**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

----

**FORM 10-Q**

**(Mark One)**

**x**                                 QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended June 30, 2007**

**or**

**o**                                   TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe transition period from             to            **

**Commissionfile number 0-14680**

----

**GENZYME CORPORATION**

(Exact name of registrantas specified in its charter)

| **Massachusetts**                                 |   | **06-1047163**                        |
|---------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of                  |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                   |   |                                  |
| **500 Kendall Street,  Cambridge, Massachusetts** |   | **02142**                             |
| (Address of  principal executive offices)         |   | (Zip Code)                            |

 

**(617) 252-7500**

(Registrant’s telephonenumber, including area code)

----

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes xNo o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large acceleratedfiler x   Acceleratedfiler o   Non-acceleratedfiler o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o No x

The number of shares of Genzyme Stock outstanding asof July 31, 2007: 263,122,885

 

----

**NOTE REGARDINGREFERENCES TO OUR COMMON STOCK**

Throughout this Form 10-Q,the words “we,” “us,” “our” and “Genzyme” refer to Genzyme Corporation as awhole, and “our board of directors” refers to the board of directors of GenzymeCorporation. Genzyme Corporation has one outstanding series of common stock,which we refer to as “Genzyme Stock.”

**NOTE REGARDINGFORWARD-LOOKING STATEMENTS**

This Form 10-Qcontains forward-looking statements, including statements regarding:

·                    ourplans to seek marketing approvals for our products in additional jurisdictions,including Myozyme and Thymoglobulin;

·                    ourplans and our anticipated timing for pursuing additional indications and usesfor our products and services, including Synvisc, Campath and Clolar and forpursuing approvals of Renvela and Synvisc-One;

·                    thetiming and availability of data from clinical trials;

·                    theanticipated drivers for future growth of our products, including Renagel,Hectorol and Synvisc;

·                    estimatesof the capacity of, and the projected timetable of approvals for, manufacturingand other facilities and production methods to support our products andservices, including the larger-scale manufacturing process for Myozyme;

·                    ourassessment of competitors and potential competitors and the anticipated impactof potentially competitive products on our revenues;

·                    ourestimates of the potential markets for our products and services;

·                    ourability to meet the expected demand for our products, including Thymoglobulinand our ability to optimize the U.S. supply of Myozyme;

·                    Cerezymecontributing to revenues in the future;

·                    ourproposed settlement of the litigation related to the consolidation of our formertracking stocks filed in the U.S. District Court for the Southern Districtof New York and expected dismissal of similar litigation currently pending in theMassachusetts Superior Court (MSC);

·                    ourplans to pursue our rights with respect to insurance coverage for our proposedsettlement under a director and officer liability insurance program;

·                    ourassessment of the outcome, timetables and financial impact of litigation andother governmental proceedings and the potential impact of unasserted claims,including the approximately $64 million we expect to pay to settle litigationrelated to the consolidation of our former tracking stocks;

·                    thesufficiency of our cash, short- and long-term investments and cash flowsfrom operations;

·                    U.S.and foreign income tax audits, including our provision for liabilities andassessment of the impact of settlement of the Internal Revenue Service,commonly referred to as the IRS, and foreign tax disputes;

·                    ourestimates of cost to complete and estimated commercialization dates for in-processresearch and development, or IPR&D, programs;

2

----

·                    ourexpected future revenues, operations, expenditures, allocations and expenses,and the assumptions underlying those estimates;

·                    ourprojected future earnings and earnings per share;

·                    ourassessment of the impact of recent accounting pronouncements, includingFinancial Accounting Standards Board, or FASB, Statement of Financial AccountingStandards No., or FAS, 157, regarding fair value measurements, and FAS 159,regarding the fair value option for financial assets and financial liabilitiesand our assessment of the ongoing impact of FASB Interpretation No., or FIN, 48regarding the accounting for income tax positions;

·                    oursales and marketing plans;

·                    ourassessment of certain lots of Thymoglobulin finished goods inventory andexpected timing of completion of review;

·                    ourplanned acquisition of Bioenvision, Inc., or Bioenvision, and the expectedtiming and payments related to the acquisition;

·                    ourexpected future contingent payments to Synpac (North Carolina), Inc., orSynpac; and

·                    ourexpected future payments related to our acquisitions, including milestone androyalty payments to the former shareholders of Surgi.B Chirugie et MedicineSAS, or Surgi.B, Wyeth, and Verigen Inc., or Verigen, and employeebenefits and leased facilities acquired from AnorMED Inc., or AnorMED, and theexpected timing of these payments.

These statementsare subject to risks and uncertainties, and our actual results may differmaterially from those that are described in this report. These risks anduncertainties include:

·                    ourability to successfully complete preclinical and clinical development of ourproducts and services;

·                    ourability to secure regulatory approvals for our products, services andmanufacturing facilities, and to do so in the anticipated timeframes;

·                    thecontent and timing of submissions to and decisions made by the United StatesFood and Drug Administration, commonly referred to as the FDA, the EuropeanAgency for the Evaluation of Medicinal Products, or EMEA, and other regulatoryagencies related to our products and the facilities and processes used to manufactureour products (including FDA approval of larger-scale manufacturing of Myozyme);

·                    ourability to satisfy the post-marketing commitments made as a condition of themarketing approvals of Fabrazyme, Aldurazyme and Myozyme;

·                    ourability to manufacture sufficient amounts of our products for development andcommercialization activities and to do so in a timely and cost-effectivemanner;

·                    ourreliance on third parties to provide us with materials and services inconnection with the manufacture of our products;

·                    ourability to obtain and maintain adequate patent and other proprietary rightsprotection for our products and services and successfully enforce ourproprietary rights;

·                    thescope, validity and enforceability of patents and other proprietary rights heldby third parties and their impact on our ability to commercialize our productsand services;

·                    theaccuracy of our estimates of the size and characteristics of the markets to beaddressed by our products and services, including growth projections;

3

----

·                    marketacceptance of our products and services in expanded areas of use and newmarkets;

·                    ourability to identify new patients for our products and services;

·                    ourability to increase market penetration both outside and within the UnitedStates for our products and services;

·                    theaccuracy of our information regarding the products and resources of ourcompetitors and potential competitors;

·                    theavailability of reimbursement for our products and services from third partypayors, the extent of such coverage and the accuracy of our estimates of thepayor mix for our products;

·                    ourability to effectively manage wholesaler inventories of our products and thelevels of compliance with our inventory management programs;

·                    ourability to establish and maintain strategic license, collaboration anddistribution arrangements and to successfully manage our relationships withlicensors, collaborators, distributors and partners;

·                    thecontinued funding and operation of our joint ventures by our partners;

·                    ouruse of cash in business combinations or other strategic initiatives;

·                    ourability to negotiate final terms of a settlement agreement for the litigationrelated to the consolidation of our former tracking stocks;

·                    ourability to obtain approval from the court, plaintiffs and plaintiffs’ counsel topay approximately $64 million to settle the litigation related to theconsolidation of our former tracking stocks;

·                    theresolution of the dispute with our insurance carriers regarding our claim for coverageunder a director and officer liability insurance program;

·                    theinitiation of legal proceedings by or against us;

·                    theimpact of changes in the exchange rate for the Euro and other currencies on ourproduct and service revenues in future periods;

·                    ourability to successfully integrate the business we acquired from AnorMED;

·                    ourability to complete the planned acquisition of Bioenvision on the anticipatedterms and timeline, including receipt of sufficient votes in favor of themerger from the Bioenvision shareholders;

·                    thenumber of diluted shares considered outstanding, which will depend on businesscombination activity, our stock price and any further changes in the accountingrules for the calculation of earnings per share;

·                    theestimates and input variables used in accounting for stock options and therelated stock-based compensation expense;

·                    theoutcome of our IRS and foreign tax audits; and

·                    thepossible disruption of our operations due to terrorist activities, armedconflict, or outbreak of diseases such as severe acute respiratory syndrome(SARS) or avian influenza, including as a result of the disruption ofoperations of regulatory authorities, our subsidiaries, our manufacturingfacilities and our customers, suppliers, distributors, couriers, collaborativepartners, licensees and clinical trial sites.

4

----

We provide more detaileddescriptions of these and other risks and uncertainties under the heading “RiskFactors,” included in this report. We encourage you to read those descriptionscarefully. We caution investors not to place substantial reliance on theforward-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 orrevise the statements in light of future developments.

**NOTE REGARDINGINCORPORATION BY REFERENCE**

The U.S. Securities andExchange Commission, commonly referred to as the SEC, allows us to discloseimportant information to you by referring you to other documents we have filedor will file with them. The information that we refer you to is “incorporatedby reference” into this Form 10-Q. Please read that information.

**NOTE REGARDINGTRADEMARKS**

Genzyme®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Myozyme®, Renagel®, Campath®, Clolar®, Thymoglobulin®, Synvisc®, Seprafilm® andHectorol® are registered trademarks, andLymphoglobulineTM, SepraTM, MozobilTM, RenvelaTM and Synvisc-OneTM are trademarks,of Genzyme or its subsidiaries. WelChol® is a registeredtrademark of Sankyo Pharma, Inc. Aldurazyme® isa registered trademark of BioMarin/Genzyme LLC. All rights reserved.

5

----

**GENZYME CORPORATION AND SUBSIDIARIESFORM 10-Q, JUNE 30, 2007TABLE OF CONTENTS**
|                   | ** ** | ** **                                                                                                                                 | ** ** | **PAGE NO.** |
|-------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|
| **PART I.**  | ** ** | **FINANCIAL  INFORMATION**                                                                                                                 |       | 7            |
| ITEM 1.           |       | Financial  Statements                                                                                                                      |       | 7            |
|              |       | Unaudited,  Consolidated Statements of Operations and Comprehensive Income for the Three  and Six Months Ended June 30, 2007 and 2006 |       | 7            |
|              |       | Unaudited,  Consolidated Balance Sheets as of June 30, 2007 and  December 31, 2006                                          |       | 8            |
|              |       | Unaudited,  Consolidated Statements of Cash Flows for the Six Months Ended June 30,  2007 and 2006                                    |       | 9            |
|              |       | Notes to  Unaudited, Consolidated Financial Statements                                                                                     |       | 10           |
| ITEM 2.           |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                |       | 28           |
| ITEM 3.           |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                |       | 64           |
| ITEM 4.           |       | Controls  and Procedures                                                                                                                   |       | 65           |
| **PART II.** | ** ** | **OTHER  INFORMATION**                                                                                                                     |       | 66           |
| ITEM 1.           |       | Legal  Proceedings                                                                                                                         |       | 66           |
| ITEM 1A.          |       | Risk Factors                                                                                                                               |       | 66           |
| ITEM 2.           |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                               |       | 67           |
| ITEM 4.           |       | Submission  of Matters to a Vote of Security Holders                                                                                       |       | 68           |
| ITEM 6.           |       | Exhibits                                                                                                                                   |       | 69           |
| Signatures        |       | 70                                                                                                                                         |

 

6

----

**PART I.   FINANCIALINFORMATION**

**ITEM 1.   FINANCIALSTATEMENTS**

**GENZYME CORPORATION AND SUBSIDIARIESConsolidated Statements of Operations and Comprehensive Income(Unaudited, amounts in thousands, except per share amounts)**

| ** **                                                                         | ** ** | **Three Months Ended  June 30,**          | ** ** | **Six Months Ended  June 30,**            | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues:                                                                          |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |
| Net product sales                                                                  |       |                                                     | $          | 845,482                                                  |       |   |   | $ | 718,735 |   |   | $ | 1,643,672 |   | $ | 1,376,070 |   |
| Net service sales                                                                  |       |                                                     | 82,475     |                                                     |       |   | 71,012 |   |   | 158,356 |   | 139,834 |   |
| Research and  development revenue                                                  |       |                                                     | 5,462      |                                                     |       |   | 3,609 |   |   | 14,574 |   | 8,294 |   |
| Total revenues                                                                     |       |                                                     | 933,419    |                                                     |       |   | 793,356 |   |   | 1,816,602 |   | 1,524,198 |   |
| Operating costs and expenses:                                                      |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |
| Cost of products  sold                                                             |       |                                                     | 163,252    |                                                     |       |   | 133,957 |   |   | 317,976 |   | 254,469 |   |
| Cost of services  sold                                                             |       |                                                     | 54,346     |                                                     |       |   | 51,376 |   |   | 102,085 |   | 97,814 |   |
| Selling, general  and administrative                                               |       |                                                     | 339,480    |                                                     |       |   | 273,480 |   |   | 608,501 |   | 504,149 |   |
| Research and  development                                                          |       |                                                     | 198,442    |                                                     |       |   | 168,941 |   |   | 364,562 |   | 321,264 |   |
| Amortization of  intangibles                                                       |       |                                                     | 49,465     |                                                     |       |   | 52,883 |   |   | 99,482 |   | 105,575 |   |
| Total operating  costs and expenses                                                |       |                                                     | 804,985    |                                                     |       |   | 680,637 |   |   | 1,492,606 |   | 1,283,271 |   |
| Operating income                                                                   |       |                                                     | 128,434    |                                                     |       |   | 112,719 |   |   | 323,996 |   | 240,927 |   |
| Other income (expenses):                                                           |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |
| Equity in income  of equity method investments                                     |       |                                                     | 5,945      |                                                     |       |   | 3,854 |   |   | 11,557 |   | 6,100 |   |
| Minority interest                                                                  |       |                                                     | 15         |                                                     |       |   | 2,750 |   |   | 3,927 |   | 5,196 |   |
| Gains on  investments in equity securities, net                                    |       |                                                     | 143        |                                                     |       |   | 66,967 |   |   | 12,931 |   | 74,909 |   |
| Other                                                                              |       |                                                     | (278       | )                                                        |       |   | (319 | ) |   | (803 | ) | (458 | ) |
| Investment income                                                                  |       |                                                     | 17,246     |                                                     |       |   | 12,563 |   |   | 33,465 |   | 22,641 |   |
| Interest expense                                                                   |       |                                                     | (3,621     | )                                                        |       |   | (4,035 | ) |   | (7,809 | ) | (8,473 | ) |
| Total other income                                                                 |       |                                                     | 19,450     |                                                     |       |   | 81,780 |   |   | 53,268 |   | 99,915 |   |
| Income before  income taxes                                                        |       |                                                     | 147,884    |                                                     |       |   | 194,499 |   |   | 377,264 |   | 340,842 |   |
| Provision for  income taxes                                                        |       |                                                     | (64,090    | )                                                        |       |   | (60,002 | ) |   | (135,283 | ) | (105,371 | ) |
| Net income                                                                         |       |                                                     | $          | 83,794                                                   |       |   |   | $ | 134,497 |   |   | $ | 241,981 |   | $ | 235,471 |   |
| Net income per share:                                                              |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |
| Basic                                                                              |       |                                                     | $          | 0.32                                                     |       |   |   | $ | 0.52 |   |   | $ | 0.92 |   | $ | 0.91 |   |
| Diluted                                                                            |       |                                                     | $          | 0.31                                                     |       |   |   | $ | 0.49 |   |   | $ | 0.88 |   | $ | 0.86 |   |
| Weighted average shares outstanding:                                               |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |
| Basic                                                                              |       |                                                     | 263,911    |                                                     |       |   | 260,444 |   |   | 263,693 |   | 260,076 |   |
| Diluted                                                                            |       |                                                     | 280,564    |                                                     |       |   | 276,312 |   |   | 280,244 |   | 276,560 |   |
| Comprehensive income, net of tax:                                                  |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |
| Net income                                                                         |       |                                                     | $          | 83,794                                                   |       |   |   | $ | 134,497 |   |   | $ | 241,981 |   | $ | 235,471 |   |
| Other comprehensive income (loss):                                                 |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |
| Foreign currency  translation adjustments                                          |       |                                                     | 8,636      |                                                     |       |   | 50,091 |   |   | 21,246 |   | 77,733 |   |
| Other, net of tax                                                                  |       |                                                     | (464       | )                                                        |       |   | (219 | ) |   | (266 | ) | (277 | ) |
| Unrealized gains (losses)  on securities, net of tax:                              |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |
| Unrealized gains  (losses) arising during the period, net of tax                   |       |                                                     | (4,516     | )                                                        |       |   | 28,577 |   |   | 5,362 |   | 35,938 |   |
| Reclassification  adjustment for gains (losses) included in net income, net of tax |       |                                                     | 313        |                                                     |       |   | (42,136 | ) |   | (7,848 | ) | (45,732 | ) |
| Unrealized losses  on securities, net of tax                                       |       |                                                     | (4,203     | )                                                        |       |   | (13,559 | ) |   | (2,486 | ) | (9,794 | ) |
| Other  comprehensive income                                                        |       |                                                     | 3,969      |                                                     |       |   | 36,313 |   |   | 18,494 |   | 67,662 |   |
| Comprehensive  income                                                              |       |                                                     | $          | 87,763                                                   |       |   |   | $ | 170,810 |   |   | $ | 260,475 |   | $ | 303,133 |   |

 

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

7

----

**GENZYME CORPORATION AND SUBSIDIARIESConsolidated Balance Sheets(Unaudited, amounts in thousands, except par value amounts)**

| ** **                                                       | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                       |       |                    |       |                        |       |   |   |
| Current assets:                                                  |       |                    |       |                        |       |   |   |
| Cash and cash  equivalents                                       |       | $                       | 791,441    |                        |       | $ | 492,170 |   |   |
| Short-term  investments                                          |       | 89,010                  |       |                        | 119,894    |   |   |
| Accounts receivable, net                                         |       | 826,516                 |       |                        | 746,746    |   |   |
| Inventories                                                      |       | 431,610                 |       |                        | 374,644    |   |   |
| Prepaid expenses and  other current assets                       |       | 114,303                 |       |                        | 119,122    |   |   |
| Deferred tax assets                                              |       | 131,305                 |       |                        | 136,925    |   |   |
| Total current assets                                             |       | 2,384,185               |       |                        | 1,989,501  |   |   |
| Property, plant and  equipment, net                              |       | 1,742,651               |       |                        | 1,610,593  |   |   |
| Long-term  investments                                           |       | 617,197                 |       |                        | 673,540    |   |   |
| Note receivable—related  party                              |       | —                  |       |                        | 7,290      |   |   |
| Goodwill, net                                                    |       | 1,299,940               |       |                        | 1,298,781  |   |   |
| Other intangible assets,  net                                    |       | 1,420,481               |       |                        | 1,492,038  |   |   |
| Deferred tax assets—noncurrent                              |       | 54,401                  |       |                        | —     |   |   |
| Investments in equity  securities                                |       | 76,975                  |       |                        | 66,563     |   |   |
| Other noncurrent assets                                          |       | 59,035                  |       |                        | 52,882     |   |   |
| Total assets                                                     |       | $                       | 7,654,865  |                        |       | $ | 7,191,188 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                   |       |                    |       |                        |       |   |   |
| Current liabilities:                                             |       |                    |       |                        |       |   |   |
| Accounts payable                                                 |       | $                       | 88,555     |                        |       | $ | 98,063 |   |   |
| Accrued expenses                                                 |       | 596,976                 |       |                        | 477,442    |   |   |
| Income taxes payable                                             |       | 5,605                   |       |                        | 54,853     |   |   |
| Deferred revenue and  other income                               |       | 12,828                  |       |                        | 14,855     |   |   |
| Current portion of long-term  debt and capital lease obligations |       | 6,413                   |       |                        | 6,226      |   |   |
| Total current  liabilities                                       |       | 710,377                 |       |                        | 651,439    |   |   |
| Long-term debt and  capital lease obligations                    |       | 116,388                 |       |                        | 119,803    |   |   |
| Convertible notes                                                |       | 690,000                 |       |                        | 690,000    |   |   |
| Deferred  revenue—noncurrent                                |       | 6,797                   |       |                        | 6,675      |   |   |
| Deferred tax liabilities                                         |       | —                  |       |                        | 10,909     |   |   |
| Other noncurrent  liabilities                                    |       | 52,883                  |       |                        | 51,651     |   |   |
| Total liabilities                                                |       | 1,576,445               |       |                        | 1,530,477  |   |   |
| Commitments and contingencies                                    |       |                    |       |                        |       |   |   |
| Stockholders’ equity:                                       |       |                    |       |                        |       |   |   |
| Preferred stock, $0.01  par value                                |       | —                  |       |                        | —     |   |   |
| Common stock, $0.01 par  value                                   |       | 2,637                   |       |                        | 2,630      |   |   |
| Additional paid-in  capital                                      |       | 5,229,943               |       |                        | 5,106,274  |   |   |
| Notes receivable from  stockholders                              |       | (15,362                 | )          |                        | (15,057    | ) |   |
| Accumulated earnings                                             |       | 588,503                 |       |                        | 312,659    |   |   |
| Accumulated other  comprehensive income                          |       | 272,699                 |       |                        | 254,205    |   |   |
| Total stockholders’  equity                                 |       | 6,078,420               |       |                        | 5,660,711  |   |   |
| Total liabilities and stockholders’ equity                  |       | $                       | 7,654,865  |                        |       | $ | 7,191,188 |   |   |

 

