 8-K were filed by the Company during the quarter
ended January 3, 1999.

(c) Exhibits

The exhibits filed as part of this Form 10-K are listed on the
Exhibit Index immediately preceding such Exhibits, which Exhibit
Index is incorporated herein by reference.

FORM 10-K-ITEMS 8, 14(a) (1), (a)(2) AND (d)

GENZYME TRANSGENICS CORPORATION AND SUBSIDIARIES

List Of Financial Statements And Financial Statement Schedules

20

The following consolidated financial statements of Genzyme Transgenics
Corporation and subsidiaries are included in Item 8:

Report of PricewaterhouseCoopers LLP - Independent Accountants

Consolidated Balance Sheets--January 3, 1999 and December 28, 1997

Consolidated Statements of Operations--For the fiscal years ended
January 3, 1999, December 28, 1997 and December 29, 1996

Consolidated Statements of Stockholders* Equity--For the fiscal
years ended January 3, 1999, December 28, 1997 and December 29, 1996

Consolidated Statements of Cash Flows--For the fiscal years ended
January 3, 1999, December 28, 1997 and December 29, 1996

Notes to Consolidated Financial Statements

The following financial statements of ATIII LLC are included in Item 4(d):

Report of PricewaterhouseCoopers LLP - Independent Accountants

Balance Sheet - December 31, 1998

Statement of Operations for the period from January 1, 1998 (date of
inception) to December 31, 1998

Statement of Cash Flows for the period from January 1, 1998 (date of
inception) to December 31, 1998

Statement of Changes in Venturer's Capital for the period from
January 1, 1998 (date of inception) to December 31, 1998

Notes to Financial Statements

All other schedules for which provision is made in the applicable regulation
of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.

21

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Genzyme Transgenics Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Genzyme
Transgenics Corporation and its subsidiaries (the "Company") at January 3, 1999
and December 28, 1997, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended January 3, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
February 25, 1999

22

GENZYME TRANSGENICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share amounts)

JANUARY 3, DECEMBER 28,
1999 1997
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents $ 11,740 $ 6,383

Accounts receivable, net of allowance of $487 and $390 at
January 3, 1999 and December 28,1997, respectively 12,334 10,517
Unbilled contract revenue (including $771 and
$891 from related parties at January 3, 1999
and December 28, 1997, respectively) 6,847 6,069
Other current assets 1,496 1,431
-------- --------
Total current assets 32,417 24,400
Net property, plant, and equipment 30,486 26,297
Costs in excess of net assets acquired, net 18,404 19,532
Other assets 2,030 751
-------- --------
$ 83,337 $ 70,980
-------- --------
-------- --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,811 $ 2,091
Accounts payable - Genzyme Corporation 1,487 3,364
Accounts payable - ATIII LLC 2,418 --
Revolving line of credit 11,096 6,000
Revolving line of credit - Genzyme Corporation -- 6,000
Accrued expenses 8,403 7,900
Advance payments 8,317 5,568
Current portion of long-term debt and capital leases 2,204 1,900
-------- --------
Total current liabilities 36,736 32,823
Long-term debt and capital leases, net of current portion 9,561 9,862
Deferred lease obligation 741 613
Other liabilities 95 304
-------- --------
Total liabilities 47,133 43,602
Commitments and Contingencies (Note 3)
Stockholders' equity:
Series A convertible preferred stock, $.01 par value; 5,000,000 shares
authorized; 4,000,000 have been designated as Series A Convertible of which
20,000 shares are issued and outstanding at January 3, 1999 (liquidation
preference $20,000)
Common stock, $.01 par value; 40,000,000 shares authorized; 18,384,024
and 17,403,406 shares issued and outstanding at January 3, 1999
and December 28, 1997, respectively 184 174
Dividend on preferred stock (1,156) --
Capital in excess of par value - preferred stock 18,777 --

Capital in excess of par value - common stock 65,716 54,478

Unearned compensation (437) --

Accumulated deficit (46,864) (27,274)
Accumulated other comprehensive loss (16) --
-------- --------
Total stockholders' equity 36,204 27,378
-------- --------
$ 83,337 $ 70,980
-------- --------
-------- --------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

23

GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share and per share amounts)

FOR THE FISCAL YEARS ENDED

JANUARY 3, DECEMBER 28, DECEMBER 29,
1999 1997 1996
----------------- ---------------- -----------------

Revenues:
Services $ 50,816 $ 43,417 $ 38,496
Sponsored research and development 11,596 19,521 8,338
------------ ------------ ------------
62,412 62,938 46,834
Costs and operating expenses:
Services 43,668 36,989 33,356
Research and development:
Sponsored 10,486 12,558 7,856
Internal 6,155 5,282 828
Selling, general and administrative 16,184 15,650 11,691
Equity in loss of joint ventures 4,285 811 356
------------ ------------ ------------
------------ ------------ ------------
80,778 71,290 54,087
------------ ------------ ------------

Loss from operations (18,366) (8,352) (7,253)
Other income (expense):
Interest income 280 136 85
Interest expense (1,379) (1,129) (1,138)
Other income 100 50 587
------------ ------------ ------------

Loss from operations before income taxes (19,365) (9,295) (7,719)
Provision for income taxes 225 48 27
------------ ------------ ------------

Net loss $ (19,590) $ (9,343) $ (7,746)

Dividend to preferred shareholders (1,156) -- --
------------ ------------ ------------

Net loss to common shareholders $ (20,746) $ (9,343) $ (7,746)
------------ ------------ ------------
------------ ------------ ------------

Net loss per common share (basic and diluted) $ (1.15) $ (0.54) $ (0.52)
------------ ------------ ------------
------------ ------------ ------------

Weighted average number of common shares
outstanding (basic and diluted) $ 17,978,677 $ 17,253,292 $ 14,801,725
------------ ------------ ------------
------------ ------------ ------------

Comprehensive loss:
Net loss (19,590) (9,343) (7,746)
Other comprehensive income / (loss):
Unrealized holding losses on available for
sale securities (16) -- --
Reclassification adjustment for foreign currency
translation losses included in net loss -- 10 --
------------ ------------ ------------
Total other comprehensive income / (loss) (16) 10 --
------------ ------------ ------------
Comprehensive loss $ (19,606) $ (9,333) $ (7,746)
------------ ------------ ------------
------------ ------------ ------------

The accompanying notes are an integral part of the consolidated financial
statements.

24

GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

Series A Convertible Capital in
Preferred Stock Common Stock Excess of
----------------- --------------- Par Value
Shares Amount Shares Amount Dividend Common Stock
- -------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1995 -- $ -- 13,151 $ 132 $ -- $37,351
Net loss
Share of common stock to public, net of expenses -- -- 3,450 34 12,666
Issuance of common stock in connection with the
Convertible Debt and Development Funding Agreement 220 2 1,671
Common stock issuance under Employee Stock Purchase Plan 165 1 511
Common stock issuance in connection with the GTC Savings
and Retirement Plan 58 1 265
Issuance of warrants in settlement of liability 128
Proceeds from the exercise of stock options 87 1 382
---- ----- ------ ------ ------- -------
Balance, December 29, 1996 -- -- 17,131 171 52,974
Net loss
Common stock issuance under Employee Stock Purchase Plan 115 1 572
Common stock issuance in connection with the GTC Savings
and Retirement Plan 37 1 257
Issuance of warrants in connection with a debt financing 130
Translation adjustment
Proceeds from the exercise of stock options 120 1 545
---- ----- ------ ------ ------- -------
Balance, December 28, 1997 -- -- 17,403 174 54,478
Net loss
Sale of preferred stock to institutional investors, net cash
proceeds 20
Issuance of warrants in connection with the preferred stock
offering (1,156) 1,301
Sale of common stock in a private placement, net of expenses 603 6 6,440
Common stock issuance under Employee Stock Purchase Plan 229 2 1,149
Common stock issuance in connection with the GTC Savings
and Retirement Plan 43 1 398
Issuance of warrants in connection with a debt financing 969
Issuance of stock options to non-employees 519
Unrealized loss on investment
Proceeds from the exercise of stock options 106 1 462
---- ----- ------ ------ ------- -------
Balance, January 3, 1999 20 $ -- 18,384 $ 184 $(1,156) $65,716
---- ----- ------ ------ ------- -------
---- ----- ------ ------ ------- -------

Capital in
Excess of Accumulated
Par Value Other Total
Preferred Unearned Accumulated Comprehensive Stockholders'
Stock Compensation Deficit Income(loss) Equity
- ----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1995 $ -- $(10,185) $(10) $ 27,288
Net loss (7,746) (7,746)
Share of common stock to public, net of expenses 12,700
Issuance of common stock in connection with the
Convertible Debt and Development Funding Agreement 1,673
Common stock issuance under Employee Stock Purchase Plan 512
Common stock issuance in connection with the GTC Savings
and Retirement Plan 266
Issuance of warrants in settlement of liability 128
Proceeds from the exercise of stock options 383
------- ----- -------- ---- --------
Balance, December 29, 1996 (17,931) (10) 35,204
Net loss (9,343) (9,343)
Common stock issuance under Employee Stock Purchase Plan 573
Common stock issuance in connection with the GTC Savings
and Retirement Plan 258
Issuance of warrants in connection with a debt financing 130
Translation adjustment 10 10
Proceeds from the exercise of stock options 546
------- ----- -------- ---- --------
Balance, December 28, 1997 (27,274) -- 27,378
Net loss (19,590) (19,590)
Sale of preferred stock to institutional investors, net cash
proceeds 18,922 18,922
Issuance of warrants in connection with the preferred stock
offering (145) --
Sale of common stock in a private placement, net of expenses 6,446
Common stock issuance under Employee Stock Purchase Plan 1,151
Common stock issuance in connection with the GTC Savings
and Retirement Plan 399
Issuance of warrants in connection with a debt financing 969
Issuance of stock options to non-employees (437) 82
Unrealized loss on investment (16) (16)
Proceeds from the exercise of stock options 463
------- ----- -------- ---- --------
Balance, January 3, 1999 $18,777 $(437) $(46,864) $(16) $ 36,204
------- ----- -------- ---- --------
------- ----- -------- ---- --------

The accompanying notes are an integral part of the consolidated financial
statements

25

GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

FOR THE FISCAL YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 29,
1999 1997 1996
-----------------------------------------------

Cash flows for operating activities:
Net loss $(19,590) $ (9,343) $ (7,746)

Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 5,002 4,149 3,821

Provision (recovery) of accounts receivable allowances 166 124 (237)

Shares to be issued for 401-K employer match 515 464 368
Issuance of non-employee options 82 -- --
Loss on disposal of fixed assets -- 7 165
Equity in loss of Joint Ventures 4,285 811 356
Issuance of warrants in settlement of liability -- -- 128
Changes in assets and liabilities:
Accounts receivable and unbilled contract revenue (2,844) (2,471) (4,072)
Other current assets 502 78 (700)
Accounts payable 1,261 1,124 (38)
Other accrued expenses 387 1,783 (1,153)
Advance payments 2,249 (1,081) 1,959
-------- -------- --------
Net cash used by operating activities (7,985) (4,355) (7,149)
Cash flows for investing activities:
Purchase of property, plant and equipment (6,005) (6,175) (3,549)
Investment in Joint Ventures (4,358) (528) --
Restricted cash -- -- 1,425
Other assets (391) -- 632
-------- -------- --------
Net cash used in investing activities (10,754) (6,703) (1,492)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 6,446 -- 12,700
Net proceeds from employee stock purchase plan 1,151 573 512
Net proceeds from the exercise of stock options 463 546 383
Net proceeds from the issuance of convertible preferred stock 18,922 -- --
Proceeds from long-term debt 2,162 5,302 --
Repayment of long-term debt (4,063) (3,597) (1,713)
Net borrowings under revolving line of credit 5,096 -- --
Investment and advances by Genzyme Corporation (6,000) 6,000 1,673
Deferred financing costs -- (170) --
Other long-term liabilities (81) (117) (420)
-------- -------- --------
Net cash provided by financing activities 24,096 8,537 13,135
-------- -------- --------
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 5,357 (2,521) 4,494
Effect of exchange rates on cash -- 10 --
Cash and cash equivalents at beginning of the year 6,383 8,894 4,400
-------- -------- --------
Cash and cash equivalents at end of year $ 11,740 $ 6,383 $ 8,894
-------- -------- --------
-------- -------- --------

The accompanying notes are an integral part of the consolidated financial
statements.

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal years ended January 3, 1999, December 28, 1997 and December 29, 1996 (all
tabular $ in thousands, except per share data)

NOTE 1. NATURE OF BUSINESS

Genzyme Transgenics Corporation (together with its subsidiaries, the "Company")
is engaged in the application of transgenic technology to the development and
production of recombinant proteins for therapeutic and diagnostic uses and,
through its wholly-owned subsidiary, Primedica Corporation ("Primedica"),
formerly TSI Corporation ("TSI"), is a leading provider of preclinical and
toxicology testing services to pharmaceutical, biotechnology, medical device and
chemical companies.

