Genzyme Biosurgery Reports Second Quarter Results.

Revenue Continues to Rise While Expenses Decline

CAMBRIDGE, Mass., July 19 /PRNewswire/ --

Genzyme Corp. today announced financial results for Genzyme Biosurgery (Nasdaq: GZBX) for the second quarter of 2001. The division reported total revenue of $60.4 million, compared to revenue of $54.2 million in the first quarter of this year, an 11 percent increase.

Genzyme Biosurgery was formed in December, 2000 through the combination of Genzyme Tissue Repair and Genzyme Surgical Products, and the acquisition of Biomatrix, Inc. Because this is only the second full quarter for Genzyme Biosurgery, comparisons to 2000 revenue are based on pro forma figures calculated by combining revenues for the three entities. Pro forma revenue for the second quarter of 2000 was approximately $56 million, excluding a one-time $7 million milestone payment received by Biomatrix.

"This has been a very strong quarter for Genzyme Biosurgery, with solid growth in revenue and gross margin, and a decrease in expenses for the second consecutive quarter, leading to good progress in reducing operating losses," said Duke Collier, president of Genzyme Biosurgery. "We are particularly pleased by the growth of Synvisc(R), our leading revenue driver, which had its highest sales ever last quarter."

Genzyme Biosurgery's gross margin for the quarter was 53% prior to continued purchase accounting effects related to the acquisition of Biomatrix inventory. Operating loss was $8.9 million prior to amortization, special items, and the continuing effects of purchase accounting, down from $13.1 million last quarter. Net loss before special items and prior to amortization was $12.7 million, or $0.35 per share.

Reported net loss for the quarter, including purchase accounting and special items, was $33.2 million, or $0.91 per share. Reported gross margin was 42%, including purchase accounting and one-time events.

Charges for special items and purchase accounting effects for the quarter totaled $12.9 million, which included $5.4 million for the purchase accounting adjustment related to inventory acquired from Biomatrix, $5.5 million related to consolidating European operations, and $1.2 million related to the underfunding of an acquired retirement plan.

Genzyme Biosurgery ended the quarter with approximately $23 million in cash and marketable securities. It also has access to $15 million in financing through Genzyme General and an additional $17 million through Genzyme Corporation's revolving credit facility.

Genzyme Biosurgery reports quarterly results for its three core business units -- Orthopaedics, Biosurgical Specialties, and Cardiothoracic products.

Orthopaedics

Revenue generated by the Orthopaedics unit totaled $26.5 million in the second quarter, compared with $20.4 million in the first quarter. Genzyme Biosurgery saw growth in both of its orthopaedic products -- Synvisc, a viscous fluid that is injected into the knee for treatment of pain in patients with arthritis; and Carticel(R) autologous cultured chondrocytes. Last year's pro forma revenue for orthopaedics in the second quarter was $24.2 million, excluding a one-time $7 million milestone payment received by Biomatrix from Wyeth-Ayerst, the U.S. distributor for Synvisc. Orthopaedics is the largest revenue driver for Genzyme Biosurgery, accounting for more than 40 percent of its revenue.

Second quarter revenue included $21.8 million from Synvisc, up 36 percent from $16.0 million in the first quarter of 2001. Biomatrix's revenue from product sales of Synvisc in the second quarter of 2000 was $19.4 million. Second quarter sales for Synvisc reflected the impact of a new 95-person dedicated sales force that was launched in April by Wyeth-Ayerst.

Carticel revenues rose to $4.8 million, up from $4.6 million in the same quarter of 2000. More than 5,000 patients have been treated with Carticel since it was launched in 1995.

Biosurgical Specialties

The Biosurgical Specialties unit experienced continuing strong growth in the second quarter. Revenues totaled $16.5 million, up from $15.4 million in the first quarter of this year, and 31 percent higher than the pro forma revenue of $12.6 million recorded in the second quarter of 2000. Growth was led by strong demand for the Sepra(TM) line of products, which are used to reduce the incidence of adhesions following surgery. Sepra revenue totaled $7.5 million, compared with $6.4 million last quarter, and $4.3 million in the second quarter of 2000. Growth was paced by increased sales in the United States and in Japan, where Seprafilm(TM) recently received reimbursement approval for use in abdominal cancer procedures.

Other products sold by the Biosurgical…