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

8

----

**GENZYME CORPORATION AND SUBSIDIARIESConsolidated Statements of Cash Flows(Unaudited, amounts in thousands)**

| ** **                                                                                                                | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| **Cash Flows from Operating Activities:**                                                                                 |       |                                          |       |   |   |
| Net income                                                                                                                |       | $                                             | 241,981    |   | $ | 235,471 |   |
| Reconciliation of net income to cash flows from  operating activities:                                                    |       |                                          |       |   |   |
| Depreciation and  amortization                                                                                            |       | 162,827                                       |       | 165,356 |   |
| Stock-based  compensation                                                                                                 |       | 102,023                                       |       | 115,550 |   |
| Provision for bad debts                                                                                                   |       | 4,569                                         |       | 3,893 |   |
| Equity in income of  equity method investments                                                                            |       | (11,557                                       | )          | (6,100 | ) |
| Minority interest                                                                                                         |       | (3,927                                        | )          | (5,196 | ) |
| Gains on investments in  equity securities, net                                                                           |       | (12,931                                       | )          | (74,909 | ) |
| Deferred income tax  benefit                                                                                              |       | (55,026                                       | )          | (65,154 | ) |
| Tax benefit from employee  stock-based compensation                                                                       |       | 8,349                                         |       | 11,432 |   |
| Excess tax benefits from  stock-based compensation                                                                        |       | (565                                          | )          | (4,659 | ) |
| Other                                                                                                                     |       | 3,048                                         |       | (1,460 | ) |
| Increase (decrease) in  cash from working capital changes (excluding impact of acquired assets and  assumed liabilities): |       |                                          |       |   |   |
| Accounts receivable                                                                                                       |       | (71,660                                       | )          | (56,826 | ) |
| Inventories                                                                                                               |       | (47,312                                       | )          | (29,390 | ) |
| Prepaid expenses  and other current assets                                                                                |       | (1,589                                        | )          | 3,218 |   |
| Income taxes  payable                                                                                                     |       | (11,496                                       | )          | 94,287 |   |
| Accounts payable,  accrued expenses and deferred revenue                                                                  |       | 69,434                                        |       | (25,348 | ) |
| Cash flows from  operating activities                                                                                     |       | 376,168                                       |       | 360,165 |   |
| **Cash Flows from Investing Activities:**                                                                                 |       |                                          |       |   |   |
| Purchases of investments                                                                                                  |       | (412,067                                      | )          | (464,132 | ) |
| Sales and maturities of  investments                                                                                      |       | 496,986                                       |       | 396,460 |   |
| Purchases of equity  securities                                                                                           |       | (19,945                                       | )          | (5,277 | ) |
| Proceeds from sales of  investments in equity securities                                                                  |       | 19,277                                        |       | 38,558 |   |
| Purchases of property,  plant and equipment                                                                               |       | (180,041                                      | )          | (156,406 | ) |
| Distributions from equity  method investments                                                                             |       | 10,900                                        |       | 12,000 |   |
| Purchases of other intangible  assets                                                                                     |       | (27,618                                       | )          | (43,109 | ) |
| Other                                                                                                                     |       | 891                                           |       | 3,132 |   |
| Cash flows from  investing activities                                                                                     |       | (111,617                                      | )          | (218,774 | ) |
| **Cash  Flows from Financing Activities:**                                                                                |       |                                          |       |   |   |
| Proceeds from issuance of  common stock                                                                                   |       | 68,174                                        |       | 57,080 |   |
| Repurchase of common stock                                                                                                |       | (63,430                                       | )          | — |   |
| Excess tax benefits from  stock-based compensation                                                                        |       | 565                                           |       | 4,659 |   |
| Payments of debt and  capital lease obligations                                                                           |       | (3,356                                        | )          | (1,971 | ) |
| Increase (decrease) in  bank overdrafts                                                                                   |       | 15,935                                        |       | (7,222 | ) |
| Minority interest  contributions                                                                                          |       | 4,136                                         |       | 5,232 |   |
| Other                                                                                                                     |       | 2,474                                         |       | 1,503 |   |
| Cash flows from  financing activities                                                                                     |       | 24,498                                        |       | 59,281 |   |
| Effect of exchange  rate changes on cash                                                                                  |       | 10,222                                        |       | 2,560 |   |
| Increase in cash  and cash equivalents                                                                                    |       | 299,271                                       |       | 203,232 |   |
| Cash and cash  equivalents at beginning of period                                                                         |       | 492,170                                       |       | 291,960 |   |
| Cash and cash  equivalents at end of period                                                                               |       | $                                             | 791,441    |   | $ | 495,192 |   |

 

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

9

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements**

**1.   Description ofBusiness**

We are a globalbiotechnology company dedicated to making a major impact on the lives of peoplewith serious diseases. Our broad product and service portfolio is focused onrare disorders, renal diseases, orthopaedics, transplant, and diagnostic andpredictive testing. We are organized into five financial reporting units, whichwe also consider to be our reporting segments:

·       Renal,which develops, manufactures and distributes products that treat patientssuffering from renal diseases, including chronic renal failure. The unitderives substantially all of its revenue from sales of Renagel (including salesof bulk sevelamer) and Hectorol;

·       Therapeutics,which develops, manufactures and distributes therapeutic products, with anexpanding focus on products to treat patients suffering from genetic diseasesand other chronic debilitating diseases, including a family of diseases knownas lysosomal storage disorders, or LSDs, and other specialty therapeutics, suchas Thyrogen. The unit derives substantially all of its revenue from sales ofCerezyme, Fabrazyme, Myozyme and Thyrogen;

·       Transplant,which develops, manufactures and distributes therapeutic products that addresspre-transplantation, prevention and treatment of rejection in organtransplantation and other auto-immune disorders. The unit derives substantiallyall of its revenue from sales of Thymoglobulin;

·       Biosurgery,which develops, manufactures and distributes biotherapeutics andbiomaterial-based products, with an emphasis on products that meet medicalneeds in the orthopaedics and broader surgical areas. The unit derivessubstantially all of its revenue from sales of Synvisc, the Sepra line ofproducts, Carticel and Matrix-induced Autologous Chondrocyte Implantation, orMACI; and

·       Genetics,which provides testing services for the oncology, prenatal and reproductivemarkets.

We report the activitiesof our diagnostic products, oncology, bulk pharmaceuticals and cardiovascularbusiness units under the caption “Other.” We report our corporate, general andadministrative operations and corporate science activities under the caption “Corporate.”

**2.   Basis ofPresentation and Significant Accounting Policies**

***Basis of Presentation***

Our unaudited, consolidated financial statements foreach period include the statements of operations and comprehensive income,balance sheets and statements of cash flows for our operations taken as awhole. We have eliminated all intercompany items and transactions inconsolidation. We have reclassified certain 2006 data to conform to our 2007presentation. We prepare our unaudited, consolidated financial statementsfollowing the requirements of the SEC for interim reporting. As permitted underthese rules, we condense or omit certain footnotes and other financialinformation that are normally required by accounting principles generallyaccepted in the United States.

These financial statementsinclude all normal and recurring adjustments that we consider necessary for thefair presentation of our financial position and results of operations. Sincethese are interim financial statements, you should also read our audited,consolidated financial statements and notes included in our 2006 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 notbe indicative of results for future periods.

10

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**2.**   Basis of Presentation and Significant Accounting Policies(Continued)

Our unaudited,consolidated financial statements for each period include the accounts of ourwholly owned and majority owned subsidiaries. As a result of our adoption of FIN46R, “Consolidation of Variable Interest Entities,” we also consolidate certainvariable interest entities for which we are the primary beneficiary. Forconsolidated subsidiaries in which we have less than a 100% interest, we recordminority interest in our consolidated statements of operations for theownership interest of the minority owner. We use the equity method ofaccounting to account for our investments in entities in which we have a substantialownership interest (20% to 50%) which do not fall in the scope of FIN 46R, orover which we exercise significant influence. Our consolidated net incomeincludes our share of the earnings of these entities.

***Income Taxes***

Effective January 1,2007, we adopted the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASBStatement No. 109,” which clarifies the accounting for income taxpositions by prescribing a minimum recognition threshold that a tax position isrequired to meet before being recognized in the financial statements. FIN 48also provides guidance on the derecognition of previously recognized deferredtax items, measurement, classification, interest and penalties, accounting ininterim periods, disclosure and transition. Under FIN 48, we recognize thetax benefit from an uncertain tax position only if it is more likely than notthat the tax position will be sustained upon examination by the taxingauthorities, based on the technical merits of the tax position. The taxbenefits recognized in our financial statements from such a position are measuredbased on the largest benefit that has a greater than 50% likelihood of beingrealized upon ultimate resolution. For more information regarding the impactthe adoption of FIN 48 had on our results of operations, financial conditionand liquidity, see Note 13., “Provision for Income Taxes,” included in thisreport.

***Recent Accounting Pronouncements***

*FAS 157,“Fair Value Measurements.”**  *InSeptember 2006, the FASB issued FAS 157, “Fair Value Measurements,”which provides enhanced guidance for using fair value to measure assets andliabilities. FAS 157 establishes a common definition of fair value,provides a framework for measuring fair value under accounting principlesgenerally accepted in the United States and expands disclosure requirementsregarding fair value measurements. FAS 157 will be effective for us as of January 1,2008. We are currently evaluating the impact, if any, the adoption ofFAS 157 will have on our financial position and results of operations.

*FAS 159, “The Fair ValueOption for Financial Assets and Financial Liabilities—Including an Amendment ofFASB Statement No. 115.”*   InFebruary 2007, the FASB issued FAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Includingan Amendment of FASB Statement No. 115,” which permits, but doesnot require, entities to measure certain financial instruments and other assetsand liabilities at fair value on an instrument-by-instrument basis. Unrealizedgains and losses on items for which the fair value option has been elected shouldbe recognized in earnings at each subsequent reporting date. FAS 159 will beeffective for us as of January 1, 2008 and cannot be adopted early unlessFAS 157 is also adopted. We are currently evaluating the impact, if any,the adoption of FAS 159 may have on our financial position and results ofoperations.

11

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**3.   Stockholders’Equity**

***Stock Repurchase***

In May 2007, our board of directors authorized astock repurchase program to repurchase up to an aggregate maximum amount of$1.5 billion or 20,000,000 shares of our outstanding common stock over the nextthree years. The repurchases are being made from time to time and can beeffectuated through open market purchases, privately negotiated transactions,transactions structured through investment banking institutions, or by othermeans, subject to management’s discretion and as permitted by securities lawsand other legal requirements. In June 2007, we repurchased a total of968,485 shares of our common stock at an average price of $65.48 per share for$63.4 million of cash, including fees. We recorded the purchases in ourconsolidated balance sheet as of June 30, 2007 as a reduction to our commonstock account for the par value of the repurchased shares and as a reduction toour additional paid-in capital account in accordance with the provisions of theMassachusetts Business Corporation Act, or MBCA.

In July 2004, the MBCA became effective andeliminated the concept of treasury shares. Under the MBCA, shares repurchasedby Massachusetts corporations constitute authorized but unissued shares.

During the period fromJuly 1, 2007 to August 7, 2007 we repurchased 1,840,253 additional shares ofour common stock at an average price of $63.98 per share for $117.8 million ofcash, including fees. These additional repurchases will be reflected in ourconsolidated balance sheet as of September 30, 2007.

***Equity Plans***

At our annual meeting of shareholders held onMay 24, 2007, which we refer to as our 2007 Annual Meeting, ourshareholders approved the merger ofour 1997 Equity Incentive Plan into our 2004 Equity Incentive Plan andauthorized an increase of 3,500,000 shares for issuance under our 2004 EquityIncentive Plan. Our 2004 Equity Incentive Plan authorizes the issuanceof stock options, restricted stock and restricted stock units, or RSUs. Webegan issuing RSUs under our 2004 Equity Incentive Plan in connection with a generalgrant to employees in May 2007.

Our 1998 Director StockOption Plan was due to expire in March 2008. On February 28, 2007,our board of directors approved our 2007 Director Equity Plan which was createdto amend, restate and replace our 1998 Director Stock Option Plan. At our 2007Annual Meeting, our shareholders also approved the 2007 Director Equity Plan.Similar to our 2004 Equity Incentive Plan, our 2007 Director Equity Plan authorizesthe issuance of stock options, restricted stock and RSUs to our directors.

***Employee Stock Purchase Plan***

At our 2007 AnnualMeeting, our shareholders approved an increase of 1,500,000 shares authorizedfor issuance under our 1999 Employee Stock Purchase Plan.

12

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**3.**   Stockholders’ Equity (Continued)

***Stock-Based Compensation Expense, Net of EstimatedForfeitures***

We allocatepre-tax stock-based compensation expense, net of estimated forfeitures, basedon the functional cost center of each employee as follows (amounts inthousands, except per share amounts):
|                                                                                      | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months  Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                           | ** ** | **2007**                                        | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| Pre-tax  stock-based compensation expense, net of estimated forfeitures charged  to: |       |                                            |       |                                                |       |   |   |   |   |
| Cost of products and services sold(1)                                                |       | $                                               | (6,865     | )                                                   | $          | (4,927 | ) | $ | (12,761 | ) | $ | (7,230 | ) |
| Selling, general and administrative expense                                          |       | (35,248                                         | )          | (52,692                                             | )          | (57,747 | ) | (72,139 | ) |
| Research and development expense                                                     |       | (19,143                                         | )          | (25,269                                             | )          | (31,455 | ) | (36,126 | ) |
| Total                                                                                |       | (61,256                                         | )          | (82,888                                             | )          | (101,963 | ) | (115,495 | ) |
| Less: tax benefit  from stock options                                                |       | 18,703                                          |       | 27,577                                              |       | 31,135 |   | 37,925 |   |
| Total stock-based compensation expense, net of  tax              |       | $                                               | (42,553    | )                                                   | $          | (55,311 | ) | $ | (70,828 | ) | $ | (77,570 | ) |
| Per basic share                                                                      |       | $                                               | (0.16      | )                                                   | $          | (0.21 | ) | $ | (0.27 | ) | $ | (0.30 | ) |
| Per diluted share                                                                    |       | $                                               | (0.15      | )                                                   | $          | (0.20 | ) | $ | (0.25 | ) | $ | (0.28 | ) |

----

(1)   We alsocapitalized the following amounts of stock-based compensation expense toinventory, all of which is attributable to participating employees that supportour manufacturing operations (amounts in thousands):

| ** **                                                 | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                 | ** ** | **   2007   **    | ** ** | **   2006   **  | ** ** | **2007** | ** ** | **2006** | ** ** |
| Stock-based  compensation expense capitalized to inventory |       |                                            | $4,957     |                                          |       |   | $ | 5,533 |   |   | $7,839 |   | $ | 8,263 |   |
|                                                            |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |  |  |

 

In July2006, we began amortizing stock-based compensation expense capitalized toinventory based on inventory turns.

At June 30, 2007,there was $325.9 million of pre-tax stock-based compensation expense, netof estimated forfeitures, related to unvested awards not yet recognized whichare expected to be recognized over a weighted average period of 2.5 years.

13

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**4.   Net Income PerShare**

Thefollowing table sets forth our computation of basic and diluted net income pershare (amounts in thousands, except per share amounts):

| ** **                                                                                                  | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net income—basic                                                                                       |       | $                                               | 83,794     |                                          | $          | 134,497 |   | $ | 241,981 |   | $ | 235,471 |   |
| Effect of dilutive  securities:                                                                             |       |                                            |       |                                          |       |   |   |   |   |
| Interest expense and debt fee amortization, net of  tax, related to our 1.25% convertible senior notes |       | 1,887                                           |       | 1,874                                         |       | 3,772 |   | 3,748 |   |
| Net  income—diluted                                                                                    |       | $                                               | 85,681     |                                          | $          | 136,371 |   | $ | 245,753 |   | $ | 239,219 |   |
| Shares used in computing net income per common  share—basic                                            |       | 263,911                                         |       | 260,444                                       |       | 263,693 |   | 260,076 |   |
| Effect of dilutive  securities:                                                                             |       |                                            |       |                                          |       |   |   |   |   |
| Shares issuable upon the assumed conversion of  our 1.25% convertible senior notes                |       | 9,686                                           |       | 9,686                                         |       | 9,686 |   | 9,686 |   |
| Stock options(1)                                                                                            |       | 6,906                                           |       | 6,171                                         |       | 6,829 |   | 6,787 |   |
| Restricted stock units(2)                                                                                   |       | 50                                              |       | —                                        |       | 25 |   | — |   |
| Warrants and stock purchase rights                                                                          |       | 11                                              |       | 11                                            |       | 11 |   | 11 |   |
| Dilutive potential common shares                                                                            |       | 16,653                                          |       | 15,868                                        |       | 16,551 |   | 16,484 |   |
| Shares used in  computing net income per common share—diluted(1,2)                                     |       | 280,564                                         |       | 276,312                                       |       | 280,244 |   | 276,560 |   |
| Net income per common  share:                                                                               |       |                                            |       |                                          |       |   |   |   |   |
| Basic                                                                                                       |       | $                                               | 0.32       |                                          | $          | 0.52 |   | $ | 0.92 |   | $ | 0.91 |   |
| Diluted                                                                                                     |       | $                                               | 0.31       |                                          | $          | 0.49 |   | $ | 0.88 |   | $ | 0.86 |   |

----

(1)          We did not include thesecurities described in the following table in the computation of dilutedearnings per share because these securities were anti-dilutive during thecorresponding period (amounts in thousands):

| ** **                                            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                            | ** ** | **   2007   **    | ** ** | **   2006   **  | ** ** | **2007** | ** ** | **2006** | ** ** |
| Shares issuable  upon exercise of outstanding options |       |                                            | 15,053     |                                          |       |   | 11,457 |   |   | 14,268 |   | 9,660 |   |
|                                                       |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

(2)          Webegan issuing RSUs under our 2004 Equity Incentive Plan in connection with a generalgrant to employees in May 2007.

14

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**5.**   Mergersand Acquisitions

***Pending Acquisition of Bioenvision***

On May 29, 2007, weentered into an agreement and plan of merger with Bioenvision and Witchita BioCorporation, or Witchita Bio, one of our wholly owned subsidiaries, to acquireBioenvision in an all-cash transaction valued at $5.60 per outstanding commonshare and $11.20 per outstanding preferred share (plus accrued but unpaiddividends), or approximately $345 million in aggregate. Pursuant to the mergeragreement, on June 4, 2007, we and Witchita Bio commenced a cash tenderoffer to purchase all of the outstanding shares of Bioenvision common stock,par value $0.001 per share, including associated preferred stock purchaserights of Bioenvision, which we refer to as the Common Shares, at a purchaseprice of $5.60 per Common Share and to purchase all of the outstanding sharesof Bioenvision Series A Convertible Participating Preferred Stock, parvalue $0.001 per share, which we refer to as Series A Preferred Shares, ata purchase price of $11.20 per Series A Preferred Share (plus accrued butunpaid dividends). On July 10, 2007, we completed the tender offer andpurchased 8,398,098 Common Shares and 2,250,000 Series A Preferred Shares,or approximately 22% of the then outstanding shares of Bioenvision common stockon an as-converted basis, including 100% of the outstanding Series APreferred Shares. Each Series A Preferred Share can be converted intoapproximately two Common Shares, and also carries a separate class vote over severalcorporate matters, including any merger or sale of substantially all of theassets of Bioenvision and authorization of any additional shares of Bioenvisioncommon stock, as well as other features. In accordance with the terms of themerger agreement, Bioenvision will prepare a proxy statement to be mailed toits shareholders detailing the rationale for the merger and other materialdisclosures and calling a shareholder meeting to seek approval of the proposedmerger before the end of 2007.

***Acquisition of AnorMED***

In November 2006, weacquired AnorMED, a publicly-held chemical-based biopharmaceutical companybased in Langley, British Columbia, Canada, with a focus on the discovery,development and commercialization of new therapeutic products in the area ofhematology, oncology and human immunodeficiency virus, or HIV. We paid grossconsideration of $589.2 million in cash, including $584.2 million forthe shares of AnorMED’s common stock outstanding on the date of acquisition and$5.0 million for acquisition costs. Net consideration was$569.0 million as we acquired AnorMED’s cash and cash equivalents totaling$20.2 million. We accounted for the acquisition as a business combination andaccordingly, included AnorMED’s results of operations in our consolidatedstatements of operations from November 7, 2006, the date of acquisition.

15

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**5.**   Mergers and Acquisitions (Continued)

The purchase price wasallocated to the estimated fair value of the acquired tangible and intangibleassets and assumed liabilities as follows (amounts in thousands, except sharedata):

| Purchase of  43,272,085 shares of AnorMED common stock   |   | $       | 584,173 |   |
|----------------------------------------------------------|--------|---------|---------|--------|
| Acquisition costs                                        |   | 5,000   |    |
| Total purchase  price                                    |   | $       | 589,173 |   |
| Cash and cash equivalents                                |   | $       | 20,220  |   |
| Other current  assets                                    |   | 6,340   |    |
| Property, plant  and equipment                           |   | 758     |    |
| Goodwill                                                 |   | 31,703  |    |
| Other intangible  assets (to be amortized over 10 years) |   | 3,500   |    |
| In-process  research and development                     |   | 552,900 |    |
| Deferred tax  assets—noncurrent                     |   | 27,380  |    |
| Other noncurrent  assets                                 |   | 573     |    |
| Assumed  liabilities:                                    |   |    |    |
| Deferred tax liability                                   |   | (25,288 | )       |
| Liabilities for exit activities                          |   | (7,733  | )       |
| Other liabilities                                        |   | (21,180 | )       |
| Allocated purchase price                                 |   | $       | 589,173 |   |

 

The allocation ofpurchase price was adjusted in 2007 to:

·       writeoff $2.1 million of fixed assets associated with the acquisition;

·       revisethe estimated liabilities related to exit activities by $1.2 million; and

·       adjustthe deferred taxes by $(0.7) million.

The purchase price, as adjusted, was allocated to thetangible and intangible assets acquired and liabilities assumed based on theirestimated fair values at the date of acquisition. The excess of the purchaseprice over the estimated fair value of the assets acquired and liabilitiesassumed amounted to $31.7 million, which was allocated to goodwill. Weexpect that substantially all of the amount allocated to goodwill will bedeductible for tax purposes.

The allocation of purchaseprice remains subject to potential adjustments, including adjustments forliabilities associated with certain exit activities and tax restructuringactivities.

***Acquisition of Synvisc Sales and Marketing Rights fromWyeth***

In January 2005, we consummated an arrangementwith Wyeth under which we reacquired the sales and marketing rights to Synviscin the United States and certain European countries. In exchange for the salesand marketing rights, we made up-front payments totaling $127.0 million incash to Wyeth and have also accrued contingent royalty payments to Wyethtotaling $142.1 million, of which $139.4 million had been paid as of June 30,2007. Distribution rights (a component of other intangible assets, net) in ourconsolidated balance sheets as of June 30, 2007, includes a total of$270.4 million for the initial and contingent royalty payments (made oraccrued) as of that date. We will make a series of additional 

16

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**5.**   Mergers and Acquisitions (Continued)

contingent royalty andmilestone payments to Wyeth based on the volume of Synvisc sales in the coveredterritories. These contingent royalty and milestone payments could extend outto June 2012, or could total a maximum of $298.2 million, whichevercomes first.

The reacquired Synviscdistribution rights qualify as an asset rather than an acquired business. As aresult, we do not provide pro forma results for this transaction.

***In-Process Research and Development***

In connection with five of our acquisitions since2004, we have acquired various IPR&D projects. Substantial additionalresearch and development will be required prior to any of our acquiredIPR&D programs and technology platforms reaching technological feasibility.In addition, once research is completed, each product candidate acquired willneed to complete a series of clinical trials and receive FDA or otherregulatory approvals prior to commercialization. Our current estimates of thetime and investment required to develop these products and technologies maychange depending on the different applications that we may choose to pursue. Wecannot give assurances that these programs will ever reach technologicalfeasibility or develop into products that can be marketed profitably. Inaddition, we cannot guarantee that we will be able to develop and commercializeproducts before our competitors develop and commercialize products for the sameindications. If products based on our acquired IPR&D programs andtechnology platforms do not become commercially viable, our results ofoperations could be materially adversely affected.