The accompanying financial statements have been presented on the assumption that
the Company is a going concern. The Company has incurred losses and negative
operating cash flow in each of the fiscal years ended January 3, 1999, December
28, 1997 and December 29, 1996. The Company had a working capital deficit of
$4.3 million at January 3, 1999. As of January 3, 1999, the Company had $4.9
million available under a credit line with a commercial bank, $6.3 million
available under a credit line with Genzyme Corporation ("Genzyme"), $5 million
available under a lease commitment pursuant to an agreement with a commercial
leasing company and $5.3 million available under a term note facility with a
commercial bank.

The Company is subject to risks common to companies in the biotechnology
industry, including, but not limited to, development by the Company or its
competitors of new technological innovations, raising additional capital,
dependence on key personnel, protection of proprietary technology and compliance
with government regulations.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Company was incorporated in February 1993. On October 1, 1994, the Company
acquired TSI and its respective subsidiaries, Argus Research Laboratories, Inc.
("Argus"), The TSI Center for Diagnostic Products, Inc. ("CDP"), Health and
Sciences Research Incorporated ("HSRI"), TSI Mason Laboratories, Inc. ("Mason"),
TSI Redfield Laboratories, Inc. ("Redfield"), TSI Washington Laboratories, Inc.
("Washington") and G.D.R.U. Limited ("GDRU"). In July 1995, the Company acquired
BioDevelopment Laboratories, Inc. ("BDL"). In August 1995, the Company closed
its HSRI laboratory. Effective September 1, 1995, the Company completed the sale
of GDRU. HSRI and GDRU were the only laboratories performing human clinical
trials within the Company's operations.

In February 1998, the Company reorganized TSI and its respective subsidiaries
and BDL to form Primedica Corporation.

Genzyme is the Company's largest single stockholder. As a result of various
equity transactions, Genzyme owned 40% of the Company at January 3, 1999 and 43%
at December 28, 1997.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. The Company accounts for its 22% investment in
the joint venture between SMI Genzyme Ltd. and Sumitomo Metals Industries Ltd.
("SMIG JV") using the equity method. The Company accounts for its 50% investment
in the joint venture between the Company and Genzyme ("ATIII LLC") under the
equity method. All significant intercompany transactions have been eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The significant estimates and assumptions in these financial
statements include contract revenue

27

recognition, net realizable value of costs in excess of net assets acquired,
account receivable reserves, tax valuation reserves and the assumptions
regarding the presentation of the Company as a going concern. Actual results
could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash equivalents, consisting principally of money market funds and municipal
notes purchased with initial maturities of three months or less, are valued at
market.

MARKETABLE SECURITIES

Marketable securities, which include the Company's investment in equity
securities, have been classified as available for sale and are stated at market
value based on quoted market prices. Gains and losses on sales of securities are
calculated using the specific identification method.

At January 3, 1999, there was $67,000 of marketable securities included in other
current assets and an associated $16,000 of unrealized loss included in
accumulated other comprehensive loss and equity.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash, cash equivalents and trade accounts
receivable. The Company is subject to the concentration of credit risk of its
commercial bank that holds the revolving line of credit and term loan which the
Company relies on for its future cash flows. At January 3, 1999 and December 28,
1997, approximately 94% and 87%, respectively of cash and cash equivalents were
held by one financial institution. Total credit facilities at one commercial
bank are $24.6 million at January 3, 1999.

The Company provides most of its testing services to diverse pharmaceutical
companies worldwide. The Company also provides services to the U.S. government.
See Note 8 for additional revenue information. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company performs ongoing
credit evaluations of its customers' financial conditions and maintains reserves
for potential credit losses. Activity for fiscal 1996 included a provision of
$334,000, recovery of $571,000 and write-offs of $144,000. Activity for fiscal
1997 included a provision of $256,000, a recovery of $132,000 and write-offs of
$156,000. Activity for fiscal 1998 included a provision of $166,000 and
write-offs of $69,000.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives of three to thirty years.
Leasehold improvements are amortized using the straight-line method over the
life of the improvement or the remaining term of the lease, whichever is
shorter. The direct costs of the New Zealand goats ("Livestock") and related
costs to bring them to the United States are capitalized and amortized using the
straight-line method over three years.

28

The following is the summary of property, plant and equipment and related
accumulated amortization and depreciation as of January 3, 1999 and December 28,
1997.

YEARS JANUARY 3, DECEMBER 28,
OF LIFE 1999 1997
--------- ------ -----

Land - $ 983 $ 534
Buildings 20 - 30 15,968 13,225
Livestock 3 1,959 1,291
Leasehold improvements lease life 4,880 3,751
Laboratory, manufacturing and
office equipment 3 - 10 6,753 5,829
Laboratory, manufacturing and
office equipment - capital lease 3 - 10 10,093 8,199
Construction in process - 179 77
------- -------
$40,815 $32,906
Less accumulated amortization and
depreciation 10,329 6,609
------- -------
Net property, plant and

equipment $30,486 $26,297
------- -------
------- -------

Depreciation and amortization expense was $3,771,000, $2,919,000 and $2,603,000
for the fiscal years ended January 3, 1999, December 28, 1997 and December 29,
1996 respectively. Accumulated amortization for equipment under capital lease
was $3,352,000 and $2,154,000 at January 3, 1999 and December 28, 1997,
respectively.

NON CASH TRANSACTIONS

During fiscal 1996, the Company converted $1,673,000 of debt into 219,565 shares
of common stock under the Convertible Debt and Development Funding Agreement
with Genzyme. The Company also purchased $2,009,000 of fixed assets and financed
these additions with capital lease obligations.

During fiscal 1997, the Company purchased $2,482,000 of fixed assets and
financed these additions with capital lease obligations. The Company issued
warrants valued at $130,000 in connection with the financing for the expansion
of Mason Laboratories (see Note 4).

During fiscal 1998, the Company purchased $1,904,000 of fixed assets and
financed these additions with capital lease obligations. The Company received
stock in payment for an accounts receivable and an advance payment valued at
$583,000. The Company issued warrants valued at $969,000 in connection with the
Genzyme guarantee of a credit line with a commercial bank (see Note 4). The
Company issued warrants valued at $1,301,000 in connection with a Preferred
Stock offering (see Note 5). The Company issued stock options to non-employees
valued at $519,000.

LONG-LIVED ASSETS

The Company reviews long-lived assets for impairment by comparing the cumulative
undiscounted cash flows from the assets with their carrying amount. Any
write-downs are to be treated as permanent reductions in the carrying amount of
the assets. Management's policy regarding long-lived assets is to evaluate the
recoverability of its assets when the facts and circumstances suggest that these
assets may be impaired. This analysis relies on a number of factors, including
operating results, business plans, budgets, economic projections and changes in
management's strategic direction or market emphasis. The test of such
recoverability is a comparison of the asset value to its expected cumulative net
operating cash flow over the remaining life of the asset.

COSTS IN EXCESS OF NET ASSETS ACQUIRED

The $15,860,000 of excess consideration paid and costs incurred over the net
value of assets acquired (goodwill) by GTC in 1994 of TSI is being amortized
using the straight-line method over a twenty-year period. The carrying value of
goodwill is included in management's evaluation of the recoverability of its
long-lived assets. Accumulated amortization at January 3, 1999 was $3,488,000.

29

The $7,329,000 of excess consideration paid and costs incurred over the net fair
value of assets of BDL acquired by GTC in 1995 is being amortized using the
straight-line method over twenty years. Accumulated amortization at January 3,
1999 was $1,297,000.

At January 3, 1999, goodwill totaled $23,189,000 with $4,785,000 accumulated
amortization.

DEFERRED FINANCE CHARGES

The Company incurs various charges relating to financings the Company has
entered into. The Company includes these amounts in other assets and amortizes
the amount to interest expense over the life of the debt. The unamortized
balance at January 3, 1999 and December 28, 1997 was approximately $1.3 million
and $271,000, respectively.

ACCRUED EXPENSES

Accrued expenses included the following:

AT JANUARY 3, AT DECEMBER 28,
1999 1997
-------------------- ----------------------

Accrued payroll and benefits $3,146 $2,877
Accrued severance 329 523
Loss reserves on contracts 614 807
Current income tax 264 -
Other 4,050 3,693
------ -------

Total accrued expenses $8,403 $7,900
------ -------
------ -------

As a result of the 1995 acquisition of BDL, the Company established severance
reserves of $542,000 for the elimination of 19 positions of which nine were
laboratory positions, three were accounting/finance positions and seven were
general and administrative positions, all of which has been paid as of January
3, 1999.

As a result of the merger with TSI, the Company established severance reserves
for the elimination of 35 positions of which 20 were laboratory positions, eight
were accounting/finance positions and seven were general and administrative
positions. The total severance established was $1,417,000 to be paid through
2000. As of January 3, 1999, $1,226,000 has been paid. Of the remaining $191,000
balance, $95,000 was classified as a long-term liability.

Additionally, there have been various other terminations for which the Company
recorded expense of $265,000 and $296,000 in 1998 and 1997, respectively. At
January 3, 1999 and December 28, 1997, $233,000 and $296,000 is included in
accrued expenses, respectively.

INVESTMENT IN JOINT VENTURES

In 1990, the Company entered into the SMIG JV joint venture with Sumitomo Metal
Industries as a minority owner (see Note 11). The investment has been accounted
for under the equity method since March 1994, with the Company recognizing its
22% share of the SMIG JV losses in its Statement of Operations. In October 1995
and March 1997, the Company made additional investments of $807,000 and
$528,000, respectively, in the SMIG JV, which maintained the Company's interest
at 22%. In December 1997, the equity investment in the SMIG JV was reduced to
zero as a result of recognizing the Company's share of the SMIG JV's losses. The
Company has neither obligation nor intention to provide additional funding to
the SMIG JV, and has therefore discontinued recognizing its share of the SMIG
JV's losses.

On January 1, 1998, a definitive collaboration agreement for the ATIII LLC joint
venture between the Company and Genzyme was executed. The Company's 50%
ownership in ATIII LLC is accounted for under the equity method (see Note 11).

REVENUE RECOGNITION AND CONTRACT ACCOUNTING

30

For both services and research and development revenues, the Company accounts
for cost reimbursement contracts and fixed price contracts using the percentage
of completion method. Unbilled contract revenue represents recoverable costs and
accrued profit which had not been billed at the balance sheet date. Advance
payments represent cash received from customers in advance of the work being
performed. Research and development revenues in fiscal 1998 consisted of
$3,318,000 from the ATIII LLC (see Note 11), $11,000 from related parties (see
Note 9) and $8,267,000 from commercial clients.

Profits expected to be realized on contracts are based on the total contract
sales value and the Company's estimates of costs at completion. These estimates
are reviewed and revised periodically, throughout the lives of the contracts,
with adjustments to profits resulting from such revisions being recorded on a
cumulative basis in the period in which the revisions are made. When management
believes the cost of completing a contract will exceed its sales value, the full
amount of the anticipated contract loss is immediately recognized.

NET LOSS PER COMMON SHARE

The Company applies Statement of Financial Accounting Standards No. 128, ("SFAS
128") EARNINGS PER SHARE in calculating earnings per share ("EPS"). Common stock
equivalents of the Company consist of warrants (see Note 5), stock options (see
Note 6), stock to be issued under the 401-K savings plan (see Note 6),
convertible debt (see Note 4) and convertible preferred stock (see Note 5). The
Company was in a net loss position in 1998, 1997 and 1996, therefore 6.9
million, 2.8 million and 1.8 million common stock equivalents, respectively,
were not used to compute diluted loss per share, as the effect was antidilutive.

INCOME TAXES

The Company accounts for income taxes under the asset and liability method,
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the financial
statement and tax bases of assets and liabilities using the expected enacted tax
rates for the year in which the differences are expected to reverse. The
measurement of deferred tax assets is reduced by a valuation allowance if, based
upon the weight of available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.

NOTE 3. COMMITMENTS & CONTINGENCIES

The Company leases equipment and facilities under various operating and capital
leases (see Note 4). The deferred lease obligation represents the cumulative
difference between actual facility lease payments and lease expense recognized
ratably over the lease period. Rent expense for the fiscal years ended January
3, 1999, December 28, 1997 and December 29, 1996 was approximately $2,878,000,
$2,566,000 and $2,291,000, respectively.

At December 28, 1997, the Company's future minimum payments required under these
leases are as follows:

OPERATING CAPITAL TOTAL
---------- ------- -------

1999 $ 2,026 $ 1,358 $ 3,384
-------------- --------------- ---------------
2000 1,910 1,447 3,357
2001 1,610 1,343 2,953
2002 1,357 663 2,020
2003 1,150 - 1,150
Thereafter 1,125 - 1,125
-------------- --------------- ---------------
Total $ 9,178 4,811 $ 13,989
-------------- ---------------
Less amount representing interest 1,011
-------------- ---------------
-------------- ---------------
Present value of minimum lease payments $ 3,800
---------------
---------------

In September 1997, the Company entered into an agreement with Advanced Cell
Technologies, Inc. ("ACT") of Worcester, MA allowing GTC to utilize ACT
technology. This agreement requires that the Company shall make minimum
annual research funding payments of not less than $2 million per year to ACT
for the calendar years 1998 through 2003. During 1998, the Company notified
ACT that ACT was in material breach of the contract and therefore did not
make any research funding payments in 1998.

31

The Company sold a 46.3% ownership interest in ATIII LLC to Genzyme on January
1, 1998, for an aggregate amount of $12,500,010, of which $12,500,000 is
contingent upon the achievement of certain milestones (see Note 11).

