UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|ý                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|--------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended March 31, 2004
|or                                           
|o                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to           

Commission file number 0-14680

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

|Massachusetts(State or other jurisdiction of
incorporation or organization)          |  | 06-1047163(I.R.S. Employer
Identification No.)
|------------------------------------------------------------------------------------ |  | ----------------------------------------------
|500 Kendall Street, Cambridge, Massachusetts(Address of principal executive offices) |  | 02142(Zip Code)                               
|(617) 252-7500(Registrant's telephone number, including area code)                  

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

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

The number of shares of Genzyme General Stock outstanding as of April 30, 2004: 226,520,086



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NOTE REGARDING REFERENCES TO GENZYME DIVISIONS AND SERIES OF STOCK

Throughout this Form 10-Q, the words "we," "us," "our" and "Genzyme" refer to Genzyme Corporation as a whole, and "our board of directors"
refers to the board of directors of Genzyme Corporation.

Through
June 30, 2003, we had three operating divisions, which we refer to as follows:



Through
June 30, 2003, we also had three outstanding series of common stock. Each series was designed to reflect the value and track the performance of one of our divisions. We
refer to each series of common stock as follows:



Through
June 30, 2003, we allocated earnings or losses to each series of tracking stock based on the net income or loss attributable to the corresponding division determined in
accordance with accounting principles generally accepted in the United States of America, as adjusted for the allocation of tax benefits.

Effective
July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for
0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock and
options to purchase shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. While our charter continues to designate 100,000,000 shares
as Biosurgery Stock and 40,000,000 shares as Molecular Oncology Stock, no shares of either series remain outstanding, and all of our assets and liabilities that had been allocated to Genzyme
Biosurgery and Genzyme Molecular Oncology are now allocated to Genzyme General. Effective July 1, 2003, we have one outstanding series of common stock, which we refer to as Genzyme General
Stock.

Effective
July 1, 2003, as a result of the elimination of our tracking stock capital structure, all of our earnings or losses are now allocated to Genzyme General Stock. Earnings
or losses allocated to Biosurgery Stock and Molecular Oncology Stock prior to that date remain allocated to those series of stock in the preparation of our consolidated financial statements and are
not affected by the elimination of our tracking stock structure. Accordingly, earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock represent earnings allocated to those
tracking stocks through June 30, 2003. Earnings or losses allocated to Genzyme General Stock through June 30, 2003 represent the earnings or losses of Genzyme General, as adjusted for
the allocation of tax benefits. Earnings or losses allocated to Genzyme General Stock after June 30, 2003 represent the earnings or losses for the corporation as a whole. Accordingly, earnings
allocated to Genzyme General Stock for the three months ended March 31, 2004 reflect the earnings for the corporation as a whole. Earnings allocated to Genzyme General Stock for the three
months ended March 31, 2003 reflect the earnings allocated to Genzyme General and do not include the losses allocated to Biosurgery Stock and Molecular Oncology Stock for that period.

On
July 1, 2003, we reclassified the Biosurgery Stock and Molecular Oncology Stock equity accounts into the Genzyme General Stock equity accounts. The elimination of our tracking
stock

i

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capital
structure had no effect on our consolidated net income or loss. Because we now have only one series of common stock outstanding, we rescinded the management and accounting policies that
governed the relationships between our former divisions. In this Quarterly Report on Form 10-Q, and future Quarterly and Annual Reports, we will not provide separate financial
statements and management's discussion and analysis for each of our former divisions, but will continue to provide our consolidated financial statements and management's discussion and analysis for
the corporation as a whole.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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



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



ii

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iii

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We
have included more detailed descriptions of these and other risks and uncertainties under the heading "Factors Affecting Future Operating Results" in Item 2 to Part I of this
Form 10-Q. We encourage you to read those descriptions carefully. We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements,
like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements.

NOTE REGARDING INCORPORATION BY REFERENCE

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

NOTE REGARDING TRADEMARKS

Genzyme®, Renagel®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Synvisc®,
Carticel®, Seprafilm®, Myozyme® and Epicel® are registered trademarks of Genzyme. Sepra is a trademark of Genzyme. Aldurazyme®
is a registered trademark of BioMarin/Genzyme LLC. Thymoglobulin® and Lymphoglobuline® are registered trademarks of SangStat Medical Corporation. WelChol® is a
registered trademark of Sankyo Pharma, Inc. Gengraf® is a registered trademark of Abbott Laboratories. All rights reserved.

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GENZYME CORPORATION AND SUBSIDIARIES  FORM 10-Q, MARCH 31, 2004  TABLE OF CONTENTS

|           |  |                                                                                                     |  | PAGE NO.
|---------- |  | --------------------------------------------------------------------------------------------------- |  | --------
|PART I.    |  | FINANCIAL INFORMATION                                                                               |  |         
|ITEM 1.    |  | Financial Statements                                                                                |  | 1       
|           |  | Unaudited, Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 |  | 1       
|           |  | Unaudited, Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003                   |  | 3       
|           |  | Unaudited, Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 |  | 4       
|           |  | Notes to Unaudited, Consolidated Financial Statements                                               |  | 5       
|ITEM 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations               |  | 25      
|ITEM 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                          |  | 53      
|ITEM 4.    |  | Controls and Procedures                                                                             |  | 53      
|PART II.   |  | OTHER INFORMATION                                                                                   |  |         
|ITEM 1.    |  | Legal Proceedings                                                                                   |  | 54      
|ITEM 6.    |  | Exhibits and Reports on Form 8-K                                                                    |  | 55      
|Signatures |  | 56                                                                                                 

v

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENZYME CORPORATION AND SUBSIDIARIES  Consolidated Statements of Operations  (Unaudited, amounts in thousands)

|                                         |                                                                                    | Three Months Ended March 31,                |                                                             
|---------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------- | ------------------------------------------------------------
|
|Revenues:                                |                                                                                    |                                             |                                                             
|                                         | Net product sales                                                                  |                                             | $                                                           
|                                         | Net service sales                                                                  |                                             |                                                             
|                                         | Revenues from research and development contracts:                                  |                                             |                                                             
|                                         |                                                                                    | Related parties                             |                                                             
|                                         |                                                                                    | Other                                       |                                                             
|                                         |                                                                                    |                                             |                                                             
|                                         |                                                                                    |                                             | Total revenues                                              
|                                         |                                                                                    |                                             |                                                             
|Operating costs and expenses:            |                                                                                    |                                             |                                                             
|                                         | Cost of products sold                                                              |                                             |                                                             
|                                         | Cost of services sold                                                              |                                             |                                                             
|                                         | Selling, general and administrative                                                |                                             |                                                             
|                                         | Research and development (including research and development related to contracts) |                                             |                                                             
|                                         | Amortization of intangibles                                                        |                                             |                                                             
|                                         |                                                                                    |                                             |                                                             
|                                         |                                                                                    | Total operating costs and expenses          |                                                             
|                                         |                                                                                    |                                             |                                                             
|Operating income                         |                                                                                    |                                             | 102,008                                                     
|                                         |                                                                                    |                                             |                                                             
|Other income (expenses):                 |                                                                                    |                                             |                                                             
|                                         | Equity in loss of equity method investments                                        |                                             |                                                             
|                                         | Minority interest                                                                  |                                             |                                                             
|                                         | Other                                                                              |                                             |                                                             
|                                         | Investment income                                                                  |                                             |                                                             
|                                         | Interest expense                                                                   |                                             |                                                             
|                                         |                                                                                    |                                             |                                                             
|                                         |                                                                                    | Total other income (expenses)               |                                                             
|                                         |                                                                                    |                                             |                                                             
|Income before income taxes               |                                                                                    |                                             | 96,718                                                      
|Provision for income taxes               |                                                                                    |                                             | (28,824                                                     
|                                         |                                                                                    |                                             |                                                             
|Net income                               |                                                                                    | $                                           | 67,894                                                      
|                                         |                                                                                    |                                             |                                                             
|Comprehensive income (loss), net of tax: |                                                                                    |                                             |                                                             
|                                         | Net income                                                                         |                                             | $                                                           
|                                         |                                                                                    |                                             |                                                             
|                                         | Other comprehensive income (loss), net of tax:                                     |                                             |                                                             
|                                         |                                                                                    | Foreign currency translation adjustments    |                                                             
|                                         |                                                                                    | Gain on affiliate sale of stock, net of tax |                                                             
|                                         |                                                                                    | Other                                       |                                                             
|                                         |                                                                                    | Unrealized gains (losses) on securities:    |                                                             
|                                         |                                                                                    |                                             | Unrealized gains arising during the period, net             
|                                         |                                                                                    |                                             | Reclassification adjustment for gains included in net income
|                                         |                                                                                    |                                             |                                                             
|                                         |                                                                                    |                                             | Unrealized gains on securities, net                         
|                                         |                                                                                    |                                             |                                                             
|                                         |                                                                                    | Other comprehensive income (loss)           |                                                             
|                                         |                                                                                    |                                             |                                                             
|Comprehensive income                     |                                                                                    | $                                           | 60,796                                                      
|                                         |                                                                                    |                                             |                                                             

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

1

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GENZYME CORPORATION AND SUBSIDIARIES  Consolidated Statements of Operations (Continued)  (Unaudited, amounts in thousands, except per share amounts)

|                                       |                                                                  | Three Months Ended March 31, |  
|-------------------------------------- | ---------------------------------------------------------------- | ---------------------------- | -
|
|Net income (loss) per share:           |                                                                  |                              |  
|Allocated to Genzyme General Stock:    |                                                                  |                              |  
|                                       | Genzyme General net income                                       |                              | $
|                                       | Tax benefit allocated from Genzyme Biosurgery                    |                              |  
|                                       | Tax benefit allocated from Genzyme Molecular Oncology            |                              |  
|                                       |                                                                  |                              |  
|                                       | Net income allocated to Genzyme General Stock                    |                              | $
|                                       |                                                                  |                              |  
|                                       | Net income per share of Genzyme General Stock:                   |                              |  
|                                       |                                                                  | Basic                        |  
|                                       |                                                                  |                              |  
|                                       |                                                                  | Diluted                      |  
|                                       |                                                                  |                              |  
|                                       | Weighted average shares outstanding:                             |                              |  
|                                       |                                                                  | Basic                        |  
|                                       |                                                                  |                              |  
|                                       |                                                                  | Diluted                      |  
|                                       |                                                                  |                              |  
|Allocated to Biosurgery Stock:         |                                                                  |                              |  
|                                       | Genzyme Biosurgery net loss                                      |                              |  
|                                       | Allocated tax benefit                                            |                              |  
|                                       |                                                                  |                              |  
|                                       | Net loss allocated to Biosurgery Stock                           |                              |  
|                                       |                                                                  |                              |  
|                                       | Net loss per share of Biosurgery Stockbasic and diluted         |                              |  
|                                       |                                                                  |                              |  
|                                       | Weighted average shares outstanding                              |                              |  
|                                       |                                                                  |                              |  
|Allocated to Molecular Oncology Stock: |                                                                  |                              |  
|                                       | Net loss allocated to Molecular Oncology Stock                   |                              |  
|                                       |                                                                  |                              |  
|                                       | Net loss per share of Molecular Oncology Stockbasic and diluted |                              |  
|                                       |                                                                  |                              |  
|                                       | Weighted average shares outstanding                              |                              |  
|                                       |                                                                  |                              |  

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

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GENZYME CORPORATION AND SUBSIDIARIES  Consolidated Balance Sheets  (Unaudited, amounts in thousands, except par value amounts)

|                                             |                                                                                                            | March 31,
2004                             |           | December 31,
2003 |          
|-------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ----------------- | ---------
|ASSETS                                       |                                                                                                            |                                            |           |                   |          
|Current assets:                              |                                                                                                            |                                            |           |                   |          
|                                             | Cash and cash equivalents                                                                                  |                                            | $         | 260,395           |          
|                                             | Short-term investments                                                                                     |                                            |           | 517,229           |          
|                                             | Accounts receivable, net                                                                                   |                                            |           | 411,528           |          
|                                             | Inventories                                                                                                |                                            |           | 269,542           |          
|                                             | Prepaid expenses and other current assets                                                                  |                                            |           | 93,182            |          
|                                             | Deferred tax assets                                                                                        |                                            |           | 133,034           |          
|                                             |                                                                                                            |                                            |           |                   |          
|                                             |                                                                                                            | Total current assets                       |           |                   | 1,684,910
|Property, plant and equipment, net           |                                                                                                            |                                            | 1,156,083 |                   |          
|Long-term investments                        |                                                                                                            |                                            | 458,235   |                   |          
|Notes receivablerelated parties             |                                                                                                            |                                            | 11,901    |                   |          
|Goodwill, net                                |                                                                                                            |                                            | 654,738   |                   |          
|Other intangible assets, net                 |                                                                                                            |                                            | 882,673   |                   |          
|Investments in equity securities             |                                                                                                            |                                            | 110,815   |                   |          
|Other noncurrent assets                      |                                                                                                            |                                            | 86,089    |                   |          
|                                             |                                                                                                            |                                            |           |                   |          
|                                             |                                                                                                            | Total assets                               |           | $                 | 5,045,444
|                                             |                                                                                                            |                                            |           |                   |          
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                                                                                            |                                            |           |                   |          
|Current liabilities:                         |                                                                                                            |                                            |           |                   |          
|                                             | Accounts payable                                                                                           |                                            | $         | 62,845            |          
|                                             | Accrued expenses                                                                                           |                                            |           | 265,790           |          
|                                             | Deferred revenue and other income                                                                          |                                            |           | 9,962             |          
|                                             | Current portion of long-term debt, convertible notes, convertible debentures and capital lease obligations |                                            |           | 584,398           |          
|                                             |                                                                                                            |                                            |           |                   |          
|                                             |                                                                                                            | Total current liabilities                  |           |                   | 922,995  
|Long-term debt and capital lease obligations |                                                                                                            |                                            | 149,058   |                   |          
|Convertible notes and debentures             |                                                                                                            |                                            | 690,000   |                   |          
|Deferred revenuenoncurrent                  |                                                                                                            |                                            | 3,304     |                   |          
|Deferred tax liabilities                     |                                                                                                            |                                            | 187,296   |                   |          
|Other noncurrent liabilities                 |                                                                                                            |                                            | 52,482    |                   |          
|                                             |                                                                                                            |                                            |           |                   |          
|                                             |                                                                                                            | Total liabilities                          |           |                   | 2,005,135
|                                             |                                                                                                            |                                            |           |                   |          
|Commitments and contingencies (Note 10)      |                                                                                                            |                                            |           |                   |          
|Stockholders' equity:                        |                                                                                                            |                                            |           |                   |          
|                                             | Preferred stock, $0.01 par value                                                                           |                                            |           |                  |          
|                                             | Common stockGenzyme General Stock, $0.01 par value                                                        |                                            |           | 2,262             |          
|                                             | Additional paid-in capital-Genzyme General Stock                                                           |                                            |           | 3,000,817         |          
|                                             | Notes receivable from stockholders                                                                         |                                            |           | (13,438           | )        
|                                             | Accumulated deficit                                                                                        |                                            |           | (130,666          | )        
|                                             | Accumulated other comprehensive income                                                                     |                                            |           | 181,334           |          
|                                             |                                                                                                            |                                            |           |                   |          
|                                             |                                                                                                            | Total stockholders' equity                 |           |                   | 3,040,309
|                                             |                                                                                                            |                                            |           |                   |          
|                                             |                                                                                                            | Total liabilities and stockholders' equity |           | $                 | 5,045,444
|                                             |                                                                                                            |                                            |           |                   |          