Thefollowing table sets forth IPR&D projects for companies and certain assetswe have acquired since 2004 (amounts in millions):
| Company/Assets Acquired | ** ** | ** ** | ** ** | **Purchase  Price** | ** ** | **IPR&D(1)** | ** ** | **Programs Acquired** | ** ** | **Discount Rate  Used in  Estimating  Cash  Flows(1)** | ** ** | **Year of  Expected  Launch ** | ** ** |
|------------------------------|------------|------------|------------|---------------------|------------|------------------|------------|----------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------|------------|
| AnorMED (2006)               |       |       | $          | 589.2               |       |             |       | $                          | 526.8      |                                                             |       | Mozobil (stem cell transplant)           |       |   | 15% |   |   | 2008-2013 |   |
|                         |       |       |       |                |       |             | 26.1       |                       |       | AMD070  (HIV)(2)                                                 |       |                                     | 15%        |   |   | — |   |
|                         |       |       |       |                |       |             | $          | 552.9                      |       |                                                             |       |                                     |       |   |   |   |   |   |
| Avigen (2005)                |       |       | $          | 12.0                |       |             |       | $                          | 7.0        |                                                             |       | AV201 (Parkinson’s disease)         |       |   | N/A |   |   | 2016 |   |
| Bone Care (2005)             |       |       | $          | 712.3               |       |             |       | $                          | 12.7       |                                                             |       | LR-103 (secondary hyperparathyroidism)   |       |   | 25% |   |   | 2012 |   |
| Verigen (2005)               |       |       | $          | 12.7                |       |             |       | $                          | 9.5        |                                                             |       | MACI (cartilage repair)                  |       |   | 24% |   |   | 2012-2014 |   |
| ILEX Oncology (2004)         |       |       | $          | 1,080.3             |       |             |       | $                          | 96.9       |                                                             |       | Campath                                  |       |   | 11% |   |   | 2009-2011 |   |
|                         |       |       |       |                |       |             | 113.4      |                       |       | Clolar                                                           |       |                                     | 12%        |   |   | 2008-2011 |   |
|                         |       |       |       |                |       |             | 44.2       |                       |       | Tasidotin                                                        |       |                                     | 16%        |   |   | 2011-2014 |   |
|                         |       |       |       |                |       |             | $          | 254.5                      |       |                                                             |       |                                     |       |   |   |   |   |   |

----

(1)    Managementassumes responsibility for determining the valuation of the acquired IPR&Dprojects. The fair value assigned to IPR&D for each acquisition isestimated by discounting, to present value, the cash flows expected once theacquired projects have reached technological feasibility. The cash flows areprobability-adjusted to reflect the risks of advancement through the productapproval process. In estimating the future cash flows, we also considered thetangible and intangible assets required for successful exploitation of thetechnology resulting from the purchased IPR&D projects and adjusted futurecash flows for a charge reflecting the contribution to value of these assets.

(2)    Year of expected launch is not provided for AMD070 atthis time because we are assessing our future plans for this program.

17

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**5.**   Mergers and Acquisitions (Continued)

***Exit Activities***

Inconnection with several of our acquisitions, we initiated integration plans toconsolidate and restructure certain functions and operations, including therelocation and termination of certain personnel of these acquired entities andthe closure of certain of the acquired entities’ leased facilities. These costshave been recognized as liabilities assumed in connection with the acquisitionof these entities in accordance with Emerging Issues Task Force, or EITF, IssueNo. 95-3, “Recognition of Liabilities in Connection with a Purchaseor Business Combination,” and are subject to potential adjustments as certainexit activities are confirmed or refined. The following table summarizes theliabilities established for exit activities related to these acquisitions(amounts in thousands):

| ** **                         | ** ** | **Employee  Related  Benefits** | ** ** | **Closure of  Leased  Facilities** | ** ** | **Other  Exit  Activities** | ** ** | **Total  Exit  Activities** | ** ** |
|------------------------------------|------------|---------------------------------|------------|-----------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Balance at  December 31, 2005 |       |                            | $          | 2,249                                   |       |                        |       | $                           | 199        |   |   |   | $ | 8,117 |   |   | $ | 10,565 |   |
| Acquisition(1)                     |       |                            | 6,478      |                                    |       |                        | —     |                        |       |   | — |   |   | 6,478 |   |
| Revision of estimates              |       |                            | (165       | )                                       |       |                        | (132       | )                           |       |   | (750 | ) |   | (1,047 | ) |
| Payments                           |       |                            | (2,457     | )                                       |       |                        | (43        | )                           |       |   | (7,367 | ) |   | (9,867 | ) |
| Balance at  December 31, 2006 |       |                            | 6,105      |                                    |       |                        | 24         |                        |       |   | — |   |   | 6,129 |   |
| Revision of estimates              |       |                            | (75        | )                                       |       |                        | 1,307      |                        |       |   | — |   |   | 1,232 |   |
| Payments                           |       |                            | (4,421     | )                                       |       |                        | —     |                        |       |   | — |   |   | (4,421 | ) |
| Balance at June 30,  2007     |       |                            | $          | 1,609                                   |       |                        |       | $                           | 1,331      |   |   |   | $ | — |   |   | $ | 2,940 |   |

----

(1)          Weexpect to pay employee related benefits related to the acquisition of AnorMEDthrough 2008.

***Pro Forma Financial Summary***

Thefollowing pro forma financial summary is presented as if the acquisition ofAnorMED was completed as of January 1, 2006. These pro forma combinedresults are not necessarily indicative of the actual results that would haveoccurred had the acquisition been consummated on that date, or of the futureoperations of the combined entities. Material nonrecurring charges related tothe acquisition of AnorMED, such as IPR&D charges of $552.9 million,are included in the following pro forma financial summary as of January 1,2006 (amounts in thousands, except per share amounts):

| ** **                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | **June 30, 2006**      | ** ** | **June 30, 2006**    | ** ** |
| Total revenues                        |       |                             | $          | 793,360                        |       |   |   | $ | 1,524,436 |   |   |
| Net income (loss)                     |       |                             | $          | 124,308                        |       |   |   | $ | (186,054 | ) |   |
| Net income (loss)  per share:         |       |                             |       |                           |       |   |   |   |   |
| Basic                                 |       |                             | $          | 0.48                           |       |   |   | $ | (0.72 | ) |   |
| Diluted                               |       |                             | $          | 0.46                           |       |   |   | $ | (0.72 | ) |   |
| Weighted average shares  outstanding: |       |                             |       |                           |       |   |   |   |   |
|  

Basic                         |       |                             | 260,444    |                           |       |   | 260,076 |   |   |
| Diluted                               |       |                             | 276,312    |                           |       |   | 260,076 |   |   |

 

18

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**6.   Inventories**

| ** **      | ** ** | **June 30,  2007**              | ** ** | **December 31,  2006** | ** ** |
|-----------------|------------|--------------------------------------|------------|-----------------------------|------------|
| ** **      | ** ** | **(Amounts in thousands)** | ** ** |
| Raw materials   |       | $                                    | 126,613    |                        |       | $ | 100,698 |   |   |
| Work-in-process |       | 121,573                              |       |                        | 119,510    |   |   |
| Finished goods  |       | 183,424                              |       |                        | 154,436    |   |   |
| Total           |       | $                                    | 431,610    |                        |       | $ | 374,644 |   |   |

 

We capitalize inventory produced for commercial sale,which may result in the capitalization of inventory prior to regulatoryapproval of a product. If a product is not approved for sale, it would resultin the write off of the inventory and a charge to earnings. Our totalinventories at June 30, 2007 included $13.4 million of inventory for Renvelathat has not yet been approved for sale.

Currently, we have fourlots of Thymoglobulin finished goods inventory, valued at approximately $12 million,which we consider to be inventory at risk. We placed these lots on hold pendinginvestigation and resolution of out of trend assay results we observed duringquality testing. We anticipate completing our assessment of these lots duringthe second half of 2007. If we determine that any of these four lots do notmeet the specifications for saleable product, we will have to write off theinventory for that lot as a charge to earnings.

**7.**   Goodwilland Other Intangible Assets

***Goodwill***

Thefollowing table contains the change in our net goodwill during the six monthsended June 30, 2007 (amounts in thousands):

| ** **    | ** ** | **December 31,  2006** | ** ** | **Adjustments** | ** ** | **June 30,  2007** | ** ** |
|---------------|------------|-----------------------------|------------|-----------------|------------|-------------------------|------------|
| Renal(1)      |       |                        | $          | 305,528         |       |                    |       | $ | (1,577 | ) |   | $ | 303,951 |   |
| Therapeutics  |       |                        | 354,709    |            |       |                    | —     |   |   | 354,709 |   |
| Transplant(2) |       |                        | 157,591    |            |       |                    | 2,563      |   |   | 160,154 |   |
| Biosurgery    |       |                        | 7,585      |            |       |                    | —     |   |   | 7,585 |   |
| Other(3)      |       |                        | 473,368    |            |       |                    | 173        |   |   | 473,541 |   |
| Net goodwill  |       |                        | $          | 1,298,781       |       |                    |       | $ | 1,159 |   |   | $ | 1,299,940 |   |

----

(1)          The adjustments togoodwill for Renal include adjustments associated with the acquisition of BoneCare International, Inc. or Bone Care.

(2)          The adjustment togoodwill for Transplant includes purchase accounting adjustments from the November 2006acquisition of AnorMED. We recorded $2.6 million of adjustments to thegoodwill associated with AnorMED, primarily due to $2.1 million to writeoff fixed assets associated with the acquisition and $1.2 million ofrevisions to the estimates of liabilities related to exit activities, offset by$(0.7) million to adjust deferred taxes.

(3)          The adjustments to Othergoodwill primarily include contingent payments related to our acquisition ofEqual Diagnostics, Inc. in July 2005 and foreign currency revaluationadjustments for goodwill denominated in foreign currencies.

19

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**7.**   Goodwill and Other Intangible Assets (Continued)

***Other Intangible Assets***

Thefollowing table contains information about our other intangible assets for theperiods presented (amounts in thousands):

| ** **              | ** ** | **June 30, 2007**          | ** ** | **December 31, 2006** | ** ** |
|-------------------------|------------|--------------------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | **Gross  Other  Intangible  Assets** | ** ** | **Accumulated  Amortization**   | ** ** | **Net  Other  Intangible  Assets** | ** ** | **Gross  Other  Intangible  Assets** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Other  Intangible  Assets** | ** ** |
| Technology              |       | $                                    | 1,506,121  |                            |       | $ | (483,169 | ) |   | $ | 1,022,952 |   | $ | 1,505,748 |   |   | $ | (424,650 | ) |   | $ | 1,081,098 |   |
| Patents                 |       | 194,560                              |       |                            | (95,738    | ) |   | 98,822 |   | 194,560 |   |   | (87,063 | ) |   | 107,497 |   |
| Trademarks              |       | 60,227                               |       |                            | (34,109    | ) |   | 26,118 |   | 60,227 |   |   | (31,439 | ) |   | 28,788 |   |
| License fees(1)         |       | 79,928                               |       |                            | (24,345    | ) |   | 55,583 |   | 77,807 |   |   | (20,597 | ) |   | 57,210 |   |
| Distribution  rights(2) |       | 285,548                              |       |                            | (107,300   | ) |   | 178,248 |   | 260,073 |   |   | (85,543 | ) |   | 174,530 |   |
| Customer lists(3)       |       | 67,083                               |       |                            | (29,010    | ) |   | 38,073 |   | 90,783 |   |   | (48,760 | ) |   | 42,023 |   |
| Other                   |       | 2,048                                |       |                            | (1,363     | ) |   | 685 |   | 2,045 |   |   | (1,153 | ) |   | 892 |   |
| Total                   |       | $                                    | 2,195,515  |                            |       | $ | (775,034 | ) |   | $ | 1,420,481 |   | $ | 2,191,243 |   |   | $ | (699,205 | ) |   | $ | 1,492,038 |   |

----

(1)          Includes a $2.5 millionmilestone payment to Synpac in June 2007 for the approval of Myozyme inJapan.

(2)          Includes an additional$24.8 million of intangible assets resulting from additional payments madeor accrued in 2007 in connection with our reacquisition of the Synvisc salesand marketing rights in several countries from Wyeth in January 2005.

(3)          Reflects the write off,during the first quarter of 2007, of $23.7 million of fully amortized customerlists, related to our acquisition of Bone Care in July 2005.

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

·       $49.5 millionfor the three months ended June 30, 2007;

·       $52.9 millionfor the three months ended June 30, 2006;

·       $99.5 millionfor the six months ended June 30, 2007; and

·       $105.6 millionfor the six months ended June 30, 2006.

20

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**7.**   Goodwill and OtherIntangible Assets (Continued)

The estimated futureamortization expense for other intangible assets for the remainder of fiscalyear 2007, the four succeeding fiscal years and thereafter is as follows(amounts in thousands):

| **Year ended December 31,** | ** ** | ** ** | ** ** | **Estimated  Amortization  Expense(1)** | ** ** |
|--------------------------------------------|------------|------------|------------|-----------------------------------------|------------|
| 2007 (remaining  six months)               |       |       | $          | 98,974                                  |       |   |
| 2008                                       |       |       | 207,465    |                                    |       |
| 2009                                       |       |       | 214,921    |                                    |       |
| 2010                                       |       |       | 228,038    |                                    |       |
| 2011                                       |       |       | 236,585    |                                    |       |
| Thereafter                                 |       |       | 617,284    |                                    |       |

----

(1)          Includesestimated future amortization expense for the Synvisc distribution rights basedon the forecasted future sales of Synvisc and the resulting future contingentpayments we will be required to make to Wyeth, and for the Myozyme patent andtechnology rights pursuant to a license agreement with Synpac based onforecasted future sales of Myozyme and the milestone payments we will berequired to make to Synpac related to regulatory approvals. These contingentpayments will be recorded as intangible assets when the payments are accrued. Estimatedfuture amortization expense also includes estimated amortization expense forother arrangements involving contingent payments.

**8.**   Investmentsin Equity Securities

Werecorded the following gains on investments in equity securities, net ofcharges for impairment of investments, for the three and six months ended June 30,2007 and 2006 (amounts in thousands):

| ** **                                         | ** ** | **Three Months Ended  June 30,**          | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------|------------|----------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                         | ** ** | **    2007    ** | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Gross gains on  investments in equity securities:  |       |                                                     |       |                                          |       |   |   |   |   |   |   |
| Therapeutic Human Polyclonals, Inc. (THP)     |       |                                                     | $          | —                                        |       |   | $ | — |   | $ | 10,848 |   | $ | — |   |
| Cambridge Antibody Technology Group plc (CAT) |       |                                                     | —     |                                          |       | 69,359 |   | — |   | 69,359 |   |
| BioMarin Pharmaceutical Inc. (BioMarin)            |       |                                                     | —     |                                          |       | — |   | — |   | 6,417 |   |
| Other                                              |       |                                                     | 143        |                                          |       | 501 |   | 2,083 |   | 2,026 |   |
| Total                                              |       |                                                     | 143        |                                          |       | 69,860 |   | 12,931 |   | 77,802 |   |
| Less: charges for  impairment of investments       |       |                                                     | —     |                                          |       | (2,893 | ) | — |   | (2,893 | ) |
| Gains on investments in  equity securities, net    |       |                                                     | $          | 143                                           |       |   | $ | 66,967 |   | $ | 12,931 |   | $ | 74,909 |   |

 

21

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**8.**   Investments in Equity Securities (Continued)

***Unrealized Gains (Losses)***

At June 30, 2007, ourstockholders’ equity included $17.7 million of unrealized gains and $0.1million of unrealized losses related to our investments in equity securities.

**9.**   Agreementswith and Note Receivable from Dyax Corp

***Agreements with Dyax Corp***

In 2003, we acquired a 49.99% interest in Dyax-GenzymeLLC, a joint venture with Dyax Corp, or Dyax, for the development of DX-88for hereditary angioedema, or HAE, and other chronic inflammatory diseases.

In February 2007, we agreed with Dyax toterminate our participation and interest in Dyax-Genzyme LLC effective February 20,2007. In connection with this termination, we made a capital contribution ofapproximately $17 million in cash to Dyax-Genzyme LLC and Dyax purchased ourinterest in the joint venture for 4.4 million shares of Dyax common stock,valued at $16.9 million, based on the closing price of Dyax common stockon February 23, 2007. Dyax now owns all of the assets of the jointventure, including worldwide rights to develop and commercialize DX-88.Pursuant to the termination agreement, we agreed to:

·       a5 year standstill period during which we will not acquire any additional sharesof Dyax;

·       notenter into any future licensing or collaboration arrangements for theprevention and or treatment of hereditary, acquired or drug-induced angioedemafor 2 years; and

·       negotiatein good faith a transitional services agreement for us to provide certainservices to Dyax, which we have entered into as of February 2007.

Prior to February 20,2007, in accordance with FIN 46R, “Consolidation of Variable Interest Entities,”we consolidated the assets related to Dyax-Genzyme LLC, which were notsignificant and consisted primarily of lab equipment, net of their associatedaccumulated depreciation. We also recorded Dyax’s portion of the joint venture’slosses as minority interest in our consolidated statements of operationsthrough February 20, 2007.

***Note Receivable from Dyax***

In May 2002, we extended to Dyax a $7.0 millionline of credit. Dyax issued a senior secured promissory note in the principalamount of $7.0 million to us under which it can request periodic advances ofnot less than $250,000 in principal, subject to certain conditions. Advancesunder this note were due, together with any accrued but unpaid interest, in May 2005.In May 2005, Dyax exercised its right to extend the maturity of the notefrom May 2005 to May 2007.

In August 2006, we amended our $7.0 millionsecured promissory note receivable from Dyax to extend the maturity date from May 2007to May 2010, eliminate the existing financial covenants and replace theoriginal collateral on the note with a letter of credit from a major bank for$7.2 million.

Priorto May 24, 2007, we considered Dyax to be a related party because thechairman and chief executive officer of Dyax was a member of our board ofdirectors. We recorded the principal and accrued interest due to us from Dyaxprior to May 24, 2007 as a note receivable—related party in our unaudited,

22

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**9.**   Agreements with and Note Receivable from Dyax Corp(Continued)

consolidated balance sheet. On May 24, 2007, theterm of this director expired and he decided not to stand for re-election, thusresigning from our board of directors. As a result, Dyax was no longerconsidered our related party and we recorded the principal and accrued interestdue to us from Dyax in other noncurrent assets in our unaudited, consolidatedbalance sheet. As of June 30, 2007, $7.2 million of principal and accruedinterest receivable remains due to us from Dyax under this note.

**10.**   JointVenture with BioMarin

We and BioMarinformed BioMarin/Genzyme LLC to develop and commercialize Aldurazyme, arecombinant form of the human enzyme alpha-L-iduronidase, used to treat an LSDknown as mucopolysaccharidosis I, or MPS I. We record our portion of the incomeof BioMarin/Genzyme LLC in equity in income of equity method investments in ourunaudited, consolidated statements of operations. Our portion ofBioMarin/Genzyme LLC’s net income was:

·       $6.5 millionfor the three months ended June 30, 2007, as compared to $4.6 millionfor the same period of 2006; and

·       $12.6 millionfor the six months ended June 30, 2007, as compared to $8.0 millionfor the same period of 2006.

During the six months ended June 30, 2007, wereceived $10.9 million of cash distributions from BioMarin/Genzyme LLC.

Condensed financialinformation for BioMarin/Genzyme LLC is summarized below (amounts inthousands):

| ** **          | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **          | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenue             |       | $                                               | 29,127     |                                          | $          | 23,530 |   | $ | 55,948 |   | $ | 44,862 |   |
| Gross margin        |       | 22,434                                          |       | 17,846                                        |       | 42,957 |   | 32,791 |   |
| Operating  expenses |       | (9,560                                          | )          | (8,729                                        | )          | (18,034 | ) | (17,099 | ) |
| Net income          |       | 13,016                                          |       | 9,261                                         |       | 25,237 |   | 15,994 |   |
|                     |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

**11.**   RevolvingCredit Facility

As of June 30, 2007,no amounts were outstanding under our five-year $350.0 million senior unsecuredrevolving credit facility with JPMorgan Chase Bank, N.A., as administrativeagent, Bank of America, N.A., as syndication agent, ABN AMRO Bank N.V.,Citizens Bank of Massachusetts and Wachovia Bank, National Association, asco-documentation agents, and a syndicate of lenders, which we refer to as our2006 revolving credit facility. The terms of our 2006 revolving credit facilityinclude various covenants, including financial covenants that require us tomeet minimum interest coverage ratios and maximum leverage ratios. As of June 30,2007, we were in compliance with these covenants.

23

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**12.**   OtherCommitments and Contingencies

***Legal Proceedings***

We periodically become subject to legal proceedingsand claims arising in connection with our business.

Through June 30, 2003, we had three outstandingseries of common stock, which we referred to as tracking stocks; GenzymeGeneral Stock (which we now refer to as Genzyme Stock), Biosurgery Stock andMolecular Oncology Stock. Four lawsuits have been filed against us regardingthe exchange of all of the outstanding shares of Biosurgery Stock for shares ofGenzyme Stock in connection with the elimination of our tracking stocks inJuly 2003. Each of the lawsuits is a purported class action on behalf ofholders of Biosurgery Stock. The first case, filed in the MSC in May 2003,alleged a breach of the implied covenant of good faith and fair dealing in ourcharter and a breach of our board of directors’ fiduciary duties. The plaintiffin this case sought an injunction to adjust the exchange ratio for the trackingstock exchange. The MSC dismissed the complaint in its entirety inNovember 2003. Upon appeal, the Massachusetts Appeals Court upheld the dismissalby the MSC of the fiduciary duty claim, but reversed the earlier decision todismiss the implied covenant claim. The Massachusetts Supreme Judicial Court(SJC) granted our petition for further appellate review. On June 4, 2007,the SJC reversed the Appeals Court’s decision and affirmed dismissal of thecomplaint in its entirety. On July 25, 2007, the SJC denied theplaintiff’s petition for rehearing. Two substantially similar cases were filedin the MSC in August and October 2003. These cases were consolidatedin January 2004, and in July 2004, the consolidated case was stayedpending disposition of a fourth case, which was filed in the U.S. DistrictCourt for the Southern District of New York in June 2003. As amended, thiscomplaint alleged violations of federal securities laws, as well as variousstate law claims, related to the exchange, on behalf of a certified class ofholders of Biosurgery Stock as of May 8, 2003. On August 6, 2007, wereached an agreement-in-principle with counsel for the plaintiff class tosettle and dismiss this case for approximately $64 million. This settlement issubject to the execution of a definitive settlement agreement and approval bythe court. Because the members of the class in the New York action will releaseall claims, we anticipate that the settlement will, as a practical matter,resolve the consolidated case that remains pending in the MSC. We havesubmitted claims to our insurers for reimbursement of portions of the expensesincurred and to be incurred in connection with these cases; the insurer haspurported to deny coverage. We intend to vigorously pursue our rights withrespect to insurance coverage. As a result, we have recorded a liability forthe settlement payment of approximately $64 million as a charge to selling,general and administrative expense, or SG&A, in our consolidated statementof operations in June 2007 and as an increase to accrued expenses in ourconsolidated balance sheet as of June 30, 2007.