NOTE 4. BORROWINGS

The Company had certain arrangements with a commercial bank ("Credit
Agreement"). The Credit Agreement totaled $7.5 million and expired on March 31,
1997. Under the Credit Agreement, the Company could borrow up to $6 million and
$1.5 million for an existing standby letter of credit in support of a major
facility lease. At the Company's option, interest on loans under the credit
facility (other than the standby letter of credit) accrued either at the
Eurodollar rate plus 3/4% or at the bank's base lending rate. In March 1997, the
Company received an extension of the Credit Agreement through March 31, 1999.
The weighted average interest rate on the line of credit was 2.03% for the
fiscal year ended January 3, 1999 and 5.68% for the fiscal year ended December
28, 1997.

In December 1995, the Company received a $2.3 million term loan ("Term Loan")
from a commercial bank scheduled to mature on December 15, 2000. At the
Company's option, interest on the loan accrued either at the Eurodollar rate
plus 1% or at the bank's base lending rate. The loan was being repaid in
quarterly installments which commenced March 31, 1997, escalating from $50,000
per quarter for the first year to $68,750 per quarter in the second year,
$91,250 per quarter for the next year, $133,333 for the final three quarters,
and a balloon payment for the remaining balance due December 15, 2000.

In December 1998, GTC replaced the Credit Agreement and the Term Loan with new
credit facilities from another commercial bank. The credit line was increased to
$17.5 million (the "New Credit Line") for a three year term expiring in December
2001. Under the New Credit Line, the Company may borrow up to $17.5 million, a
portion of which may be utilized for a standby letter of credit. Under the
refinancing, the amount of the term loan facility (the "New Term Loan"), was
increased by $5 million to $7.1 million. The New Term Loan is payable in 11
quarterly installments of $45,901 commencing on March 31, 1999 with a balloon
payment on December 28, 2001. At the Company's option, interest on loans under
the New Credit Line (other than the standby letter of credit) and the New Term
Loan accrues either at the Prime rate or at an adjusted libor rate. As of
January 3, 1999, $11,096,000 was outstanding and $4,904,000 was available under
the New Credit Line while $1,836,024 was outstanding and $5,263,976 was
available under the New Term Loan. A standby letter of credit with a face amount
of $1.5 million has been issued under the New Credit Line to support a major
facility lease. Under the terms of the agreement, the Company may not pay any
dividends. The Company was in compliance with all covenants and no amounts were
due under the standby letter of credit as of January 3, 1999. Both loans are
guaranteed by Genzyme.

In connection with the New Credit Line, Genzyme provided a guaranty to the bank
under which Genzyme would become primarily liable under the credit line in event
of a default by the Company. In consideration of Genzyme's agreement to provide
such a guaranty, the Company granted a first lien on all assets of the Company
and issued warrants to purchase 288,000 shares of the Company's common stock for
a period of ten years, exercisable at $4.875 per share (market price at the
effective date of the New Credit Line). The warrants, valued at $969,000, were
recorded as a deferred financing charge, included in other assets, and are being
amortized to interest expense over the life of the New Credit Line.

In February of 1997, the Company obtained $2 million of lease line from a
commercial leasing company which was further increased by an additional $3
million in February 1998. Leases under this line have a term of 48 months at 11%
per annum with a fair market value buyout at expiration.

In December 1998, the Company obtained an additional $5 million lease commitment
pursuant to an agreement from a commercial leasing company. Leases under this
line will have a term of 48 months and an interest rate of 9.79% per annum,
subject to adjustment proportional to the change in the weekly average of
interest rates of like term United States Treasury Securities.

In March 1996, the Company entered into a Convertible Debt and Development
Funding Agreement (the "Convertible Debt Agreement") with Genzyme under which
Genzyme agreed to provide a revolving line of credit ("Genzyme Credit Line") in
the amount of $10 million and agreed to fund development costs of the AT-III
program through March 31, 1997. Under the Convertible Debt Agreement, GTC
granted to Genzyme co-marketing rights to AT-III in all territories other than
Asia subject to negotiation and execution of a development and supply agreement
between the parties prior to March 31, 1997. The line is convertible into the
Company's common stock (at the average market price for the 20-day period ending
two days before any conversion), at GTC's option, to maintain GTC's tangible net
worth at the end of each quarter at a level between $4 million and $4.2 million
or by Genzyme at any time for up to the full amount outstanding. Any amount so

32

converted reduces by an equivalent amount the availability on the line. During
1996, approximately $1.7 million of debt was converted into 219,565 shares of
common stock, reducing availability under the Genzyme Credit Line to $8.3
million.

In September 1997, the Company and Genzyme amended the terms of the Genzyme
Credit Line. The expiration date of the revolving credit line was extended to
March 31, 2000, with an option, at that date, for the Company to convert the
outstanding balance to a three-year term loan. The interest rate increases
annually through the end of the term loan; starting at the lower of 8% or prime
through April 1, 1999 increasing to the lower of 10% or prime lending rate +2%
in the final year of the term loan. As a result of the Preferred Stock Offering
(see Note 5), the Genzyme Credit Line was reduced to approximately $6.3 million
of which none is outstanding at January 3, 1999. Financial covenants require
that for each of the fiscal quarters ending on March 31, 1999, the two fiscal
quarters ending on June 30, 1999 and the three fiscal quarters ending on
September 30, 1999, the Company will not permit its consolidated earnings before
interest, taxes, depreciation and amortization, exclusive of unfunded research
and development and losses on the ATIII LLC joint venture ("EBITDA"), for any
such period as at the last day of such period to exceed a loss of $5,000,000.
For the four fiscal quarters ending on December 31, 1999, the Company will not
permit its consolidated EBITDA as at the last day of such period to exceed a
loss of $2,000,000. Commencing with the fiscal quarter ending on March 31, 2000,
the Company will not, as at the last day of each fiscal quarter, permit its
consolidated EBITDA for the period of four consecutive fiscal quarters ending or
most recently ended prior to such date to be less than zero.

In June 1997, the Company completed financing for the expansion of its Mason
Laboratory. The financing package provides $5 million in available funds from a
consortium of federal, state and local government agencies in conjunction with a
commercial bank. The loan carries a ten year amortization schedule with a
variable interest rate adjusted annually. The current rate is 9.25%. The Company
utilized $3.8 million of the line in June 1997 to fund the initial phase of
renovations and to refinance approximately $800,000 of existing mortgage debt on
the facility. The remaining $1.2 million was available through December 31, 1998
for additional renovations of the facility. The Company is currently attempting
to negotiate an extension of this funding through March 2000. In connection
with the financing, the Company issued warrants to purchase 20,000 shares of the
Company's common stock for a period of ten years with an exercise price at the
then current market price of $8.75 per share. The warrants, valued at $130,000,
are being amortized to interest expense over the life of the mortgage.

In June 1997, the Company's Redfield Laboratories subsidiary obtained $1,050,000
in financing from a commercial bank in conjunction with a state government
agency for the refinancing of approximately $750,000 in existing mortgage debt
and to fund expansion of its facility. The financing consists of two notes. The
first note, in the amount of $350,000, has a ten year term and an interest rate
of 10%. The second note, in the amount of $700,000, has a ten year amortization
with a balloon payment due in May 2001 and an interest rate of 9.5%.

In July 1997, Redfield Laboratories obtained an additional $350,000 in financing
for the expansion of its facility from a combination of federal, state and
county government agencies. The loan is amortized over a fifteen year term and
carries an interest rate of 5.5%.

On December 30, 1997, the Company received a $310,000 promissory note from a
third party which matures on June 15, 1999. Interest on the note accrues at 6.5%
per annum. The loan is to be repaid in quarterly installments of $77,500 plus
interest commencing September 15, 1998. The balance outstanding as of January 3,
1999 was $155,000.

The Company's long-term debt consisted of the following:

JANUARY 3,
1999
-------------------

33

Note payable with monthly payments of $48,750 through June 2007,
interest at 9.25%, collateralized by real estate. $ 3,436
Mortgage note payable, with quarterly payments of $45,901 through
December 2001, interest varies, collateralized by real estate. 1,836
Note payable, with quarterly payments of $77,500 through June 1999,
interest at 6.5%, collateralized by real estate. 155
Mortgage note payable, with monthly payments of $9,921 through
May 2001, interest at 9.5%, collateralized by real estate. 630
Note payable, with quarterly payments of $8,605 through
July 2012, interest at 5.5%, collateralized by real estate. 326
Mortgage note payable with monthly payments of $4,625 through
June 2007, interest at 10%, collateralized by real estate. 315
Note payable with monthly payments of $6,066 through December
2000, interest at 8%, collateralized by real estate.
Capital lease obligations, with monthly payments of $153,327 through
February 2000 and December 2002, interest varies, collateralized
by property. 4,811
Other 127
---------------
$ 11,765
Less current portion 2,204
---------------
$ 9,561
---------------
---------------

Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the value of the notes payable
approximates fair value.

Maturities of long-term debt are as follows:

1999.............................................................. $2,204
2000.............................................................. 2,139
2001.............................................................. 3,731
2002.............................................................. 1,085
2003.............................................................. 461
Thereafter........................................................ 2,145
-------
$11,765
-------
-------

Cash paid for interest for the fiscal years ended January 3, 1999, December 28,
1997, and December 29, 1996 was $1,376,000, $1,098,000 and $1,138,000,
respectively.

NOTE 5. STOCKHOLDERS' EQUITY

The Company's authorized capital stock consists of 40,000,000 shares of common
stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par
value $0.01 per share. Prior to the Company's IPO, the Board of Directors
designated 4,000,000 shares of Preferred Stock as Series A Convertible Preferred
Stock ("Series A Stock"), of which 20,000 shares are outstanding.

In connection with the financing for the expansion of the Mason Laboratories in
June 1997, the Company issued warrants to purchase 20,000 shares of the
Company's common stock at the then current market price of $8.75 per share (see
Note 4).

In connection with the Preferred Stock Offering (see below) in March 1998, the
Company issued warrants to purchase 450,000 shares of common stock at an
exercise price of $15.1563 per share which was equal to 125% of the market price
on issuance.

In connection with the New Credit Line financing in December 1998, the Company
issued warrants to purchase 288,000

34

shares of the Company's common stock at the then current market price of $4.875
per share to Genzyme in consideration of their guaranty of the New Credit Line.

A summary of the outstanding GTC warrants as of January 3, 1999, all of which
are currently exercisable, is as follows:

COMMON SHARES EXERCISE WARRANT EXPIRATION
ISSUABLE FOR PRICE PER SHARE DATE
-------------------- ----------------------- ---------------------------

4,000 $ 0.10000 January 1, 2000
145,000 $ 2.84375 July 3, 2005
2,000 $ 2.75000 December 31, 2001
2,000 $ 6.50000 December 31, 2001
20,000 $ 8.75000 June 26, 2007
450,000 $ 15.1563 March 20, 2002
288,000 $ 4.8750 December 28, 2008
-------
911,000
-------
-------

In March 1996, Genzyme entered into the Convertible Debt Agreement (see Note 4)
under which it converted $1,673,000 of debt into 219,565 shares of the Company's
common stock. In July 1996, the Company completed a follow on public offering of
3,450,000 shares of its common stock priced at $4.00 per share. The proceeds to
the Company, after deducting commissions and offering expenses, were
approximately $12.7 million.

In March 1998, the Company completed a private placement of $20 million face
value of Series A Convertible Preferred Stock (the "Preferred Stock") to
three institutional investors. The Preferred Stock carries a $1,000 face
value per share, and is subject to mandatory redemption, if not previously
converted, in three years. Such conversion price is equal to the aggregate
face value thereof plus accrued and unpaid dividends, if any, and any other
amounts payable thereon. Such redemption may be in the form of cash or stock,
at the Company's sole option. The Preferred Stock is non-participating.
Commencing December 1998, the Preferred Stock may be converted into the
Company's common stock at any time at a price equal to the lower of $14.55 or
the average of any five closing bid prices selected by the holder over the
twenty days prior to conversion. A maximum number of 3,479,641 shares of
common stock or the number of shares that would equal total ownership per
person to be less than 4.9% are issuable upon conversion without further
shareholder vote or NASDAQ involvement. Dividends at a per annum rate of 10%
of the face value of the unconverted shares, payable in cash or Preferred
Stock at the Company's sole option, will only accrue if the holders are
unable to convert their Preferred Stock into common stock in these
circumstances. The preferred stock has a liquidation preference equal to face
value plus any accrued but unpaid dividends. In connection with the
financing, warrants to purchase 400,000 shares of the Company's common stock
were issued to the institutional investors. Each warrant has a four year term
and an exercise price of $15.1563 per share. Because the Preferred Stock
could be converted into common stock immediately, the warrants, valued at
approximately $1.2 million, were recognized as a dividend payment to
preferred shareholders during the first quarter of 1998. The Company also
issued warrants to purchase 50,000 shares of common stock to the placement
agency under the terms noted above. The warrants were valued at approximately
$145,000 and recognized as a reduction of preferred stock capital in excess
of par. As a result of this financing, the amount available under the line of
credit in the Convertible Debt and Development Funding Agreement with Genzyme
has decreased from approximately $8.3 million to $6.3 million.