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

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GENZYME CORPORATION AND SUBSIDIARIES  Consolidated Statements of Cash Flows  (Unaudited, amounts in thousands)

|                                                 |                                                                            | Three Months Ended March 31,                                                                                            |                                                        
|------------------------------------------------ | -------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------
|
|Cash Flows from Operating Activities:            |                                                                            |                                                                                                                         |                                                        
|                                                 | Net income                                                                 |                                                                                                                         | $                                                      
|                                                 | Reconciliation of net income to net cash provided by operating activities: |                                                                                                                         |                                                        
|                                                 |                                                                            | Depreciation and amortization                                                                                           |                                                        
|                                                 |                                                                            | Non-cash compensation expense                                                                                           |                                                        
|                                                 |                                                                            | Provision for bad debts                                                                                                 |                                                        
|                                                 |                                                                            | Equity in loss of equity method investments                                                                             |                                                        
|                                                 |                                                                            | Minority interest                                                                                                       |                                                        
|                                                 |                                                                            | Deferred income tax benefit                                                                                             |                                                        
|                                                 |                                                                            | Tax benefit from employee stock options                                                                                 |                                                        
|                                                 |                                                                            | Other                                                                                                                   |                                                        
|                                                 |                                                                            | Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities): |                                                        
|                                                 |                                                                            |                                                                                                                         | Accounts receivable                                    
|                                                 |                                                                            |                                                                                                                         | Inventories                                            
|                                                 |                                                                            |                                                                                                                         | Prepaid expenses and other current assets              
|                                                 |                                                                            |                                                                                                                         | Accounts payable, accrued expenses and deferred revenue
|                                                 |                                                                            |                                                                                                                         |                                                        
|                                                 |                                                                            |                                                                                                                         |                                                        
|                                                 |                                                                            |                                                                                                                         |                                                        
|Cash Flows from Investing Activities:            |                                                                            |                                                                                                                         |                                                        
|                                                 | Purchases of investments                                                   |                                                                                                                         |                                                        
|                                                 | Sales and maturities of investments                                        |                                                                                                                         |                                                        
|                                                 | Purchases of equity securities                                             |                                                                                                                         |                                                        
|                                                 | Proceeds from sale of equity securities                                    |                                                                                                                         |                                                        
|                                                 | Purchases of property, plant and equipment                                 |                                                                                                                         |                                                        
|                                                 | Investments in equity investees                                            |                                                                                                                         |                                                        
|                                                 | Acquisitions                                                               |                                                                                                                         |                                                        
|                                                 | Other                                                                      |                                                                                                                         |                                                        
|                                                 |                                                                            |                                                                                                                         |                                                        
|                                                 |                                                                            |                                                                                                                         |                                                        
|                                                 |                                                                            |                                                                                                                         |                                                        
|Cash Flows from Financing Activities:            |                                                                            |                                                                                                                         |                                                        
|                                                 | Proceeds from issuance of common stock                                     |                                                                                                                         |                                                        
|                                                 | Payments of debt and capital lease obligations                             |                                                                                                                         |                                                        
|                                                 | Bank overdraft                                                             |                                                                                                                         |                                                        
|                                                 | Minority interest                                                          |                                                                                                                         |                                                        
|                                                 | Other                                                                      |                                                                                                                         |                                                        
|                                                 |                                                                            |                                                                                                                         |                                                        
|                                                 |                                                                            |                                                                                                                         |                                                        
|                                                 |                                                                            |                                                                                                                         |                                                        
|Effect of exchange rate changes on cash          |                                                                            |                                                                                                                         | (4,801                                                 
|                                                 |                                                                            |                                                                                                                         |                                                        
|Decrease in cash and cash equivalents            |                                                                            |                                                                                                                         | (32,379                                                
|Cash and cash equivalents at beginning of period |                                                                            |                                                                                                                         | 292,774                                                
|                                                 |                                                                            |                                                                                                                         |                                                        
|Cash and cash equivalents at end of period       |                                                                            | $                                                                                                                       | 260,395                                                
|                                                 |                                                                            |                                                                                                                         |                                                        

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

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GENZYME CORPORATION AND SUBSIDIARIES        Notes To Unaudited, Consolidated Financial Statements

1. Description of Business

We are a global biotechnology company dedicated to making a major positive impact on the lives of people with serious diseases. Our broad product portfolio is
focused on rare genetic disorders, renal disease, osteoarthritis and organ transplant, and includes an industry-leading array of diagnostic products and services. We are organized into five financial
reporting units, which we also consider to be our reportable segments:



We
report the activities of our bulk pharmaceuticals, oncology, cardiovascular and drug discovery and development business units under the caption "Other." We report our corporate
operations, general and administrative and corporate science activities that we do not allocate to our financial reporting units, under the caption "Corporate."

2. Basis of Presentation and Significant Accounting Policies



Our unaudited, consolidated financial statements for each period include the statements of operations, balance sheets and statements of cash flows for our
corporate operations taken as a whole. We eliminate all significant intracompany items and transactions in consolidation. We prepare our unaudited, consolidated financial statements following the
requirements of accounting principles generally accepted in the United States of America and the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and
other financial information that are normally required by accounting principles generally accepted in the United States. We have reclassified certain 2003 data to conform to our 2004 presentation.

These
financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results. Since these
are interim financial

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statements,
you should also read our audited, consolidated financial statements and notes included in our 2003 Form 10-K. Revenues, expenses, assets and liabilities can vary from
quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

Elimination of Tracking Stock Structure

Through June 30, 2003, we had three outstanding series of common stockGenzyme General Division common stock, which we refer to as "Genzyme
General Stock," Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," and Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology
Stock." We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks was designed to reflect the value and track the financial performance of a
specific subset of our business operations and its allocated assets, rather than the operations and assets of our entire company. Through June 30, 2003, we allocated earnings or losses to each
series of tracking stock based on the net income or loss attributable to the corresponding division determined in accordance with accounting principles generally accepted in the United States as
adjusted for the allocation of tax benefits. Effective July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each
share of Biosurgery Stock for 0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. In the aggregate, 1,997,392 shares
of Genzyme General Stock were exchanged for the outstanding shares of Biosurgery Stock and 959,045 shares of Genzyme General Stock were exchanged for the outstanding shares of Molecular Oncology
Stock. Options and warrants to purchase shares of Biosurgery Stock were converted into options and warrants to purchase 401,257 shares of Genzyme General Stock, with exercise prices ranging from
$24.27 to $2,356.12, and options to purchase shares of Molecular Oncology Stock were converted into options to purchase 198,855 shares of Genzyme General Stock, with exercise prices ranging from
$26.01 to $478.27. While our charter continues to designate 100,000,000 shares as Biosurgery Stock and 40,000,000 shares as Molecular Oncology Stock, no shares of either series remain outstanding.
Effective July 1, 2003, we have one outstanding series of common stock, which we refer to as Genzyme General Stock.

Effective
July 1, 2003, as a result of the elimination of our tracking stock capital structure, all of our earnings or losses are now allocated to Genzyme General Stock. Earnings
or losses allocated to Biosurgery Stock and Molecular Oncology Stock prior to that date remain allocated to those series of stock in the preparation of our consolidated financial statements and are
not affected by the elimination of our tracking stock structure. Accordingly, earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock represent earnings allocated to those
tracking stocks through June 30, 2003. Earnings or losses allocated to Genzyme General Stock through June 30, 2003 represent the earnings or losses of Genzyme General, as adjusted for
the allocation of tax benefits. Earnings or losses allocated to Genzyme General Stock after June 30, 2003 represent the earnings or losses for the corporation as a whole. Accordingly, earnings
allocated to Genzyme General Stock for the three months ended March 31, 2004 reflect the earnings for the corporation as a whole. Earnings allocated to Genzyme General Stock for the three
months ended March 31, 2003 reflect the earnings allocated to Genzyme General and do not include the losses allocated to Biosurgery Stock and Molecular Oncology Stock for that period.

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The
elimination of our tracking stock capital structure had no effect on our consolidated net loss. In this Form 10-Q, and future Quarterly and Annual Reports, we will
not provide separate financial statements for each of our former divisions, but will continue to provide our consolidated financial statements for the corporation as a whole.

Through
June 30, 2003, the chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division were provisions in our charter governing
dividends and distributions. The provisions governing dividends provided that our board of directors had discretion to decide if and when to declare dividends, subject to certain limitations. To the
extent that the following amount did not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division was the
greater of:



The
provisions in our charter governing dividends and distributions factored the assets and liabilities and income or losses attributable to a division into the determination of the
amount available to pay
dividends on the associated tracking stock. Through June 30, 2003, we calculated the income tax provision of each division as if such division were a separate taxpayer, which included assessing
the realizability of deferred tax assets at the division level. Our management and accounting policies in effect at the time provided that if, at the end of any fiscal quarter, a division could not
use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we could allocate the tax benefit to other divisions in proportion to their
taxable income without any compensating payments or allocation to the division generating the benefit. Through June 30, 2003, Genzyme Biosurgery and Genzyme Molecular Oncology had not generated
taxable income, and thus had not had the ability to use any projected annual tax benefits. Genzyme General has generated taxable income, providing it with the ability to utilize the tax benefits
generated by Genzyme Biosurgery and Genzyme Molecular Oncology. Consistent with our policy, we allocated the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology through
June 30, 2003 to Genzyme General without making any compensating payments or allocations to the division that generated the benefit.

The
tax benefits allocated to Genzyme General and included in earnings attributable to Genzyme General Stock for the three months ended March 31, 2003 were (amounts in thousands):

Three Months Ended March 31,2003Tax benefits allocated from:Genzyme Biosurgery

$
2,322Genzyme Molecular Oncology


1,763Total

$
4,085


7

---



Deferred
tax assets and liabilities can arise from purchase accounting and relate to a division that does not satisfy the realizability criteria of Statement of Financial Accounting
Standards, or SFAS, No. 109, "Accounting for Income Taxes." Through June 30, 2003, such deferred tax assets and liabilities were allocated to the division to which the acquisition was
allocated. As a result, the periodic changes in these deferred tax assets and liabilities did not result in a tax expense or benefit to that division. However, the change in these deferred tax assets
and liabilities impacted our consolidated tax provision.
These changes were added to division net income for purposes of determining net income allocated to a tracking stock.

Within
the general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. To date, we have never paid or
declared a cash dividend on shares of any of our series of common stock, nor do we anticipate paying or declaring a cash dividend on shares of our common stock in the foreseeable future. Unless
declared, no dividends will accrue on shares of our common stock.

Net Income (Loss) Per Share

Through June 30, 2003, we calculated earnings per share for each series of stock using the two-class method. To calculate basic earnings per
share for each series of stock, we divided the earnings allocated to each series of stock by the weighted average number of outstanding shares of that series of stock during the applicable period.
When we calculated diluted earnings per share, we also included in the denominator all potentially dilutive securities outstanding during the applicable period if inclusion of such securities was not
anti-dilutive. We allocated our earnings to each series of our common stock based on the earnings attributable to that series of stock. Through June 30, 2003, the earnings
attributable to Genzyme General Stock, as defined in our charter, were equal to the net income or loss of Genzyme General determined in accordance with accounting principles generally accepted in the
United States and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies in effect at the time. Earnings attributable to Biosurgery
Stock and Molecular Oncology Stock were defined similarly and, as such, were based on the net income or loss of the corresponding division as adjusted for the allocation of tax benefits.

Effective
July 1, 2003, in connection with the elimination of our tracking stock structure, we ceased allocating earnings or losses to Biosurgery Stock and Molecular Oncology
Stock. From that date forward, all of our earnings or losses are allocated to Genzyme General Stock. Earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock prior to
July 1, 2003 will remain allocated to those stocks and are not affected by the elimination of our tracking stock structure.

Accounting for Stock-Based Compensation

In accounting for stock-based compensation, we do not recognize compensation expense for qualifying options granted to our employees and directors under the
provisions of our stock-based compensation plans with fixed terms and an exercise price greater than or equal to the fair market value of the underlying series of our common stock on the date of
grant. All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123, as amended, and Emerging Issues Task Force, or EITF, Issue
No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

8

---



The
following table sets forth our net income (loss) data as if compensation expense for our stock-based compensation plans was determined in accordance with SFAS No. 123, as
amended, based on the fair value at the grant dates of the awards (amounts in thousands):

Three Months Ended March 31,2004

2003Net income:As reported

$
67,894

$
45,369Add: stock-based compensation included in as reported, net of tax


4


153Deduct: pro forma stock-based compensation expense, net of tax


(17,314
)

(13,384
)Pro forma

$
50,584

$
32,138


The
following table sets forth the impact to our historical net income (loss) per share data as if compensation expense for our stock-based compensation plans was determined in
accordance with SFAS No. 123:

Three Months Ended March 31,2004

2003Net income per share allocated to Genzyme General Stock:Basic:As reported

$
0.30

$
0.29Pro forma

$
0.22

$
0.24Diluted:As reported

$
0.29

$
0.28Pro forma

$
0.22

$
0.23Net loss per share allocated to Biosurgery Stockbasic and diluted:As reported




$
(0.29
)Pro forma




$
(0.32
)Net loss per share allocated to Molecular Oncology Stockbasic and diluted:As reported




$
(0.28
)Pro forma




$
(0.33
)


The effects of applying SFAS No. 123 are not necessarily representative of the effects on reported net income (loss) in future years. Additional awards
in future years are anticipated.