We are not able to predictthe outcome of other legal proceedings, to which we may become subject in thenormal course of business or estimate the amount or range of any reasonablypossible loss we might incur if we do not prevail in the final, non-appealabledeterminations of such matters. Therefore, we have no current accruals forthese potential contingencies. We cannot provide you with assurance that otherlegal proceedings will not have a material adverse impact on our financialcondition or results of operations.

24

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**13.**   Provisionfor Income Taxes

| ** **                  | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                  | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                  | ** ** | **(Amounts in thousands)**            | ** ** |
| Provision for  income taxes |       | $                                               | 64,090     |                                          | $          | 60,002 |   | $ | 135,283 |   | $ | 105,371 |   |
| Effective tax rate          |       | 43                                              | %          | 31                                            | %          | 36 | % | 31 | % |
|                             |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

Our effective tax rate for all periods presentedvaries from the U.S. statutory tax rate as a result of:

·       ourprovision for state income taxes;

·       thetax benefits from export sales;

·       thetax benefits from domestic production activities;

·       benefitsrelated to tax credits;

·       incomeand expenses taxed at rates other than the U.S. statutory tax rate;

·       non-deductiblestock-based compensation expenses; and

·       non-deductibleexpenses associated with the settlement of litigation related to theconsolidation of our former tracking stocks.

Effective January 1, 2007, we adopted FIN 48 andrecognized a cumulative effect adjustment of $33.9 million to increase ourretained earnings balance as of January 1, 2007, which consisted of $25.8million to record the combined effect of our gain contingency and the change inthe recognition standard pursuant to the settlement criteria of FASB StaffPosition, or FSP, FIN 48-1, “Definition of *Settlement*inFASB Interpretation No. 48,” or FSP FIN 48-1, and $8.1 millionresulting from our settlement of the IRS audit for tax years 2002 to 2003.After these adjustments, as of January 1, 2007, we had approximately $36.5million of total gross unrealized tax benefits, of which approximately $26.6million represents the amount of unrecognized tax benefits that, if recognized,would favorably affect our effective income tax rate in future periods. Thesegross unrealized tax benefits did not change significantly during the sixmonths ended June 30, 2007.

We continue to recognize interest relating tounrecognized tax benefits within our provision for income taxes but have notrecorded any amounts related to potential penalties. The amount of accrued interestrelated to unrecognized tax benefits within our provision for income taxes forthe three and six months ended June 30, 2007, and our accruedinterest related to unrecognized tax benefits as of January 1, 2007 andJune 30, 2007 were not significant.

We are subject to U.S.federal income tax and various state, local and international income taxes innumerous jurisdictions, however, our only significant tax jurisdiction is theUnited States. We record liabilities for income tax contingencies based on our bestestimate of the underlying exposures. We are currently under IRS audit for taxyears 2004 to 2005, and in certain state and foreign jurisdictions from 2003forward. We believe that we have provided sufficiently for all audit exposuresand assessments. Settlement of these audits or the expiration of the statute oflimitations on the assessment of income taxes for any tax year may result in anincrease or reduction of future tax provisions. Any such tax or tax benefitwould be recorded upon final resolution of the audits or expiration of theapplicable statute of limitations.

25

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**14.**   SegmentInformation

In accordance with FAS 131, “Disclosures aboutSegments of an Enterprise and Related Information,” we present segmentinformation in a manner consistent with the method we use to report thisinformation to our management. Applying FAS 131, we have five reportingsegments as described in Note 1., “Description of Business,” to these consolidatedfinancial statements.

We have providedinformation concerning the operations in these reporting segments in thefollowing tables (amounts in thousands):

| ** **                          | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                          | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues:                           |       |                                            |       |                                          |       |   |   |   |   |
| Renal                               |       | $                                               | 172,249    |                                          | $          | 148,980 |   | $ | 337,926 |   | $ | 286,570 |   |
| Therapeutics                        |       | 464,749                                         |       | 373,362                                       |       | 894,266 |   | 718,995 |   |
| Transplant                          |       | 43,424                                          |       | 41,212                                        |       | 84,701 |   | 75,478 |   |
| Biosurgery                          |       | 107,889                                         |       | 102,401                                       |       | 206,282 |   | 192,937 |   |
| Genetics                            |       | 73,714                                          |       | 61,041                                        |       | 139,872 |   | 118,493 |   |
| Other                               |       | 70,994                                          |       | 66,309                                        |       | 152,852 |   | 131,631 |   |
| Corporate                           |       | 400                                             |       | 51                                            |       | 703 |   | 94 |   |
| Total                               |       | $                                               | 933,419    |                                          | $          | 793,356 |   | $ | 1,816,602 |   | $ | 1,524,198 |   |
| Income (loss)  before income taxes: |       |                                            |       |                                          |       |   |   |   |   |
| Renal                               |       | $                                               | 66,446     |                                          | $          | 42,273 |   | $ | 126,090 |   | $ | 74,071 |   |
| Therapeutics(1)                     |       | 278,981                                         |       | 251,032                                       |       | 566,331 |   | 481,986 |   |
| Transplant(2)                       |       | (8,929                                          | )          | 5,917                                         |       | (13,743 | ) | 10,351 |   |
| Biosurgery(2)                       |       | 16,294                                          |       | 13,198                                        |       | 26,051 |   | 17,248 |   |
| Genetics                            |       | 11,890                                          |       | (2,445                                        | )          | 15,632 |   | (4,216 | ) |
| Other                               |       | (13,305                                         | )          | (13,466                                       | )          | (18,749 | ) | (23,981 | ) |
| Corporate(3)                        |       | (203,493                                        | )          | (102,010                                      | )          | (324,348 | ) | (214,617 | ) |
| Total                               |       | $                                               | 147,884    |                                          | $          | 194,499 |   | $ | 377,264 |   | $ | 340,842 |   |

----

(1)          Includes a $25.0 millionupfront payment made to Ceregene, Inc., or Ceregene, in June 2007 inconnection with a collaboration agreement for the development andcommercialization of CERE-120, a gene therapy product for the treatment ofParkinson’s disease.

(2)          The results ofoperations of acquired companies and assets and the amortization expenserelated to acquired intangible assets are included in segment results beginningon the date of acquisition. 

(3)          Lossbefore income taxes for Corporate includes our corporate, general andadministrative and corporate science activities, all of the stock-basedcompensation expense, as well as net gains on investments in equity securities,interest income, interest expense and other income and expense items that we donot specifically allocate to a particular reporting segment. Loss before incometaxes for Corporate for the three and six months ended June 30, 2007includes a charge of $64.0 million for the proposed settlement, subject tocourt approval, of the litigation related to the consolidation of our formertracking stocks.

26

----

**GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements (Continued)**

**14.**   Segment Information(Continued)

***Segment Assets***

Weprovide information concerning the assets of our reportable segments in thefollowing table (amounts in thousands):

| ** **         | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------|------------|-------------------------|------------|-----------------------------|------------|
| Segment Assets(1): |       |                    |       |                        |       |   |   |
| Renal              |       | $                       | 1,423,886  |                        |       | $ | 1,380,003 |   |   |
| Therapeutics       |       | 1,162,177               |       |                        | 1,094,520  |   |   |
| Transplant         |       | 418,971                 |       |                        | 410,436    |   |   |
| Biosurgery         |       | 479,564                 |       |                        | 477,334    |   |   |
| Genetics           |       | 134,399                 |       |                        | 133,839    |   |   |
| Other              |       | 844,763                 |       |                        | 851,343    |   |   |
| Corporate(2)       |       | 3,191,105               |       |                        | 2,843,713  |   |   |
| Total              |       | $                       | 7,654,865  |                        |       | $ | 7,191,188 |   |   |

----

(1)          Assets for our fivereporting segments and Other include primarily accounts receivable, inventoryand certain fixed and intangible assets, including goodwill.

(2)          Includes the assetsrelated to our corporate, general and administrative operations, and corporatescience activities that we do not allocate to a particular segment, includingcash, cash equivalents, short- and long-term investments, net property,plant and equipment and net deferred tax assets.

Segmentassets for Corporate consist of the following (amounts in thousands):

| ** **                                                | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Cash, cash  equivalents, short- and long-term investments |       | $                       | 1,497,648  |                        |       | $ | 1,285,604 |   |   |
| Deferred tax  assets, net                                 |       | 185,706                 |       |                        | 136,925    |   |   |
| Property,  plant & equipment, net                |       | 1,122,205               |       |                        | 1,036,182  |   |   |
| Investments in  equity securities                         |       | 76,975                  |       |                        | 66,563     |   |   |
| Other                                                     |       | 308,571                 |       |                        | 318,439    |   |   |
| Total                                                     |       | $                       | 3,191,105  |                        |       | $ | 2,843,713 |   |   |

 

27

----

**ITEM 2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF GENZYME CORPORATION AND SUBSIDIARIES’ FINANCIALCONDITION AND RESULTS OF OPERATIONS

When reviewing thediscussion below, you should keep in mind the substantial risks anduncertainties that characterize our business. In particular, we encourage youto review the risks and uncertainties described under “Risk Factors” below.These risks and uncertainties could cause actual results to differ materiallyfrom those forecasted in forward-looking statements or implied by pastresults and trends. Forward-looking statements are statements thatattempt to project or anticipate future developments in our business; weencourage you to review the examples of forward-looking statementsincluded under the heading “Note Regarding Forward-Looking Statements” atthe beginning of this report. These statements, like all statements in thisreport, speak only as of the date of this report (unless another date isindicated), and we undertake no obligation to update or revise the statementsin light of future developments.

**INTRODUCTION**

We are a globalbiotechnology company dedicated to making a major impact on the lives of peoplewith serious diseases. Our broad product and service portfolio is focused onrare disorders, renal diseases, orthopaedics, organ transplant, and diagnosticand predictive testing. We are organized into five financial reporting units,which we also consider to be our reporting segments:

·       Renal, which develops,manufactures and distributes products that treat patients suffering from renaldiseases, including chronic renal failure. The unit derives substantially allof its revenue from sales of Renagel (including sales of bulk sevelamer) andHectorol;

·       Therapeutics, whichdevelops, manufactures and distributes therapeutic products, with an expandingfocus on products to treat patients suffering from genetic diseases and otherchronic debilitating diseases, including a family of diseases known as LSDs,and other specialty therapeutics, such as Thyrogen. The unit derivessubstantially all of its revenue from sales of Cerezyme, Fabrazyme, Myozyme andThyrogen;

·       Transplant, which develops,manufactures and distributes therapeutic products that address pre-transplantation,prevention and treatment of rejection in organ transplantation and other auto-immunedisorders. The unit derives substantially all of its revenue from sales ofThymoglobulin;

·       Biosurgery, which develops,manufactures and distributes biotherapeutics and biomaterial-based products,with an emphasis on products that meet medical needs in the orthopaedics andbroader surgical areas. The unit derives substantially all of its revenue fromsales of Synvisc, the Sepra line of products, Carticel and MACI; and

·       Genetics, which providestesting services for the oncology, prenatal and reproductive markets.

We report the activitiesof our diagnostic products, oncology, bulk pharmaceuticals and cardiovascularbusiness units under the caption “Other.” We report our corporate, general andadministrative operations and corporate science activities under the caption “Corporate.”

28

----

**Update to SecondQuarter Earnings Release**

On July 25,2007, we issued a press release containing our results of operations andfinancial condition for the three month period ended June 30, 2007, whichwe furnished as an exhibit under Form 8-K prior to hosting aconference call to discuss our second quarter financial results. Subsequent toJuly 25, 2007, two events occurred which have caused us to update oursecond quarter financial results in this Form 10-Q. Specifically:

·       inthe course of preparing our financial statements for this Form 10-Q,we identified that we had overstated our stock-based compensation expense,before taxes, for the three and six months ended June 30, 2007 by a totalof $10.5 million, including a $7.8 million overstatement of SG&A and a $2.7 millionoverstatement of research and development expenses. The overstatements werediscovered during the final review of the stock-based compensation expensecalculations for the second quarter and resulted specifically from an incorrectcalculation of (i) the vesting period for the RSUs we began issuing to ouremployees for the first time in May 2007 and (ii) the retirementvesting benefit of the RSUs granted to certain of our officers inMay 2007. We have corrected the overstatement of our stock-basedcompensation that was reported in our second quarter earnings release; and

·       onAugust 6, 2007, we reached an agreement-in-principle to settle and dismisslitigation related to the consolidation of our former tracking stocks forapproximately $64 million, subject to court approval. As a result, we haverecorded a liability for the settlement payment of approximately $64 millionas a charge to SG&A in our consolidated statement of operations inJune 2007 and as an increase to accrued expenses in our consolidatedbalance sheet as of June 30, 2007.

**MERGERS ANDACQUISITIONS**

***Pending Acquisition of Bioenvision***

On May 29, 2007, weentered into an agreement and plan of merger with Bioenvision and Witchita Bio,one of our wholly owned subsidiaries, to acquire Bioenvision in an all-cashtransaction valued at $5.60 per outstanding common share and $11.20 peroutstanding preferred share (plus accrued but unpaid dividends), orapproximately $345 million in aggregate. Pursuant to the merger agreement, on June 4,2007, we and Witchita Bio commenced a cash tender offer to purchase all of theoutstanding shares of Bioenvision common stock, par value $0.001 per share,including associated preferred stock purchase rights of Bioenvision, which werefer to as the Common Shares, at a purchase price of $5.60 per Common Shareand to purchase all of the outstanding shares of Bioenvision Series AConvertible Participating Preferred Stock, par value $0.001 per share, which werefer to as Series A Preferred Shares, at a purchase price of $11.20 per Series APreferred Share (plus accrued but unpaid dividends). On July 10, 2007, wecompleted the tender offer and purchased 8,398,098 Common Shares and 2,250,000 Series APreferred Shares, or approximately 22% of the then outstanding shares ofBioenvision common stock on an as-converted basis, including 100% of the outstandingSeries A Preferred Shares. Each Series A Preferred Share can beconverted into approximately two Common Shares, and also carries a separateclass vote over several corporate matters, including any merger or sale ofsubstantially all the assets of Bioenvision and the authorization of anyadditional shares of Bioenvision common stock, as well as other features. Inaccordance with the terms of the merger agreement, Bioenvision will prepare aproxy statement to be mailed to its shareholders detailing the rationale for themerger and other material disclosures and calling a shareholder meeting to seekapproval of the proposed merger before the end of 2007.

***Acquisition of AnorMED***

In November 2006, we acquired AnorMED, apublicly-traded chemical-based biopharmaceutical company based in Langley,British Columbia, Canada, with a focus on the discovery, development and 

29

----

commercialization of newtherapeutic products in the area of hematology, oncology and humanimmunodeficiency virus, or HIV. We paid gross consideration of $589.2 millionin cash, including $584.2 million for the shares of AnorMED’s common stockoutstanding on the date of acquisition and $5.0 million for acquisitioncosts. Net consideration was $569.0 million as we acquired AnorMED’s cashand cash equivalents totaling $20.2 million. As part of the transaction,we acquired Mozobil, a late-stage product candidate in development forhematopoietic stem cell transplantation, which we have added to our Transplantbusiness. Multiple early studies showed that Mozobil rapidly increases thenumber of stem cells that move out of the bone marrow and into a patient’sblood, which is an important step in preparing a patient for a stem celltransplant. On July 19, 2007, we announced the successful completion of aphase 3 clinical trial of Mozobil in non-Hodgkin’s lymphoma and onAugust 2, 2007, we announced the successful completion of a secondphase 3 clinical trial of Mozobil in multiple myeloma. The trials met theirrespective primary and secondary endpoints. We accounted for the acquisition asa business combination and accordingly, we included AnorMED’s results ofoperations in our consolidated statements of operations from November 7,2006, the date of acquisition.

The purchase price, as adjusted, was allocated to thetangible and intangible assets acquired and liabilities assumed based on theirestimated fair values at the date of acquisition. The excess of the purchaseprice over the estimated fair value of the assets acquired and liabilitiesassumed amounted to $31.7 million, which was allocated to goodwill. Weexpect that substantially all of the amount allocated to goodwill will bedeductible for tax purposes. The allocation of the purchase price remainssubject to potential adjustments, including adjustments for liabilitiesassociated with certain exit activities and tax restructuring activities.

***Acquisition of Synvisc Sales and Marketing Rights fromWyeth***

In January 2005, weconsummated an arrangement with Wyeth under which we reacquired the sales andmarketing rights to Synvisc in the United States and certain Europeancountries. In exchange for the sales and marketing rights, we made up-frontpayments totaling $127.0 million in cash to Wyeth and have also accruedcontingent royalty payments to Wyeth totaling $142.1 million, of which$139.4 million had been paid as of June 30, 2007. Distribution rights(a component of other intangible assets, net) in our consolidated balancesheets as of June 30, 2007, includes a total of $270.4 million forthe initial and contingent royalty payments (made and accrued) as of that date.We will make a series of additional contingent royalty and milestone paymentsto Wyeth based on the volume of Synvisc sales in the covered territories. Thesecontingent royalty and milestone payments could extend out to June 2012,or could total a maximum of $299.2 million, whichever comes first.

**CRITICAL ACCOUNTINGPOLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES**

Our critical accountingpolicies and significant judgments and estimates are set forth under theheading “Management’s Discussion and Analysis of Genzyme Corporation andSubsidiaries’ Financial Condition and Results of Operations—Critical AccountingPolicies and Significant Judgments and Estimates” in Exhibit 13 to our2006 Form 10-K. Additional information regarding significantjudgments, estimates and updates to our policies for Revenue Recognition,Income Taxes and Inventories are included below. Excluding these additionaldisclosures, there have been no significant changes to our other criticalaccounting policies or significant judgments and estimates since December 31,2006.

**Revenue Recognition**

***Product Sales***

The timing of product shipments and receipts by thecustomer can have a significant impact on the amount of revenue recognized in aparticular period. A significant portion of our products are sold at least inpart through wholesalers and specialty distributors, along with direct sales tohospitals, homecare 

30

----

providers, governmentagencies and physicians. Consequently, our net sales and quarterly growthcomparisons may be affected by fluctuations in the buying patterns of our majordistributors and other trade buyers, which may result from seasonality,pricing, wholesaler buying decisions or other factors. Inventory in the distributionchannel consists of inventory held by wholesalers and specialty distributors,who are our customers, and inventory held by their retail customers, such aspharmacies and hospitals. Our revenue in a particular period can be impacted byincreases or decreases in channel inventories. Significant increases inwholesaler or retail inventories could result in reduced purchases insubsequent periods, or product returns from the distribution channel due tooverstocking, low end-user demand or product expiration.

We use a variety of datasources to determine the amount of inventory in the distribution channel. Formost product lines, we receive data on sales and inventory levels directly fromour primary customers. For key product lines in our Renal; and Therapeuticsareas, our data sources also include prescription and wholesaler data purchasedfrom external data providers. As part of our efforts to limit the amount of Renaland Therapeutics inventory held by distributors and to gain improved visibilityinto the distribution channel, we have executed agreements to limit the amountsof inventory they carry and to provide us ongoing reports to verify distributorinventory levels and sales data.

***Product Sales Allowances***

Sales of many biotechnology products in the UnitedStates are subject to increased pricing pressure from managed care groups,institutions, government agencies, and other groups seeking discounts. We andother biotechnology companies in the U.S. market are also required toprovide statutorily defined rebates and discounts to various U.S. governmentagencies in order to participate in the Medicaid program and othergovernment-funded programs. In most international markets, we operate in anenvironment where governments may and have mandated cost-containment programs,placed restrictions on physician prescription levels and patientreimbursements, emphasized greater use of generic drugs and enactedacross-the-board price cuts as methods to control costs. The sensitivity of ourestimates can vary by program, type of customer and geographic location.Estimates associated with Medicaid and other government allowances may becomesubject to adjustment in a subsequent period due to the time delay between therecording of the accrual and its ultimate settlement.

We record productsales net of the following significant categories of product sales allowances:

·       **Contractual adjustments**—Weoffer chargebacks and contractual discounts and rebates, which we collectivelyrefer to as contractual adjustments, to certain private institutions andvarious government agencies in both the United States and internationalmarkets. We record chargebacks and contractual discounts as allowances againstaccounts receivable in our consolidated balance sheets. We account for rebatesby establishing an accrual for the amounts payable by us to these agencies andinstitutions, which is included in accrued liabilities in our consolidatedbalance sheets. We estimate the allowances and accruals for our contractualadjustments based on historical experience and current contract prices, usingboth internal data as well as information obtained from external sources, suchas independent market research agencies and data from wholesalers. Wecontinually monitor the adequacy of these estimates and adjust the allowancesand accruals periodically throughout each quarter to reflect our actualexperience. In evaluating these allowances and accruals, we consider severalfactors, including significant changes in the sales performance of our productssubject to contractual adjustments, inventory in the distribution channel,changes in U.S. and foreign healthcare legislation impacting rebate orallowance rates, changes in contractual discount rates and the estimated lagtime between a sale and payment of the corresponding rebate;

31

----

·       **Discounts**—Insome countries, we offer cash discounts for certain products as an incentivefor prompt payment, which are generally a stated percentage off the salesprice. We account for cash discounts by reducing accounts receivable by thefull amounts of the discounts. We consider payment performance and adjust theaccrual to reflect actual experience; and

·       **Sales returns**—We record allowances for product returns at thetime product sales are recorded. The product returns reserve is estimated basedon the returns policies for our individual products and our experience ofreturns for each of our products. If the price of a product changes or if thehistory of product returns changes, the reserve is adjusted accordingly. Wedetermine our estimates of the sales return accrual for new products primarilybased on the historical sales returns experience of similar products, such asthose within the same line of product or those within the same or similartherapeutic category.