In May 1998, the Company completed a private placement of 603,300 shares of
common stock at $10.80 per share in a registered direct offering to a single
purchaser raising approximately $6.4 million of new equity.

As of January 3, 1999, the Company has reserved 7,572,146 shares of common
stock, subject to adjustment, for future issuance under the various classes of
warrants, Stock Option and Employee Stock Purchase Plans (see Note 6) and
preferred stock conversion.

NOTE 6. EMPLOYEE BENEFIT PLANS

STOCK OPTIONS AND PURCHASE PLAN

In May 1993, the Board of Directors adopted and the stockholders approved the
1993 Equity Incentive Plan (the "Equity

35

Plan"), the 1993 Director Stock Option Plan (the "Director Plan") and the 1993
Employee Stock Purchase Plan (the "Purchase Plan").

Under the Equity Plan, 2,015,000 shares of common stock were issued or reserved
for issuance pursuant to incentive stock options, non-statutory stock options,
restricted stock awards, stock appreciation rights or stock units in accordance
with specific provisions to be established by a committee of the Board of
Directors at the time of grant. To date, all options have been issued at 85% or
greater of the fair value at the grant date. The Equity Plan also permits the
Company to assume outstanding options in an acquisition without using shares
reserved under the Plan. Of the foregoing total, 224,350 shares are subject to
options assumed by the Company in the acquisition of TSI. In May 1997, the Board
of Directors increased the number of shares reserved for issuance under this
plan to 2,515,000 shares. In May 1998, the Board of Directors increased the
number of shares reserved for issuance under this plan to 3,015,000 shares.

Under the Director Plan, 50,000 shares of common stock were reserved for
issuance as non-statutory stock options at the rate of 2,000 shares for each
year of service to members of the Board of Directors who are not employees of
the Company. Such options are automatically granted at fair market value upon
the election or reelection of each director. In May 1997, the Board of Directors
increased the number of shares reserved for issuance under this plan to 100,000
shares. In May 1998, the Board of Directors increased the number of shares
reserved for issuance under this plan to 200,000 shares and amended the plan
such that upon first election of a director, such director shall receive 5,000
shares for each year of the term of office to which he/she has been elected, and
upon reelection such director shall receive 3,000 shares for each year of the
term of office to which he/she has been reelected.

Under these plans, an option's maximum term is ten years and vest ratably 20% on
the date of issuance and 20% thereafter on the anniversary of the grant.

Under the Purchase Plan, 300,000 shares of common stock were reserved for the
grant of purchase rights to employees in one or more offerings in accordance
with provisions to be established by a committee of the Board of Directors prior
to commencement of any offering period. In May 1997, the Board of Directors
increased the number of shares reserved for issuance under this plan to 900,000
shares. Participants may purchase shares of common stock at not less than 85% of
the lower of the market value at the beginning of each offering or on the
purchase date. Purchase dates occur every three months for a period of two years
from the offering date. Participants may not carry over balances from one
purchase date to the next. Offering dates occur every six months. A total of
282,196 and 510,937 shares of common stock remained available for issuance under
the plan at January 3, 1999 and December 28, 1997, respectively. The purchases
of common stock under the plan during fiscal 1998 and fiscal 1997 were 228,741
shares at an aggregate purchase price of approximately $1,151,000 and 115,384
shares at an aggregate purchase price of approximately $573,000, respectively.
No compensation expense has been recorded related to the employee stock purchase
plan.

The Company applies APB Opinion 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for
options granted to employees with exercise prices equal to or greater than
the fair market value at the grant date. The Company applies the disclosure
only provisions of Statement of Financial Accounting Standards No. 123 ("SFAS
123"), ACCOUNTING FOR STOCK BASED COMPENSATION. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair
value at the grant dates as calculated in accordance with SFAS 123, the
Company's net loss and loss per share for the years ended January 3, 1999,
December 28, 1997 and December 29, 1996 would have been increased to the pro
forma amounts indicated below:

JANUARY 3, 1999 DECEMBER 28, 1997 DECEMBER 29, 1996
-------------------------------------- --------------------------------- -------------------------------
LOSS TO COMMON
NET LOSS SHAREHOLDERS
TO COMMON PER SHARE LOSS PER SHARE LOSS PER SHARE
SHAREHOLDERS (BASIC AND DILUTED) NET LOSS (BASIC AND DILUTED) NET LOSS (BASIC AND DILUTED)
------------ ------------------- -------- ------------------- ---------- ------------------

As Reported $ (20,746) $ (1.15) $ (9,343) $ (0.54) $ (7,746) $ (0.52)
Pro Forma (23,511) (1.31) (11,458) (0.66) (8,988) (0.61)

The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to 1995, and
additional awards in future years are anticipated.

A summary of the status of the Company's stock option plans as of January 3,
1999, December 28, 1997 and December 29, 1996 and changes during the years
ending on those dates is presented below:

WEIGHTED AVERAGE
SHARES EXERCISE PRICE
- ------------------------------------------------------- ----------- ----------------

Balance at December 31, 1995 1,235,665 $4.7751
- ------------------------------------------------------- ---------- --------

Granted
Price = Fair value 389,910 $8.0901
Price -greaterthan-Fair Value 130,519 $6.5974
Exercised (87,131) $4.3939
Cancelled (72,449) $5.0537
- ------------------------------------------------------- ---------- --------
Balance at December 29, 1996 1,596,514 $5.7432
- ------------------------------------------------------- ---------- --------

Granted
Price = Fair value 647,814 $7.7843
Price -greaterthan-Fair Value 10,400 $7.8462
Exercised (120,377) $4.5246
Cancelled (132,362) $5.9003
- ------------------------------------------------------- ---------- --------
Balance at December 28,1997 2,001,989 $6.4611
- ------------------------------------------------------- ---------- --------

Granted
Price = Fair value 706,532 $8.7152
Price -greaterthan- Fair value 18,000 $9.1875
Exercised (105,383) $4.5040
Cancelled (107,703) $7.5478
- ------------------------------------------------------- ---------- --------
Balance at January 3, 1999 2,513,435 $7.1560

At January 3, 1999, December 28, 1997 and December 29, 1996, there were
1,335,511, 991,367 and 718,644 shares exercisable at a weighted average exercise
price of $6.5495, $6.1142 and $5.6903, respectively. The weighted average fair
value of options granted during fiscal 1998, 1997 and 1996 was $8.73, $7.79 and
$5.15, respectively.

The following table summarizes information about stock options outstanding at
January 3, 1999:

RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------- ------------ ---------------- ---------------- ------------ ----------------

$ 2.5000 - $ 6.8750 752,819 6.85 $ 4.2292 504,627 $ 3.8552
$ 7.0000 - $ 7.5000 716,649 6.88 $ 7.4173 440,052 $ 7.4437
$ 7.6250 - $ 9.0000 483,776 7.74 $ 8.3056 242,698 $ 8.3919
$ 9.1250 - $10.5000 441,131 9.28 $ 9.1819 109,154 $ 9.1948
$10.6250 - $55.0000 119,060 8.53 $11.9113 38,980 $12.4554
--------- ---- -------- --------- --------
$ 2.5000 - $55.0000 2,513,435 7.54 $ 7.1560 1,335,511 $ 6.5495
--------- ---- -------- --------- --------
--------- ---- -------- --------- --------

At January 3, 1999, 384,969 shares were available for grant.

The fair value of each stock option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumption: an expected life of five years, expected volatility of 78%, a
dividend yield of 0% and a risk-free interest rate of 5.48 % for fiscal 1998,
6.36% for fiscal 1997 and 6.49% for fiscal 1996.

The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following weighted-average assumptions: a dividend
yield of 0%, expected volatility of 78%, an expected life of one year for fiscal
1998 and

37

fiscal 1997 and six months for fiscal 1996 and a risk-free interest
rate of 5.55% for fiscal 1998, 5.40% for fiscal 1997 and 5.16% for fiscal 1996.
The average fair value of those purchase rights granted during fiscal 1998,
fiscal 1997 and fiscal 1996 was $3.27, $2.71 and $2.08, respectively.

OTHER

All GTC employees, subject to certain eligibility requirements, can participate
in the Company's defined contribution plan. Currently, the Company may match up
to 50% of each participating employee's contributions to the plan to a maximum
of 3% of salary. The Company may also contribute an additional 2% of each
employee's salary as a retirement contribution. All contributions are at the
discretion of the Board of Directors. Expense recognized under this plan was
approximately $515,000, $464,000 and $368,000 for the fiscal years ended January
3, 1999, December 28, 1997 and December 29, 1996, respectively.

NOTE 7. INCOME TAXES

Deferred tax assets and deferred tax liabilities are recognized based on
temporary differences between the financial reporting and tax basis of assets
and liabilities using future expected enacted rates. A valuation allowance is
recorded against deferred tax assets if it is more likely than not that some or
all of the deferred tax assets will not be realized.

The income tax (benefit) provision consisted of the following:

1998 1997 1996
---- ---- ----

Current:
Federal $ 0 $ 0 $ 0
State 225 48 27
Foreign 0 0 0
------- ------- -------
Total Current $ 225 $ 48 $ 27
------- ------- -------
------- ------- -------
Deferred:
Federal (5,418) (3,158) (3,882)
State (1,562) 1,241 0
Foreign 0 0 0
Change in Valuation Allowance 6,980 1,917 3,882
------- ------- -------
Total Deferred $ -- $ -- $ --
------- ------- -------
------- ------- -------

The provision for income taxes was at rates different from the U.S. Federal
statutory income tax rate for the following reasons:

Fiscal Years Ended
-----------------------------------------------------------------
JANUARY 3, 1999 DECEMBER 28, 1997 DECEMBER 29, 1996

Federal tax - expense (benefit) (34.0)% (34.0)% (34.0)%
Goodwill 2.0 3.2 5.2
State taxes - net (4.6) 9.1 0.2
Joint Venture loss - 3.0 0.9
Other 1.8 (1.3) 0.4
Change in valuation allowance 36.0 20.5 27.6
----- ----- -----
Effective tax rate 1.2% 0.5% 0.3%
----- ----- -----
----- ----- -----

The components of the deferred tax assets and liabilities at January 3, 1999 and
December 28, 1997 respectively, are as follows (dollars in thousands):

JANUARY 3, 1999 DECEMBER 28, 1997
- ------------------------------------ ----------------- -----------------
Deferred Tax Assets/(Liabilities):

Advance payments $ 2,742 $ --

38

Accrued compensation reserves 1,126 1,091
Other reserves 1,343 1,020
Tax credits 974 584
Net operating loss carryforwards 26,804 22,100
Depreciation (300) 289
Other 12 9
----------- ----------
$ 32,701 $ 25,093

Total deferred tax asset $ 32,701 $ 25,093
Valuation allowance (32,701) (25,093)
----------- ----------
$ -- $ --
----------- ----------
----------- ----------

Of the change in valuation allowance of $7.6 million, $628,000 related to tax
return deductions for the exercise of non-qualified stock options or
disqualifying disposition of incentive stock options, for which no tax benefit
is recorded.

Due to the uncertainty surrounding the realization of these favorable tax
attributes in future income tax returns, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets.

At January 3, 1999, the Company had U.S. net operating loss ("NOL")
carryforwards of approximately $75.1 million for federal income tax purposes.
These carryforwards expire through 2028. Utilization of these net operating loss
carryforwards reflected above are limited pursuant to provisions Section 382 of
the Internal Revenue Code of 1986, and to the extent that the Separate Return
Limitation Year ("SRLY") rules apply.

Approximately $40.6 million of these NOL's were acquired in connection with its
acquisition of TSI. Consequently, any realization of the benefit of these
purchased NOL's will be recorded as a reduction of goodwill. In 1995, goodwill
was reduced by approximately $1 million as a result of the utilization of
purchased NOL's to offset taxable gain principally resulting from the sale of
GDRU.

The Company paid taxes of $225,000, $48,000 and $27,000 in fiscal 1998, 1997 and
1996, respectively.

NOTE 8. SEGMENT AND REVENUE INFORMATION

The Company has two reportable segments: contract research organization
("Primedica") and research and development ("Transgenics"). Primedica provides
services such as preclinical efficacy and safety testing, IN VITRO testing and
formulation development to pharmaceutical, biotechnology, medical device and
other companies. These services are provided by five different laboratories,
which are aggregated into the Primedica segment. Transgenics applies transgenic
technology to the development and production of genetically engineered proteins
for therapeutic, diagnostic and other biomedical uses, both in collaboration
with pharmaceutical and biotechnology companies and independently. Transgenics
also includes the cancer vaccine research program which produces idiotypic
cancer vaccines for B-cell lymphoma and Myeloma.

The accounting policies are the same as those described in the summary of
significant accounting policies. The Company evaluates performance based on
profit or loss from operations before income taxes, interest expense and
interest revenue. The Company also accounts for intersegment sales as if the
sales were to third parties.

The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business unit requires different technology and marketing strategies.

The following table presents certain segment financial information and the
reconciliation of segment financial information to consolidated totals as of and
for the years ended January 3, 1999, December 28, 1997 and December 29, 1996
(dollars in thousands). Asset information by segment is not reported because the
Company does not evaluate such information internally.