Recent Accounting Pronouncements

Variable Interest Entities.In January 2003, the Financial Accounting Standards Board, or FASB, issued FASB
Interpretation No., or FIN, 46, "Consolidation of Variable Interest Entities," as amended and revised in December 2003, which addresses the consolidation of variable interest entities (VIEs) by

9

---



business
enterprises that are the primary beneficiaries. A VIE is an entity that does not have sufficient equity investment to permit it to finance its activities without additional financial support
from a third party, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the enterprise with the majority of the risk or rewards
associated with the VIE. Immediate application of FIN 46 was required for all potential VIEs created after January 31, 2003. For potential VIEs created prior to February 1, 2003, the
consolidation requirements apply for periods ending after March 15, 2004. FIN 46 also requires enhanced disclosures related to VIEs. As a result of our adoption of FIN 46, we have consolidated
the results of Kallikrein LLC, our joint venture with Dyax Corporation of which we became a member in 2003 and Excigen, Inc., a collaboration partner. See Note 6., "Agreements with Dyax
Corporation," to this Form 10-Q for further information related to Kallikrein LLC. The amounts related to Excigen are not significant.

Employers' Disclosures about Pensions and Other Postretirement Benefits.In December 2003, the FASB issued a revision
to SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which we refer to as SFAS No. 132 (revised). This statement revises employers' disclosures
about pension plans and other postretirement benefit plans. It requires additional disclosures related to the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension
plans and other defined benefit postretirement plans. For U.S. defined benefit pension plans and other defined benefit postretirement plans, SFAS No. 132 (revised) is effective for fiscal years
ending after December 15, 2003. Disclosure of information about foreign plans required under SFAS No. 132 (revised) is effective for fiscal years ending after June 15, 2004. The
interim period disclosures required by SFAS No. 132 (revised) are effective for interim periods beginning after December 31, 2003. The adoption of SFAS No. 132 (revised) did not
have a material impact on our disclosures about pensions and other postretirement benefits for the year ended December 31, 2003 because we only have one U.S. defined benefit plan, which has
been frozen since December 1995 and was fully funded as of December 31, 2003. Note 12., "Defined Benefit Pension Plans," to this Form 10-Q includes the interim period
disclosures required under SFAS No. 132 (revised) for our foreign defined benefit plans.

Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share.In
April 2004, the EITF issued Statement No. 03-06, "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share." EITF
03-06 addresses a number of questions regarding the computation of earnings per share by a company that has issued securities other than common stock that contractually entitle the holder
to the right to participate in dividends when, and if, declared. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying the
definition of a participating security and how to apply the two-class method. EITF 03-06 is effective for fiscal periods beginning after March 31, 2004, which is our
second quarter, and is required to be retroactively applied. We are currently evaluating the effect of adopting EITF 03-06 on our earnings per share.

10

---



3. Net Income (Loss) Per Share



The following table sets forth our computation of basic and diluted net income per share allocated to Genzyme General Stock (amounts in thousands, except per
share amounts):

Three Months Ended March 31,2004

2003Net income

$
67,894

$
57,793Tax benefit allocated from Genzyme Biosurgery





2,322Tax benefit allocated from Genzyme Molecular Oncology





1,763Net income allocated to Genzyme General Stockbasic and diluted

$
67,894

$
61,878Shares used in computing net income per common sharebasic


225,711


215,091Effect of dilutive securities:Stock options(1)


6,196


5,332Warrants and stock purchase rights


10


9Dilutive potential common shares


6,206


5,341Shares used in computing net income per sharediluted(1,2,3)


231,917


220,432Net income per share of Genzyme General Stock:Basic

$
0.30

$
0.29Diluted(1,2,3)

$
0.29

$
0.28


---

Three Months Ended March 31,2004

2003Shares of Genzyme General Stock issuable for options

5,325

13,722




For the three months ended March 31, 2003, basic and diluted net loss per share of Biosurgery Stock are the same. We did not include the securities
described in the following table in the

11

---



computation
of Biosurgery Stock diluted net loss per share, because these securities would have an anti-dilutive effect due to the net loss allocated to Biosurgery Stock (amounts in
thousands):

Three Months Ended March 31,2003Shares of Biosurgery Stock issuable for options

7,864Warrants to purchase shares of Biosurgery Stock

7Biosurgery designated shares(1)

3,119Biosurgery designated shares reserved for options(1)

74Shares issuable upon conversion of 6.9% convertible subordinated note allocated to Genzyme Biosurgery(2)

358Total shares excluded from the calculation of diluted net loss per share of Biosurgery Stock

11,422


---



For the three months ended March 31, 2003, basic and diluted net loss per share of Molecular Oncology Stock are the same. We did not include the securities
described in the following table in the computation of Molecular Oncology Stock diluted net loss per share for the three months ended March 31, 2003, because these securities would have an
anti-dilutive effect due to the net loss allocated to Molecular Oncology Stock (amounts in thousands):

Three Months Ended March 31,2003Shares of Molecular Oncology Stock issuable for options

3,501Molecular Oncology designated shares(1)

1,651Total shares excluded from the calculation of diluted net loss per share of Molecular Oncology Stock

5,152


---

12

---



4. Mergers and Acquisitions



In February 2004, we entered into an Agreement and Plan of Merger with ILEX Oncology, Inc., an oncology drug development company. The business
combination will take the form of a stock-for-stock merger and is expected to be completed in mid-2004.
Under the terms of the merger agreement, ILEX shareholders will receive shares of Genzyme common stock for each ILEX share owned based on an exchange ratio. This exchange ratio will equal $26.00
divided by the average (rounded to the nearest cent) of the per share closing prices of Genzyme common stock as reported by Nasdaq during the 20 trading days ending on the fifth trading day prior to
the closing of the transaction, provided that if this average is greater than $59.88, then the exchange ratio will be 0.4342, and if this average is less than $46.58, then the exchange ratio will be
0.5582. Cash will be paid for fractional shares. The transaction has a total value of approximately $1 billion, based on ILEX's 39.0 million shares outstanding on February 26,
2004, and our offer price of $26.00 per share. The transaction will be accounted for as a purchase and is expected to qualify as a tax-free reorganization. The business combination has
been approved by the board of directors of both companies, and is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval of ILEX's shareholders.
In connection with the transaction, we anticipate incurring charges related to in-process research and development that will be determined following the closing. In April 2004, the FTC
requested more information from us and ILEX related to our proposed transaction. We intend to respond promptly to the information request. This "second request" extends the waiting period under the
Hart-Scott-Rodino Act during which the FTC is permitted to review the transaction.



On May 1, 2004, we acquired from IMPATH, the assets related to its Physician Services and Analytical Services business units for approximately
$215 million in cash. We will account for the acquisition as a purchase and include its results of operations in our consolidated statements of operations beginning on May 1, 2004, the
date of acquisition.



In February 2004, we acquired substantially all of the assets of Alfigen, Inc., or Alfigen, a national genetic testing provider based in Pasadena,
California, for an aggregate purchase price of $47.6 million in cash. We accounted for the acquisition as a purchase and accordingly, the results of operations of Alfigen are included in our
consolidated financial statements from February 21, 2004, the date of acquisition.

13

---



The
purchase price and the allocation of the purchase price to the fair value of the acquired tangible and intangible assets and liabilities is as follows (amounts in thousands):

Cash paid

$
47,500Acquisition costs


100Total purchase price.

$
47,600Current assets

$
129Property, plant & equipment


1,245Goodwill


33,295Intangible assets (to be amortized straight-line over 5 to 10 years)


13,000Assumed liabilities


(69
)Allocated purchase price

$
47,600


The
purchase price was allocated to the intangible assets acquired and liabilites assumed based on their estimated fair values at the date of acquisition. The allocation of the purchase price to the
estimated fair values remains subject to the final valuation. Pro forma results are not presented for the acquisition of Alfigen because the acquisition did not materially affect our results of
operations.



In September 2003, we completed an all cash tender offer for the outstanding common stock (and associated preferred stock purchase rights) of SangStat
Medical Corporation, or SangStat, for $22.50 per outstanding SangStat share. The aggregate consideration paid was $636.6 million in cash. We accounted for the acquisition as a purchase.
Accordingly, the results of operations of SangStat are included in our consolidated financial statements from September 11, 2003, the day after the expiration of the successful tender offer.

In
connection with the acquisition of SangStat, we initiated an integration plan to consolidate and restructure certain functions and operations of SangStat, including the relocation and
termination of certain SangStat personnel and the closure of SangStat's leased facilities. These costs have been recognized as liabilities assumed in connection with the purchase of SangStat in
accordance with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." The

14

---



following
table summarizes the liabilities established for exit activities related to the acquisition of SangStat (amounts in thousands):

Employee
Related
Benefits

Closure of
Leased
Facilities(1)

Other
Exit
Activities

Total Exit
ActivitiesRecorded at acquisition date

$
7,118

$
2,561

$
49

$
9,728Revision of estimate


1,315


(233
)

257


1,339Payments in 2003


(831
)







(831
)Balance at December 31, 2003


7,602


2,328


306


10,236Revision of estimate





123





123Payments in 2004


(2,007
)

(184
)




(2,191
)Balance at March 31, 2004

$
5,595

$
2,267

$
306

$
8,168


---



We expect to pay employee related benefits through the end of 2004 and payments related to leased facilities through the first half of 2005.



The following pro forma financial summary is presented as if the acquisition of SangStat was completed as of January 1, 2003. The pro forma combined
results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated on that date, or of the future operations of the combined entities. Material
nonrecurring charges related to this acquisition, such as acquired IPR&D charges of $158.0 million are included in the following pro forma financial summary.

Three Months Ended
March 31, 2003Total revenues

$
410,597Net loss

$
(121,830
)Net loss allocated to Genzyme General Stock

$
(105,321
)Net loss per share allocated to Genzyme General Stock:Basic

$
(0.49
)Diluted

$
(0.48
)Weighted average shares outstanding:Basic


215,091Diluted


220,432


15

---



5. Inventories

March 31,
2004

December 31,
2003(Amounts in thousands)Raw materials

$
50,018

$
53,056Work-in-process


110,341


96,088Finished products


109,183


118,328Total

$
269,542

$
267,472


We
capitalize inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If a product is not approved for sale, it
would likely result in the write-off of the inventory and a charge to earnings. At March 31, 2004 and December 31, 2003, all of our inventories are for products that have
been approved for sale.

6. Agreements with Dyax Corporation

In October 1998, we entered into a collaboration agreement with Dyax to develop and commercialize one of Dyax's proprietary compounds for the treatment of
chronic inflammatory diseases. In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88. In 2003, we acquired a
49.99% interest in Kallikrein LLC, our joint venture with Dyax for the development of DX-88 for the potential treatment of hereditary angioedema, or HAE, and other chronic inflammatory
diseases. As a result of our adoption of FIN 46, we have consolidated the results of Kallikrein LLC. Our consolidated balance sheet as of March 31, 2004 includes assets of $2.7 million
related to Kallikrein LLC, substantially all of which are included in
other current assets. We have recorded Dyax's portion of the joint venture's losses as minority interest in our consolidated statements of operations for the three months ended March 31, 2004.

Under
the terms of the collaboration agreement, both companies will share future development costs of DX-88 for HAE. In addition, Dyax will receive milestone payments from us
upon dosing the first HAE patient in a pivotal clinical trial of DX-88 and upon regulatory approvals for the first indication. Dyax will also receive milestone payments from us if
DX-88 is approved in additional indications. Contingent upon successful development and receipt of regulatory approvals, we will market the product worldwide. Both companies will share
equally in profits from sales of DX-88 for HAE and/or other chronic inflammatory diseases. In March 2003, Dyax exercised an option to acquire from us all rights to DX-88
for surgical indications.

In
May 2002, we extended to Dyax a $7.0 million line of credit. Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under
which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2%, which was 6% at
March 31, 2004, and are due, together with any accrued but unpaid interest, in May 2005. Dyax may extend maturity of the note to May 2007 if the collaboration is in effect, no defaults
or events of default exist and Dyax satisfies the financial covenants in the note as of the initial maturity date. As of March 31, 2004, Dyax had drawn $7.0 million under the note, which
we have recorded as a note receivable-related party in our consolidated balance sheet. We consider Dyax a related party because the chairman and chief executive officer of Dyax is a member of our
board of directors.

16

---





7. Goodwill and Other Intangible Assets



Effective July 1, 2003, in connection with the elimination of our tracking stock structure and associated changes in how we will review our business going
forward, we revised our reportable segments. Diagnostics/Genetics now includes the goodwill related to our genetic testing business, formerly included in Other. The following tables contain the
changes in our net goodwill during the three months ended March 31, 2004 and the year ended December 31, 2003 (amounts in thousands):

As of
December 31,
2003

Acquisition

Impairment

Adjustments

As of
March 31,
2004Renal

$
76,753

$


$


$


$
76,753Therapeutics


354,709











354,709Transplant(1)


132,550








(476
)

132,074Biosurgery


7,584











7,584Diagnostic/Genetics(2,3)


49,250


33,295





(1
)

82,544Other(3)


1,101








(27
)

1,074Goodwill, net

$
621,947

$
33,295

$


$
(504
)
$
654,738


---

We
are required to perform impairment tests under SFAS No. 142 annually, which we normally perform in July, and whenever events or changes in circumstances suggest that the
carrying value of an asset may not be recoverable. There were no such events in the first quarter of 2004.

17

---





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

|                        |       | As of March 31, 2004 |         | As of December 31, 2003
|----------------------- | ----- | -------------------- | ------- | -----------------------
|
|Technology              |       | $                    | 785,893 |                        
|Patents                 |       |                      | 183,360 |                        
|Trademarks              |       |                      | 58,027  |                        
|License fees            |       |                      | 38,072  |                        
|Distribution agreements |       |                      | 13,950  |                        
|Customer lists(1)       |       |                      | 49,038  |                        
|Other(1)                |       |                      | 11,200  |                        
|                        |       |                      |         |                        
|                        | Total |                      | $       | 1,139,540              
|                        |       |                      |         |                        

---

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



The
estimated future amortization expense for other intangible assets as of March 31, 2004 for the remainder of fiscal year 2004 and the five succeeding fiscal years is as follows
(amounts in thousands):

Year ended December 31,

Estimated
Amortization
Expense2004 (remaining nine months)

$
78,7432005


99,8962006


91,5252007


91,5252008


90,7532009


90,244


8. Investments in Equity Securities

We review the carrying value of each of our strategic investments in equity securities on a quarterly basis for potential impairment.