Ourprovisions for product sales allowances reduced gross product sales as follows:

| ** **                                                                | ** ** | **Three Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** | **Six Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------|------------|-----------------------------------------------|------------|---------------------------|------------|
| ** **                                                                | ** ** | **2007**                                        | ** ** | **2006**                  | ** ** | **% Change**                             | ** ** | **2007**                  | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                                                                | ** ** | **(Amounts in thousands)**                      | ** ** |
| Product sales  allowances:                                                |       |                                            |       |                      |       |                                          |       |                      |       |   |   |   |   |   |   |   |   |
| Contractual adjustments                                                   |       | $                                               | 57,827     |                      | $          | 50,363                                        |       |                      | 15         | % |   | $ | 113,691 |   | $ | 94,723 |   |   | 20 | % |   |
| Discounts                                                                 |       | 48,137                                          |       | 32,013                    |       |                                          | 50         | %                         |       | 81,482 |   | 56,818 |   |   | 43 | % |   |
| Sales returns                                                             |       | 5,704                                           |       | 2,495                     |       |                                          | >100    | %                         |       | 7,421 |   | 6,888 |   |   | 8 | % |   |
| Total product sales  allowances                                           |       | $                                               | 111,668    |                      | $          | 84,871                                        |       |                      | 32         | % |   | $ | 202,594 |   | $ | 158,429 |   |   | 28 | % |   |
| Total gross product  sales                                                |       | $                                               | 957,150    |                      | $          | 803,606                                       |       |                      | 19         | % |   | $ | 1,846,266 |   | $ | 1,534,499 |   |   | 20 | % |   |
| Total product sales allowances as a percent of total  gross product sales |       | 12                                              | %          | 11                        | %          |                                          |       |                      |       | 11 | % | 10 | % |   |   |   |   |

 

Product sales allowances for contractual adjustmentsand discounts increased for the three and six months ended June 30,2007, as compared to the same periods of 2006, primarily due to growth inoverall gross product sales.

Total estimated productsales allowance reserves and accruals in our consolidated balance sheets increasedto approximately $154 million as of June 30, 2007, as compared toapproximately $129 million as of December 31, 2006, primarily due toincreased product sales. Historically, our actual results have not differedmaterially from amounts recorded. The annual variation has been less than 0.5%of total product sales for each of the last three years.

***Distributor Fees***

EITF Issue No. 01-09,“Accounting for Consideration given by a Vendor to a Customer (including aReseller of a Vendor’s Products)” specifies that cash consideration (includinga sales incentive) given by a vendor to a customer is presumed to be a reductionof the selling prices of the vendor’s products or services and, therefore,should be characterized as a reduction of revenue. We include such fees incontractual adjustments, which are recorded as a reduction to product sales.That presumption is overcome and the consideration should be characterized as acost incurred if, and to the extent that, both of the following conditions aremet:

·       the vendor receives, orwill receive, an identifiable benefit (goods or services) in exchange for theconsideration; and

32

----

·       the vendor can reasonablyestimate the fair value of the benefit received.

Werecord service fees paid to our distributors as a charge to SG&A, acomponent of operating expenses, only if the criteria set forth above are met.The following table sets forth the distributor fees recorded as a reduction toproduct sales and charged to SG&A:

| ** **                                                                        | ** ** | **Three Months Ended  June 30,**          | ** ** | **Six Months Ended  June 30,**            | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** |
| ** **                                                                        | ** ** | **(Amounts in thousands)**                               | ** ** |
| Distributor fees:                                                                 |       |                                                     |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Included in contractual adjustments and recorded as  a reduction to product sales |       |                                                     | $          | 3,198                                                    |       |   |   | $ | 2,445 |   |   | $ | 6,290 |   |   | $ | 4,633 |   |   |
| Charged to SG&A                                                               |       |                                                     | 3,459      |                                                     |       |   | 2,488 |   |   | 6,434 |   |   | 5,034 |   |   |
| Total distributor  fees                                                           |       |                                                     | $          | 6,657                                                    |       |   |   | $ | 4,933 |   |   | $ | 12,724 |   |   | $ | 9,667 |   |   |

 

***Income Taxes***

Effective January 1, 2007, we adopted theprovisions of FIN 48, which clarifies the accounting for income tax positionsby prescribing a minimum recognition threshold that a tax position is requiredto meet before being recognized in the financial statements. FIN 48 alsoprovides guidance on the derecognition of previously recognized deferred taxitems, measurement, classification, interest and penalties, accounting ininterim periods, disclosure and transition. Under FIN 48, we recognize the taxbenefit from an uncertain tax position only if it is more likely than not thatthe tax position will be sustained upon examination by the taxing authorities,based on the technical merits of the tax position. The tax benefits recognizedin our financial statements from such a position are measured based on thelargest benefit that has a greater than 50% likelihood of being realized uponultimate resolution.

We operate in numerous countries where our income taxreturns are subject to audit and adjustment by local tax authorities. Becausewe operate globally, the nature of the uncertain tax positions is often verycomplex and subject to change and the amounts at issue can be substantial. Wedevelop our cumulative probability assessment of the measurement of uncertaintax positions using internal expertise, experience, judgment and assistancefrom professional advisors. Estimates are refined as additional informationbecomes known. Any outcome upon settlement that differs from our current estimatemay result in additional or lower tax expense in future periods.

As of January 1,2007, we had approximately $36.5 million of total gross unrecognized taxbenefits. We continue to recognize interest related to unrecognized taxbenefits within our provision for income taxes but have not recorded anyamounts related to potential penalties. The amount of accrued interest relatedto unrecognized tax benefits included in our provision for income taxes for thethree and six months ended June 30, 2007 and our accrued interest relatedto unrecognized tax benefits as of January 1, 2007 and June 30, 2007were not significant.

**Inventories**

We value inventories at cost or, if lower, fair value.We determine cost using the first-in, first-out method. We analyze our inventorylevels quarterly and write down inventory that has become obsolete, inventorythat has a cost basis in excess of its expected net realizable value andinventory in excess of expected requirements. Expired inventory is disposed ofand the related costs are written off. If actual market conditions are lessfavorable than those projected by management, additional inventory write-downsmay be required.

We capitalize inventory produced for commercial sale,which may result in the capitalization of inventory prior to regulatoryapproval. In no event is inventory capitalized prior to completion of aphase 3 

33

----

clinical trial. If aproduct is not approved for sale, it would result in the write off of theinventory and a charge to earnings. Our total inventories at June 30, 2007included $13.4 million of inventory for Renvela that has not yet been approvedfor sale.

Currently, we have fourlots of Thymoglobulin finished goods inventory, valued at approximately $12 million,which we consider to be inventory at risk. We placed these lots on hold pendinginvestigation and resolution of out of trend assay results we observed duringquality testing. We anticipate completing our assessment of these lots duringthe second half of 2007. If we determine that any of these four lots do notmeet the specifications for saleable product, we will have to write off theinventory for that lot as a charge to earnings.

**A.   RESULTS OFOPERATIONS**

The following discussionsummarizes the key factors our management believes are necessary for anunderstanding of our consolidated financial statements.

**REVENUES**

Thecomponents of our total revenues are described in the following table:

| ** **                             | ** ** | **Three Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** | **Six Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** |
|----------------------------------------|------------|-------------------------------------------------|------------|---------------------------|------------|-----------------------------------------------|------------|---------------------------|------------|
| ** **                             | ** ** | **2007**                                        | ** ** | **2006**                  | ** ** | **% Change**                             | ** ** | **2007**                  | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                             | ** ** | **(Amounts in thousands)**            | ** ** |
| Product revenue                        |       | $                                               | 845,482    |                      | $          | 718,735                                       |       |                      | 18         | % |   | $ | 1,643,672 |   | $ | 1,376,070 |   |   | 19 | % |   |
| Service revenue                        |       | 82,475                                          |       | 71,012                    |       |                                          | 16         | %                         |       | 158,356 |   | 139,834 |   |   | 13 | % |   |
| Total product and service revenue |       | 927,957                                         |       | 789,747                   |       |                                          | 18         | %                         |       | 1,802,028 |   | 1,515,904 |   |   | 19 | % |   |
| Research and  development revenue      |       | 5,462                                           |       | 3,609                     |       |                                          | 51         | %                         |       | 14,574 |   | 8,294 |   |   | 76 | % |   |
| Total revenues                         |       | $                                               | 933,419    |                      | $          | 793,356                                       |       |                      | 18         | % |   | $ | 1,816,602 |   | $ | 1,524,198 |   |   | 19 | % |   |

 

**Product Revenue**

We derive productrevenue from sales of:

·       Renalproducts, including Renagel for the reduction of elevated serum phosphoruslevels in end-stage renal disease patients on hemodialysis, Hectorol forthe treatment of secondary hyperparathyroidism in patients on dialysis andthose with chronic kidney disease, or CKD, and bulk sevelamer;

·       Therapeuticsproducts, including Cerezyme for the treatment of Gaucher disease, Fabrazyme forthe treatment of Fabry disease, Myozyme for the treatment of Pompe disease andThyrogen, which is an adjunctive diagnostic agent used in the follow-uptreatment of patients with well-differentiated thyroid cancer;

·       Transplantproducts for the treatment of immune-mediated diseases, primarilyThymoglobulin, which induces immunosuppression of certain types of cellsresponsible for organ rejection in transplant patients;

·       Biosurgeryproducts, including orthopaedic products, such as Synvisc, and the Sepra lineof products, such as Seprafilm; and

·       Other products, including:

·        diagnosticproducts, including infectious disease and cholesterol testing products;

34

----

·        oncologyproducts, including Campath for the treatment of B-cell chronic lymphocyticleukemia in patients who have been treated with alkylating agents and who havefailed fludarabine therapy, and Clolar for the treatment of children (ages 1-21)with refractory or relapsed acute lymphoblastic leukemia after at least twoprior regimens; and

·        bulkpharmaceuticals, including WelChol, which is a mono and adjunctive therapy forthe reduction of LDL cholesterol in patients with primary hypercholesterolemia.

Thefollowing table sets forth our product revenue on a segment basis:

| ** **                                  | ** ** | **Three Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** | **Six Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------|------------|---------------------------|------------|-----------------------------------------------|------------|---------------------------|------------|
| ** **                                  | ** ** | **2007**                                        | ** ** | **2006**                  | ** ** | **% Change**                             | ** ** | **2007**                  | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                                  | ** ** | **(Amounts in thousands)**            | ** ** |
| Renal:                                      |       |                                            |       |                      |       |                                          |       |                      |       |   |   |   |   |   |   |   |   |
| Renagel (including sales of bulk sevelamer) |       | $                                               | 144,954    |                      | $          | 126,599                                       |       |                      | 14         | % |   | $ | 282,338 |   | $ | 245,254 |   |   | 15 | % |   |
| Hectorol                                    |       | 27,295                                          |       | 22,412                    |       |                                          | 22         | %                         |       | 55,588 |   | 41,316 |   |   | 35 | % |   |
| Total Renal                                 |       | 172,249                                         |       | 149,011                   |       |                                          | 16         | %                         |       | 337,926 |   | 286,570 |   |   | 18 | % |   |
| Therapeutics:                               |       |                                            |       |                      |       |                                          |       |                      |       |   |   |   |   |   |   |   |   |
| Cerezyme                                    |       | 282,979                                         |       | 253,989                   |       |                                          | 11         | %                         |       | 546,770 |   | 492,998 |   |   | 11 | % |   |
| Fabrazyme                                   |       | 104,349                                         |       | 89,041                    |       |                                          | 17         | %                         |       | 205,013 |   | 169,544 |   |   | 21 | % |   |
| Thyrogen                                    |       | 29,540                                          |       | 23,723                    |       |                                          | 25         | %                         |       | 55,878 |   | 46,716 |   |   | 20 | % |   |
| Myozyme                                     |       | 46,745                                          |       | 6,531                     |       |                                          | >100    | %                         |       | 84,664 |   | 8,582 |   |   | >100 | % |   |
| Other Therapeutics                          |       | 705                                             |       | 78                        |       |                                          | >100    | %                         |       | 872 |   | 155 |   |   | >100 | % |   |
| Total Therapeutics                          |       | 464,318                                         |       | 373,362                   |       |                                          | 24         | %                         |       | 893,197 |   | 717,995 |   |   | 24 | % |   |
| Transplant:                                 |       |                                            |       |                      |       |                                          |       |                      |       |   |   |   |   |   |   |   |   |
| Thymoglobulin/  Lymphoglobuline             |       | 41,376                                          |       | 39,812                    |       |                                          | 4          | %                         |       | 80,818 |   | 72,672 |   |   | 11 | % |   |
| Other Transplant                            |       | 2,048                                           |       | 1,400                     |       |                                          | 46         | %                         |       | 3,703 |   | 2,806 |   |   | 32 | % |   |
| Total Transplant                            |       | 43,424                                          |       | 41,212                    |       |                                          | 5          | %                         |       | 84,521 |   | 75,478 |   |   | 12 | % |   |
| Biosurgery:                                 |       |                                            |       |                      |       |                                          |       |                      |       |   |   |   |   |   |   |   |   |
| Synvisc                                     |       | 64,863                                          |       | 63,590                    |       |                                          | 2          | %                         |       | 118,459 |   | 116,853 |   |   | 1 | % |   |
| Sepra products                              |       | 25,076                                          |       | 21,961                    |       |                                          | 14         | %                         |       | 48,191 |   | 41,376 |   |   | 16 | % |   |
| Other Biosurgery                            |       | 8,386                                           |       | 7,236                     |       |                                          | 16         | %                         |       | 18,958 |   | 14,210 |   |   | 33 | % |   |
| Total Biosurgery                            |       | 98,325                                          |       | 92,787                    |       |                                          | 6          | %                         |       | 185,608 |   | 172,439 |   |   | 8 | % |   |
| Other product revenue                       |       | 67,166                                          |       | 62,363                    |       |                                          | 8          | %                         |       | 142,420 |   | 123,588 |   |   | 15 | % |   |
| Total product  revenues                     |       | $                                               | 845,482    |                      | $          | 718,735                                       |       |                      | 18         | % |   | $ | 1,643,672 |   | $ | 1,376,070 |   |   | 19 | % |   |

 

***Renal***

Sales of Renagel, including sales of bulk sevelamer,increased 14% to $145.0 million for the three months ended June 30,2007, as compared to the same period of 2006, primarily due to a $11.7 millionincrease attributable to a 9.5% price increase for Renagel in the UnitedStates, which became effective in December 2006 and an additional 15% priceincrease for Renagel in the United States, which became effective in April 2007.Sales also increased by $5.3 million primarily due to increased end-userdemand worldwide. The 7% increase in the Euro against the U.S. dollar for thethree months ended June 30, 2007, as compared to the same period of 2006,positively impacted Renagel revenue by $2.6 million. Sales of Renagel,including sales of bulk sevelamer, were 17% of our total product revenue forthe three months ended June 30, 2007, compared to 18% of our total productrevenue for the same period of 2006.

35

----

Sales of Renagel, including sales of bulk sevelamer,increased 15% to $282.3 million for the six months ended June 30,2007, as compared to the same period of 2006, primarily due to a $20.0 millionincrease attributable to a 9.5% price increase for Renagel in the UnitedStates, which became effective in December 2006 and, to a lesser extent, anadditional 15% price increase for Renagel in the United States, which becameeffective in April 2007. Sales also increased by $13.9 million primarilydue to increased end-user demand worldwide. The 8% increase in the Euro againstthe U.S. dollar for the six months ended June 30, 2007, as compared to thesame period of 2006, positively impacted Renagel revenue by $5.7 million. Salesof Renagel, including sales of bulk sevelamer, were 17% of our total productrevenue for the six months ended June 30, 2007, compared to 18% of ourtotal product revenue for the same period of 2006.

Hectorol, used to treat secondary hyperparathyroidismin patients on dialysis and those with CKD, is sold to nephrologists in theUnited States. Sales of Hectorol increased 22% to $27.3 million for thethree months ended June 30, 2007 as compared to $22.4 million for thesame period of 2006, primarily due to price increases for the 0.5 and 2.5microgram tablets in July and December 2006 and a price increase for HectorolIV in April 2006 as well as higher end-user demand.

Sales of Hectorol increased 35% to $55.6 millionfor the six months ended June 30, 2007, as compared to $41.3 millionfor the same period of 2006, primarily due to higher end-user demand.

We expect sales of Renagel and Hectorol to increase,driven primarily by growing patient access to these products, including throughthe Medicare Part D program in the United States, and the continuedadoption of the products by nephrologists worldwide. We expect adoption ratesfor Renagel to trend favorably as a result of our DCOR trial and the growingacceptance of the National Kidney Foundation’s 2003 Kidney Disease OutcomeQuality Initiative, or ­K/DOQI, Guidelines for Bone Metabolism and Disease inCKD and the RIND study. Renagel and Hectorol compete with several otherproducts and our future sales may be impacted negatively by these products. Wediscuss some of these competitors under the heading “Risk Factors—Our futuresuccess will depend on our ability to effectively develop and market ourproducts and services against those of our competitors,” included in thisreport. In addition, our ability to continue to increase sales of Renagel andHectorol will depend on many other factors, including our ability to optimizedosing and improve patient compliance with Renagel dosing, the availability ofreimbursement from third-party payors and the extent of coverage,including under the Medicare Part D program. Also, the accuracy of ourestimates of fluctuations in the payor mix and our ability to effectivelymanage wholesaler inventories and the levels of compliance with the inventorymanagement programs we implemented for Renagel and Hectorol with ourwholesalers, could impact the revenue from our Renal reporting segment that werecord from period to period.

We expect to launch Renvela, the second-generationbuffered form of Renagel, within the next year. Renvela will enable us toexpand the market for our phosphate binder by reaching patients with CKD whohave not progressed to dialysis. The FDA is currently reviewing our applicationfor Renvela’s use by dialysis patients.

***Therapeutics***

Therapeutics product revenue increased 24% to$464.3 million for the three months ended and 24% to $893.2 millionfor the six months ended June 30, 2007, as compared to the same periods of2006, due to continued growth in sales of Cerezyme, Fabrazyme and Thyrogen andto the launch of Myozyme in the European Union, United States and Canada in2006.

The 11% growth in sales of Cerezyme to$283.0 million for the three months ended and 11% growth in sales to$546.8 million for the six months ended June 30, 2007, as compared tothe same periods of 2006, is attributable to our continued identification ofnew Gaucher disease patients, particularly in international markets. Our pricefor Cerezyme has remained consistent from period to period. Although we expect 

36

----

Cerezyme to continue to bea substantial contributor to revenues in the future, it is a mature product,and as a result, we do not expect that the current new patient growth trendwill continue. The 7% increase in the Euro against the U.S. dollar for thethree months ended June 30, 2007, as compared to the same period of 2006,positively impacted Cerezyme revenue by $6.3 million. The 8% increase in theEuro against the U.S. dollar for the six months ended June 30, 2007, ascompared to the same period of 2006, positively impacted Cerezyme revenue by$13.7 million.

Our results of operations are highly dependent onsales of Cerezyme and a reduction in revenue from sales of this product wouldadversely affect our results of operations. Sales of Cerezyme wereapproximately 33% of our total product revenue for the three months ended June 30,2007, as compared to 35% for the same period of 2006, and 33% of our totalproduct revenue for the six months ended June 30, 2007, as compared to 36%for the same period of 2006. Revenue from Cerezyme would be impacted negativelyif competitors developed alternative treatments for Gaucher disease, and thealternative products gained commercial acceptance, if our marketing activitiesare restricted, or if coverage, pricing or reimbursement is limited. Althoughorphan drug status for Cerezyme, which provided us with exclusive marketingrights for Cerezyme in the United States for seven years, expired in May 2001,we continue to have patents protecting our method of manufacturing Cerezymeuntil 2010 and the composition of Cerezyme as made by that process until 2013.The expiration of market exclusivity and orphan drug status will likely subjectCerezyme to increased competition, which may decrease the amount of revenue wereceive from this product or the growth of that revenue. We are aware ofcompanies that have developed or have initiated efforts to develop competitiveproducts, and other companies may do so in the future. We discuss thesecompetitors under the heading “Risk Factors—Our future success will depend onour ability to effectively develop and market our products and services againstthose of our competitors,” in this report.

The 17% increase to $104.3 million for the threemonths ended and the 21% increase to $205.0 million for the six months ended June 30,2007 in sales of Fabrazyme, as compared to the same periods of 2006, isprimarily attributable to increased patient identification worldwide asFabrazyme is introduced into new markets. In addition, we recognized $2.5 millionof Fabrazyme revenue in the six months ended June 30, 2007 upon receivingreimbursement approval for past shipments of Fabrazyme in Canada. The 7%increase in the Euro against the U.S. dollar for the three months ended June 30,2007, as compared to the same period of 2006, positively impacted Fabrazymerevenue by $2.0 million. The 8% increase in the Euro against the U.S.dollar for the six months ended June 30, 2007, as compared to the sameperiod of 2006, positively impacted Fabrazyme revenue by $4.3 million.

Sales of Thyrogen increased 25% to $29.5 millionfor the three months ended and 20% to $55.9 million for the six months ended June 30,2007, as compared to the same periods of 2006, due to worldwide volume growthwhich impacted sales by $5.0 million in the three month period and$8.8 million in the six month period. The 7% increase in the Euro againstthe U.S. dollar for the three months and the 8% increase in the Euro againstthe U.S. dollar for the six months ended June 30, 2007, as compared to thesame periods of 2006, did not have a material impact on Thyrogen revenue.

Sales of Myozyme were $46.7 million for the threemonths ended and $84.7 million for the six months ended June 30, 2007, ascompared to $6.5 million for the three months ended and $8.6 millionfor the six months ended June 30, 2006. In March 2006, we receivedmarketing authorization for Myozyme in the European Union. In April 2006,the FDA granted marketing approval for Myozyme. We launched Myozyme in theUnited States in May 2006, in Europe a month later and in Canada in September 2006.We are introducing Myozyme on a country-by-country basis in the European Union,as pricing and reimbursement approvals are obtained. Myozyme has receivedorphan drug designation in the United States, which provides seven years ofmarket exclusivity, and in the European Union, which provides ten years ofmarket exclusivity. In April 2007, Myozyme was approved for commercialsale in Japan and in June 2007 we launched the product. We expect to file forapproval in several additional countries in 2007. 

37

----

The7% increase in the Euro against the U.S. dollar for the three months ended June 30,2007, as compared to the same period of 2006, positively impacted Myozymerevenue by $1.8 million. The 8% increase in the Euro against the U.S. dollarfor the six months ended June 30, 2007, as compared to the same period of2006, positively impacted Myozyme revenue by $3.7 million. The positive impactof the increase in the Euro against the U.S. dollar on Myozyme revenue for boththe three and six months ended June 30, 2007 is driven by the growth insales volume of Myozyme in Europe, in each such period, as compared to the sameperiods of 2006.

We currently manufactureMyozyme in the United States. We expect to begin Myozyme fill-finish at ourfacility in Waterford, Ireland in the third quarter of 2007, and to commenceMyozyme engineering runs at our protein manufacturing facility in Geel, Belgiumlater this year. In addition, we are seeking FDA approval of our larger-scalemanufacturing process, based in Allston, Massachusetts, to enable us to meetthe expected demand for Myozyme in the U.S. market going forward. We currentlyanticipate receiving FDA approval of the application for our larger-scalemanufacturing process in the first half of 2008. In the meantime, we areaccelerating efforts to optimize supply for the U.S. market, includingtemporarily transitioning some patients to a clinical access program throughwhich they may receive Myozyme produced using the larger-scale manufacturingprocess until the FDA approves the larger-scale manufacturing process. Productionat this larger scale is already approved in 33 countries. We are aware of therisks involved in manufacturing Myozyme and all of our products. We discussthese risks under the heading “Risk Factors—Manufacturing problems may causeproduct launch delays, inventory shortages, recalls and unanticipated costs,”in this report.