--------------------- FISCAL YEARS ENDED ----------------

JANUARY 3, DECEMBER 28, DECEMBER 29,
1999 1997 1996

39

-------- -------- --------

Revenues:
Primedica - external customers $ 50,816 $ 43,417 $ 38,496
Primedica - intersegment 1,389 1,424 991
Transgenics 11,596 19,521 8,338
-------- -------- --------
63,801 64,362 47,825
Elimination of intersegment revenues (1,389) (1,424) (991)
-------- -------- --------
$ 62,412 $ 62,938 $ 46,834
-------- -------- --------
-------- -------- --------
Income (loss) from operations:
Primedica $ 2,342 $ 1,599 $ 514
Transgenics (8,303) (1,956) (2,025)
Unallocated amounts:
Corporate expenses (8,120) (7,184) (5,386)
Equity in loss of joint ventures (4,285) (811) (356)
-------- -------- --------
$(18,366) $ (8,352) $ (7,253)
-------- -------- --------
-------- -------- --------
Capital expenditures:
Primedica $ 1,722 $ 4,215 $ 2,599
Transgenics 4,201 2,034 876
Corporate (1) 1,986 2,408 2,083
-------- -------- --------
$ 7,909 $ 8,657 $ 5,558
-------- -------- --------
-------- -------- --------

(1) Includes all expenditures financed through capital leases for equipment
used by both segments. These expenditures were $1,614, $1,760 and $2,009
for the Primedica segment and $290, $722 and $0 for the Transgenics segment
for the years ended January 3, 1999, December 28, 1997 and December 29,
1996, respectively.

Net revenues to external customers are based on the location of the customer.
Geographic information for net revenues to external customers, by fiscal year,
is presented in the table below:

United States Asia Europe Total
--------------- ---------- ------------ -----------

1998 53,508 3,276 5,628 62,412
1997 49,120 9,178 4,640 62,938
1996 42,763 3,291 780 46,834

All of the Company's long-lived assets are located in the United States.

Revenues from Genzyme accounted for 11% and 13% of total revenues for the
periods ending December 28, 1997 and December 29, 1996, respectively. All of
this revenue was attributable to the Transgenics segment. No other single
entity accounted for more than 10% of total revenues for the periods
presented in this table.

NOTE 9. ARRANGEMENTS WITH GENZYME CORPORATION

From the Company's inception, certain facilities and support services, including
both research and administrative support, have been provided by Genzyme. For
these services, the Company was charged $3,568,000, $8,073,000 and $3,824,000
for the fiscal years ended January 3, 1999, December 28, 1997 and December 29,
1996, respectively. These charges represent an allocation of the Company's
proportionate share of Genzyme's overhead costs using formulae which management
believes are reasonable based upon the Company's use of the facilities and
services. All other costs for all periods presented, including payroll costs,
are directly attributable to the Company and have been paid by Genzyme and
charged to the Company.

40

In April 1993, the Company entered into several agreements under which Genzyme
has agreed to provide various services, facilities and funding to the Company as
described below:

SERVICES AGREEMENT

Under the Services Agreement, the Company receives certain basic support
services in exchange for a fixed monthly payment ($40,290 for 11 months and
$54,210 for one month during 1998) adjusted annually. These basic services
include laboratory support, as well as assistance with certain administrative
functions including purchasing, data processing, risk management, corporate
communications and treasury activities. If the Company requests additional
services from Genzyme, the Company has agreed to pay Genzyme fully allocated
costs of those services. The Services Agreement is automatically renewed each
year thereafter unless terminated by either party not less than 90 days prior to
the end of any annual period. Under the Services Agreement, the Company made
payments of $497,000, $509,000 and $582,000 for the fiscal years ended January
3, 1999, December 28, 1997 and December 29, 1996, respectively.

SUBLEASE AGREEMENT

Under the Sublease Agreement, the Company has leased certain laboratory,
research and office space from Genzyme through May 1998 in exchange for fixed
monthly rent payments which approximate the estimated current rental value for
such space. In addition, the Company reimburses Genzyme for its pro rata share
of appropriate facilities' operating costs such as maintenance, cleaning,
utilities and real estate taxes. The sublease is automatically renewed each year
and renewals are subject to earlier termination of the sublease by either party
after the initial five-year term. Under the Sublease Agreement, the Company made
payments for the fiscal years ended January 3, 1999, December 28, 1997 and
December 29, 1996, of $411,000, $280,000 and $178,000, respectively, and is
committed to make a minimum rental payment of $20,417 in 1999.

TECHNOLOGY TRANSFER AGREEMENT

Under the Technology Transfer Agreement, Genzyme has transferred substantially
all of its transgenic assets and liabilities to the Company including its
ownership in the joint venture with Sumitomo Metal Industries, assigned its
relevant contracts and licensed to the Company technology owned or controlled by
it and relating to the production of recombinant proteins in the milk of
transgenic animals (the "Field") and the purification of proteins produced in
that manner. The license is worldwide and royalty free as to Genzyme although
the Company is obligated to Genzyme's licensors for any royalties due them.

As long as Genzyme's ownership of the Company remains below 50%, Genzyme may use
the transferred technology and the new technology only on its own behalf and
without any royalty obligation to the Company.

RESEARCH AND DEVELOPMENT AGREEMENT

The Research and Development Agreement defines the relationship among the
parties whereby each entity may perform research for the other. This
agreement was in effect through December 31, 1998 and the parties are in the
process of negotiating an extension. Genzyme has agreed to use the Company to
perform all research in the field of production of recombinant proteins in
transgenic animals. The Company has a similar obligation to use Genzyme to
purify proteins produced transgenically. Each party must request such
services from the other company before seeking them from a third party
although the Company may perform purification services on its own behalf.
These obligations are qualified by the ability of each party to perform the
requested services in accordance with the performance, scheduling, cost and
other specifications reasonably established by the requesting party. Each
company will receive payments from the other equal to the performing party's
fully allocated cost of performing such services, which shall not be less
than 80% of the annual budgets established by the parties under the
agreement, plus, in most cases, a fee equal to 10% of such costs. The Company
currently provides development services to Genzyme for which it recognized
revenues of $11,000, $11,000 and $75,000 for the fiscal years ended January
3, 1999, December 28, 1997 and December 29, 1996, respectively. In addition,
the Company received $755,000 of services revenue, unrelated to research and
development, from Genzyme for the fiscal year ended January 3, 1999. The
Company also receives research and development services from Genzyme, for
which it incurred costs of $1.9 million, $7.3 million and $3.1 million in
1998, 1997 and 1996, respectively.

In March 1996, the Company entered into the Convertible Debt Agreement (see Note
4) with Genzyme under which

41

Genzyme agreed to provide a revolving line of credit (the "Genzyme Credit Line")
in the amount of $10 million and agreed to fund development costs of the
transgenic Antithrombin III ("AT-III") program. During 1996, Genzyme converted
$1,673,000 of debt to equity under this agreement, leaving the availability
under the Genzyme Credit Line at $8.3 million.

In March 1997, the Company amended the Convertible Debt Agreement with Genzyme
to provide for continued funding by Genzyme of the development costs of the
AT-III program through June 30, 1997. In June 1997, the Company agreed to extend
the Convertible Debt Agreement until December 31, 1997. Under the agreements in
effect in 1997, Genzyme provided $7 million in development funding. Genzyme
provided $5.9 million in development funding in 1996.

In September 1997, the Company and Genzyme amended the terms of the $8.3 million
Genzyme Credit Line (see Note 4). As a result of the Preferred Stock Offering,
the Genzyme Credit Line was reduced to approximately $6.3 million (see Note 5).

Any amounts outstanding under the credit line may be converted into the
Company's common stock at Genzyme's option at any time for up to the full amount
outstanding or at the Company's option on a quarterly basis limited to an amount
sufficient to maintain a minimum tangible net worth. All such conversions are to
be based on the average closing stock price over 20 trading days prior to
conversion.

As of January 3, 1999, there was none outstanding under the Genzyme Credit Line.

In July 1997, the Company and Genzyme announced an agreement to establish a
joint venture for the development, marketing and distribution of AT-III, subject
to the execution of a definitive agreement. On January 1, 1998, a definitive
collaboration agreement for the ATIII LLC joint venture between the Company and
Genzyme was executed (see Note 11).

NOTE 10. OTHER AGREEMENTS

TUFTS UNIVERSITY SCHOOL OF VETERINARY MEDICINE ("TUFTS")

Since 1988, pursuant to a cooperation agreement, the Company has funded an
ongoing program to develop transgenic animals at Tufts. During the term of the
agreement, which extends through September 2000, Tufts has agreed to work
exclusively with the Company for commercial applications within the field of
transgenic protein production in milk. The Company paid Tufts $402,000, $284,000
and $517,000 for the fiscal years ended January 3, 1999, December 28, 1997 and
December 29, 1996, respectively. Sales of products derived from transgenic goats
produced by Tufts, or from their offspring, are subject to royalties payable to
Tufts.

NOTE 11. JOINT VENTURES

In 1990, Genzyme entered into the SMIG JV joint venture with Sumitomo Metal
Industries to develop proteins produced transgenically. The SMIG JV has engaged
the Company, as the successor to Genzyme's transgenics business, to perform
research and development for which the Company is reimbursed a portion of its
costs and receives additional payments based on achievement of specified
milestones. However, GTC does not have any intercompany profits or losses as a
result of its transactions with the SMIG JV. This three-year program ended
during 1993 and the parties decided to extend the contract for an additional
three years.

The Company has contributed $4 million to the SMIG JV since inception. The
Company maintained a 22% ownership since 1994 and accounted for the SMIG JV on
the equity basis since then. For the fiscal years January 3, 1999, December 28,
1997 and December 29, 1996, the Company recognized revenue of $0, $4,413,000 and
$857,000, respectively, under the SMIG JV agreement. As of January 3, 1999, the
Company no longer has any obligation nor intention to provide financial support
to the SMIG JV and, since the investment balance has been written down to
zero, it has discontinued recognizing its share of SMIG
JV's losses.

The SMIG JV has a license, exclusive as to Asia and non-exclusive as to Europe,
to use the Company's transgenic technology and to market and sell products and
transgenic animals produced by the SMIG JV based on that technology. The Company
retained the exclusive right to market and sell such products within the
Americas. Each party is obligated to make royalty payments based on its sales of
products developed by the SMIG JV and, additionally, the Company is

42

obligated to pay royalties on sales of other transgenically produced proteins in
Asia.

On January 1, 1998, a definitive collaboration agreement for the ATIII LLC
joint venture between the Company and Genzyme was executed. Under the terms
of the agreement, Genzyme will provide 70% of the first $33 million of
development costs, excluding facility costs, under this program, including
costs incurred in 1997. The Company will fund the other 30% of these costs.
Development costs in excess of these amounts will be funded equally by the
partners. The Company and Genzyme will also make capital contributions to
ATIII LLC sufficient to pay 50% each of all new facility costs to be
incurred. In addition to the funding, both partners will contribute
manufacturing, marketing and other resources to ATIII LLC at cost. Under the
agreement to establish the joint venture, Genzyme and the Company were the
only members and owned 3.7% and 96.3% interest, respectively. In accordance
with the executed purchase agreement, the Company sold and assigned a 46.3%
ownership interest to Genzyme so that Genzyme and GTC each own 50% of the
venture. The purchase price was $12,500,010, payable as follows: an initial
payment of $10 upon execution of the purchase agreement, $2.5 million after
the second consecutive quarter in which net sales of collaboration products
for such quarter exceed $5 million, and $10 million on the first full
approval, if and when approved by the Food and Drug Administration ("FDA") of
a major market country or by the European Union's European Medicines
Evaluation Agency ("EMEA") of (i) a BLA filed by ATIII LLC for the use of
transgenic AT-III for the treatment of sepsis or (ii) an amendment to the BLA
previously filed by ATIII LLC and approved by the FDA of a major market
country or by the EMEA to add sepsis as an indication for transgenic AT-III.
The Company will record the contingent payments if and when received. Profits
and losses are shared according to ownership percentages. These agreements
cover all territories other than Asia. The Company accounts for its 50%
ownership of the ATIII LLC under the equity method. For the fiscal year ended
January 3, 1999, the Company recognized research and development revenue and
related expenses of $3,318,000 under ATIII LLC.