At
March 31, 2004, our stockholders' equity includes $16.4 million of unrealized gains and $4.6 million of unrealized losses related to our investments in strategic
equity securities. We believe the unrealized losses related to our other investments in equity securities are temporary.

18

---



9. Joint Venture with BioMarin Pharmaceutical Inc.

We formed BioMarin/Genzyme LLC, a joint venture with BioMarin Pharmaceutical Inc., to develop and market Aldurazyme, a recombinant form of the human enzyme
alpha-L-iduronidase, to treat an LSD known as mucopolysaccharidosis I, or MPS I. We record our portion of the losses of BioMarin/Genzyme LLC in equity in loss of equity method
investments in our consolidated statements of operations, which was $3.1 million for the three months ended March 31, 2004, as compared to $3.7 million for the same period of
2003. Condensed financial information for BioMarin/Genzyme LLC is summarized below (amounts in thousands):

Three Months Ended March 31,2004

2003Revenue

$
7,395

$
334Gross profit


5,023


310Operating expenses


(11,192
)

(7,671
)Net loss


(6,147
)

(7,338
)


10. Other Commitments and Contingencies



We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims
against us as of March 31, 2004, which, if adversely decided, would have a material adverse effect on our results of operations, financial condition or liquidity.

Four
lawsuits have been filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock and Molecular Oncology Stock for shares of Genzyme General Stock. The
first case, filed in Massachusetts Superior Court in May 2003, was a purported class action on behalf of holders of Biosurgery Stock alleging a breach of the implied covenant of good faith and
fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case was seeking an injunction to adjust the exchange ratio for the tracking stock exchange.
The Court dismissed the complaint for failure to state a claim on November 12, 2003. The plaintiff in this case has appealed the
dismissal of the complaint. Two substantially similar cases were filed in Massachusetts Superior Court in August and October 2003. These cases were consolidated in January 2004. The
fourth case, filed in the U.S. District Court for the Southern District of New York in June 2003, was brought by two holders of Biosurgery Stock alleging, in addition to the state law claims
contained in the other cases, violations of federal securities laws, common law fraud, and a breach of the merger agreement with Biomatrix. The plaintiffs are seeking an adjustment to the exchange
ratio, the rescission of the acquisition of Biomatrix, and unspecified compensatory damages. We believe each of these cases is without merit and plan to defend against them vigorously.

On
March 27, 2003, the Office of Fair Trading (OFT) in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited held
a dominant position and abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers from the market for the
supply of home delivery and homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and required modification to
its list price

19

---



for
Cerezyme in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal (Tribunal). On May 6, 2003, the Tribunal issued an order that stayed the OFT's
decision, but required Genzyme Limited to provide a homecare distributor a discount of three percent (3%) per unit during the appeal process. The Tribunal issued its judgment on Genzyme Limited's
appeal on March 11, 2004, rejecting portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme should not be reduced, but that Genzyme Limited must
negotiate a price for Cerezyme that will allow homecare distributors an appropriate margin. The Tribunal also reduced the fine imposed by the OFT for violation of U.K. competition laws. In response to
the Tribunal's decision, we recorded a liability of approximately $11 million in our 2003 financial statements. This liability remains in accrued expenses in our consolidated balance sheet as
of March 31, 2004. We are considering whether to appeal the Tribunal's judgment.

In
June 2003, we filed suit in U.S. District Court for the District of Massachusetts, as co-plaintiff with Biogen IDEC and Abbott Laboratories against Columbia
University seeking a declaration that Columbia's U.S. Patent 6,455,275 is invalid. The patent relates to the manufacture of recombinant proteins in Chinese hamster ovary, or CHO, cells, which are the
cells we use to manufacture Cerezyme, Fabrazyme and Thyrogen, and which our joint venture partner BioMarin uses to manufacture Aldurazyme. This new patent was issued by the United States Patent and
Trademark Office, or USPTO, in September 2002 from a family of patents and patent applications originally filed in 1980. We are licensed under the patent family for a royalty of 1.5% of sales
but, because we are confident that the new patent was mistakenly issued by the USPTO and is invalid, we have not paid the royalty pending the outcome of the litigation. We have received notice from
Columbia that we are in breach of our license agreement. In the event we were to lose our lawsuit, we estimate our royalty obligation to Columbia would be between $10 million and
$20 million per year through 2019, the precise amount depending on sales levels of the affected products and the level of third party royalty offsets available as provided for in our license
agreement with Columbia. Columbia University has filed a motion to consolidate this case, with three other similar cases filed against it, into one case to be handled by the Judicial Panel on
Multidistrict Litigation (MDL) process. A hearing on
the MDL process was held in March 2004, resulting in a transfer of the case to the U.S. District Court for the district of Massachusetts. We expect discovery to commence in the second half of 2004.

On
August 7, 2003, a purported shareholder class action was filed in California Superior Court, County of Alameda, under the captionPignone v. SangStat
Medical Corp., et al., (Case No. RG 03110801). The plaintiff alleged that he was a stockholder of SangStat and purported to bring the action on behalf of the holders of
SangStat common stock. The plaintiff named as defendants in the action are SangStat and each of SangStat's former directors. The plaintiff's complaint asserts that SangStat and each of its former
directors breached fiduciary duties to SangStat stockholders by consenting to the acquisition by Genzyme. The plaintiff's complaint did not seek monetary damages but instead sought only equitable
relief, including an order rescinding the transaction to the extent already implemented. The plaintiff also sought costs of suit, including attorneys' fees. The plaintiff filed an amended complaint in
November 2003. On April 5, 2004, the Court granted SangStat's motion to dismiss with prejudice.

We
are not able to predict the outcome of these cases or estimate with certainty the amount or range of any possible loss we might incur if we do not prevail in the final,
non-appealable determinations of these matters. Therefore, except for additional liabilities arising from the Tribunal's

20

---



decision
regarding Cerezyme pricing in the United Kingdom, we have not accrued any amounts in connection with these potential contingencies.

11. Tax Provision

Three Months Ended March 31,Increase/
(Decrease)
% Change2004

2003(Amounts in thousands, except percentage data)Provision for income taxes

$
(28,824
)
$
(18,998
)
52
%Effective tax rate


30
%

30
%


Our
tax rates for both periods vary from the U.S. statutory tax rate as a result of our:



We
are currently under IRS Audit for tax years 1996 to 1999. We believe that we have provided sufficiently for all audit exposures. A favorable settlement of this audit may result in a
reduction of future tax provisions, which could be significant. Any such benefit would be recorded upon final resolution of the exam.

12. Defined Benefit Pension Plans

We have defined benefit pension plans for certain employees in foreign countries. These plans are funded in accordance with requirements of the appropriate
regulatory bodies governing each plan.



The components of net pension expense for the three months ended March 31, 2004 and 2003 are as follows (amounts in thousands):

Three Months Ended
March 31,2004

2003Service cost

$
610

$
451Interest cost


570


441Expected return on plan assets


(676
)

(331
)Amortization and deferral of actuarial (gain)/loss


150


137Net pension expense

$
654

$
698




At December 31, 2003, we recorded net prepaid benefit costs of $4.9 million related to our defined benefit pension plans. For the three months ended
March 31, 2004, we contributed $0.5 million to our

21

---



pension
plan in the United Kingdom. We anticipate making $1.4 million of additional contributions to this plan in 2004 to satisfy our annual funding obligation.

13. Segment Information

In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner
consistent with the method we use to report this information to our management. Applying SFAS No. 131, we have five reportable segments as described in Note 1., "Description of Business"
to this Form 10-Q.

We
have provided information concerning the operations in these reportable segments in the following table (amounts in thousands):

Three Months Ended
March 31,2004

2003Revenues(1):Renal

$
83,523

$
58,766Therapeutics


255,109


189,154Transplant(2)


36,234


Biosurgery


47,703


68,408Diagnostics/Genetics(2)


52,114


47,698Other


15,734


17,325Corporate(2)


834


508Total

$
491,251

$
381,859Income (loss) before income taxes(1):Renal

$
17,564

$
6,005Therapeutics


130,222


86,296Transplant(2)


(6,988
)

Biosurgery


(2,855
)

(5,458
)Diagnostics/Genetics(2)


1,162


3,990Other


(19,977
)

(23,033
)Corporate(2)


(22,410
)

(3,433
)Total

$
96,718

$
64,367


---



22

---





Company Acquired

Date Acquired

Business Segment(s)Alfigen

February 21, 2004

Diagnostics/GeneticsSangStat

September 11, 2003

Transplant/Corporate




We provide information concerning the assets of our reportable segments in the following table (amounts in thousands):

March 31,
2004

December 31,
2003Segment Assets(1):Renal

$
542,831

$
551,722Therapeutics


851,518


866,676Transplant


447,719


441,948Biosurgery


310,412


326,272Diagnostics/Genetics(2)


224,700


173,921Other


242,597


252,481Corporate(3)


2,425,667


2,391,508Total

$
5,045,444

$
5,004,528


---

23

---





Segment assets for Corporate consist of the following:

March 31,
2004

December 31,
2003(Amounts in thousands)Cash, cash equivalents, and short- and long-term investments

$
1,235,859

$
1,227,460Deferred tax assets-current


133,034


133,708Property, plant and equipment, net


752,739


733,925Investment in equity securities


110,815


110,620Other


193,220


185,795Total Corporate

$
2,425,667

$
2,391,508


24

---





ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage
you to review the risks and uncertainties described under "Factors Affecting Future Operating Results" below. These risks and uncertainties could cause actual results to differ materially from those
forecasted in forward-looking statements or implied by past results and trends. Forward-looking statements are statements that attempt to project or anticipate future developments in our business; we
encourage you to review the examples of forward-looking statements under "Note Regarding Forward-Looking Statements" at the beginning of this report. These statements, like all statements in this
report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements in light of future developments.

INTRODUCTION

We are a global biotechnology company dedicated to making a major positive impact on the lives of people with serious diseases. Our broad product portfolio is
focused on rare genetic disorders, renal disease, osteoarthritis and organ transplant, and includes an industry-leading array of diagnostic products and services. Our commitment to innovation
continues today with research into novel approaches to cancer, immune-mediated diseases, heart disease and other areas of unmet medical needs. We are organized into five financial reporting units,
which we also consider to be our reportable segments:



We
report the activities of our bulk pharmaceuticals, oncology, cardiovascular and drug discovery and development business units under the caption "Other." We report our corporate
operations, general and administrative and corporate science activities, that we do not allocate to our financial reporting units, under the caption "Corporate."

Through
June 30, 2003, we had three series of common stockGenzyme General Division common stock, which we refer to as "Genzyme General Stock," Genzyme Biosurgery
Division common

25

---



stock,
which we refer to as "Biosurgery Stock," and Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock." We also refer to our series of stock as "tracking
stock." Unlike typical common stock, each of our tracking stocks was designed to reflect the value and track the financial performance of a specific subset of our business operations and its allocated
assets, rather than the operations and assets of our entire company. Through June 30, 2003, we allocated earnings or losses to each series of tracking stock based on the net income or loss
attributable to the corresponding division determined in accordance with accounting principles generally accepted in the United States as adjusted for the allocation of tax benefits.

Effective
July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for
0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock, and
options to purchase shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. While our charter continues to designate 100,000,000 shares
as Biosurgery Stock and 40,000,000 shares as Molecular Oncology Stock, no shares of either series remain outstanding. Effective July 1, 2003, we have one outstanding series of common stock,
which we refer to as Genzyme General Stock. We intend to seek shareholder approval in May 2004 of amendments to our charter that would remove the tracking stock designations, leaving
690,000,000 authorized shares of common stock undesignated as to series.

Effective
July 1, 2003, as a result of the elimination of our tracking stock capital structure, all of our earnings or losses are now allocated to Genzyme General Stock. Earnings
or losses allocated to Biosurgery Stock and Molecular Oncology Stock prior to that date remain allocated to those series of stock in the preparation of our consolidated financial statements and are
not affected by the elimination of our tracking stock structure. Accordingly, earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock represent earnings allocated to those
tracking stocks through June 30, 2003. Earnings or losses allocated to Genzyme General Stock through June 30, 2003 represent the earnings or losses of Genzyme General, as adjusted for
the allocation of tax benefits. Earnings or losses allocated to Genzyme General Stock after June 30, 2003 represent the earnings or losses for the corporation as a whole. In this Quarterly
Report on Form 10-Q and future Quarterly and Annual Reports, we will not provide separate financial statements and management's discussion and analysis for each of our former
divisions, but will continue to provide our consolidated financial statements and management's discussion and analysis for the corporation as a whole.

Through
June 30, 2003, the chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division were provisions in our charter governing
dividends and distributions. The provisions governing dividends provided that our board of directors had discretion to decide if and when to declare dividends, subject to certain limitations. To the
extent that the following amount did not exceed the funds that would be legally available for dividends under Massachusetts law, the dividend limit for a stock corresponding to a division was the
greater of:



The
provisions in our charter governing dividends and distributions factored the assets and liabilities and income or losses attributable to a division into the determination of the
amount available to pay dividends on the associated tracking stock. In addition, our income tax allocation policy provided that if, at the end of any fiscal quarter, a division could not use any
projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we could allocate the

26

---



tax
benefit to other divisions in proportion to their taxable income without any compensating payments or allocation to the division generating the benefit. Through June 30, 2003, Genzyme
Biosurgery and Genzyme Molecular Oncology had not generated taxable income, and thus had not had the ability to use any projected annual tax benefits. Genzyme General had generated taxable income,
providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology. Consistent with our policy, we allocated the tax benefits generated by Genzyme
Biosurgery and Genzyme Molecular Oncology through June 30, 2003 to Genzyme General without making any compensating payments or allocations to the division that generated the benefit.

Deferred
tax assets and liabilities can arise from purchase accounting and relate to a division that does not satisfy the realizability criteria of SFAS No. 109, "Accounting for
Income Taxes." Through June 30, 2003, such deferred tax assets and liabilities were allocated to the division to which the acquisition was allocated. As a result, the periodic changes in these
deferred tax assets and liabilities did not result in a tax expense or benefit to that division. However, the change in these deferred tax assets and liabilities impacted our consolidated tax
provision. These changes were added to division net income for purposes of determining net income allocated to a tracking stock.