***Transplant***

Transplant product revenue increased 5% to$43.4 million for the three months ended and 12% to $84.5 million forthe six months ended June 30, 2007, as compared to the same periods of2006. The increases are primarily due to a $1.5 million increase for thethree month period and a $6.3 million increase for the six month period insales of Thymoglobulin as a result of its increased utilization in transplantprocedures internationally.

We are aware of the risksinvolved in manufacturing Thymoglobulin and all of our products. We discussthese risks under the heading “Risk Factors—Manufacturing problems may causeproduct launch delays, inventory shortages, recalls and unanticipated costs,”in this report.

***Biosurgery***

Biosurgery product revenue increased 6% to$98.3 million for the three months ended and increased 8% to$185.6 million for the six months ended June 30, 2007, as compared tothe same periods of 2006. There was a $3.8 million increase for the threemonth period and an $8.0 million increase for the six month period, insales of Seprafilm and a $1.1 million increase for the three month period and a$4.3 million increase for the six month period, in revenue related to our highgrade bulk hyaluronic acid, or HA, products. The increases in Seprafilm revenueare primarily due to greater penetration into the United States and Japanesemarkets. The increases in revenue related to our HA products are primarily dueto an increase in orders for HA powder.

Synvisc sales increased $1.3 million for the threemonths ended and $1.6 million for the six months ended June 30, 2007, ascompared to the same periods of 2006. Currently, Synvisc is delivered throughthree injections administered at one-week intervals. In November 2006 wecompleted a pivotal trial evaluating Synvisc-One, a single-injectionregimen of Synvisc, which showed that patients who received a single-injectionregimen of Synvisc achieved a statistically significant improvement in the paincaused by osteoarthritis of the knee in 26 weeks compared to those usingplacebo. We filed for marketing approval of Synvisc-One in the U.S. in June 2007and we anticipate filing for marketing approval of Synvisc-One in the EuropeanUnion in the second half of 2007. We expect to launch this product in theEuropean Union and 

38

----

in the United Statesin the first quarter of 2008. The clinical advantages of Synvisc-One have thepotential to expand the market for Synvisc.

We are aware of severalproducts that compete with Synvisc, several companies that have initiatedefforts to develop competitive products and several companies that marketproducts designed to relieve the pain of osteoarthritis. We discuss some ofthese competitors under the heading “Risk Factors—Our future success willdepend on our ability to effectively develop and market our products andservices against those of our competitors,’’ included in this report.

***Other Product Revenue***

Other productrevenue increased 8% to $67.2 million for the three months ended and 15%to $142.4 million for the six months ended June 30, 2007, as compared tothe same periods of 2006, primarily due to:

·       a30% increase to $14.6 million for the three months ended and a 49%increase to $31.3 million for the six months ended June 30, 2007, in salesof Campath and Clolar;

·       a10% increase in sales of diagnostic products to $29.0 million for the threemonths ended and an 8% increase to $59.8 million for the six months ended June 30,2007, due to increased demand; and

·       a9% increase to $51.4 million in sales of bulk pharmaceuticals for the sixmonths ended June 30, 2007, due to bulk sales of and royalties earned onWelChol as a result of increased demand from our U.S. marketing partner, SankyoPharma, Inc., or Sankyo.

The increases in otherproduct revenue discussed above for the three month period were partially offsetby a 5% decrease to $23.6 million in sales of bulk pharmaceuticals due toa decrease in demand from Sankyo.

**Service Revenue**

We derive servicerevenue primarily from the following sources:

·       salesof MACI, a proprietary cell therapy product for cartilage repair, in Europe andAustralia, Carticel for the treatment of cartilage damage, and Epicel for thetreatment of severe burns, all of which are included in our Biosurgeryreporting segment; and

·       geneticand pathology/oncology testing services, which are included in our Geneticsreporting segment.

Thefollowing table sets forth our service revenue on a segment basis:

| ** **             | ** ** | **Three Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** | **Six Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** |
|------------------------|------------|-------------------------------------------------|------------|---------------------------|------------|-----------------------------------------------|------------|---------------------------|------------|
| ** **             | ** ** | **2007**                                        | ** ** | **2006**                  | ** ** | **% Change**                             | ** ** | **2007**                  | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **             | ** ** | **(Amounts in thousands)**            | ** ** |
| Renal                  |       | $                                               | —     |                      | $          | (31                                           | )          |                      | N/A        |   |   | $ | — |   | $ | — |   |   | N/A |   |   |
| Biosurgery             |       | 8,338                                           |       | 9,613                     |       |                                          | (13        | )%                        |       | 17,700 |   | 20,493 |   |   | (14 | )% |   |
| Genetics               |       | 73,714                                          |       | 61,041                    |       |                                          | 21         | %                         |       | 139,872 |   | 118,493 |   |   | 18 | % |   |
| Other                  |       | 423                                             |       | 389                       |       |                                          | 9          | %                         |       | 784 |   | 848 |   |   | (8 | )% |   |
| Total service  revenue |       | $                                               | 82,475     |                      | $          | 71,012                                        |       |                      | 16         | % |   | $ | 158,356 |   | $ | 139,834 |   |   | 13 | % |   |

 

Service revenue attributable to our Biosurgery segmentdecreased 13% to $8.3 million for the three months ended and 14% to $17.7million for the six months ended June 30, 2007, as compared to the sameperiods of 2006. The decreases are primarily due to a decline in sales ofEpicel due to decreases in patients requesting this service.

39

----

Service revenueattributable to our Genetics reporting segment increased 21% to$73.7 million for the three months ended and 18% to $139.9 million forthe six months ended June 30, 2007, as compared to the same periods of2006. These increases were primarily attributable to continued growth in salesof DNA and cancer testing services as well as the prenatal screening anddiagnosis market.

**InternationalProduct and Service Revenue**

Asubstantial portion of our revenue is generated outside of the United States.The following table provides information regarding the change in internationalproduct and service revenue as a percentage of total product and servicerevenue during the periods presented:

| ** **                                 | ** ** | **Three Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** | **Six Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------|------------|---------------------------|------------|-----------------------------------------------|------------|---------------------------|------------|
| ** **                                 | ** ** | **2007**                                        | ** ** | **2006**                  | ** ** | **% Change**                             | ** ** | **2007**                  | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                                 | ** ** | **(Amounts in thousands)**            | ** ** |
| International  product and service revenue |       | $                                               | 439,897    |                      | $          | 355,615                                       |       |                      | 24         | % |   | $ | 850,916 |   | $ | 682,295 |   |   | 25 | % |   |
| % of total product and  service revenue    |       | 47                                              | %          | 45                        | %          |                                          |       |                      |       | 47 | % | 45 | % |   |   |   |   |
|                                            |            |                                                 |            |                           |            |                                               |            |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The 24% increase to $439.9 million for the threemonths ended and the 25% increase to $850.9 million for the six months endedJune 30, 2007 in international product and service revenue, as compared tothe same periods of 2006, is primarily due to a $73.0 million increase forthe three month period and a $191.8 million increase for the six monthperiod, in the combined international sales of Renagel, Cerezyme, Fabrazyme andMyozyme primarily due to an increase in the number of patients using theseproducts in countries outside of the United States.

The 7% increase in theEuro against the U.S. dollar for the three months ended June 30, 2007, ascompared to the same period of 2006, positively impacted total product andservice revenue by $15.6 million. The 8% increase in the Euro against the U.S.dollar for the six months ended June 30, 2007, as compared to the sameperiod of 2006, positively impacted total product and service revenue by $33.6 million.

**Research and DevelopmentRevenue**

Thefollowing table sets forth our research and development revenue on a segmentbasis:

| ** **                              | ** ** | **Three Months Ended  June 30,**          | ** ** | **Increase/  (Decrease)**                                | ** ** | **Six Months Ended  June 30,** | ** ** | **Increase/  (Decrease)** | ** ** |
|-----------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------|------------|
| ** **                              | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** | **% Change**                             | ** ** | **2007**                  | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                              | ** ** | **(Amounts in thousands)**                     | ** ** |
| Therapeutics                            |       |                                                     | $          | 431                                                      |       |                                          |       | $                         | —     |   |   |   | N/A |   |   | $ | 1,069 |   | $ | 1,000 |   |   | 7 | % |   |
| Transplant                              |       |                                                     | —     |                                                     |       |                                          | —     |                      |       |   | N/A |   |   | 180 |   | — |   |   | N/A |   |   |
| Biosurgery                              |       |                                                     | 1,226      |                                                     |       |                                          | 1          |                      |       |   | >100 | % |   | 2,974 |   | 5 |   |   | >100 | % |   |
| Other                                   |       |                                                     | 3,406      |                                                     |       |                                          | 3,558      |                      |       |   | (4 | )% |   | 9,649 |   | 7,196 |   |   | 34 | % |   |
| Corporate                               |       |                                                     | 399        |                                                     |       |                                          | 50         |                      |       |   | >100 | % |   | 702 |   | 93 |   |   | >100 | % |   |
| Total research  and development revenue |       |                                                     | $          | 5,462                                                    |       |                                          |       | $                         | 3,609      |   |   |   | 51 | % |   | $ | 14,574 |   | $ | 8,294 |   |   | 76 | % |   |

 

Total research anddevelopment revenue increased $1.9 million for the three months ended and$6.3 million for the six months ended June 30, 2007, as compared tothe same periods of 2006, primarily due to increases in revenue recognized byour Biosurgery reporting segment and Other research and development revenue.The increase in our Biosurgery research and development revenue is for workdone 

40

----

relatedto dermal filler products as a result of new contracts entered into with MentorCorporation in September 2006, for which there were no comparable amountsin the first half of 2006. Other research and development revenue for the threeand six months ended June 30, 2007 includes $1.6 million of revenue forthe three months and $5.8 million for the six months for research anddevelopment work related to alemtuzumab for the treatment of multiple sclerosisthat we perform on behalf of Bayer Schering Pharma AG. Other research anddevelopment revenue also includes revenue related to our pharmaceuticals andcardiovascular businesses.

**MARGINS**

Thecomponents of our total margins are described in the following table:

| ** **                                   | ** ** | **Three Months Ended**     | ** ** | **Increase/**  | ** ** | **Six Months Ended** | ** ** | **Increase/**  | ** ** |
|----------------------------------------------|------------|--------------------------------------|------------|----------------|------------|--------------------------------|------------|----------------|------------|
| ** **                                   | ** ** | **June 30,**                    | ** ** | **(Decrease)** | ** ** | **June 30,**              | ** ** | **(Decrease)** | ** ** |
| ** **                                   | ** ** | **2007**                             | ** ** | **2006**       | ** ** | **% Change**              | ** ** | **2007**       | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                                   | ** ** | **(Amounts in thousands)** | ** ** |
| Product margin                               |       | $                                    | 682,230    |           | $          | 584,778                        |       |           | 17         | % |   | $ | 1,325,696 |   | $ | 1,121,601 |   |   | 18 | % |   |
| % of total product  revenue                  |       | 81                                   | %          | 81             | %          |                           |       |           |       | 81 | % | 82 | % |   |   |   |   |
| Service margin                               |       | $                                    | 28,129     |           | $          | 19,636                         |       |           | 43         | % |   | $ | 56,271 |   | $ | 42,020 |   |   | 34 | % |   |
| % of total service  revenue                  |       | 34                                   | %          | 28             | %          |                           |       |           |       | 36 | % | 30 | % |   |   |   |   |
| Total product and  service margin            |       | $                                    | 710,359    |           | $          | 604,414                        |       |           | 18         | % |   | $ | 1,381,967 |   | $ | 1,163,621 |   |   | 19 | % |   |
| % of total  product and service revenue |       | 77                                   | %          | 77             | %          |                           |       |           |       | 77 | % | 77 | % |   |   |   |   |

 

**Product Margin**

Our overall productmargin increased $97.5 million, or 17%, for the three months ended and$204.1 million, or 18%, for the six months ended June 30, 2007, ascompared to the same periods of 2006. This is primarily due to:

·       improvedmargins for Hectorol and Renagel due to price increases, increased customervolume and increased efficiency at our global manufacturing facilities as wellas the favorable foreign exchange rate for the Euro against the U.S. dollar;

·       anincrease in product margin for Cerezyme, Fabrazyme and Thyrogen due toincreased sales volume and improved unit costs;

·       improvedmargins for Myozyme due to the launch of Myozyme in the European Union, United Statesand Canada in 2006;

·       anincrease in product margin for Seprafilm and other HA products due to increasedsales; and

·       anincrease in product margin for our oncology business due to the increase inglobal sales of Campath and the increase in U.S. sales of Clolar.

These increases in product margin were partiallyoffset by a $3.2 million increase for the three months and a $6.6 millionincrease for the six months ended June 30, 2007 in stock-basedcompensation expenses compared to the same periods of 2006.

Total product margin as a percentage of productrevenue for the three months ended June 30, 2007 was consistent with thesame period of 2006. Total product margin as a percentage of product revenuefor the six months ended June 30, 2007 decreased slightly compared to thesame period of 2006 due to an increase in sales of higher cost Thymoglobulinproduct that was manufactured in our Waterford, Ireland plant and was sold in2007.

41

----

The amortization ofproduct related intangible assets is included in amortization expense and, as aresult, is excluded from cost of products sold and the determination of productmargins.

**Service Margin**

Our overall service margin increased$8.5 million, or 43%, for the three months ended and $14.3 million,or 34%, for the six months ended June 30, 2007. This is primarily due tothe increase in revenue from our DNA and cancer testing services as well as theprenatal screening and diagnosis market in 2007.

Total service margin as apercent of total service revenue increased in the three and six months ended June 30,2007, as compared to the same periods of 2006, primarily due to a decrease inpayroll costs related to Genetics services.

**OPERATING EXPENSES**

**Selling, Generaland Administrative Expenses**

Thefollowing table provides information regarding the change in SG&A duringthe periods presented:

| ** **                                    | ** ** | **Three Months Ended**     | ** ** | **Increase/**  | ** ** | **Six Months Ended** | ** ** | **Increase/**  | ** ** |
|-----------------------------------------------|------------|--------------------------------------|------------|----------------|------------|--------------------------------|------------|----------------|------------|
| ** **                                    | ** ** | **June 30,**                    | ** ** | **(Decrease)** | ** ** | **June 30,**              | ** ** | **(Decrease)** | ** ** |
| ** **                                    | ** ** | **2007**                             | ** ** | **2006**       | ** ** | **% Change**              | ** ** | **2007**       | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                                    | ** ** | **(Amounts in thousands)** | ** ** |
| Selling, general  and administrative expenses |       | $                                    | 339,480    |           | $          | 273,480                        |       |           | 24         | % |   | $ | 608,501 |   | $ | 504,149 |   |   | 21 | % |   |
| % of total revenue                            |       | 36                                   | %          | 34             | %          |                           |       |           |       | 33 | % | 33 | % |   |   |   |   |
|                                               |            |                                      |            |                |            |                                |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

SG&A increased$66.0 million for the three months ended and increased $104.4 millionfor the six months ended June 30, 2007, as compared to the same periods of2006, primarily due to spending of:

·       $5.4 millionfor the three month period and $11.8 million for the six month period forRenal products, primarily due to continued support of Renal’s international businessoperations growth;

·       $7.8 millionfor the three month period and $16.7 million for the six month period forTherapeutics products, primarily due to expenses incurred to prepare to launchMyozyme in additional countries during 2007;

·       $2.6million for the three month period and $5.5 million  for the six month period for Transplantproducts, primarily due to expenses resulting from the acquisition of AnorMEDin November 2006. Additional expenses were incurred for pre-launchactivities for Mozobil. Also contributing to this increase is spending onadditional personnel to support the expansion of Thymoglobulin into newmarkets;

·       $4.3 millionfor the three month period and $5.5 million for the six month period forBiosurgery, primarily due to sales force expansion; and

·       $66.7 millionfor the three month period and $79.3 million for the six month period forCorporate SG&A primarily due to a charge of $64.0 million recorded inJune 2007 related to the proposed settlement, subject to court approval andinsurance coverage, of the litigation related to the consolidation of ourformer tracking stocks, and increased spending for information technology, legalexpenses, employee recruiting and temporary help.

42

----

These increaseswere partially offset by decreases of: 

·       $4.1 millionfor the three month period and $2.0 million for the six month period forGenetics products, primarily due to a $6.1 million adjustment in June 2007to accruals related to our acquisition of the Physician Services and AnalyticalServices business units of IMPATH Inc. in May 2004; and

·       $17.4 millionfor the three month period and $14.4 million for the six month period attributableto a decrease in stock-based compensation expenses.

The decrease in SG&Aas a percentage of total revenue for both the three and six months ended June 30,2007 is primarily due to the reduction in stock-based compensationexpenses recorded.

**Research andDevelopment Expenses**

Thefollowing table provides information regarding the change in research anddevelopment expense during the periods presented:

| ** **                         | ** ** | **Three Months Ended**     | ** ** | **Increase/**  | ** ** | **Six Months Ended** | ** ** | **Increase/**  | ** ** |
|------------------------------------|------------|--------------------------------------|------------|----------------|------------|--------------------------------|------------|----------------|------------|
| ** **                         | ** ** | **June 30,**                    | ** ** | **(Decrease)** | ** ** | **June 30,**              | ** ** | **(Decrease)** | ** ** |
| ** **                         | ** ** | **2007**                             | ** ** | **2006**       | ** ** | **% Change**              | ** ** | **2007**       | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                         | ** ** | **(Amounts in thousands)** | ** ** |
| Research and  development expenses |       | $                                    | 198,442    |           | $          | 168,941                        |       |           | 17         | % |   | $ | 364,562 |   | $ | 321,264 |   |   | 13 | % |   |
| % of total revenue                 |       | 21                                   | %          | 21             | %          |                           |       |           |       | 20 | % | 21 | % |   |   |   |   |
|                                    |            |                                      |            |                |            |                                |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Research anddevelopment expenses increased $29.5 million for the three months endedand $43.3 million for the six months ended June 30, 2007, as comparedto the same periods of 2006, primarily due to:

·       a$37.5 million increase for the three month period and a $42.2 millionincrease for the six month period in spending on certain Therapeutics researchand development programs, including a $25.0 million up-front payment paidto Ceregene in June 2007 in connection with a collaboration agreement for thedevelopment and commercialization of CERE-120, a gene therapy product forthe treatment of Parkinson’s disease;

·       a$9.3 million increase for the three month period and a $16.7 millionincrease for the six month period in spending on Transplant research anddevelopment programs, primarily due to our acquisition of AnorMED in November 2006;and

·       a$3.9 million increase for the three month period and a $8.8 million increasefor the six month period in spending on Other research and developmentprograms, primarily on alemtuzumab for the treatment of multiple sclerosis.

These increases were partially offset by decreases of:

·       $4.6 millionfor the three month period and $10.7 million for the six month period inspending on our Renal programs due to the termination of our collaboration withRenaMed Biologics, Inc., or RenaMed, in February 2007;

·       $5.1 millionin spending for the three month period and $3.6 million in spending forthe six month period on certain Therapeutics research and development programs,including a $4.7 million decrease in spending for the three month period and a $1.5 milliondecrease in spending for the six month period due to the termination inFebruary 2007 of our joint venture with Dyax for development of DX-88 forthe treatment of HAE; and

43

----

·       $9.8 million for thethree month period and $8.8 million for the six month period for ourCorporate research and development programs, primarily due to decreases of $6.1 millionfor the three months ended and $4.7 million for the six months ended June 30,2007 in stock-based compensation expenses.

**Amortization ofIntangibles**

Thefollowing table provides information regarding the change in amortization ofintangibles expense during the periods presented:

| ** **                   | ** ** | **Three Months Ended**     | ** ** | **Increase/**  | ** ** | **Six Months Ended** | ** ** | **Increase/**  | ** ** |
|------------------------------|------------|--------------------------------------|------------|----------------|------------|--------------------------------|------------|----------------|------------|
| ** **                   | ** ** | **June 30,**                    | ** ** | **(Decrease)** | ** ** | **June 30,**              | ** ** | **(Decrease)** | ** ** |
| ** **                   | ** ** | **2007**                             | ** ** | **2006**       | ** ** | **% Change**              | ** ** | **2007**       | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                   | ** ** | **(Amounts in thousands)** | ** ** |
| Amortization of  intangibles |       | $                                    | 49,465     |           | $          | 52,883                         |       |           | (6         | )% |   | $ | 99,482 |   | $ | 105,575 |   |   | (6 | )% |   |
| % of total revenue           |       | 5                                    | %          | 7              | %          |                           |       |           |       | 5 | % | 7 | % |   |   |   |   |
|                              |            |                                      |            |                |            |                                |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Amortization of intangibles expense decreased by$3.4 million for the three months ended and $6.1 million for the sixmonths ended June 30, 2007, as compared to the same periods of 2006,primarily due to the write off in the first quarter of 2007 of $23.7 million offully amortized customer lists related to our acquisition of Bone Care in July 2005.

As discussed inNote 7., “Goodwill and Other Intangible Assets,” to our financialstatements included in this report, we calculate amortization expense for theSynvisc sales and marketing rights we reacquired from Wyeth and the Myozyme patentand technology rights acquired pursuant to a licensing agreement with Synpac bytaking into account forecasted future sales of Synvisc and Myozyme,respectively, and the resulting future contingent payments we will be requiredto make to Wyeth and Synpac. As a result, we expect amortization of intangiblesto fluctuate over the next five years based on these future contingentpayments.

**Purchase ofIn-Process Research and Development**

In connection with five of our acquisitions since2004, we have acquired various IPR&D projects. Substantial additionalresearch and development will be required prior to any of our acquiredIPR&D programs and technology platforms reaching technologicalfeasibility. In addition, once research is completed, each product candidateacquired will need to complete a series of clinical trials and receive FDA orother regulatory approvals prior to commercialization. Our current estimates ofthe time and investment required to develop these products and technologies maychange depending on the different applications that we may choose to pursue. Wecannot give assurances that these programs will ever reach technologicalfeasibility or develop into products that can be marketed profitably. Inaddition, we cannot guarantee that we will be able to develop and commercializeproducts before our competitors develop and commercialize products for the sameindications. If products based on our acquired IPR&D programs andtechnology platforms do not become commercially viable, our results of operationscould be materially adversely affected.