Summarized financial information for ATIII LLC is as follows:

At December 31, 1998
------------------------
Balance sheet data:
Current assets $ 3,525
Noncurrent assets 200
Current liabilities 3,078
Venturers' capital 647

Fiscal Year Ended
December 31, 1998
---------------------
Statement of operations data:
Research and development expenses $ 11,984
General and administrative expense 35
----------
Net loss $ 12,019
----------
----------

43

REPORT OF INDEPENDENT ACCOUNTANTS

To the Steering Committee and the
Venturers of AT III LLC:

In our opinion, the accompanying balance sheet and the related statement of
operations, cash flows and changes in Venturers' capital present fairly, in all
material respects, the financial position of the ATIII LLC (the "Company") (A
Development Stage Enterprise) at December 31, 1998, and the results of its
operations and its cash flows for the period from January 1, 1998 (date of
inception) to December 31, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 22, 1999

44

ATIII LLC
(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEET

DECEMBER 31, 1998

ASSETS

Current assets:
Cash $ 1,135,038
Contributions receivable 2,389,631
---------------
Total current assets 3,524,669
Net fixed assets 200,484
---------------
$ 3,725,153
---------------
---------------

LIABILITIES AND VENTURERS' CAPITAL

Current liabilities:
Accounts payable - Genzyme Corporation $
2,109,969
Accounts payable - Genzyme Transgenics Corporation
968,344
---------------
Total liabilities
3,078,313
Venturers' capital:
Genzyme Corporation
8,337,512
Genzyme Transgenics Corporation
4,328,147
Deficit accumulated during the (12,018,819)
development stage
---------------
Total venturers' capital
646,840
---------------
$ 3,725,153
---------------
---------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

45

ATIII LLC
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF OPERATIONS

FOR THE PERIOD FROM JANUARY 1, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998

Operating costs and expenses:
General and administrative $ 34,721
Research and development - Genzyme Corporation 8,666,328
Research and development - Genzyme Transgenics Corporation 3,317,770
--------------
Total operating costs and expenses 12,018,819
--------------
Net loss $ (12,018,819)
--------------
--------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

46

ATIII LLC
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM JANUARY 1, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998

Operating activities:

Net loss $(12,018,819)
Reconciliation of net loss to net cash used by operating activities:
Depreciation 12,485
Accounts payable 3,078,313
------------
Net cash used in operating activities (8,928,021) Investing activities:
Purchase of property, plant and equipment (212,969)
------------
Net cash used in investing activities (212,969)
Financing activities:
Capital contributions by Genzyme Corporation 8,337,512
Capital contributions by Genzyme Transgenics Corporation 1,938,516
------------
Net cash provided by financing activities 10,276,028
------------
Increase in cash and cash equivalents 1,135,038
Cash and cash equivalents at beginning of period --
------------
Cash and cash equivalents at end of period $ 1,135,038
------------
------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

47

ATIII LLC
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF CHANGES IN VENTURERS' CAPITAL

FOR THE PERIOD FROM JANUARY 1,1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998

GENZYME TOTAL
GENZYME TRANSGENICS VENTURERS'
CORPORATION CORPORATION CAPITAL
----------- ----------- ----------

Capital contribution $ 7,835,468 $ 1,938,516 $ 9,773,984

Contributions receivable 2,389,631 2,389,631

Advance contributions
502,044 502,044

Net loss (7,690,672) (4,328,147) (12,018,819)
------------- ------------ ------------
Balance at December 31, 1998 $ 646,840 $ -- $ 646,840
------------- ------------ ------------
------------- ------------ ------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

48

ATIII LLC

(A DEVELOPMENT STATE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

A. ORGANIZATION AND NATURE OF BUSINESS:

AT III LLC ("the Company") is a limited liability company organized
under the laws of Delaware. The Company was and established as a
Joint Venture among Genzyme Corporation ("Genzyme") and, Genzyme
Transgenics Corporation ("GTC") under the terms of a collaboration
agreement dated January 1, 1998 which stated original ownership of
the Company at 96.3% and 3.7% by GTC and Genzyme (collectively the
"Members"), respectively. Immediately thereafter, a purchase
agreement was executed so that GTC sold to Genzyme a 46.3% ownership
of the Company for an aggregate amount of $12,500,010 payable as
follows: $10 upon execution of the purchase agreement, $2,500,000
after the second consecutive quarter in which net sales of
collaboration products for such quarter exceed $5,000,000 and
$10,000,000 upon product approval as defined in the agreement.

The Company was organized as the vehicle for a joint venture between GTC
and Genzyme to develop and commercialize products comprising tgATIII
together with processes developed and/or licensed through GTC and Genzyme
throughout the territories defined within the collaboration agreement
(the "Collaboration Products"). Immediately following the execution of
the collaboration and purchase agreements, a restated operating agreement
was executed between Genzyme, GTC and ATIII LLC. The operating agreement
establishes the allocation of profit and losses in accordance with the
ownership percentages. In no event shall the net losses of the Company be
allocated to a member if such allocation would cause or increase a
negative balance in such member's adjusted capital account. In the event
that net losses were reallocated to other members to avoid a negative
balance, subsequent profits would first be allocated to the members to
restore the capital accounts of the members to reflect the ownership
percentage.

Distributions shall be made annually to each Member under the terms set
forth in the operating agreement in amounts equal to (a) the amount of
items of gross income allocated to the Members in accordance with their
respective ownership percentages and (b) thereafter, to the Members in
proportion to their positive capital accounts reduced by their initial
capital contributions, determined to be $13,500,000 each per the
operating agreement.

Since its inception, the Company has devoted substantially all of its
efforts to establishing its business and developing its initial products.
Accordingly through the date of the financial statements, the Company is
considered to be a development stage company. The Company has

49

ATIII LLC

(A DEVELOPMENT STATE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS, CONTINUED

incurred losses since inception and expects to incur net operating losses
and negative cash flows from operations in the near term.

Under the terms of the collaboration agreement, Genzyme and GTC are
required to make capital contributions to the Company. Genzyme and GTC
shall make contributions sufficient to pay (a) 70% and 30%, respectively,
of all program costs, including costs incurred in 1997, other than new
facility costs until such time as the aggregate capital contributions by
Genzyme equals $33,000,000, and (b) 50% each of all program costs other
than new Facility costs thereafter. The Members will also make capital
contributions to the Company sufficient to pay 50% of all new facility
costs. In the event that either GTC or Genzyme fails to make a capital
contribution pursuant to these requirements and the other member does not
elect to terminate the agreement, then the percentage interests in the
Company and the future funding responsibilities of the Members shall be
adjusted. At December 31, 1998, each Member owned 50% of the Company.

B. ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The financial statements have been prepared under the accrual method
of accounting in conformity with generally accepted accounting
principles in the United States of America. All balances are
denominated in United States dollars, unless otherwise noted.

FISCAL YEAR-END

Under the terms of the operating agreement, the fiscal year end of the
Joint Venture is December 31.

CONCENTRATION OF CREDIT RISK

The Company maintains all of its cash at one commercial bank.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development costs are expensed as incurred.

FIXED ASSETS

Fixed assets consisting of equipment is stated at cost and depreciated
using the straight-line method over an estimated useful life of seven
years.

50

ATIII LLC

(A DEVELOPMENT STATE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS, CONTINUED

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that effect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates.

INCOME TAXES

The Company is considered a partnership for federal and state income
tax purposes. As such, items of income, loss, deductions and credits
flow through to the Members. The Members have responsibility for the
payment of any income tax and are entitled to losses for their
proportionate share of taxable income or loss of the Company.

UNCERTAINTIES

The Company is subject to risks common to companies in the
biotechnology industry, including but not limited to, development by
its competitors of new technological innovations, protection of
proprietary technology, health care cost containment initiatives,
product liability and compliance with the government regulations,
including those of the U.S. Department of Health and Human Services
and the U.S. Food and Drug Administration.

C. RESEARCH AND DEVELOPMENT COSTS:

The research and development efforts are currently being conducted by the
two members, GTC and Genzyme. The costs incurred by the two related
parties, which are subject to an annual budget as approved by the
Company's Steering Committee, are then charged to the Company.

D. FIXED ASSETS:

At December 31, 1998, gross fixed assets of $212,969 had an associated
depreciation of $12,485 all incurred in 1998.

E. LICENSED TECHNOLOGY:

During the terms of the collaboration agreement GTC and Genzyme have
granted to the Company exclusive, irrevocable royalty-free rights and
sublicenses, with the right to grant further sublicenses, under the
GTC/Genzyme licensed ATIII patent rights, technology, know how, and any
associated technology and manufacturing know-how owned or controlled by
the Members to develop, make, have made, use, offer for sale, sell, have
sold, import and export collaboration products for in the field and
territory.

51

F. TRANSACTIONS AND AFFILIATES:

The Company's operating expenses are for payments to the Members for
project expenses incurred, either as internal operatings costs or as
third-party obligations on behalf of the Company. At December 31, 1998,
the Company owed $3,078,313 to the Members for project expenses and
equipment purchased by Members on behalf of the Company.

G. VENTURERS' CAPITAL:

Venturers' capital is comprised of monthly capital contributions made by
the Members to fund budgeted costs and expenses of the Company in
accordance with the Collaboration Agreement, net of losses allocated to
the Members. As of December 31, 1998 there was an unpaid capital
contribution of $2,389,631 owed to the Company from one Member, which
has been included in venturers' capital in the accompanying financial
statements. The amount was subsequently paid in March 1999.
Additionally, there was a contribution of $502,044 received from the
other member in advance of 1999 spending.

52

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

GENZYME TRANSGENICS CORPORATION

By: /s/ Sandra Nusinoff Lehrman
------------------------------------
Sandra Nusinoff Lehrman
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

Signature Title Date
- --------- ----- ----

/s/ James A. Geraghty Chairman of the Board April 5, 1999
- --------------------------------------------
James A. Geraghty

/s/ Sandra Nusinoff Lehrman President and Chief Executive Officer April 5, 1999
- --------------------------------------------
Sandra Nusinoff Lehrman

/s/ John B. Green Chief Financial and Accounting Officer April 5, 1999
- --------------------------------------------
John B. Green

/s/ Robert W. Baldridge Vice Chairman of the Board April 5, 1999
- --------------------------------------------
Robert W. Baldridge

/s/ Henri A. Termeer Director April 5, 1999
- --------------------------------------------
Henri A. Termeer

/s/ Alan E. Smith Director April 5, 1999
- --------------------------------------------
Alan E. Smith

/s/ Henry E. Blair Director April 5, 1999
- --------------------------------------------
Henry E. Blair

/s/ Alan W. Tuck Director April 5, 1999
- --------------------------------------------
Alan W. Tuck

/s/ Francis J. Bullock Director April 5, 1999
- --------------------------------------------
Francis J. Bullock

53

EXHIBIT INDEX
TO FORM 10-K FOR THE YEAR ENDED JANUARY 3, 1999

Exhibit No. Description
- ----------- -----------

2.1 Agreement and Plan of Merger, dated as of June 14, 1994, among
TSI Corporation ("TSI"), Genzyme Transgenics Corporation ("GTC")
and New Acorn Corporation. Filed as Appendix A to the Joint Proxy
Statement--Prospectus included in Part I of the Company's
Registration Statement on Form S-4 (File No. 33-80924) (the "GTC
S-4") and incorporated herein by reference.

2.2 Asset Purchase and Sale Agreement, dated as of January 3, 1995,
between The TSI Center for Diagnostic Products, Inc. and BioVest,
Inc. Filed as Exhibit 2.2 to the original filing of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994
(Commission File No. 0-21794) (the "GTC 1994 10-K") and
incorporated herein by reference. Pursuant to Item 601(b)(2) of
Regulation S-K, the schedules to this Agreement are omitted. A
list of such schedules appears in the table of contents to the
Agreement. The Company hereby undertakes to furnish
supplementally upon request a copy of any such schedule to the
Commission.

2.3 Agreement and Plan of Merger, dated May 23, 1995, among GTC,
Biodevelopment Laboratories, Inc. and BDL Acquisition Corp. Filed
as Exhibit 2 to the Company's Current Report on Form 8-K dated as
of July 3, 1995 (File No. 0-21794) and incorporated herein by
reference.

2.4 Share Purchase Agreement, dated as of September 1, 1995, among
GTC, TSI and Quintiles Holdings Limited. Filed as Exhibit 2 to
the Company's Current Report on Form 8-K dated as of September
19, 1995 (File No. 0-21794) and incorporated herein by reference.

3.1.1 Restated Articles of Organization of GTC, filed with the
Secretary of the Commonwealth of Massachusetts on December 27,
1993. Filed as Exhibit 3.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993 (File No. 0-21794) (the
"GTC 1993 10-K") and incorporated herein by reference.

3.1.2 Articles of Amendment to the Restated Articles of Organization
filed with the Secretary of the Commonwealth of Massachusetts on
October 3, 1994. Filed as Exhibit 3.1.2 to GTC's Annual Report on
Form 10-K for the year ended December 28, 1997 (File No. 0-21794)
(the "GTC 1997 10-K") and incorporated herein by reference.

3.1.3 Articles of Amendment to the Restated Articles of Organization
filed with the Secretary of Commonwealth of Massachusetts on June
26, 1997. Filed as Exhibit 3 to GTC's Quarterly Report on Form
10-Q for the quarter ended June 29, 1997 (File No. 0-21794) (the
"GTC June 1997 10-Q") and incorporated herein by reference.

3.1.4 Certificate of Vote of Directors Establishing a Series of a Class
of Stock (Series A Convertible Preferred Stock). Filed with the
Secretary of the Commonwealth of Massachusetts on March 20, 1998.
Filed as Exhibit 3.1.4 to the GTC 1997 10-K and incorporated
herein by reference.

3.2 By-Laws of GTC, as amended to date. Filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (File No. 33-62782)
(the "GTC S-1") and incorporated herein by reference.

4.1 Specimen Common Stock Certificate. Filed as Exhibit 4.1 to the
GTC S-1 and incorporated herein by reference.

4.2 Specimen Series A Convertible Preferred Stock Certificate. Filed
as Exhibit 4.2 to the GTC 1997 10-K and incorporated herein by
reference.

4.3.1 TSI Specimen Warrant Certificate. Filed as Exhibit 4.8 to TSI's
Registration Statement on Form S-3 (File No. 33-48107) and
incorporated herein by reference.