Within
the general limits under our charter and Massachusetts law, the amount of any dividend payment will be at the board of directors' discretion. To date, we have never paid or
declared a cash dividend on shares of any of our series of common stock, nor do we anticipate paying or declaring a cash dividend on shares of Genzyme General Stock in the foreseeable future. Unless
declared, no dividends will accrue on Genzyme General Stock.

MERGERS AND ACQUISITIONS

Pending Merger with ILEX Oncology, Inc.

In February 2004, we entered into an Agreement and Plan of Merger with ILEX, an oncology drug development company. The business combination will take the
form of a stock-for-stock merger and is expected to be completed in mid-2004. Under the terms of the merger agreement, ILEX shareholders will receive shares of Genzyme common
stock for each ILEX share owned based on an exchange ratio. This exchange ratio will equal $26.00 divided by the average (rounded to the nearest cent) of the per share closing prices of Genzyme common
stock as reported by Nasdaq during the 20 trading days ending on the fifth trading day prior to the closing of the transaction, provided that if this average is greater than $59.88, then the exchange
ratio will be 0.4342, and if this average is less than $46.58, then the exchange ratio will be 0.5582. Cash will be paid for fractional shares. The transaction has a total value of approximately
$1 billion, based on ILEX's 39.0 million shares outstanding on February 26, 2004, and our offer price of $26.00 per share. The transaction will be accounted for as a purchase and
is expected to qualify as a tax-free reorganization. The business combination has been approved by the board of directors of both companies, and is subject to clearance under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval of ILEX's shareholders. In connection with the transaction, we anticipate incurring charges related to
in-process research and development that will be determined following the closing. In April 2004, the FTC requested more information from us and ILEX related to our proposed transaction.
We intend to respond promptly to the information request. This "second request" extends the waiting period under the Hart-Scott-Rodino Act during which the FTC is permitted to review the
transaction.

Completed Mergers and Acquisitions

Acquisition of Physician Services and Analytical Services Business Units of IMPATH, Inc.

On May 1, 2004, we acquired from IMPATH, the assets related to its Physician Services and Analytical Services business units for approximately $215 million
in cash. We will account for the

27

---



acquisition
as a purchase and include its results of operations in our consolidated statements of operations beginning on May 1, 2004, the date of acquisition.

Alfigen, Inc.

In February 2004, we acquired substantially all of the assets of Alfigen, a national genetic testing provider based in Pasadena, California, for an
aggregate purchase price of $47.6 million in cash. We accounted for the acquisition as a purchase and accordingly, the results of operations of Alfigen are included in our consolidated
financial statements from February 21, 2004, the date of acquisition.

SangStat Medical Corporation

In September 2003, we completed an all cash tender offer for the outstanding common stock (and associated preferred stock purchase rights) of SangStat for
$22.50 per outstanding SangStat share. The aggregate consideration paid was $636.6 million in cash. We accounted for the acquisition as a purchase. Accordingly, the results of operations of
SangStat are included in our consolidated financial statements from September 11, 2003, the day after the expiration of the successful tender offer.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

Our critical accounting policies and significant estimates are set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and
Subsidiaries' Financial Condition and Results of OperationsCritical Accounting Policies and Significant Estimates" in Exhibit 13.1 to our 2003 Form 10-K. There
have been no changes to these policies and no significant changes to these estimates since December 31, 2003.

A.    RESULTS OF OPERATIONS

The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.

REVENUES

The components of our total revenues are described in the following table:

Three Months Ended March 31,Increase/
(Decrease)
% Change2004

2003(Amounts in thousands, except percentage data)Product revenue

$
454,365

$
346,489

31
%Service revenue


34,781


31,498

10
%Total product and service revenue


489,146


377,987

29
%Research and development revenue


2,105


3,872

(46
)%Total revenues

$
491,251

$
381,859

29
%


Product Revenue

We derive product revenue from sales of:



28

---





The
following table sets forth our product revenue on a segment basis:

Three Months Ended March 31,Increase/
(Decrease)
% Change2004

2003(1)(Amounts in thousands, except percentage data)Renal:Renagel (including sales of bulk sevelamer)

$
83,523

$
58,766

42
%Therapeutics:Cerezyme


202,970


167,187

21
%Fabrazyme


38,103


11,846

222
%Thyrogen


13,997


9,714

44
%Other Therapeutics


39


407

(90
)%Total Therapeutics


255,109


189,154

35
%Transplant:Thymoglobulin/Lymphoglobuline


25,012




N/AOther Transplant


11,222




N/ATotal Transplant


36,234




N/ABiosurgery:Synvisc


22,363


26,354

(15
)%Sepra products


14,212


10,366

37
%Other Biosurgery


4,669


23,532

(80
)%Total Biosurgery


41,244


60,252

(32
)%Diagnostics/Genetics:Diagnostic Products


23,370


23,196

1
%Other Diagnostics/Genetics


131


49

167
%Total Diagnostics/Genetics


23,501


23,245

1
%Other product revenue


14,754


15,072

(2
)%Total product revenue

$
454,365

$
346,489

31
%


---



29

---





Renal

Worldwide sales of Renagel, including sales of bulk sevelamer, the raw material used to formulate Renagel, increased 42% to $83.5 million for the three
months ended March 31, 2004, as compared to the same period in 2003, primarily due to:



Sales
of Renagel, including sales of bulk sevelamer, are 18% of our total product revenue for the three months ended March 31, 2004, as compared to 17% for the same period of
2003. We expect sales of Renagel to increase, driven primarily by the continued adoption of the product by nephrologists worldwide. Renagel competes with several other products and our future sales
may be impacted negatively by these products. In addition, our ability to continue to increase sales of Renagel will be dependent on many other factors, including:



Lastly,
our ability to effectively manage wholesaler inventories and the levels of compliance with the inventory management programs we implemented with our wholesalers in 2002 and renewed in 2003,
could impact the revenues that we record from period to period.

Therapeutics

The increase in our Therapeutics product revenue for the three months ended March 31, 2004, as compared to the same period of 2003, is primarily due to
continued growth in sales of Cerezyme, Fabrazyme and Thyrogen.

The
growth in sales of Cerezyme for the three months ended March 31, 2004, as compared to the same period of 2003, is primarily attributable to our continued identification of new
Gaucher disease patients, particularly internationally, where unit sales of Cerezyme increased 17% from 2003. Our price for Cerezyme has remained consistent period to period. The growth in sales of
Cerezyme was also positively impacted by the weakened U.S. Dollar against the Euro. During 2004, the U.S. Dollar weakened against the Euro by 17% on average, as compared to 2003. This positively
impacted sales of Cerezyme by $10.2 million for the three months ended March 31, 2004.

Our
results of operations are highly dependent on sales of Cerezyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Sales of
Cerezyme were

30

---



45%
of our total product revenue for the three months ended March 31, 2004, as compared to 48% for the same period of 2003. Revenue from Cerezyme would be impacted negatively if competitors
developed alternative treatments for Gaucher disease and the alternative products gained commercial acceptance. Although orphan drug status for Cerezyme, which provided us with exclusive marketing
rights for Cerezyme in the United States, expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme until 2010 and the composition of Cerezyme as made by
that process until 2013. The expiration of market exclusivity and orphan drug status will likely subject Cerezyme to increased competition, which may decrease the amount of revenue we receive from
this product or the growth of that revenue. We are aware of companies that have initiated efforts to develop competitive products, and other companies may do so in the future.

The
increase in sales of Fabrazyme for the three months ended March 31, 2004, as compared to the same period of 2003, is primarily attributable to:



The
increase in sales of Thyrogen in the three months ended March 31, 2004, as compared to the same period of 2003, is attributable to increased market penetration, particularly
in Europe, where sales increased 60% to $6.5 million for 2004, as compared to 2003.

Transplant

We began recording product revenue for Transplant on September 11, 2003, the day which we began including the results of operations of SangStat in our
consolidated financial statements. Other Transplant revenues for 2004 include $10.1 million of sales of Gengraf, which we co-promote with Abbott Laboratories under an agreement that
expires on December 31, 2004.

Biosurgery

Biosurgery's product revenue decreased 32% to $41.2 million for the three months ended March 31, 2004, as compared to the same period of 2003. The
decrease is primarily due to the absence of revenues from our line of cardiac device products following our sale of this product line in June 2003. Revenues from sales of cardiac device
products were $19.0 million for the three months ended March 31, 2003. Additionally, sales of Synvisc decreased 15% to $22.4 million in the three months ended March 31,
2004, as compared to the same period of 2003. This decrease was primarily due to inventory reductions by our U.S. marketing partner and price discounts in response to Medicare pricing rate changes.
The $4.0 million decrease in Synvisc revenue is offset by a $3.9 million increase in Sepra product revenue for the three months ended March 31, 2004, as compared to the same
period of 2003, primarily due to increased market penetration of Sepra products. We are aware of several competitive viscosupplementation products on the market and in development that could adversely
affect our sales of Synvisc in the future.

Diagnostics/Genetics

Diagnostics/Genetics product revenue increased 1% for the three months ended March 31, 2004, as compared to the same period of 2003. The increase is
attributable to a 16% increase in the combined sales of infectious disease testing products and HDL and LDL cholesterol testing products to $16.7 million. This increase was offset by a 8%
decrease in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $6.7 million, and the expiration of our royalty agreement with

31

---



Techne
on June 30, 2003, which resulted in no royalty revenue in the three months ended March 31, 2004, as compared to $1.6 million for the same period of 2003.

Other Product Revenue

The decrease in Other product revenue for the three months ended March 31, 2004, as compared to the same period of 2003, is primarily attributable to a
decrease in bulk sales of and royalties earned on sales of WelChol partially offset by an increase in sales of bulk pharmaceuticals. Bulk sales of and royalties earned on WelChol decreased 31% to
$5.6 million as a result of a decrease in demand from our U.S. marketing partner, Sankyo Pharma, Inc. Sales of bulk pharmaceuticals increased 31% to $9.2 million primarily due to
increased demand for liquid crystals.

Service Revenue

We derive service revenues from the following principal sources:



The
following table sets forth our service revenue on a segment basis:

Three Months Ended March 31,Increase/
(Decrease)
% Change2004

2003(Amounts in thousands, except percentage data)Biosurgery

$
6,138

$
7,040

(13
)%Diagnostics/Genetics


28,613


24,453

17
%Other service revenue


30


5

500
%Total service revenue

$
34,781

$
31,498

10
%


Service
revenue attributable to our Biosurgery segment decreased 13% to $6.1 million in the three months ended March 31, 2004, as compared to the same period of 2003,
primarily due to $1.5 million of reimbursed expenses, classified as revenue, received from our Synvisc distribution partner in the three months ended March 31, 2003 for which there were
no comparable amounts in 2004. This decrease was offset, in part, by a 14% increase in sales of Carticel to $5.2 million.

Service
revenue attributable to our Diagnostics/Genetics segment increased 17% to $28.6 million in the three months ended March 31, 2004 as compared to the same period of
2003. This increase is primarily attributable to:



International Product and Service Revenue

A substantial portion of our revenue was generated outside of the United States. A majority of these revenues were attributable to sales of Cerezyme. The
following table provides information

32

---



regarding
the change in international product and service revenue as a percentage of total product and service revenue during the periods presented:

Three Months Ended March 31,Increase/
(Decrease)
% Change2004

2003(Amounts in thousands, except percentage data)International product and service revenue

$
227,615

$
160,381

42
%% of total product and service revenue


47
%

42
%


The
increase in international product and service revenue as a percentage of total product and service revenue for the three months ended March 31, 2004, as compared to the same
period of 2003, is primarily due to:



For
the three months ended March 31, 2004, the average exchange rate for the Euro increased 17%, which positively impacted sales by $18.1 million.

International
sales of Renagel increased 82% to $30.8 million for the three months ended March 31, 2004, primarily due to:



International
sales of Cerezyme increased 30% to $122.9 million, primarily due to:



International
sales of Fabrazyme increased 88% to $22.3 million for the three months ended March 31, 2004, primarily due to:



33

---





MARGINS

The components of our total margins are described in the following table:

Three Months Ended March 31,Increase/
(Decrease)
% Change2004

2003(Amounts in thousands, except percentage data)Product margin

$
348,264

$
251,655

38
%% of total product revenue


77
%

73
%Service margin

$
13,920

$
14,520

(4
)%% of total service revenue


40
%

46
%Total product and service gross margin

$
362,184

$
266,175

36
%% of total product and service revenue


74
%

70
%


Product Margin

Our overall product margin increased $96.6 million, or 38%, in the three months ended March 31, 2004, as compared to the same period in 2003,
primarily due to a $127.2 million, or 47%, increase in the combined sales of Renal, Therapeutics and Diagnostics/Genetics products as well as the introduction of sales of our newly acquired
SangStat products beginning in September 2003.

Product
margin for our Renal reporting segment increased 43% for the three months ended March 31, 2004, as compared to the same period of 2003. The increase is primarily due to a
42% increase in sales of Renagel and the scale up of our global manufacturing facilities. In March 2003, we began shipping Renagel tablets to the European market upon receiving approval from the
European Agency for the Evaluation of Medicinal Products to commence production of Renagel at the plant. In October 2003, we received final approval of this plant from the FDA.

Product
margin for our Therapeutics reporting segment increased 38% for the three months ended March 31, 2004, as compared to the same period of 2003. The increase is primarily
due to a 21% increase in sales of Cerezyme, a 222% increase in sales of Fabrazyme and a 44% increase in sales of Thyrogen in the three months ended March 31, 2004. In addition, product margin
for our Therapeutics reporting segment for the three months ended March 31, 2003 includes the write off of $2.3 million of Cerezyme finished goods in 2003 due to production issues, for
which there is no similar write off in the three months ended March 31, 2004.

Product
margin for our Biosurgery reporting segment decreased 8% for the three months ended March 31, 2004, as compared to the same period of 2003. The decrease is primarily due
to a 15% decrease in sales of Synvisc and a 80% decrease in sales of Other Biosurgery product revenue resulting from the sale to Teleflex, Inc. of substantially all of the assets related to our
cardiac devices business in June 2003. The decrease was partially offset by a 37% increase in sales of Sepra products.

Product
margin for our Diagnostics/Genetics reporting segment decreased 7% for the three months ended March 31, 2004, as compared to the same period of 2003. The decrease is
primarily due to a 7% increase in cost of products sold for diagnostic products.