44

----

Thefollowing table sets forth IPR&D projects for companies and certain assetsacquired since 2004 (amounts in millions):

| **Company/Assets Acquired** | ** ** | ** ** | ** ** | **Purchase  Price** | ** ** | **IPR&D(1)** | ** ** | **Programs Acquired** | ** ** | **Discount Rate  Used in  Estimating  Cash  Flows(1)** | ** ** | **Year of  Expected  Launch**      | ** ** | **Estimated  Cost to  Complete** | ** ** |
|----------------------------------|------------|------------|------------|---------------------|------------|------------------|------------|----------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------------|------------|
| AnorMED (2006)                   |       |       | $          | 589.2               |       |             |       | $                          | 526.8      |                                                             |       | Mozobil  (stem cell transplant)         |       |                                  | 15         | % |   | 2008-2013 |   |   | $ | 125 |   |   |
|                             |       |       |       |                |       |             | 26.1       |                       |       | AMD070  (HIV)(2)                                                 |       |                                    | 15         | %                                     |       | — |   |   | — |   |   |
|                             |       |       |       |                |       |             | $          | 552.9                      |       |                                                             |       |                                    |       |                                  |       |   |   |   |   |   |   |   |
| Avigen (2005)                    |       |       | $          | 12.0                |       |             |       | $                          | 7.0        |                                                             |       | AV201  (Parkinson’s disease)       |       |                                  | N/A        |   |   | 2016 |   |   | $ | 100 |   |   |
| Bone Care (2005)                 |       |       | $          | 712.3               |       |             |       | $                          | 12.7       |                                                             |       | LR-103  (secondary hyperparathyroidism) |       |                                  | 25         | % |   | 2012 |   |   | $ | 15 |   |   |
| Verigen (2005)                   |       |       | $          | 12.7                |       |             |       | $                          | 9.5        |                                                             |       | MACI  (cartilage repair)                |       |                                  | 24         | % |   | 2012-2014 |   |   | $ | 20-$35 |   |   |
| ILEX Oncology (2004)             |       |       | $          | 1,080.3             |       |             |       | $                          | 96.9       |                                                             |       | Campath                                 |       |                                  | 11         | % |   | 2009-2011 |   |   | $ | 194 |   |   |
|                             |       |       |       |                |       |             | 113.4      |                       |       | Clolar                                                           |       |                                    | 12         | %                                     |       | 2008-2011 |   |   | $ | 99 |   |   |
|                             |       |       |       |                |       |             | 44.2       |                       |       | Tasidotin                                                        |       |                                    | 16         | %                                     |       | 2011-2014 |   |   | $ | 44 |   |   |
|                             |       |       |       |                |       |             | $          | 254.5                      |       |                                                             |       |                                    |       |                                  |       |   |   |   |   |   |   |   |

----

(1)                Management assumes responsibility for determining thevaluation of the acquired IPR&D projects. The fair value assigned toIPR&D for each acquisition is estimated by discounting, to present value,the cash flows expected once the acquired projects have reached technologicalfeasibility. The cash flows are probability-adjusted to reflect the risks ofadvancement through the product approval process. In estimating the future cashflows, we also considered the tangible and intangible assets required forsuccessful exploitation of the technology resulting from the purchasedIPR&D projects and adjusted future cash flows for a charge reflecting thecontribution to value of these assets.

(2)                Year of expected launch and estimated costto complete data is not provided for AMD070 at this time because we areassessing our future plans for this program.

**OTHER INCOME AND EXPENSES**

| ** **                                      | ** ** | **Three Months Ended**     | ** ** | **Increase/**  | ** ** | **Six Months Ended** | ** ** | **Increase/**  | ** ** |
|-------------------------------------------------|------------|--------------------------------------|------------|----------------|------------|--------------------------------|------------|----------------|------------|
| ** **                                      | ** ** | **June 30,**                    | ** ** | **(Decrease)** | ** ** | **June 30,**              | ** ** | **(Decrease)** | ** ** |
| ** **                                      | ** ** | **2007**                             | ** ** | **2006**       | ** ** | **% Change**              | ** ** | **2007**       | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                                      | ** ** | **(Amounts in thousands)** | ** ** |
| Equity in income  of equity method investments  |       | $                                    | 5,945      |           | $          | 3,854                          |       |           | 54         | % |   | $ | 11,557 |   | $ | 6,100 |   |   | 89 | % |   |
| Minority interest                               |       | 15                                   |       | 2,750          |       |                           | (99        | )%             |       | 3,927 |   | 5,196 |   |   | (24 | )% |   |
| Gains on  investments in equity securities, net |       | 143                                  |       | 66,967         |       |                           | (100       | )%             |       | 12,931 |   | 74,909 |   |   | (83 | )% |   |
| Other                                           |       | (278                                 | )          | (319           | )          |                           | (13        | )%             |       | (803 | ) | (458 | ) |   | 75 | % |   |
| Investment income                               |       | 17,246                               |       | 12,563         |       |                           | 37         | %              |       | 33,465 |   | 22,641 |   |   | 48 | % |   |
| Interest expense                                |       | (3,621                               | )          | (4,035         | )          |                           | (10        | )%             |       | (7,809 | ) | (8,473 | ) |   | (8 | )% |   |
| Total other  income                             |       | $                                    | 19,450     |           | $          | 81,780                         |       |           | (76        | )% |   | $ | 53,268 |   | $ | 99,915 |   |   | (47 | )% |   |

 

***Equity in Income of Equity Method Investments***

Under this caption, we record our portion of theresults of our joint ventures with BioMarin and Medtronic, Inc., orMedtronic, and our investment in Peptimmune, Inc., or Peptimmune.

Equity in income of equitymethod investments increased $2.1 million, or 54%, for the three monthsended and $5.5 million, or 89%, for the six months ended June 30, 2007, ascompared to the same periods of 2006, primarily due to an increase of $1.9million for the three months ended and $4.6 million for the six months ended June 30,2007 in our portion of the net income of BioMarin/Genzyme LLC attributable toincreased sales of Aldurazyme.

***Minority Interest***

Prior to February 20,2007, as a result of our application of FIN 46R, “Consolidation ofVariable Interest Entities,” we consolidated the results of Dyax-Genzyme LLCand Excigen Inc. Effective 

45

----

February 20,2007, we agreed with Dyax to terminate our participation and interest inDyax-Genzyme LLC effective February 20, 2007. In connection with thistermination, we made a capital contribution of approximately $17 million incash to Dyax-Genzyme LLC, and Dyax purchased our interest in the joint venturefor 4.4 million shares of Dyax common stock, valued at $16.9 million,based on the closing price of Dyax common stock on February 23, 2007.Prior to February 20, 2007, in accordance with FIN 46R, we consolidatedthe assets related to Dyax-Genzyme LLC, which were not significant andconsisted primarily of lab equipment net of their associated accumulateddepreciation, and recorded Dyax’s portion of this joint venture’s losses asminority interest in our consolidated statements of operations throughFebruary 20, 2007. The results of Excigen Inc. were not significant.

***Gains on Investments in Equity Securities, net***

Werecorded the following gains on investments in equity securities, net ofcharges for impairment of investments, for the three and six months ended June 30,2007 and 2006:

| ** **                                        | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                        | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                        | ** ** | **(Amounts in thousands)**                      | ** ** |
| Gross gains on  investments in equity securities: |       |                                            |       |                                          |       |   |   |   |   |   |   |
| THP                                               |       |                                            | $          | —                                        |       |   | $ | — |   | $ | 10,848 |   | $ | — |   |
| CAT                                               |       |                                            | —     |                                          |       | 69,359 |   | — |   | 69,359 |   |
| BioMarin                                          |       |                                            | —     |                                          |       | — |   | — |   | 6,417 |   |
| Other                                             |       |                                            | 143        |                                          |       | 501 |   | 2,083 |   | 2,026 |   |
| Total                                             |       |                                            | 143        |                                          |       | 69,860 |   | 12,931 |   | 77,802 |   |
| Less: charges for  impairment of investments      |       |                                            | —     |                                          |       | (2,893 | ) | — |   | (2,893 | ) |
| Gains on investments in  equity securities, net   |       |                                            | $          | 143                                           |       |   | $ | 66,967 |   | $ | 12,931 |   | $ | 74,909 |   |

 

***Unrealized Gains (Losses)***

At June 30, 2007, ourstockholders’ equity included $17.7 million of unrealized gains and$0.1 million of unrealized losses related to our investments in equitysecurities.

***Investment Income***

Our investment incomeincreased 37% to $17.2 million for the three months ended and 48% to$33.5 million for the six months ended June 30, 2007, as compared tothe same periods of 2006, primarily due to an increase in the average portfolioyield and higher average cash balances.

***Interest Expense***

Our interest expense decreased 10% to $3.6 millionfor the three months ended June 30, 2007, as compared to the same periodof 2006, primarily due to a $1.4 million increase in capitalized interest,which resulted in a decrease in interest expense, and a $0.2 milliondecrease in interest related to our 2003 revolving credit facility, which wasreplaced in July 2006. These overall decreases were offset in part by a $1.2million increase in interest expense related to asset retirement obligations,for which there was no similar amount in 2006. Our interest expense decreased8% to $7.8 million for the six months ended June 30, 2007, ascompared to the same period of 2006, primarily due to a $2.9 millionincrease in capitalized interest, which resulted in a decrease in interestexpense, and a $0.4 million decrease in interest related to our 2003 revolvingcredit facility, which was replaced in July 2006. These overall decreaseswere offset in part by a $2.6 million increase in interest expense related toasset retirement obligations, for which there was no similar amount in 2006.

46

----

**Provision for Income Taxes**

| ** **                  | ** ** | **Three Months Ended**     | ** ** | **Increase/**  | ** ** | **Six Months Ended** | ** ** | **Increase/**  | ** ** |
|-----------------------------|------------|--------------------------------------|------------|----------------|------------|--------------------------------|------------|----------------|------------|
| ** **                  | ** ** | **June 30,**                    | ** ** | **(Decrease)** | ** ** | **June 30,**              | ** ** | **(Decrease)** | ** ** |
| ** **                  | ** ** | **2007**                             | ** ** | **2006**       | ** ** | **% Change**              | ** ** | **2007**       | ** ** | **2006** | ** ** | **% Change** | ** ** |
| ** **                  | ** ** | **(Amounts in thousands)** | ** ** |
| Provision for  income taxes |       | $                                    | 64,090     |           | $          | 60,002                         |       |           | 7          | % |   | $ | 135,283 |   | $ | 105,371 |   |   | 28 | % |   |
| Effective tax rate          |       | 43                                   | %          | 31             | %          |                           |       |           |       | 36 | % | 31 | % |   |   |   |   |
|                             |            |                                      |            |                |            |                                |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Our effective taxrate for all periods varies from the U.S. statutory tax rate as a result of:

·       ourprovision for state income taxes;

·       thetax benefits from export sales;

·       thetax benefits from domestic production activities;

·       benefitsrelated to tax credits;

·       incomeand expenses taxed at rates other than the U.S. statutory tax rate;

·       non-deductiblestock-based compensation expenses; and

·       non-deductibleexpenses associated with the settlement of litigation related to theconsolidation of our former tracking stocks.

Effective January 1, 2007, we adopted FIN 48 andrecognized a cumulative effect adjustment of $33.9 million to increase ourretained earnings balance as of January 1, 2007, which consisted of $25.8 millionto record the combined effect of our gain contingency and the change in therecognition standard pursuant to the settlement criteria of FSP FIN 48-1and $8.1 million resulting from our settlement of the IRS audit for tax years2002 to 2003. After these adjustments, as of January 1, 2007, we hadapproximately $36.5 million of total gross unrealized tax benefits, of whichapproximately $26.6 million represents the amount of unrecognized tax benefitsthat, if recognized, would favorably affect our effective income tax rate in futureperiods. These gross unrealized tax benefits did not change significantlyduring the six months ended June 30, 2007.

We continue to recognize interest relating tounrecognized tax benefits within our provision for income taxes but have notrecorded any amounts related to potential penalties. The amount of accruedinterest related to unrecognized tax benefits within our provision for incometaxes for the three and six months ended June 30, 2007 and our accruedinterest related to unrecognized tax benefits as of January 1, 2007 andJune 30, 2007 were not significant.

We are subject to U.S. federal income tax and variousstate, local and international income taxes in numerous jurisdictions, however,our only significant tax jurisdiction is the United States. We recordliabilities for income tax contingencies based on our best estimate of theunderlying exposures. We are currently under IRS audit for tax years 2004 to2005, and in certain state and foreign jurisdictions from 2003 forward. Webelieve that we have provided sufficiently for all audit exposures andassessments. Settlement of these audits or the expiration of the statute oflimitations on the assessment of income taxes for any tax year may result in anincrease or reduction of future tax provisions. Any such tax or tax benefitwould be recorded upon final resolution of the audits or expiration of theapplicable statute of limitations.

Management has concludedthat it is not reasonably possible that the total amounts of unrecognized taxbenefits will significantly increase or decrease within 12 months of thereporting date.

47

----

**B.**               LIQUIDITYAND CAPITAL RESOURCES

We continue togenerate cash from operations. At June 30, 2007, we had cash, cashequivalents and short- and long-term investments of $1.5 billion, anincrease of $0.2 billion from $1.3 billion at December 31, 2006.

Thefollowing is a summary of our statements of cash flows for the six months endedJune 30, 2007 and 2006.

***Cash Flows from Operating Activities***

Cashflows from operating activities are as follows (amounts in thousands):

| ** **                                                                                                   | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                   | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| Cash flows from  operating activities:                                                                       |       |                                          |       |   |   |
| Net income                                                                                                   |       | $                                             | 241,981    |   | $ | 235,471 |   |
| Non-cash charges                                                                                             |       | 196,810                                       |       | 138,753 |   |
| Decrease in cash from working capital changes  (excluding impact of acquired assets and assumed liabilities) |       | (62,623                                       | )          | (14,059 | ) |
| Cash flows from  operating activities                                                                        |       | $                                             | 376,168    |   | $ | 360,165 |   |

 

Cash provided by operatingactivities increased $16.0 million for the six months ended June 30,2007, as compared to the same period of 2006, primarily due to a $58.1 millionincrease in non-cash charges and a $6.5 million increase in earnings,excluding non-cash charges, offset by a $48.6 million increase in cashused for working capital.

***Cash Flows from Investing Activities***

Cashflows from investing activities are as follows (amounts in thousands):

| ** **                                                                        | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                        | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| Cash flows from  investing activities:                                            |       |                                          |       |   |   |
| Net sales (purchases) of investments, excluding  investments in equity securities |       | $                                             | 84,919     |   | $ | (67,672 | ) |
| Net sales (purchases) of investments in equity  securities                        |       | (668                                          | )          | 33,281 |   |
| Purchases of property, plant and equipment                                        |       | (180,041                                      | )          | (156,406 | ) |
| Distributions from equity method investments                                      |       | 10,900                                        |       | 12,000 |   |
| Purchases of other intangible assets                                              |       | (27,618                                       | )          | (43,109 | ) |
| Other investing activities                                                        |       | 891                                           |       | 3,132 |   |
| Cash flows from  investing activities                                             |       | $                                             | (111,617   | ) | $ | (218,774 | ) |

 

For the six monthsended June 30, 2007, capital expenditures and acquisitions accounted forsignificant cash outlays for investing activities. For the six months ended June 30,2007, we used:

·       approximately$17 million for a capital contribution in connection with the termination ofour participation and interest in Dyax-Genzyme LLC:

·       $180.0 millionin cash to fund the purchase of property, plant and equipment, primarilyrelated to the ongoing expansion of our manufacturing capacity in the Republicof Ireland, the 

48

----

United Kingdom andBelgium, and the construction of a new research and development facility inFramingham, Massachusetts; and

·       $27.6 millionin cash for our reacquisition of the Synvisc sales and marketing rights fromWyeth and a milestone payment to Synpac.

Thesedecreases in cash were partially offset by cash provided by:

·       $84.9 millionin cash from the net sales of investments; and

·       $10.9 million of cashdistributions from our joint venture with BioMarin.

***Cash Flows from Financing Activities***

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

| ** **                                         | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                         | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| Cash flows from  financing activities:             |       |                                          |       |   |   |
| Proceeds from issuance of common stock             |       | $                                             | 68,174     |   | $ | 57,080 |   |
| Repurchase of common stock                         |       | (63,430                                       | )          | — |   |
| Excess tax benefits from stock-based  compensation |       | 565                                           |       | 4,659 |   |
| Payments of debt and capital lease obligations     |       | (3,356                                        | )          | (1,971 | ) |
| Increase (decrease) in bank overdrafts             |       | 15,935                                        |       | (7,222 | ) |
| Minority interest contributions                    |       | 4,136                                         |       | 5,232 |   |
| Other financing activities                         |       | 2,474                                         |       | 1,503 |   |
| Cash flows from  financing activities              |       | $                                             | 24,498     |   | $ | 59,281 |   |

 

In May 2007, ourboard of directors authorized a stock repurchase program to repurchase up to anaggregate maximum amount of $1.5 billion or 20,000,000 shares of ouroutstanding common stock over the next three years. The repurchases are beingmade from time to time and can be effectuated through open market purchases,privately negotiated transactions, transactions structured through investmentbanking institutions, or by other means, subject to management’s discretion andas permitted by securities laws and other legal requirements. InJune 2007, we repurchased a total of 968,485 shares of our common stock atan average price of $65.48 per share for $63.4 million of cash, including fees.We recorded the purchases in our consolidated balance sheet as of June 30,2007, as a reduction to our common stock account for the par value of therepurchased shares and as a reduction in additional paid-in capital in accordancewith the provisions of the MBCA. During the period from July 1, 2007 throughAugust 7, 2007, we repurchased 1,840,253 additional shares of our common stockat an average price of $63.98 per share for $117.8 million of cash,including fees. These additional repurchases will be reflected in ourconsolidated balance sheet as of September 30, 2007.

49

----

**Dyax**

***Agreements with Dyax***

In February 2007,we agreed with Dyax to terminate our participation and interest in Dyax-GenzymeLLC effective February 20, 2007. In connection with this termination, wemade a capital contribution of approximately $17 million in cash toDyax-Genzyme LLC and Dyax purchased our interest in the joint venture for4.4 million shares of Dyax common stock, valued at $16.9 million,based on the closing price of Dyax common stock on February 23, 2007. Dyaxnow owns all of the assets of the joint venture, including worldwide rights todevelop and commercialize DX-88. Pursuant to the termination agreement,we agreed to:

·       a5 year standstill period during which we will not acquire any additional sharesof Dyax;

·       notenter into any future licensing or collaboration arrangements for theprevention and or treatment of hereditary, acquired or drug-induced angioedemafor 2 years; and

·       negotiatein good faith a transitional services agreement for us to provide certainservices to Dyax.

***Note Receivable from Dyax***

In May 2002, we extended to Dyax a $7.0 millionline of credit. Dyax issued a senior secured promissory note in the principalamount of $7.0 million to us under which it can request periodic advances ofnot less than $250,000 in principal, subject to certain conditions. Advancesunder this note were due, together with any accrued but unpaid interest, in May 2005.In May 2005, Dyax exercised its right to extend the maturity of the notefrom May 2005 to May 2007.

In August 2006, we amended our $7.0 millionsecured promissory note receivable from Dyax to extend the maturity date from May 2007to May 2010, eliminate the existing financial covenants and replace theoriginal collateral on the note with a letter of credit from a major bank for$7.2 million.

Prior to May 24,2007, we considered Dyax to be a related party because the chairman and chiefexecutive officer of Dyax was a member of our board of directors. We recordedthe principal and accrued interest due to us from Dyax prior to May 24,2007 as a note receivable—related party in our unaudited, consolidated balancesheet. On May 24, 2007, the term of this director expired and he decidednot to stand for re-election, thus resigning from our board of directors. As aresult, Dyax was no longer considered our related party and we recorded theprincipal and accrued interest due to us from Dyax in other noncurrent assetsin our unaudited, consolidated balance sheet. As of June 30, 2007, $7.2million of principal and accrued interest receivable remains due to us fromDyax under this note.

**Revolving CreditFacility**

As of June 30, 2007,no amounts were outstanding under our 2006 revolving credit facility. The termsof our 2006 revolving credit facility include various covenants, includingfinancial covenants that require us to meet minimum interest coverage ratiosand maximum leverage ratios. As of June 30, 2007, we were in compliancewith these covenants.

**ContractualObligations**

The disclosure of paymentswe have committed to make under our contractual obligations is set forth underthe heading “Management’s Discussion and Analysis of Genzyme Corporation andSubsidiaries’ Financial Condition and Results of Operations—Liquidity andCapital Resources” in Exhibit 13 to our 2006 Form 10-K.Excluding additional contingent payments to Wyeth for the reacquisition of theSynvisc sales and marketing rights as of June 30, 2007 there have been nomaterial changes to our contractual obligations since December 31, 2006.

50

----

**Financial Position**

We believe that our available cash, investments andcash flows from operations will be sufficient to fund our planned operationsand capital requirements for the foreseeable future. Although we currently havesubstantial cash resources and positive cash flow, we have used or intend touse substantial portions of our available cash and may make additionalborrowings for:

·       productdevelopment and marketing;

·       businesscombinations and other strategic business initiatives, including theapproximately $345 million in cash we intend to spend on acquiringBioenvision;

·       our$1.5 billion stock repurchase program;

·       expandingexisting and constructing additional manufacturing facilities;

·       upgradingour systems;

·       contingentpayments under license and other agreements;

·       expandingstaff; and

·       workingcapital, including the approximately $64 million we expect to pay, subjectto court approval, for the proposed settlement of the litigation related to theconsolidation of our former tracking stocks, and satisfaction of ourobligations under capital and operating leases.

Our cash reserves may be further reduced to payprincipal and interest on the $690.0 million in principal under our 1.25%convertible senior notes due December 1, 2023. The notes are initiallyconvertible into Genzyme Stock at a conversion price of approximately $71.24per share. Holders of the notes may require us to repurchase all or any part ofthe notes for cash, common 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 thenotes plus accrued and unpaid interest through the date prior to the date ofrepurchase. Additionally, upon a change of control, each holder may require usto repurchase for cash, at 100% of the principal amount of the notes plusaccrued 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 plusaccrued interest, all or part of the notes that have not been previouslyconverted or repurchased.

In addition, we have several outstanding legalproceedings. Involvement in investigations and litigation can be expensive anda court may ultimately require that we pay expenses and damages. As a result oflegal proceedings, we also may be required to pay fees to a holder ofproprietary rights in order to continue certain operations. We have providedyou details on one set of pending legal proceedings in the notes to our consolidatedfinancial statements.

To satisfy these and othercommitments, we may have to obtain additional financing. We cannot guaranteethat we will be able to obtain any additional financing, extend any existingfinancing arrangement, or obtain either on favorable terms.