4.3.2 Form of Notice of Assumption by GTC of the TSI warrants to which
Exhibit 4.2.1 of this Report relates. Filed as Exhibit 4.2.2 to
the original filing of the GTC 1994 10-K and incorporated herein
by reference.

4.4.1 TSI Common Stock Purchase Warrant No. F-1 issued, on October 28,
1993, to The First National Bank of Boston ("FNBB"). Filed as
Exhibit 4.6 to the GTC S-4 and incorporated herein by reference.

4.4.2 TSI Common Stock Purchase Warrant No. G-1, dated September 27,
1994, issued to Financing for Science International, Inc.
("FSI"). Filed as Exhibit 4.4 to the original filing of the GTC
1994 10-K and incorporated herein by reference.

4.4.3 Form of Notice of Assumption by GTC of the TSI Common Stock
Purchase Warrants Nos. F-1 and G-1. Filed as Exhibit 4.5 to the
original filing of the GTC 1994 10-K and incorporated herein by
reference.

4.5 Common Stock Purchase Warrant, dated June 30, 1995, issued to
FSI. Filed as Exhibit 10.9 to the Company's Quarterly Report on
Form 10-Q for the period ended July 2, 1995 (Commission File No.
0-21794) (the "GTC July 1995 10-Q") and incorporated herein by
reference.

4.6 Common Stock Purchase Warrant, dated July 3, 1995, issued to
Genzyme. Filed as Exhibit 10.5 to the GTC July 1995 10-Q and
incorporated herein by reference.

4.7 Common Stock Purchase Warrant, dated March 13, 1996, issued to
FSI. Filed as Exhibit 4.8 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No. 0-21794) (the
"GTC 1995 10-K") and incorporated herein by reference.

4.8 Common Stock Purchase Warrant, dated as of June 26, 1997, issued
to Government Land Bank d/b/a The MassDevelopment
("MassDevelopment"). Filed as Exhibit 4 to the GTC June 1997 10-Q
and incorporated herein by reference.

4.9 Form of Common Stock Purchase Warrant issued to the purchasers of
Series A Convertible Preferred Stock, dated March 20, 1998,
together with schedule of holders. Filed as Exhibit 4.9 to the
GTC 1997 10-K and incorporated herein by reference.

4.10 Form of Common Stock Purchase Warrant issued to Shoreline Pacific
Institutional Finance and affiliates, dated as of March 20, 1998.
Filed as Exhibit 4.10 to the GTC 1997 10-K and incorporated
herein by reference.

4.11 Common Stock Purchase Warrant, dated as of December 28, 1998,
issued to Genzyme. Filed herewith.

10.1 Technology Transfer Agreement between GTC and Genzyme Corporation
("Genzyme"), dated as of May 1, 1993. Filed as Exhibit 2.1 to the
GTC S-1 and incorporated herein by reference.**

10.2 Research and Development Agreement between GTC and Genzyme, dated
as of May 1, 1993. Filed as Exhibit 10.1 to the GTC S-1 and
incorporated herein by reference.

10.3 Services Agreement between GTC and Genzyme, dated as of May 1,
1993. Filed as Exhibit 10.2 to the GTC S-1 and incorporated
herein by reference.

10.4 Sublease Agreement between GTC and Genzyme, dated as of May 1,
1993. Filed as Exhibit 10.3 to the GTC S-1 and incorporated
herein by reference.

10.5 License Agreement between GTC and Genzyme, as successor to IG
Laboratories, Inc., dated as of May 1, 1993. Filed as Exhibit
10.4 to the GTC S-1 and incorporated herein by reference.

10.6 Series A Convertible Preferred Stock Purchase Agreement between
GTC and Genzyme, dated as of May 1, 1993. Filed as Exhibit 10.5
to the GTC S-1 and incorporated herein by reference.

10.7.1 Mortgage and Security Agreement, dated as of June 30, 1995,
between GTC and Genzyme. Filed as Exhibit 10.6 to the GTC July
1995 10-Q and incorporated herein by reference.

10.7.2 First Amendment to Mortgage and Security Agreement, dated as of
December 15, 1995, between GTC and Genzyme. Filed as Exhibit
10.7.2 to the GTC 1996 10-K and incorporated herein by reference.

10.8* GTC 1993 Equity Incentive Plan, as amended through May 27, 1998.
Filed as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the period ended June 28, 1998 (File No. 0-21794) (the
"GTC June 1998 10-Q) and incorporated herein by reference.

10.9* GTC 1993 Employee Stock Purchase Plan, as amended through May 28,
1997. Filed as Exhibit 10.4 to the GTC June 1997 10-Q and
incorporated herein by reference.

10.10* GTC 1993 Director Stock Option Plan, as amended through May 27,
1998. Filed as Exhibit 10.3 to the GTC June 1998 10-Q and
incorporated herein by reference.

10.11 GTC Form of Confidential and Proprietary Information Agreement
signed by GTC employees. Filed as Exhibit 10.9 to the GTC S-1 and
incorporated herein by reference.

10.12 GTC Form of Agreement Not to Compete. Filed as Exhibit 10.10 to
the GTC S-1 and incorporated herein by reference.

10.13 Form of Indemnification Agreement between GTC and its directors.
Filed as Exhibit 10.12 to the original filing of the GTC 1994
10-K and incorporated herein by reference. Such agreements are
materially different only as to the signing directors and the
dates of execution.

10.14 License Agreement between GTC and Biogen, Inc., dated December
26, 1990. Filed as Exhibit 10.12 to the GTC S-1 and incorporated
herein by reference.**

10.15 Agreement between GTC, SMI Genzyme Limited ("SMIG") and a
European pharmaceutical company, dated as of September 29, 1990.
Filed as Exhibit 10.13 to the GTC S-1 and incorporated herein by
reference.**

10.16 Research and Development Agreement between Genzyme and SMIG,
dated as of September 11, 1990, filed as Exhibit 10.14 to the GTC
S-1, as amended by an Agreement between GTC and SMIG, dated as of
March 15, 1994, filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994, and, in
each case, incorporated herein by reference.**

10.17 Joint Venture and Shareholders Agreement between GTC, Sumitomo
Metal Industries, Ltd. ("SMI") and SMIG, dated as of September 7,
1990. Filed as Exhibit 10.15 to the GTC S-1 and incorporated
herein by reference.

10.18 Shareholders' Subscription Agreement among GTC, SMI and SMIG,
dated as of March 15, 1994. Filed as Exhibit 10.17 to the GTC
1993 10-K and incorporated herein by reference.**

10.19.1 Cooperation and Licensing Agreement between GTC and Tufts
University, dated September 6, 1988, as amended through May 13,
1993 (the "Cooperation and Licensing Agreement"). Filed as
Exhibit 10.18 to the GTC 1994 10-K and incorporated herein by
reference.**

10.19.2 Amendment No. 7, dated April 1, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the period ended October 1,
1995 (File No. 0-294) (the "GTC October 1995 10-Q") and
incorporated herein by reference.

10.19.3 Amendment No. 8, dated October 21, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.7 to the GTC October
1995 10-Q and incorporated herein by reference.

10.19.4 Amendment No. 9, dated December 1, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.8 to the GTC October
1995 10-Q and incorporated herein by reference.**

10.19.5 Amendment No. 10, dated November 1, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.9 to the GTC October
1995 10-Q and incorporated herein by reference.

10.19.6 Amendment No. 11, dated May 25, 1995, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.10 to the GTC October
1995 10-Q and incorporated herein by reference.

10.20 United States Patent No. 4,873,191 Sublicense Agreement between
DNX, Inc. and Genzyme Regarding Transgenic Experimental Animals
and Transgenic Mammary Production Systems, dated February 1,
1990; and letter of amendment, dated April 19, 1991. Filed
together as Exhibit 10.17 to the GTC S-1 and incorporated herein
by reference.**

10.21.1 Indenture of Lease, dated March 17, 1986, between TSI Mason
Laboratories, Inc. ("Mason") and Stephen W. Wolfe and William C.
Greene as Trustees of the Fifty-Seven Union Street Trust (the
"Mason Lease"). Filed as Exhibit 10.15 to TSI's Registration
Statement on Form S-1 (File No. 33-33708) and incorporated herein
by reference.

10.21.2 Amendment to the Mason Lease, dated September 30, 1993. Filed as
Exhibit 10.4 to Amendment No. 1 to TSI's Annual Report on Form
10-K for the fiscal year ended June 27, 1993 (the "TSI 1993
10-K") and incorporated herein by reference.

10.21.3 Guaranty by TSI of the obligations of Mason under the TSI Mason
Lease. Filed as Exhibit 10.41 to the TSI 1993 10-K and
incorporated herein by reference.

10.22 Lease Agreement, dated September 25, 1989, between TSI and
Laboratory Animal Services, Inc. and Greg E. Beatty and Betty L.
Beatty. Filed as Exhibit 10.15 to TSI's Annual Report on Form
10-K for the fiscal year ended July 1, 1990 and incorporated
herein by reference.

10.23.1 Lease Agreement, dated November 14, 1990, between TSI and
Hechinger Enterprises ("the Hechinger Lease"). Filed as Exhibit
10.21 to Amendment No. 2 to TSI's Registration Statement on Form
S-1 (File No. 33-39008) and incorporated herein by reference.

10.23.2 First Amendment to the Hechinger Lease, dated January 20, 1991.
Filed as Exhibit 10.22 to Amendment No. 1 to TSI's Registration
Statement on Form S-1 (File No. 33-39008) and incorporated herein
by reference.

10.24 Non-Competition and Confidentiality Agreement, dated as of August
7, 1991, between TSI and Mildred S. Christian. Filed as Exhibit
10.27 to Amendment No. 2 to TSI's Registration Statement on Form
S-1 (File No. 33-44724) and incorporated herein by reference.

10.25 Agreement to Terminate Existing Leases and Contemporaneously to
Enter Into a New Lease, dated as of July 1, 1992, between
Heffernan and Partners and Argus Research Laboratories, Inc.
Filed as Exhibit 10.31 to the TSI 1993 10-K and incorporated
herein by reference.

10.26.1 Lease Agreement, dated as of October 8, 1992, between W.M.
Rickman Construction Company and TSI Washington Laboratories,
Inc. (the "Washington Lease"). Filed as Exhibit 10.32 to the TSI
1993 10-K and incorporated herein by reference.

10.26.2 Amendment to the Washington Lease, dated as of January 17, 1995.
Filed as Exhibit 10.26.2 to the GTC 1997 10-K and incorporated
herein by reference.

10.26.3 Second Amendment and accompanying Side Agreement to the
Washington Lease, dated as of July 7, 1997. Filed as Exhibit
10.26.3 to the GTC 1997 10-K and incorporated herein by
reference.

10.27.1 Revolving Credit Agreement, dated July 3, 1995, among GTC,
certain of its subsidiaries and FNBB (the "Revolving Credit
Agreement"). Filed as Exhibit 10.2 to the GTC July 1995 10-Q and
incorporated herein by reference.

10.27.2 First Amendment to Revolving Credit Agreement, dated as of
September 15, 1995 among GTC, certain of its subsidiaries and
FNBB. Filed as Exhibit 10.28.2 to the GTC 1996 10-K and
incorporated herein by reference.

10.27.3 Second Amendment to Revolving Credit Agreement, dated as of
December 22, 1995 among GTC, certain of its subsidiaries and
FNBB. Filed as Exhibit 10.28.3 to the GTC 1996 10-K and
incorporated herein by reference.

10.27.4 Third Amendment to Revolving Credit Agreement, dated as of March
29, 1996 among GTC, certain of its subsidiaries and FNBB. Filed
as Exhibit 10.28.4 to the GTC 1996 10-K and incorporated herein
by reference.

10.27.5 Fourth Amendment to Revolving Credit Agreement, dated as of
October 1, 1996 among GTC, certain of its subsidiaries and FNBB.
Filed as Exhibit 10.27.5 to the GTC 1997 10-K and incorporated
herein by reference.

10.27.6 Fifth Amendment to Revolving Credit Agreement, dated as of
February 21, 1997 among GTC, certain of its subsidiaries and
FNBB. Filed as Exhibit 10.27.6 to the GTC 1997 10-K and
incorporated herein by reference.

10.27.7 Sixth Amendment to Revolving Credit Agreement, dated as of March
17, 1997 among GTC, certain of its subsidiaries and FNBB. Filed
as Exhibit 10.27.7 to the GTC 1997 10-K and incorporated herein
by reference.

10.27.8 Seventh Amendment to Revolving Credit Agreement, dated as of June
17, 1997, among GTC, certain of its subsidiaries and FNBB. Filed
as Exhibit 10.7 to the GTC June 1997 10-Q and incorporated herein
by reference.

10.27.9 Eighth Amendment to Revolving Credit Agreement, dated as of March
20, 1998, among GTC, certain of its subsidiaries and FNBB. Filed
as Exhibit 10.27.9 to the GTC 1997 10-K and incorporated herein
by reference.

10.28.1 Security Agreement, dated as of July 3, 1995, by GTC and certain
of its subsidiaries in favor of Genzyme (the "Security
Agreement"). Filed as Exhibit 10.3 to the GTC July 1995 10-Q and
incorporated herein by reference.