34

---



Service Margin

Service margin for our Biosurgery reporting segment decreased 15% for the three months ended March 31, 2004, as compared to the same period of 2003,
primarily due to the absence of service revenue related to Synvisc in 2004. This decrease was a result of $1.5 million of reimbursed expenses, classified as revenue, from our Synvisc
distribution partner in the three months ended March 31, 2003 for which there were no comparable amounts in the same period of 2004.

Service
margin for our Diagnostics/Genetics reporting segment decreased 1% for the three months ended March 31, 2004, as compared to the same period of 2003, primarily due to a
17% increase in the sales of our molecular genetics (DNA) and cancer testing services and our continued growth in the prenatal screening market, offset by an increase in costs associated with these
services, which increased 31% for the three months ended March 31, 2004, as compared to the same period of 2003.

OPERATING EXPENSES

Selling, General and Administrative Expenses

Selling, general and administrative expenses, or SG&A, increased $29.0 million, or 25%, to $143.2 million for the three months ended
March 31, 2004, as compared to $114.2 million for the same period of 2003, primarily due to:



These
increases were partially offset by decreases of:



Research and Development Expenses

Research and development expenses increased $17.2 million, or 23%, to $92.8 million for the three months ended March 31, 2004, as compared to
$75.6 million in the same period of 2003, primarily due to:



35

---





Amortization of Intangibles

The 50% increase in amortization of intangibles to $26.2 million for the three months ended March 31, 2004, as compared to $17.5 million for
the same period of 2003, is primarily due to $8.7 million of additional amortization expense attributable to the intangible assets acquired in connection with our acquisition of SangStat in
September 2003.

Purchase of In-Process Research and Development

In connection with the acquisitions of SangStat in 2003 and Novazyme Pharmaceuticals, Inc. in 2001, we have acquired various IPR&D projects. Substantial
additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once research is completed,
each product candidate acquired from SangStat and Novazyme will need to complete a series of clinical trials, and receive FDA or other regulatory approvals, prior to commercialization. Our current
estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that
these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before
our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of
operations could be materially affected.

SangStat

In connection with our acquisition of SangStat in September 2003, we acquired IPR&D related to two projects, RDP58 and cyclosporine capsule. RDP58 is a
novel inhibitor of several inflammatory cytokines. Cyclosporine capsule is a novel smaller size formulation of generic cyclosporine. As of the acquisition date, neither project had reached
technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D, and charged to expense in our consolidated statements of operations in September 2003,
$158.0 million, representing the portion of the purchase price attributable to these two projects, of which $138.0 million is attributable to RDP58 and $20.0 million is
attributable to cyclosporine capsule.

In
March 2004, we received marketing authorization for both 25mg and 100mg cyclosporine capsules in a European country. Also in March 2004, we entered into an agreement with
Procter & Gamble Pharmaceuticals, Inc. (PGP), a subsidiary of The Procter & Gamble Company, under which we granted to PGP an exclusive, worldwide license to develop and market
RDP58 for the treatment of gastrointestinal and other disorders. We retained development and commercialization rights to RDP58 in pulmonary and other disorders that were not specifically licensed to
PGP and also retained co-promotion rights with PGP in oncology-related disorders, such as chemo-therapy-induced diarrhea. In exchange for the grant of the license, PGP will pay us an
upfront fee, milestone payments and royalties on product sales. The effectiveness of this agreement is subject to clearance under the Hart-Scott-Rodino Act.

36

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As
of March 31, 2004, we estimated that it will take approximately ten years and an investment of approximately $150 million to complete the development of, obtain approval
for and commercialize the first product based on the RDP58 technology for pulmonary and other disorders not licensed to PGP.

Novazyme

In September 2001, in connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of
treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly,
we allocated to IPR&D and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. We recorded this amount as a charge to
expense in our consolidated statements of operations for the year ended December 31, 2001.

The
platform technology is specific to LSDs, and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the
treatment of LSDs. As of March 31, 2004, we estimated that it will take approximately four to eight years and an investment of approximately $100 million to $125 million to
complete the development of, obtain approval for and commercialize the first product based on this technology platform.

OTHER INCOME AND EXPENSES

Three Months Ended March 31,Increase/
(Decrease)
% Change2004

2003(Amounts in thousands, except
percentage data)Equity in loss of equity method investments

$
(3,831
)
$
(4,194
)
(9
)%Minority interest


1,162




N/AOther


29


750

(96
)%Investment income


7,676


11,614

(34
)%Interest expense


(10,326
)

(6,490
)
59
%Total other income (expenses)

$
(5,290
)
$
1,680

(415
)%


Equity in Loss of Equity Method Investments

We record in equity in loss of equity method investments our portion of the results of our joint ventures with BioMarin Pharmaceutical Inc., Diacrin, Inc.,
Peptimmune, Inc. and Therapeutic Human Polyclonals, Inc. (THP).

Our
equity in loss of equity method investments decreased 9% to $3.8 million for the three months ended March 31, 2004 as compared to $4.2 million for the same period of
2003. The largest component of our equity in loss of equity method investments was net losses from our joint venture with BioMarin, which decreased 24% to $3.1 million for the three months
ended March 31, 2004, as compared to the same period of 2003. We did not record in equity in loss of equity method investments, our portion of the losses of Peptimmune and THP in the first
quarter of 2003 because they were not our equity method investee at that time.

Minority Interest

In 2003, we acquired a 49.99% interest in Kallikrein LLC, our joint venture with Dyax for the development of DX-88 for the potential treatment of HAE
and other chronic inflammatory diseases. Under our collaboration agreement with Dyax, we have agreed that both companies will share future

37

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development
costs for HAE. The first significant research and development activities of the joint venture commenced in the fourth quarter of 2003. In addition, Dyax will receive milestone payments
from us upon dosing the first HAE patient in a pivotal clinical trial of DX-88 and upon regulatory approval for the first indication. Dyax will also receive milestone payments from us if
DX-88 is approved for additional indications. Both companies will share equally in profits from sales of DX-88 for HAE and/or other chronic inflammatory diseases. In
March 2003, Dyax exercised an option to acquire from us all rights to DX-88 for surgical indications.

As
a result of our adoption of FIN 46, we have consolidated the results of Kallikrein LLC and Excigen, a collaboration partner. Our consolidated balance sheet as of March 31, 2004
includes assets of $2.7 million related to Kallikrein LLC, substantially all of which are included in other current assets. We have recorded Dyax's portion of this joint venture's losses as
minority interest in our consolidated statements of operations. The results of Excigen are not significant.

Other

We periodically enter into foreign currency forward contracts, all of which have a maturity of less than three years. These contracts have not been designated as
hedges and, accordingly, unrealized gains or losses on these contracts are reported in current earnings. The notional settlement value of foreign currency forward contracts outstanding as of
March 31, 2004 is $71.6 million. The contracts' fair value, representing unrealized gains, was $1.3 million at March 31, 2004.

Investment Income

Our investment income decreased 34% for the three months ended March 31, 2004, as compared to the same period of 2003, primarily due to an overall decline
in our average portfolio yield.

Interest Expense

Our interest expense increased 59% for the three months ended March 31, 2004, as compared to the same period of 2003, primarily due to an increase in
average debt balances outstanding in 2004 resulting from:



The
increase was offset, in part, by interest not recorded in 2004 due to the following:



38

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Provision for Income Taxes

Three Months Ended March 31,Increase/
(Decrease)
% Change2004

2003(Amounts in thousands, except
percentage data)Provision for income taxes

$
(28,824
)
$
(18,998
)
52
%Effective tax rate


30
%

30
%


Our
tax rates for all periods vary from the U.S. statutory tax rate as a result of our:



We
are currently under IRS Audit for tax years 1996 to 1999. We believe that we have provided sufficiently for all audit exposures. A favorable settlement of the audit may result in a
reduction of future tax provisions, which could be significant. Any such benefit would be recorded upon final resolution of the exam.

B. LIQUIDITY AND CAPITAL RESOURCES

We continue to generate cash from operations. At March 31, 2004 and December 31, 2003, we had cash, cash equivalents and short- and
long-term investments of $1.2 billion.

The
following is a summary of our statements of cash flows for the three months ended March 31, 2004 and 2003.

Cash Flows from Operating Activities and Investing Activities

Cash flows from operating and investing activities are as follows (amounts in thousands):

Three Months Ended March 31,2004

2003Cash flows from operating activities

$
89,409

$
76,390Cash flows from investing activities:Net purchases of investments, including investments in equity securities

$
(35,956
)
$
(49,019
)Purchases of property, plant and equipment


(32,269
)

(45,752
)Investments in equity investees


(1,938
)

(4,112
)Acquisitions


(69,857
)

Other investing activities


(420
)

(602
)Cash flows from investing activities

$
(140,440
)
$
(99,485
)


Cash
flows from operating activities increased 17% for the three months ended March 31, 2004, as compared to the same period in 2003, primarily due to an increase in the overall
net cash provided by operations.

39

---



For
the three months ended March 31, 2004, acquisitions, capital expenditures and net purchases of investments accounted for significant cash outlays for investing activities. For
the three months ended March 31, 2004, we used:



Cash Flows from Financing Activities

Our cash flows from financing activities are as follows (amounts in thousands):

Three Months Ended March 31,2004

2003Cash flows from financing activities:Proceeds from issuance of common stock

$
32,170

$
9,011Payments of debt and capital lease obligations


(12,262
)

(202
)Bank overdraft


1,106


2,289Minority interest


1,810


Other financing activities


629


249Cash flows from financing activities

$
23,453

$
11,347


Cash
flows from financing activities increased 107% for the three months ended March 31, 2004, as compared to the same period of 2003.

For
the three months ended March 31, 2004, financing activities generated $35.7 million of cash primarily due to $32.2 million of proceeds from the issuance of
common stock under our stock plans. This source was offset, in part, by $12.3 million in cash utilized to repay debt and capital lease obligations, including $11.3 million used to repay
a 6.5% convertible note due March 29, 2004 in favor of UBS AG London, which we assumed in September 2003 in connection with the acquisition of SangStat.

For
the three months ended March 31, 2003, financing activities generated $11.5 million of cash primarily due to $9.0 million of proceeds from the issuance of common
stock under our stock plans.

Revolving Credit Facility

On December 10, 2003 we entered into a three year $350.0 million revolving credit facility. In December 2003, we drew down
$300.0 million under this new facility, which we also repaid in December 2003, with accrued interest. As of March 31, 2004, no amounts were outstanding under this new revolving
credit facility. Borrowings under this credit facility bear interest at LIBOR plus an applicable margin. The terms of the revolving credit facility include various covenants, including financial
covenants, that require us to meet minimum liquidity and interest coverage ratios and to not exceed maximum leverage ratios. We currently are in compliance with these covenants.

40

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Financial Position

We believe that our available cash, investments and cash flow from operations will be sufficient to fund our planned operations and capital requirements for the
foreseeable future. Although we currently have substantial cash resources and positive cash flow, we intend to use substantial portions of our available cash for:



Our
cash reserves will be further reduced to pay principal and interest on the $690.0 million in principal under our 1.25% convertible senior notes due December 1, 2023.
The notes are convertible into Genzyme General Stock at an initial conversion price of approximately $71.24 per share. Holders of the notes may require us to repurchase all or any part of the notes
for cash, stock, or a combination, at our option, on December 1, 2008, 2013 or 2018, at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest through the
date prior to the date of repurchase. Additionally, upon a change of control, each holder may require us to repurchase for cash at 100% of the principal amount of the notes plus accrued interest, all
or a portion of the holder's notes. On or after December 1, 2008, we may redeem for cash at 100% of the principal amount of the notes plus accrued interest, all or part of the notes that have
not been previously converted or repurchased.

To
satisfy these and other commitments, we may have to obtain additional financing. We cannot guarantee that we will be able to obtain any additional financing, extend any existing
financing arrangement, or obtain either on favorable terms.

In
addition, we have several outstanding legal proceedings. Involvement in investigations and litigations can be expensive and a court may ultimately require that we pay expenses and
damages. We also may be required to pay fees to a holder of proprietary rights in order to continue certain operations. We have provided you detail on these legal proceedings in the notes to our
financial statements and under the heading "Legal Proceedings" in Item 1. to Part II of this Form 10-Q.

Off-Balance Sheet Arrangements

We do not use special purpose entities or other off-balance sheet financing arrangements. We enter into guarantees in the ordinary course of business
related to the guarantee of our own performance and have joint ventures and certain other equity method investments that are engaged in the research, development and commercialization of products
resulting from the arrangements. Entities falling within the scope of FIN 46 are included in our consolidated results if we qualify as the primary beneficiary. Entities not subject to consolidation
under FIN 46 are accounted for under the equity method of accounting if our ownership percent exceeds 20% or if we exercise significant influence over the entity. We account for our portion of the
losses of these entities in the line item "Equity in loss of

41

---



equity
method investments" in our statements of operations. We also acquire companies in which we agree to pay contingent consideration based on attaining certain thresholds.

Recent Accounting Pronouncements

Variable Interest Entities.In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities," as
amended and revised in December 2003, which addresses the consolidation of VIEs by business enterprises that are the primary beneficiaries. A VIE is an entity that does not have sufficient
equity investment to permit it to finance its activities without additional financial support from a third party, or whose equity investors lack the characteristics of a controlling financial
interest. The primary beneficiary of a VIE is the enterprise with the majority of the risk or rewards associated with the VIE. Immediate application of FIN 46 was required for all potential VIEs
created after January 31, 2003. For potential VIEs created prior to February 1, 2003, the consolidation requirements apply for periods ending after March 15, 2004. FIN 46 also
requires enhanced disclosures related to VIEs. As a result of our adoption of FIN 46, we have consolidated the results of Kallikrein LLC, our joint venture with Dyax of which we became a member of in
2003 and Excigen, a collaboration partner. Our consolidated balance sheet as of March 31, 2004 includes assets of $2.7 million related to Kallikrein LLC, substantially all of which are
included in other current assets. We have recorded Dyax's portion of this joint
venture's losses as minority interest in our consolidated statements of operations for the three months ended March 31, 2004. The results of Excigen are not significant.