10.28.2 First Amendment to Security Agreement, dated as of December 15,
1997. Filed as Exhibit 10.28.2 to the GTC 1997 10-K and
incorporated herein by reference.

10.29.1 Second Amended and Restated Convertible Debt Agreement, dated as
of December 28, 1998, between the GTC and Genzyme. Filed as
Exhibit 10.37 to Genzyme's Annual Report on Form 10-K for the
year ended December 31, 1998 (File No. 0-14680) and incorporated
herein by reference.

10.29.2 Amended and Restated Convertible Revolving Credit Note in the
amount of $6,300,000, dated as of December 28, 1998, executed by
GTC to Genzyme. Filed herewith.

10.30 Subordination Agreement, dated as of March 29, 1996, among GTC,
Genzyme and FNBB. Filed as Exhibit 10.32 to the GTC September
1997 10-Q and incorporated herein by reference.

10.31.2 First Amendment to Term Loan Agreement, dated as of March 29,
1996, among GTC, FNBB and Genzyme. Filed as Exhibit 10.33.1 to
the GTC September 1997 10-Q and incorporated herein by reference.

10.31.3 Second Amendment to Term Loan Agreement, dated as of October 1,
1996, among GTC, FNBB and Genzyme. Filed as Exhibit 10.32.3 to
the GTC 1997 10-K and incorporated herein by reference.

10.31.4 Third Amendment to Term Loan Agreement, dated as of February 21,
1997, among GTC, FNBB and Genzyme. Filed as Exhibit 10.32.4 to
the GTC 1997 10-K and incorporated herein by reference.

10.31.5 Fourth Amendment to Term Loan Agreement, dated as of June 17,
1997, among GTC, FNBB and Genzyme. Filed as Exhibit 10.6 to the
GTC June 1997 10-Q and incorporated herein by reference.

10.31.6 Fifth Amendment to Term Loan Agreement, dated as of March 20,
1998, among GTC, FNBB and Genzyme. Filed as Exhibit 10.32.6 to
the GTC 1997 10-K and incorporated herein by reference.

10.32 Master Equipment Lease Agreement, dated as of September 27, 1994,
between TSI and FSI. Filed as Exhibit 10.33 to the original
filing of the GTC 1994 10-K and incorporated herein by reference.

10.33.1 Reserve Pledge and Security Agreement, dated as of September 27,
1994, between TSI and FSI. Filed as Exhibit 10.34 to the original
filing of the GTC 1994 10-K and incorporated herein by reference.

10.33.2 Modification to Reserve Pledge and Security Agreement, dated as
of June 30, 1995, between TSI and FSI. Filed as Exhibit 10.35.2
to the GTC 1997 10-K and incorporated herein by reference.

10.34 Security Agreement, dated as of September 27, 1994, between TSI
and FSI. Filed as Exhibit 10.35 to the original filing of the GTC
1994 10-K and incorporated herein by reference.

10.35 Intercreditor Agreement, dated as of July 3, 1995, among GTC,
TSI, certain other subsidiaries of GTC, FNBB and FSI. Filed as
Exhibit 10.7 to the GTC July 1995 10-Q and incorporated herein by
reference.

10.36 Guaranty of Lease, dated as of December 26, 1996, by GTC in favor
of FSI. Filed as Exhibit 10.38 to the GTC 1997 10-K and
incorporated herein by reference.

10.37 Conversion and Registration Rights Agreement, dated as of June
29, 1994, between GTC and TSI. Filed as Exhibit 10.47 to the GTC
S-4 and incorporated herein by reference.

10.38 Common Stock Purchase Agreement, dated as of June 8, 1995,
between GTC and Genzyme. Filed as Exhibit 10.1 to the GTC July
1995 10-Q and incorporated herein by reference.

10.39* Amended and Restated Employment Agreement, dated as of August 28,
1997, between the Company and James A. Geraghty. Filed as Exhibit
10.1 to the GTC September 1997 10-Q and incorporated herein by
reference.

10.40* Amended and Restated Employment Agreement, dated as of August 28,
1997, between the Company and John B. Green. Filed as Exhibit
10.2 to the GTC September 1997 10-Q and incorporated herein by
reference.

10.41* Amended and Restated Employment Agreement, dated as of September
16, 1997, between the Company and Peter Glick. Filed as Exhibit
10.3 to the GTC September 1997 10-Q and incorporated herein by
reference.

10.42* Employment Agreement, dated as of March 27, 1996, between GTC and
Harry Meade. Filed as Exhibit 10.44 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1996 and
incorporated herein by reference.

10.43* Form of Employment and Consulting Agreement among GTC, TSI and
Robert W. Baldridge. Filed as Exhibit 10.56 to the GTC S-4 and
incorporated herein by reference.

10.44.1 Agreement, dated as of September 21, 1994, between GTC and Gene
Pharming Europe B.V. ("Pharming B.V."). Filed as Exhibit 10.49 to
the Company's Registration Statement on Form S-1 (File No.
333-05843) and incorporated herein by reference.**

10.44.2 Amendment Agreement, dated as of April 23, 1997, between GTC and
Pharming B.V. Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 30, 1997 (File
No. 0-21794) (the "GTC March 1997 10-Q") and incorporated herein
by reference.

10.45 Development and Commercialization Agreement, dated as of
September 25, 1997, between the Company and Advanced Cell
Technology, Inc. Filed as Exhibit 10.5 to the GTC September 1997
10-Q and incorporated herein by reference.**

10.46 Development and Commercialization Agreement, dated as of
September 25, 1997, between the Company and B. Braun Melsungen
AG. Filed as Exhibit 10.6 to the GTC September 1997 10-Q and
incorporated herein by reference.**

10.47.1 Loan Agreement, dated as of May 22, 1997, between Redfield and
Simmons First National Bank ("SFNB"). Filed as Exhibit 10.49.1 to
the GTC 1997 10-K and in order to correct a typographical error
regarding the date of the agreement as contained in the version
previously filed as Exhibit 10.9.1 to the GTC June 1997 10-Q.

10.47.2 Promissory Note in the amount of $700,000.00, dated as of May 22,
1997, executed by Redfield and issued to SFNB. Filed as Exhibit
10.49.2 to the GTC 1997 10-K in order to correct a typographical
error regarding the date of the agreement as contained in the
version previously filed as Exhibit 10.9.2 to the GTC June 1997
10-Q.

10.47.3 Promissory Note in the amount of $350,000.00, dated as of May 22,
1997, executed by Redfield and issued to SFNB. Filed as Exhibit
10.49.3 to the GTC 1997 10-K in order to correct a typographical
error regarding the date of the agreement as contained in the
version previously filed as Exhibit 10.9.3 to the GTC June 1997
10-Q.

10.47.4 Mortgage, dated as of May 22, 1997, entered into by and between
Redfield and SFNB. Filed as Exhibit 10.49.4 to the GTC 1997 10-K
in order to correct a typographical error regarding the date of
the agreement as contained in the version previously filed as
Exhibit 10.9.4 to the GTC June 1997 10-Q.

10.47.5 Security Agreement, dated as of May 22, 1997, entered into by and
between Redfield and SFNB. Filed as Exhibit 10.49.5 to the GTC
1997 10-K in order to correct a typographical error regarding the
date of the agreement as contained in the version previously
filed as Exhibit 10.9.5 to the GTC June 1997 10-Q.

10.47.6 Unconditional Guaranty, dated as of May 22, 1997, executed by TSI
Corporation, Inc. in connection with the Loan Agreement, dated as
of May 22, 1997, between Redfield and SFNB. Filed as Exhibit
10.49.6 to the GTC 1997 10-K in order to correct a typographical
error regarding the date of the agreement as contained in the
version previously filed as Exhibit 10.9.6 to the GTC June 1997
10-Q.

10.47.7 Unconditional Guaranty, dated as of May 22, 1997, executed by the
Company in connection with the Loan Agreement, dated as of May
22, 1997, between Redfield and SFNB. Filed as Exhibit 10.49.7 to

the GTC 1997 10-K in order to correct a typographical error
regarding the date of the agreement as contained in the
version previously filed as Exhibit to 10.9.7 the GTC June
1997 10-Q.

10.48.1 Loan Agreement, dated as of May 22, 1997, between TSI Redfield
Laboratories, Inc. ("Redfield") and Jefferson County, Arkansas
("Jefferson County"). Filed as Exhibit 10.2.1 to the GTC June
1997 10-Q and incorporated herein by reference.

10.48.2 Promissory Note in the amount of $350,000.00, dated as of May 22,
1997, executed by Redfield and issued to Jefferson County. Filed
as Exhibit 10.2.2 to the GTC June 1997 10-Q and incorporated
herein by reference.

10.48.3 Mortgage, dated as of May 22, 1997, entered into by and between
Redfield and Jefferson County, Arkansas. Filed as Exhibit 10.2.3
to the GTC June 1997 10-Q and incorporated herein by reference.

10.48.4 Guaranty Agreement, dated as of May 22, 1997, executed by the
Company in connection with the Loan Agreement, dated as of May
22, 1997, between Redfield and Jefferson County. Filed as Exhibit
10.2.4 to the GTC June 1997 10-Q and incorporated herein by
reference.

10.49.1 Loan Agreement, dated as of June 26, 1997, between GTC Mason
Laboratories ("Mason") and MassDevelopment. Filed as Exhibit
10.8.1 to the GTC June 1997 10-Q and incorporated herein by
reference.

10.49.2 Promissory Note in the amount of $5,000,000.00, dated as of June
26, 1997, executed by Mason and issued to MassDevelopment. Filed
as Exhibit 10.8.2 to the GTC June 1997 10-Q and incorporated
herein by reference.

10.49.3 Mortgage and Security Agreement, dated as of June 26, 1997,
entered into by and between Mason and MassDevelopment. Filed as
Exhibit 10.8.3 to the GTC June 1997 10-Q and incorporated herein
by reference.

10.49.4 Guaranty, dated as of June 26, 1997, executed by the Company in
connection with the Loan Agreement, dated as of June 26, 1997,
between Mason and MassDevelopment. Filed 10.8.4 as Exhibit to the
GTC June 1997 10-Q and incorporated herein by reference.

10.49.5 Hazardous Materials Indemnification Agreement, dated as of June
26, 1997, entered into by and between Mason and MassDevelopment.
Filed as Exhibit 10.8.5 to the GTC June 1997 10-Q and
incorporated herein by reference.

10.50.1 Amended and Restated Operating Agreement of ATIII LLC dated as of
January 1, 1998. Filed as Exhibit 10.52.1 to the GTC 1997 10-K
and incorporated herein by reference.**

10.50.2 Purchase Agreement between GTC and Genzyme dated as of January 1,
1998, transferring an interest in ATIII LLC from Genzyme to GTC.
Filed as Exhibit 10.52.2 to the GTC 1997 10-K and incorporated
herein by reference.**

10.50.3 Collaboration Agreement among Genzyme, GTC and ATIII LLC, dated
as of January 1, 1998. Filed as Exhibit 10.52.3 to the GTC 1997
10-K and incorporated herein by reference.**

10.51 Registration Rights Agreement, dated March 20, 1998, between GTC
and certain stockholders named therein. Filed as Exhibit 10.53 to
the GTC 1997 10-K and incorporated herein by reference.

10.52 Securities Purchase Agreement, dated as of March 20, 1998,
between GTC and certain purchasers named therein. Filed as
Exhibit 10.54 to the GTC 1997 10-K and incorporated herein by
reference.

10.53* Employment Agreement dated as of July 1, 1998 between the Company
and Dr. Sandra Nusinoff Lehrman. Filed as Exhibit 10.1 to the GTC
June 1998 10-Q and incorporated herein by reference.

10.54* Amendment No. 1 to Employment Agreement between the Company and
Dr. Sandra Nusinoff Lehrman. Filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 27, 1998 (File No. 0-21794) (the "GTC September 1998
10-Q) and incorporated herein by reference.

10.55* Amendment No. 1 to Employment Agreement between the Company and
John B. Green. Filed as Exhibit 10.3 to the GTC September 1998
10-Q and incorporated herein by reference.

10.56* Consulting Agreement between the Company and James A. Geraghty.
Filed as Exhibit 10.4 to the GTC September 1998 10-Q and
incorporated herein by reference.

10.57.1 Credit Agreement between GTC and Fleet National Bank, dated as of
December 28, 1998. Filed herewith.

10.57.2 Revolving Credit Note in the amount of $17,500,000, dated as of
December 28, 1998, executed by GTC and issued to Fleet National
Bank. Filed herewith.

10.57.3. Term Note in the amount of $7,100,000, dated as of December 28,
1998, executed by GTC and issued to Fleet National Bank. Filed
herewith.

10.57.4 Amended and Restated Reimbursement Agreement, dated as of
December 28, 1998, 1995, among GTC, certain of its subsidiaries
and Genzyme. Filed herewith.

23.1 Consent of PricewaterhouseCoopers LLP. Filed herewith.

27 Financial Data Schedule. Filed herewith.

99 Important Factors Regarding Forward-Looking Statements. Filed
herewith.

- -----------------------------

* Indicates a management contract or compensatory plan.

** Certain confidential information contained in the document has been
omitted and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended, or Rule
24b-2 promulgated under the Securities and Exchange Act of 1934, as
amended