Employers' Disclosures about Pensions and Other Postretirement Benefits.In December 2003, the FASB issued a revision
to SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits," which we refer to as SFAS No. 132 (revised). This statement revises employers' disclosures
about pension plans and other postretirement benefit plans. It requires additional disclosures related to the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension
plans and other defined benefit postretirement plans. For U.S. defined benefit pension plans and other defined benefit postretirement plans, SFAS No. 132 (revised) is effective for fiscal years
ending after December 15, 2003. Disclosure of information about foreign plans required under SFAS No. 132 (revised) is effective for fiscal years ending after June 15, 2004. The
interim period disclosures required by SFAS No. 132 (revised) are effective for interim periods beginning after December 31, 2003. The adoption of SFAS No. 132 (revised) did not
have a material impact on our disclosures about pensions and other postretirement benefits for the year ended December 31, 2003 because we only have one U.S. defined benefit plan, which has
been frozen since December 1995 and was fully funded as of December 31, 2003. Note 12., "Defined Benefit Pension Plans," to this Form 10-Q includes the interim period
disclosures required under SFAS No. 132 (revised) for our foreign defined benefit plans.

Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share.In
April 2004, the EITF issued Statement No. 03-06, "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share." EITF
03-06 addresses a number of questions regarding the computation of earnings per share by a company that has issued securities other than common stock that contractually entitle the holder
to the right to participate in dividends when, and if, declared. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying the
definition of a participating security and how to apply the two-class method. EITF 03-06 is effective for fiscal periods beginning after March 31, 2004, which is our
second quarter, and is required to be retroactively applied. We are currently evaluating the effect of adopting EITF 03-06 on our earnings per share.

42

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FACTORS AFFECTING FUTURE OPERATING RESULTS

Our future operating results could differ materially from the results described in this report due to the risks and uncertainties related to our business,
including those discussed below.

Our financial results are highly dependent on sales of Cerezyme.

We generate a significant portion of our revenue from sales of enzyme-replacement products for patients with Gaucher disease. Sales of Cerezyme and its
predecessor Ceredase totaled $733.8 million for the year ended December 31, 2003, representing approximately 47% of our consolidated product revenue for that year. Because our business
is highly dependent on Cerezyme, negative trends in revenue from this product could have a significant adverse effect on our operations and cause the value of our securities to decline substantially.
We will lose revenue if alternative treatments gain commercial acceptance, if our marketing activities are restricted, or if reimbursement is limited. In addition, the patient population with Gaucher
disease is not large. Because a significant percentage of that population already uses Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating
patients with Gaucher disease, including treatment protocols that combine Cerezyme with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a
decline, in Cerezyme sales. Historically, we have marketed Cerezyme for Type 1 Gaucher disease. In 2003, the label in the European Union was expanded to include Type 3 Gaucher disease. We do not know
whether the expanded European label will increase sales.

If we fail to increase sales of several products, we will not meet our financial goals.

Over the next few years, our success will depend substantially on our ability to profitably increase revenue from many different products and services. The
products include Fabrazyme, Renagel, Synvisc, Thymoglobulin, and Thyrogen. Our ability to increase sales will depend on a number of factors, including:



Part
of our growth strategy involves conducting additional clinical trials to support approval of expanded uses of some of our products and pursuing marketing approval for our products
in new jurisdictions. With Synvisc, for example, we are pursuing marketing approval in Japan and are seeking to expand approval in the United States to cover use as a treatment of pain from
osteoarthritis in the hip. The success of this component of our growth strategy will depend on the content and timing of our submissions to regulatory authorities and whether and when those
authorities determine to grant approvals.

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Because
the healthcare industry is extremely competitive and regulatory requirements rigorous, we spend substantial funds marketing our products and attempting to expand approved uses
for them. These expenditures depress near-term profitability, with no assurance that the expenditures will generate future profits that justify the expenditures.

Our future success will depend on our ability to effectively develop and market our products against those of our competitors.

The
human healthcare products and services industry is extremely competitive. Other organizations, including pharmaceutical firms and biotechnology companies, have developed and are
developing products and services that compete with our products, services, and product candidates. If doctors or patients prefer these competitive products or these competitive products have superior
safety, efficacy, pricing or reimbursement characteristics, we will have difficulty maintaining or increasing the sales of our products.

Celltech
Group plc and Actelion Ltd. have developed Zavesca®, a small molecule drug candidate for the treatment of Gaucher disease, the disease addressed by Cerezyme.
Zavesca has been approved by both the FDA and the European Commission as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement is unsuitable.
Teva Pharmaceuticals Industries Ltd., a licensee of Celltech, has received marketing approval of Zavesca in Israel. In addition, Transkaryotic Therapies Inc. (TKT) initiated clinical
trials in April 2004 for its gene-activated glucocerebrosidase program, also to treat Gaucher disease.

Nabi
Biopharmaceuticals is currently marketing PhosLo®, a calcium based phosphate binder. Like Renagel, PhosLo is approved for the control of elevated phosphate levels in
patients with end-stage kidney failure. In addition, Shire Pharmaceuticals Group plc is developing Fosrenol® lanthanum carbonate, a non-calcium based phosphate
binder, has filed for marketing approval in the United States, the European Union, and Canada, and has received an approvable letter from the FDA. Renagel also competes with
over-the-counter calcium carbonate products such as TUMS®.

In
the European Union, TKT is marketing a competitive enzyme replacement therapy for Fabry disease, the disease addressed by Fabrazyme. In addition, while Fabrazyme has received Orphan
Drug designation, which provides us with seven years of market exclusivity for the product in the United States, other companies may seek to overcome our market exclusivity and, if successful, compete
with Fabrazyme in the United States.

Smith &
Nephew Orthopaedics, Anika Therapeutics, Inc., Sanofi-Synthelabo Inc. and OrthoBiotech, L.P. are selling products that compete directly with Synvisc, and we believe
other directly competitive products are under development. Furthermore, several companies market products designed to relieve the pain associated with osteoarthritis. Synvisc will have difficulty
competing with any of these products to the extent the competitive products are considered more efficacious, less burdensome to administer, or more cost-effective.

The
examples above are illustrative. Almost all of our products face competition. Furthermore, the field of biotechnology is characterized by significant and rapid technological change.
Discoveries by others may make our products or services obsolete. For example, competitors may develop approaches to treating lysosomal storage disorders that are more effective or less expensive than
our products and product candidates. Because a significant portion of our revenue is derived from products that address this class of diseases and a substantial portion of our expenditures is devoted
to developing new therapies for this class of diseases, such a development would have a material negative impact on our operations. Furthermore, our recent acquisition of SangStat and collaborations
with MacroGenics and Cortical Pty Ltd., all in 2003, reflect our commitment to the immune-mediated disease area. Several

44

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pharmaceutical
and biotechnology companies are pursuing programs in this area, and these organizations may develop approaches that are superior to ours.

If we fail to obtain adequate levels of reimbursement for our products from third party payors, the commercial potential of our products will be significantly limited.

A substantial portion of our revenue comes from payments by third party payors, including government health administration authorities and private health
insurers. As a result of the trend toward managed healthcare in the United States, as well as governmental actions and proposals to reduce payments under government insurance programs, third party
payors are increasingly attempting to contain healthcare costs by:



Government
and other third party payors may not provide adequate insurance coverage or reimbursement for our products and services, which would impair our financial results. In addition,
third party payors may not reimburse patients for newly approved healthcare products, which could decrease demand for our products. Furthermore, legislatures, including the U.S. Congress, occasionally
discuss implementing broad-based measures to contain healthcare costs. If third party reimbursement is further constrained, or if legislation is passed to contain healthcare costs, our profitability
and financial condition will suffer.

We may encounter substantial difficulties managing our growth.

Several risks are inherent to our plans to grow our business. Achieving our goals will require substantial investments in research and development, sales and
marketing, and facilities. With respect to Renagel, for example, we have spent considerable resources building out and seeking regulatory approvals for our tableting facility in Waterford, Ireland and
manufacturing plants in Haverhill, UK. We cannot assure that the facilities will prove sufficient to meet demand for Renagel, or that we will sell sufficient quantities of Renagel to recoup our
investment in these facilities. In addition, we have invested in building a new manufacturing plant in Geel, Belgium for the production of monoclonal antibodies for clinical trials and commercial
products. We cannot assure you that the facility will obtain the required approvals to begin operations, or that its output will allow us to recoup our investment. We incur similar costs for our other
products and product candidates with comparable risks.

If
we are able to grow sales of our products, we may have difficulty managing inventory levels. Marketing new therapies is a complicated process, and gauging future demand is difficult.
With Renagel, for example, we have encountered problems managing inventory levels at wholesalers. Similarly, we encounter difficulty forecasting revenue trends for Synvisc because our marketing
partners are largely responsible for end-user sales. Comparable problems may arise with our other products, particularly during market introduction.

45

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Growth
in our business may also contribute to fluctuations in our operating results, which may cause the price of our securities to decline. Our revenue may fluctuate due to many
factors, including changes in:



We
may also experience fluctuations in our quarterly results due to price changes and sales incentives. For example, if we announce a future price increase, purchasers of our products,
particularly wholesalers, may increase current purchase orders and reduce order levels following the price increase. We occasionally offer sales incentives and promotional discounts on some of our
products and services that could have a similar impact. In addition, some of our products are subject to seasonal fluctuation in demand.

Our
operating results and financial position also may be impacted when we attempt to grow through business combination transactions. We may encounter problems assimilating operations
acquired in these transactions. Business combination transactions often entail the assumption of unknown liabilities, the loss of key employees, and the diversion of management attention. Furthermore,
in any business combination, including our recent acquisition of SangStat Medical Corporation, our recent acquisition of the oncology testing assets of IMPATH and our expected merger with ILEX
Oncology, Inc., there is a substantial risk that we will fail to realize the benefits we anticipate when we decide to undertake the transaction. We have in the past taken significant charges for
impairment of goodwill and for impaired assets acquired in business combination transactions. We may be required to take similar charges in the future.

Manufacturing problems may cause product launch delays, inventory shortages, excess capacity and unanticipated costs.

In order to generate revenue from our approved products, we must be able to produce sufficient quantities of the products at approved facilities. In connection
with our efforts to avoid supply constraints with Renagel, we have built two new manufacturing plants in Haverhill, UK and a tableting facility in Waterford, Ireland. In addition, we have invested in
a monoclonal antibody manufacturing plant in Geel, Belgium. Building these, and our other production facilities, is expensive, and our ability to recover these costs will depend on increased revenue
from the products produced at the facilities. Furthermore, we may encounter production interruptions at these facilities, which could lead to inventory shortages and other problems. A number of
factors could cause production interruptions, including equipment malfunctions, labor problems, natural disasters, power outages, terrorist activities, or disruptions in the operations of our
suppliers.

Manufacturing
is subject to extensive government regulation. Regulatory authorities must approve the facilities in which human healthcare products are produced. In addition, facilities
are subject to ongoing inspections and minor changes in manufacturing processes may require additional regulatory approvals, either of which could cause us to incur significant additional costs and
lose revenue.

The
manufacturing processes we employ to produce small quantities of material for research and development activities and clinical trials may not be successfully scaled up for production
of commercial quantities at a reasonable cost, or at all. Many of our products are difficult to manufacture. Our products that are biologics, for example, require product characterization steps that
are more onerous than those required for most chemical pharmaceuticals. Accordingly, we employ multiple steps to

46

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attempt
to control the manufacturing processes. Minor deviations in these manufacturing processes could result in unacceptable changes in the products that result in lot failures, product recalls, or
product liability.

If our strategic alliances are unsuccessful, our operating results will be negatively impacted.

Several of our strategic initiatives involve alliances with other biotechnology and pharmaceutical companies. These include a joint venture with BioMarin
Pharmaceutical Inc. with respect to Aldurazyme, and a marketing relationship under which Wyeth distributes Synvisc in several jurisdictions. The success of these and similar arrangements is
largely dependent on technology and other intellectual property contributed by our strategic partners or the resources, efforts, and skills of our partners. Disputes and difficulties in such
relationships are common, often due to conflicting priorities or conflicts of interest. Merger and acquisition activity may exacerbate these conflicts. The benefits of these alliances are reduced or
eliminated when strategic partners:



Furthermore,
payments we make under these arrangements, such as the $12.1 million payment we made to BioMarin in May 2003 upon receipt of FDA approval of Aldurazyme, may
exacerbate fluctuations in our financial results. In addition, under some of our strategic alliances, we make milestone payments well in advance of commercialization of products with no assurance that
we will ever recoup these payments. We also may make equity investments in our strategic partners, as we did in September and October 2003 with Cambridge Antibody Technology Group plc. Many of
these investments decline in value and as a result, we may incur financial statement charges in the future.

The development of new biotechnology products involves a lengthy and complex process, and we may be unable to commercialize any of the products we are currently developing.

We have multiple products under development and devote considerable resources to research and development, including clinical trials. For example, we are
currently conducting two clinical trials for Myozyme, an enzyme replacement therapy intended to treat Pompe disease, and we are spending considerable resources attempting to develop new treatments for
Gaucher disease.

Before
we can commercialize our development-stage products, we will need to:



This
process involves a high degree of risk and takes several years. Our product development efforts with respect to a product candidate may fail for many reasons, including:



47

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Few
research and development projects result in commercial products, and success in preclinical studies or early clinical trials often is not replicated in later studies. We may decide
to abandon development of a product or service candidate at any time or we may be required to expend considerable resources repeating clinical trials or conducting additional trials, either of which
would adversely impact the timing for generating possible revenue for those product candidates.

Our
efforts to expand the approved indications for our products and to gain marketing approval in new jurisdictions also may fail. These expansion efforts are subject to many of the
risks associated with completely new products, and, accordingly, we may fail to recoup the investments we make pursuing these expansions.

Government regulation imposes significant costs and restrictions on the development and commercialization of our products and services.

Our success will depend on our ability to satisfy regulatory requirements. We may not receive required regulatory approvals on a timely basis, or at all.
Government agencies heavily regulate the production and sale of healthcare products and the provision of healthcare services. In particular, the FDA and comparable agencies in foreign jurisdictions
must approve human therapeutic and diagnostic products before they are marketed, as well as the facilities in which they are made. This approval process can involve lengthy and detailed laboratory and
clinical testing, sampling activities and other costly and time-consuming procedures. Several biotechnology companies have failed to obtain regulatory approvals because regulatory agencies
were not satisfied with the structure or conduct of clinical trials or the ability to interpret the data from the trials; similar problems could delay or prevent us from obtaining approvals.
Furthermore, regulatory authorities, including the FDA, may not agree with our interpretations of our clinical trial data, which could delay, limit or prevent regulatory approvals.

Therapies
that have received regulatory approval for commercial sale may continue to face regulatory difficulties. If we fail to comply with applicable regulatory requirements,
regulatory authorities could take actions against us, including:



Furthermore,
the FDA and comparable foreign regulatory agencies may require post-marketing clinical trials or patient outcome studies. We have agreed with the FDA, for
example, to a number of

48

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post-marketing
commitments as a condition to U.S. marketing approval for Fabrazyme and Aldurazyme. In addition, regulatory agencies subject a marketed therapy, its manufacturer and the
manufacturer's facilities to continual review and periodic inspections. The discovery of previously unknown problems with a therapy or the facility used to produce the therapy could prompt a
regulatory authority to impose restrictions on us, including withdrawal of one or more of our products or services from the market.

Legislative or regulatory changes may adversely impact our business.

The FDA has designated some of our products, including Fabrazyme, Aldurazyme, and Myozyme, as orphan drugs under the Orphan Drug Act. The Orphan Drug Act provides
incentives to manufacturers to develop and market drugs for rare diseases, generally by entitling the first developer that receives FDA marketing approval for an orphan drug to a
seven-year exclusive marketing period in the United States for that product. In recent years Congress has considered legislation to change the Orphan Drug Act to shorten the period of
automatic market exclusivity and to grant marketing rights to simultaneous developers of a drug. If the Orphan Drug Act is amended in this manner, any approved drugs for which we have been granted
exclusive marketing rights under the Orphan Drug Act will face increased competition, which may decrease the amount of revenue we receive from these products.

In
addition, the United States government and other governments have shown significant interest in pursuing healthcare reform. Any government-adopted reform measures could adversely
impact:



New
laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, which relate to health care availability, methods of delivery or payment
for products and services, or sales, marketing or pricing may cause our revenue to decline, and we may need to revise our research and development programs.

We may require significant additional financing, which may not be available to us on favorable terms, if at all.

As of March 31, 2004, we had approximately $1.2 billion in cash, cash equivalents and short- and long-term investments, excluding
investments in equity securities. We intend to use substantial portions of our available cash for:



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We
may further reduce available cash reserves to pay principal and interest on outstanding debt, including $690.0 million in principal of 1.25% convertible senior notes due
December 2023.

To
satisfy these and other commitments, we may have to obtain additional financing. We may be unable to obtain any additional financing, extend any existing financing arrangements, or
obtain either on terms that we or our investors consider favorable.

We may fail to adequately protect our proprietary technology, which would allow competitors or others to take advantage of our research and development efforts.

Our long-term success largely depends on our ability to market technologically competitive products. If we fail to obtain or maintain adequate
intellectual property protection, we may not be able to prevent third parties from using our proprietary technologies. Our currently pending or future patent applications may not result in issued
patents. In the United States, patent applications are confidential for 18 months following their filing, and because third parties may have filed patent applications for technology covered by
our pending patent applications without us being aware of those applications, our patent applications may not have priority over patent applications of others. In addition, our issued patents may not
contain claims sufficiently broad to protect us against third parties with similar technologies or products, or provide us with any competitive advantage. If a third party initiates litigation
regarding our patents, our collaborators' patents, or those patents for which we have license rights, and is successful, a court could declare our patents invalid or unenforceable or limit the scope
of coverage of those patents.

The
USPTO and the courts have not consistently treated the breadth of claims allowed or interpreted in biotechnology patents. If the USPTO or the courts begin to allow or interpret
claims more broadly, the incidence and cost of patent interference proceedings and the risk of infringement litigation will likely increase. On the other hand, if the USPTO or the courts begin to
allow or interpret claims more narrowly, the value of our proprietary rights may be reduced. Any changes in, or unexpected interpretations of, the patent laws may adversely affect our ability to
enforce our patent position.

We
also rely upon trade secrets, proprietary know-how, and continuing technological innovation to remain competitive. We attempt to protect this information with security
measures, including the use of confidentiality agreements with our employees, consultants, and corporate collaborators. These individuals may breach these agreements and any remedies available to us
may be insufficient to compensate our damages. Furthermore, our trade secrets, know-how and other technology may otherwise become known or be independently discovered by our competitors.

We may be required to license technology from competitors or others in order to develop and commercialize some of our products and services, and it is uncertain whether these
licenses will be available.

Third party patents may cover some of the products or services that we or our strategic partners are developing or testing. In addition, we are aware of a United
States patent owned by Columbia University relating to the manufacture of recombinant proteins in CHO cells, which are the cells we use to manufacture Cerezyme, Fabrazyme and Thyrogen, and which our
joint venture partner, BioMarin, uses to manufacture Aldurazyme. We are challenging the validity of this patent in a federal lawsuit filed in June 2003. While we are licensed under the patent
for a royalty of approximately 1.5% of sales of Cerezyme, Fabrazyme and Thyrogen, we have not paid the royalty pending the outcome of the litigation. We have received from Columbia a notice of breach
under our license agreement. If we

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do
not prevail in our litigation challenging the patent, or if we do not prevail in any litigation related to the license agreement termination, we would be obligated to pay a royalty on sales of
products that we use CHO cells to manufacture.

A
United States patent is entitled to a presumption of validity, and, accordingly, we face significant hurdles in any challenge to a patent. In addition, even if we are successful in
challenging the validity of a patent, the challenge itself may be expensive and require significant management attention.

To
the extent valid third-party patent rights cover our products or services, we or our strategic collaborators would be required to seek licenses from the holders of these patents in
order to manufacture, use, or sell these products and services, and payments under them would reduce our
profits from these products. We may not be able to obtain these licenses on acceptable terms, or at all. If we fail to obtain a required license or are unable to alter the design of our technology to
fall outside the scope of a third party patent, we may be unable to market some of our products and services, which would limit our profitability.

We may incur substantial costs as a result of litigation or other proceedings.

A third party may sue us or one of our strategic collaborators for infringing the third party's patent or other intellectual property rights. Likewise, we or one
of our strategic collaborators may sue to enforce intellectual property rights or to determine the scope and validity of third party proprietary rights. If we do not prevail in this type of
litigation, we or our strategic collaborators may be required to:



We
are also currently involved in litigations and investigations that do not involve intellectual property claims, such as shareholder suits and government investigations regarding
certain of our business decisions and practices, and may be subject to additional actions in the future. For example, we are currently defending several lawsuits brought in connection with the
elimination of our tracking stock in June 2003, some of which claim considerable damages. The federal government, state governments and private payors are investigating and have begun to file actions
against numerous pharmaceutical and biotechnology companies alleging that the companies have overstated prices in order to inflate reimbursement rates. In addition, enforcement authorities have
instituted actions under health care "fraud and abuse" laws, including anti-kickback and false claims statutes. Moreover, individuals who use our products or services, including our
diagnostic products and genetic testing services, may bring product liability claims against us or our subsidiaries. If any such actions are initiated against us, those actions may have a significant
effect on our business.

We
have only limited amounts of insurance, which may not provide coverage to offset a negative judgment or a settlement payment. We may be unable to obtain additional insurance in the
future, or we may be unable to do so on acceptable terms. Any additional insurance we do obtain may not provide adequate coverage against any asserted claims.

Regardless
of merit or eventual outcome, investigations and litigations may result in:



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Changes in the economic, political, legal and business environments in the foreign countries in which we do business could cause our international sales and operations, which
account for a significant percentage of our consolidated net sales, to be limited or disrupted.

Our international operations accounted for approximately 47% of our consolidated product and service revenues for the quarter ended March 31, 2004. We
expect that international product and service sales will continue to account for a significant percentage of our revenues for the foreseeable future. In
addition, we have direct investments in a number of subsidiaries outside of the United States, primarily in the European Union, Latin America and Japan. Our international sales and operations could be
limited or disrupted, and the value of our direct investments may be diminished, by any of the following:



A
significant portion of our business is conducted in currencies other than our reporting currency, the U.S. Dollar. We recognize foreign currency gains or losses arising from our
operations in the period in which we incur those gains or losses. As a result, currency fluctuations among the U.S. Dollar and the currencies in which we do business have caused foreign currency
transaction gains and losses in the past and will likely do so in the future. Because of the number of currencies involved, the variability of currency exposures and the potential volatility of
currency exchange rates, we may suffer significant foreign currency transaction losses in the future due to the effect of exchange rate fluctuations.

Our level of indebtedness may harm our financial condition and results of operations.

At March 31, 2004, we had $1.3 billion of outstanding indebtedness, excluding capital leases. We may incur additional indebtedness in the future.
Our level of indebtedness will have several important effects on our future operations, including:



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Our
ability to make payments of principal and interest on our indebtedness depends upon our future operating and financial performance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to potential loss from financial market risks that may occur as a result of changes in interest rates, equity prices and foreign currency exchange
rates. Our exposure to these risks has not materially changed since December 31, 2003.

We
incorporate by reference our disclosure related to market risk which is set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries'
Financial Condition and Results of OperationsMarket Risk," "Interest Rate Risk," "Foreign Exchange Risk" and "Equity Price Risk" in
Exhibit 13.1 to our 2003 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

At the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over
financial reporting and concluded that (1) our disclosure controls and procedures were effective as of March 31, 2004 and (2) no change in internal control over financial
reporting occurred during the quarter ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims
against us as of March 31, 2004 which, if adversely decided, would have a material adverse effect on our results of operations, financial condition or liquidity.

Four
lawsuits have been filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock and Molecular Oncology Stock for shares of Genzyme General Stock. The
first case, filed in Massachusetts Superior Court in May 2003, was a purported class action on behalf of holders of Biosurgery Stock alleging a breach of the implied covenant of good faith and
fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case was seeking an injunction to adjust the exchange ratio for the tracking stock exchange.
The Court dismissed the complaint for failure to state a claim on November 12, 2003. The plaintiff in this case has appealed the dismissal of the complaint. Two substantially similar cases were
filed in Massachusetts Superior Court in August and October 2003. These cases were consolidated in January 2004. The fourth case, filed in the U.S. District Court for the Southern
District of New York in June 2003, was brought by two holders of Biosurgery Stock alleging, in addition to the state law claims contained in the other cases, violations of federal securities
laws, common law fraud, and a breach of the merger agreement with Biomatrix. The plaintiffs are seeking an adjustment to the exchange ratio, the rescission of the acquisition of Biomatrix, and
unspecified compensatory damages. We believe each of these cases is without merit and plan to defend against them vigorously.

On
March 27, 2003, the OFT in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited held a dominant position and
abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers from the market for the supply of home delivery and
homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and required modification to its list price for Cerezyme
in the
United Kingdom. Genzyme Limited appealed this decision to the Tribunal. On May 6, 2003, the Tribunal issued an order that stayed the OFT's decision, but required Genzyme Limited to provide a
homecare distributor a discount of three percent (3%) per unit during the appeal process. The Tribunal issued its judgment on Genzyme Limited's appeal on March 11, 2004, rejecting portions of
the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme should not be reduced, but that Genzyme Limited must negotiate a price for Cerezyme that will allow homecare
distributors an appropriate margin. The Tribunal also reduced the fine imposed by the OFT for violation of U.K. competition laws. In response to the Tribunal's decision, we recorded a liability of
approximately $11 million in our 2003 financial statements. This liability remains in accrued expenses in our consolidated balance sheet as of March 31, 2004. We are considering whether
to appeal the Tribunal's judgment.

In
June 2003, we filed suit in U.S. District Court for the District of Massachusetts, as co-plaintiff with Biogen IDEC and Abbott Laboratories against Columbia
University seeking a declaration that Columbia's U.S. Patent 6,455,275 is invalid. The patent relates to the manufacture of recombinant proteins in CHO cells, which are the cells we use to manufacture
Cerezyme, Fabrazyme and Thyrogen, and which our joint venture partner BioMarin uses to manufacture Aldurazyme. This new patent was issued by the USPTO in September 2002 from a family of patents
and patent applications originally filed in 1980. We are licensed under the patent family for a royalty of 1.5% of sales but, because we are confident that the new patent was mistakenly issued by the
USPTO and is invalid, we have not paid the royalty pending the outcome of the litigation. We have received notice from Columbia that we are in breach of our license agreement. In the event we were to
lose our lawsuit, we estimate our royalty

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obligation
to Columbia would be between $10 million and $20 million per year through 2019, the precise amount depending on sales levels of the affected products and the level of third
party royalty offsets available as provided for in our license agreement with Columbia. Columbia University has filed a motion to consolidate this case, with three other similar cases filed against
it, into one case to be handled by the Judicial Panel on MDL process. A hearing on the MDL process was held in March 2004, resulting in a transfer of the case to the U.S. District Court for the
district of Massachusetts. We expect discovery to commence in the second half of 2004.

On
August 7, 2003, a purported shareholder class action was filed in California Superior Court, County of Alameda, under the captionPignone v. SangStat
Medical Corp., et al, (Case No. RG 03110801). The plaintiff alleged that he was a stockholder of SangStat and purported to bring the action on behalf of the holders of SangStat
common stock. The plaintiff named as defendants in the action are SangStat and each of SangStat's former directors. The plaintiff's complaint asserts that SangStat and each of its former directors
breached fiduciary duties to SangStat stockholders by consenting to the acquisition by Genzyme. The plaintiff's complaint did not seek monetary damages but instead sought only equitable relief,
including an order rescinding the transaction to the extent already implemented. The plaintiff also sought costs of suit, including attorneys' fees. The plaintiff filed an amended complaint in
November 2003. On April 5, 2004, the Court granted SangStat's motion to dismiss with prejudice.

We
are currently a party to other legal proceedings as well. While our management currently believes that the ultimate outcome of any of these proceedings will not have a material
adverse effect on our financial position or results of operations, litigation is subject to inherent uncertainty, and we could experience such a material adverse impact. In addition, litigation
consumes both cash and management attention.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K





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GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 2004

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                  |  | GENZYME CORPORATION
|----------------- |  | -------------------
|DATE: May 7, 2004 |  | By:                

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GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 2004

EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                     
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Agreement and Plan of Merger, dated February 26, 2004, among Genzyme Corporation, GLBC Corp., GLBC LLC and ILEX Oncology, Inc. Filed as Exhibit 2.1 to Genzyme's Current Report on Form 8-K filed on
February 26, 2004 and incorporated herein by reference. (File No. 0-14680)*
|10.1        |  | Amendment to Collaboration Agreement, dated January 1, 2004, between Genzyme and Sankyo Pharma, Inc. Filed herewith.                                                                                                                                                           
|31.1        |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                                         
|31.2        |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                                         
|32.1        |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                                         
|32.2        |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                                         

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