**Off-BalanceSheet Arrangements**

We do not use specialpurpose entities or other off-balance sheet financing arrangements. Weenter into guarantees in the ordinary course of business related to theguarantee of our own performance and the performance of our subsidiaries. Inaddition, we have joint ventures and certain other arrangements that arefocused on research, development, and the commercialization of products.Entities falling within the scope of FIN 46R are included in our consolidatedstatements of operations if we qualify as the primary beneficiary. Entities notsubject to consolidation under FIN 46R are accounted for under the equitymethod of accounting if our ownership percent exceeds 20% or if we exercisesignificant influence 

51

----

over theentity. We account for our portion of the income/losses of these entities inthe line item “Equity in income (loss) of equity method investments” in ourstatements of operations. We also acquire companies in which we agree to paycontingent consideration based on attaining certain thresholds.

**Recent AccountingPronouncements**

*FAS 157,“Fair Value Measurements.”*   In September 2006,the FASB issued FAS 157, “Fair Value Measurements,” which providesenhanced guidance for using fair value to measure assets and liabilities.FAS 157 establishes a common definition of fair value, provides aframework for measuring fair value under accounting principles generallyaccepted in the United States and expands disclosure requirements regardingfair value measurements. FAS 157 will be effective for us as of January 1,2008. We are currently evaluating the impact, if any, the adoption ofFAS 157 will have on our financial position and results of operations.

*FAS 159, “The Fair ValueOption for Financial Assets and Financial Liabilities—Including an Amendment ofFASB Statement No. 115.”*   In February 2007,the FASB issued FAS 159, “The FairValue Option for Financial Assets and Financial Liabilities—Including anAmendment of FASB Statement No. 115,” which permits, but does notrequire, entities to measure certain financial instruments and other assets andliabilities at fair value on an instrument-by-instrument basis. Unrealizedgains and losses on items for which the fair value option has been electedshould be recognized in earnings at each subsequent reporting date.FAS 159 will be effective for us as of January 1, 2008 and cannot beadopted early unless FAS 157 is also adopted. We are currently evaluatingthe impact, if any, the adoption of FAS 159 will have on our financialposition and results of operations.

**RISK FACTORS**

Ourfuture operating results could differ materially from the results described inthis report due to the risks and uncertainties related to our business,including those discussed below.

**Our financialresults are highly dependent on sales of Cerezyme.**

We generate a significantportion of our revenue from sales of Cerezyme, our enzyme-replacementproduct for patients with Gaucher disease. Sales of Cerezyme totaled$546.8 million for the six months ended June 30, 2007, representingapproximately 33% of our consolidated total product revenue. Because ourbusiness is highly dependent on Cerezyme, negative trends in revenue from thisproduct could have a significant adverse effect on our results of operationsand cause the value of our securities to decline substantially. We will loserevenue if alternative treatments gain commercial acceptance, if our marketingactivities are restricted, or if reimbursement is limited. In addition, thepatient population with Gaucher disease is not large. Because a significantpercentage of that population already uses Cerezyme, opportunities for futuresales growth are constrained. Furthermore, changes in the methods for treatingpatients with Gaucher disease, including treatment protocols that combineCerezyme with other therapeutic products or reduce the amount of Cerezymeprescribed, could limit growth, or result in a decline, in Cerezyme sales.

**If we fail toincrease sales of several existing products and services, we will not meet ourfinancial goals.**

Over the next fewyears, our success will depend substantially on our ability to increase revenuefrom our existing products and services. These products and services includeRenagel, Synvisc, Fabrazyme, Aldurazyme, Myozyme, Hectorol, Thymoglobulin,Thyrogen, Clolar, Campath and diagnostic testing services. Our ability toincrease sales will depend on a number of factors, including:

·       acceptanceby the medical community of each product or service;

52

----

·       theavailability of competing treatments that are deemed more efficacious, moreconvenient to use, or more cost effective;

·       ourability, and the ability of our collaborators, to efficiently manufacturesufficient quantities of each product to meet demand and to do so in a costefficient manner;

·       regulationby the U.S. Food and Drug Administration, commonly referred to as the FDA, andthe European Agency for the Evaluation of Medicinal Products, or EMEA, andother regulatory authorities of these products and the facilities and processesused to manufacture these products;

·       thescope of the labeling approved by regulatory authorities for each product andcompetitive products;

·       theeffectiveness of our sales force;

·       theavailability and extent of coverage, pricing and level of reimbursement fromgovernmental agencies and third party payors; and

·       thesize of the patient population for each product or service and our ability toidentify new patients.

Part of our growth strategy involves conductingadditional clinical trials to support approval of expanded uses of some of ourproducts, including Clolar and alemtuzumab, pursuing marketing approval for ourproducts in new jurisdictions and developing next generation products such asRenvela and Synvisc-One. The success of this component of our growth strategywill depend on the outcome of these additional clinical trials, the content andtiming of our submissions to regulatory authorities and whether and when thoseauthorities determine to grant approvals.

Because the healthcareindustry is extremely competitive and regulatory requirements are rigorous, wespend substantial funds marketing our products and attempting to expandapproved uses for them. These expenditures depress near-term profitability,with no assurance that the expenditures will generate future profits thatjustify the expenditures.

**Our future success will depend on our ability toeffectively develop and market our products and services against those of ourcompetitors.**

The human healthcare products and services industry isextremely competitive. Other organizations, including pharmaceutical,biotechnology, device and diagnostic testing companies, have developed and aredeveloping products and services to compete with our products, services, andproduct candidates. If healthcare providers, patients or payors prefer thesecompetitive products or services or these competitive products or services havesuperior safety, efficacy, pricing or reimbursement characteristics, we willhave difficulty maintaining or increasing the sales of our products andservices.

Renagel competes with two other products approved inthe United States for the control of elevated phosphorus levels in patientswith chronic kidney failure on hemodialysis. Fresenius Medical Care marketsPhosLo®, acalcium-based phosphate binder. Shire Pharmaceuticals Group plc, orShire, markets Fosrenol®, anon-calcium based phosphate binder. Amgen, Inc. recently acquired Ilypsa andits product candidate, ILY101, a polymeric phosphate binder that completed aphase 2 trial in CKD patients on dialysis. Renagel also competes withover-the-counter calcium carbonate products such as TUMS® andmetal-based options such as aluminum and magnesium.

UCB S.A. has developed Zavesca®, a small molecule drug for thetreatment of Gaucher disease, the disease addressed by Cerezyme. Zavesca hasbeen approved in the United States, European Union and Israel as an oraltherapy for use in patients with mild to moderate Type 1 Gaucher disease forwhom enzyme replacement therapy is unsuitable. In addition, Shire reportedtop-line data from a phase 1/2 

53

----

clinical trial for itsgene-activated glucocerebrosidase program, also to treat Gaucher disease, and initiatedphase 3 studies in July 2007. Protalix Biotherapeutics Ltd. announced plans forinitiation in the third quarter of 2007 of a phase 3 trial for plant-derivedenzyme replacement therapy to treat Gaucher disease. Amicus Therapeutics, Inc.,or Amicus, is conducting phase 2 trials for oral chaperone medication totreat Gaucher disease. We are also aware of other development efforts aimed attreating Gaucher disease.

Outside the United States, Shire is marketingReplagalTM, a competitive enzyme replacement therapy for Fabry disease which isthe disease addressed by Fabrazyme. In addition, while Fabrazyme has receivedorphan drug designation, which provides us with seven years of marketexclusivity for the product in the United States, other companies may seek toovercome our market exclusivity and, if successful, compete with Fabrazyme inthe United States. Amicus has initiated phase 2 trials for oral chaperonemedication to treat Fabry disease. We are aware of other development effortsaimed at treating Fabry disease.

Current competition for Synvisc includes Supartz®, a product manufactured bySeikagaku Kogyo that is sold in the United States by Smith & NephewOrthopaedics and in Japan by Kaken Pharmaceutical Co. under the name Artz®; Hyalgan®, produced by Fidia Farmaceutici S.p.A.and marketed in the United States by Sanofi-Aventis; Orthovisc®, produced by AnikaTherapeutics, Inc., and marketed in the United States by Johnson &Johnson and marketed outside the United States through distributors; EuflexxaTM,a product manufactured and sold by Ferring Pharmaceuticals and marketed in theUnited States and Europe; and Durolane®,manufactured by Q-Med AB and distributed outside the United States by Smith &Nephew Orthopedics. We are aware of various viscosupplementation products onthe market or in development, but are unaware of any products that havephysical properties of viscosity, elasticity or molecular weight comparable tothose of Synvisc. Furthermore, several companies market products that are notviscosupplementation products but which are designed to relieve the painassociated with osteoarthritis. Synvisc will have difficulty competing with anyof these products to the extent the competitive products are considered moreefficacious, less burdensome to administer or more cost-effective.

Several companies market products that, likeThymoglobulin and Lymphoglobuline, are used for the prevention and treatment ofacute rejection in renal transplant. These products include Novartis’ Simulect®, Pfizer Inc.’s ATGAM®. Competition in the acutetransplant rejection market is driven largely by product efficacy due to thepotential decreased long-term survival of transplanted organs as the result ofan acute organ rejection episode.

The examples above areillustrative and not exhaustive. Almost all of our products and services facecompetition. Furthermore, the field of biotechnology is characterized bysignificant and rapid technological change. Discoveries by others may make ourproducts or services obsolete. For example, competitors may develop approachesto treating LSDs that are more effective, convenient or less expensive than ourproducts and product candidates. Because a significant portion of our revenueis derived from products that address this class of diseases and a substantialportion of our expenditures is devoted to developing new therapies for thisclass of diseases, such a development would have a material negative impact onour results of operations.

**If we fail to obtain and maintain adequate levels ofreimbursement for our products from third party payors, the commercialpotential of our products will be significantly limited.**

A substantial portion of our domestic andinternational revenue comes from payments by third party payors, includinggovernment health administration authorities and private health insurers.Governments and other third party payors may not provide adequate insurancecoverage or reimbursement for our products and services, which could impair ourfinancial results.

54

----

Third party payorsare increasingly scrutinizing pharmaceutical budgets and healthcare expensesand are attempting to contain healthcare costs by:

·       challengingthe prices charged for healthcare products and services;

·       limitingboth the coverage and the amount of reimbursement for new therapeutic products;

·       reducingexisting reimbursement rates for commercialized products and services;

·       limitingcoverage for the treatment of a particular patient to a maximum dollar amountor specified period of time;

·       denyingor limiting coverage for products that are approved by the FDA or othergovernmental regulatory bodies but are considered experimental orinvestigational by third party payors; and

·       refusingin some cases to provide coverage when an approved product is used for diseaseindications in a way that has not received FDA or other applicable marketingapproval.

Attempts by third party payors to reduce costs in anyof these ways could decrease demand for our products. In addition, in certaincountries, including countries in the European Union and Canada, the coverageof prescription drugs, the pricing, and the level of reimbursement are subjectto governmental control. Therefore, we may be unable to negotiate coverage,pricing and/or reimbursement on terms that are favorable to us. Governmenthealth administration authorities may also rely on analyses of thecost-effectiveness of certain therapeutic products in determining whether toprovide reimbursement for such products. Our ability to obtain satisfactorypricing and reimbursement may depend in part on whether our products, the costof some of which is high in comparison to other therapeutic products, areviewed as cost-effective.

Furthermore, governmentalregulatory bodies, such as the Centers for Medicare and Medicaid Services(CMS), may from time-to-time make unilateral changes to reimbursement rates forour products and services. These changes could reduce our revenues by causinghealthcare providers to be less willing to use our products and services.Although we actively seek to assure that any initiatives that are undertaken byregulatory agencies involving reimbursement for our products and services donot have an adverse impact on us, we may not always be successful in theseefforts. For example, in October 2006, the CMS announced a change to thebilling code for viscosupplementation products effective January 2007that, if unchanged, would have resulted in Medicare reimbursement for Synviscat a rate that is lower than the price healthcare providers are currentlypaying for the product. In December 2006, the CMS reversed its decision.If the CMS billing code decision had been left unchanged, our Synvisc revenueswould have been adversely affected because healthcare providers likely wouldhave been less willing to use Synvisc. Although the CMS ultimately reversed itsdecision and left the mechanism for calculating Synvisc reimbursement in 2007substantially similar to the reimbursement mechanism for 2006, we have no wayof knowing whether, at some point in the future, the CMS will change the methodfor reimbursing Synvisc or any of our other products and services in a way thatcould have an adverse effect on our revenues.

**The development of new biotechnology products involvesa lengthy and complex process, and we may be unable to commercialize any of theproducts we are currently developing.**

We have numerous products under development and devoteconsiderable resources to research and development, including clinical trials.

Before we cancommercialize our development-stage product candidates, we will need to:

·       conductsubstantial research and development;

·       undertakepreclinical and clinical testing;

55

----

·       developand scale-up manufacturing processes; and

·       pursuemarketing approvals and, in some jurisdictions, pricing and reimbursement approvals.

Thisprocess involves a high degree of risk and takes many years. Our productdevelopment efforts with respect to a product candidate may fail for manyreasons, including:

·       failureof the product candidate in preclinical studies;

·       difficultyenrolling patients in clinical trials, particularly for disease indicationswith small patient populations;

·       patientsexhibiting adverse reactions to the product candidate or indications of othersafety concerns;

·       insufficientclinical trial data to support the effectiveness of the product candidate;

·       ourinability to manufacture sufficient quantities of the product candidate fordevelopment or commercialization activities in a timely and cost-efficientmanner;

·       ourfailure to obtain the required regulatory approvals for the product candidate,the facilities or the process used to manufacture the product candidate; or

·       changesin the regulatory environment, including pricing and reimbursement, that makedevelopment of a new product or indication no longer desirable.

Few research and development projects result incommercial products, and success in preclinical studies or early clinicaltrials often is not replicated in later studies. For example, in our phase 3trial known as the Polymer Alternative for CDAD treatment (PACT) study,tolevamer did not meet its primary endpoint. In our pivotal study of hylastanin treating patients with osteoarthritis of the knee, hylastan did not meet itsprimary endpoint. We may decide to abandon development of a product or servicecandidate at any time or we may be required to expend considerable resourcesrepeating clinical trials or conducting additional trials, either of whichwould increase costs of development and delay any revenue from those productcandidates.

Our efforts to expand theapproved indications for our products and to gain marketing approval in newjurisdictions and to develop next generation products also may fail. Theseexpansion efforts are subject to many of the risks associated with completelynew products and accordingly, we may fail to recoup the investments we make pursuingthese strategies.

**We may encountersubstantial difficulties managing our growth.**

Several risks are inherent to our plans to grow ourbusiness. Achieving our goals will require substantial investments in researchand development, sales and marketing, and facilities. For example, we havespent considerable resources building and seeking regulatory approvals for ourmanufacturing plants. We cannot assure you that these facilities will provesufficient to meet demand for our products or that we will not have excesscapacity at these facilities. In addition, building our facilities isexpensive, and our ability to recover these costs will depend on increasedrevenue from the products produced at the facilities.

We produce relatively small amounts of material forresearch and development activities and pre-clinical trials. Even if a productcandidate receives all necessary approvals for commercialization, we may not beable to successfully scale up production of the product material at areasonable cost or at all.

If we are able to grow sales of our products, we mayhave difficulty managing inventory levels. Marketing new therapies is acomplicated process, and gauging future demand is difficult. With Renagel, forexample, we have encountered problems in the past managing inventory levels atwholesalers. Comparable problems may arise with any of our products,particularly during market introduction.

56

----

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

·       wholesalerbuying patterns;

·       reimbursementrates;

·       physicianprescribing habits;

·       theavailability or pricing of competitive products; and

·       currencyexchange rates.

We may also experiencefluctuations in our quarterly results due to price changes and salesincentives. For example, purchasers of our products, particularly wholesalers,may increase purchase orders in anticipation of a price increase and reduceorder levels following the price increase. We occasionally offer salesincentives and promotional discounts on some of our products and services thatcould have a similar impact. In addition, some of our products, includingSynvisc, are subject to seasonal fluctuation in demand.

**Our operatingresults and financial position may be impacted when we attempt to grow throughbusiness combination transactions.**

We may encounter problemsassimilating operations acquired in business combination transactions. Thesetransactions often entail the assumption of unknown liabilities, the loss ofkey employees, and the diversion of management attention. Furthermore, in anybusiness combination, including our acquisition of AnorMED Inc., there is asubstantial risk that we will fail to realize the benefits we anticipated whenwe decided to undertake the transaction. We have in the past taken significantcharges for impaired goodwill and for impaired assets acquired in businesscombination transactions. We may be required to take similar charges in thefuture.

**Manufacturingproblems may cause product launch delays, inventory shortages, recalls andunanticipated costs.**

In order to generate revenue from our approvedproducts, we must be able to produce sufficient quantities of the products.Many of our products are difficult to manufacture. Our products that arebiologics, for example, require product characterization steps that are moreonerous than those required for most chemical pharmaceuticals. Accordingly, weemploy multiple steps to attempt to control the manufacturing processes. Minordeviations in these manufacturing processes could result in unacceptable changesin the products that result in lot failures, product recalls, product liabilityclaims and insufficient inventory.

Certain of the raw materials required in thecommercial manufacturing and the formulation of our products are derived frombiological sources, including mammalian sources and human plasma. Such rawmaterials may be subject to contamination or recall. Also, some countries inwhich we market our products may restrict the use of certain biologicallyderived substances in the manufacture of drugs. A material shortage,contamination, recall, or restriction of the use of certain biologicallyderived substances in the manufacture of our products could adversely impact ordisrupt our commercial manufacturing of our products or could result in a mandatedwithdrawal of our products from the market. This too, in turn, could adverselyaffect our ability to satisfy demand for our products, which could materiallyand adversely affect our operating results.

In addition, we may only be able to produce certain ofour products at a very limited number of facilities and, in some cases, we relyon third parties to formulate and manufacture our products. For example, wemanufacture all of our Cerezyme and a portion of our Fabrazyme and Myozymeproducts at our facility in Allston, Massachusetts. A number of factors couldcause production interruptions at our 

57

----

facilities or thefacilities of our third party providers, including equipment malfunctions,labor problems, natural disasters, power outages, terrorist activities, ordisruptions in the operations of our suppliers.

Manufacturing is alsosubject to extensive government regulation. Regulatory authorities must approvethe facilities in which human healthcare products are produced and thosefacilities are subject to ongoing inspections. In addition, changes inmanufacturing processes may require additional regulatory approvals. Obtainingand maintaining these regulatory approvals could cause us to incur significantadditional costs and lose revenue. For example, we are currently working withthe FDA to obtain approval of a larger-scale Myozyme manufacturing process. Weanticipate receiving that approval in the first half of 2008 and, until thattime, are taking actions to optimize our U.S. Myozyme supply, including makingMyozyme available to some patients through a clinical access program. Furthermore,any third party we use to manufacture, fill-finish or package our products tobe sold must also be licensed by the applicable regulatory authorities. As aresult, alternative third party providers may not be readily available on atimely basis.

**Guidelines andrecommendations published by various organizations can reduce the use of ourproducts.**

Professional societies,practice management groups, private health/science foundations, andorganizations involved in various diseases may publish guidelines orrecommendations to the healthcare and patient communities from time to time.Recommendations of government agencies or these other groups/organizations mayrelate to such matters as usage, dosage, route of administration,cost-effectiveness, and use of related therapies. Organizations like these havein the past made recommendations about our products and products of ourcompetitors. Recommendations or guidelines that are followed by patients andhealthcare providers could result in decreased use of our products. Theperception by the investment community or shareholders that recommendations orguidelines will result in decreased use of our products could adversely affectprevailing market price for our common stock. In addition, our success alsodepends on our ability to educate patients and healthcare providers about ourproducts and their uses. If these education efforts are not effective, then wemay not be able to increase the sales of our existing products or successfullyintroduce new products to the market.

**We rely on thirdparties to provide us with materials and services in connection with themanufacture of our products.**

Certain materials necessary for commercial productionof our products, including specialty chemicals and components necessary formanufacture, fill-finish and packaging, are provided by unaffiliated thirdparty suppliers. In some cases, such materials are specifically cited in ourmarketing application with regulatory authorities so that they must be obtainedfrom that specific source unless and until the applicable authority approvedanother supplier. In addition, there may only be one available source for aparticular chemical or component. For example, we acquire polyalylamine (PAA),used in the manufacture of Renagel and WelChol, from Cambrex CharlesCity, Inc., the only source for this material currently qualified in ourFDA drug applications for these products. Our suppliers also may be subject toFDA regulations or the regulations of other governmental agencies outsidethe United States regarding manufacturing practices. We may be unable tomanufacture our products in a timely manner or at all if these third partysuppliers were to cease or interrupt production or otherwise fail to supplythese materials or products to us for any reason, including due to regulatoryrequirements or actions, adverse financial developments at or affecting thesupplier, or labor shortages or disputes.

We also source some of ourmanufacturing, fill-finish, packaging and distribution operations to thirdparty contractors. The manufacture of products, fill-finish, packaging anddistribution of our products requires successful coordination among these thirdparty providers and Genzyme. Our inability to coordinate these efforts, thelack of capacity available at a third party contractor or any other problemswith the operations of these third party contractors could require us to delayshipment of saleable 

58

----

products,recall products previously shipped or could impair our ability to supplyproducts at all. This could increase our costs, cause us to lose revenue ormarket share and damage our reputation.

**If our strategicalliances are unsuccessful, our operating results will be negatively impacted.**

Several of ourstrategic initiatives involve alliances with other biotechnology andpharmaceutical companies, including a joint venture with BioMarinPharmaceutical Inc. with respect to Aldurazyme. The success of these andsimilar arrangements is largely dependent on technology and other intellectualproperty contributed by our strategic partners or the resources, efforts, andskills of our partners. Disputes and difficulties in such relationships arecommon, often due to conflicting priorities or conflicts of interest. Mergerand acquisition activity may exacerbate these conflicts. The benefits of thesealliances are reduced or eliminated when strategic partners:

·       terminatethe agreements or limit our access to the underlying intellectual property;

·       failto devote financial or other resources to the alliances and thereby hinder ordelay development, manufacturing or commercialization activities;

·       failto successfully develop, manufacture or commercialize any products; or

·       failto maintain the financial resources necessary to continue financing theirportion of the development, manufacturing, or commercialization costs of theirown operations.

Furthermore, payments wemake under these arrangements may exacerbate fluctuations in our financialresults. In addition, under some of our strategic alliances, we make milestonepayments well in advance of commercialization of products with no assurancethat we will ever recoup these payments. We also may make equity investments inour strategic partners, as we did with RenaMed Biologics, Inc., orRenaMed, in June 2005. Our strategic equity investments are subject tomarket fluctuations, access to capital and other business events, such asinitial public offerings, the completion of clinical trials and regulatoryapprovals, which can impact the value of these investments. For example, inOctober 2006, RenaMed suspended clinical trials of its renal assist devicewhich was being developed to treat patients with acute renal failure, causingus to write off our entire investment in RenaMed. If any of our other strategicequity investments decline in value and remain below cost for an extendedduration, we may incur additional financial statement charges.

**Governmentregulation imposes significant costs and restrictions on the development andcommercialization of our products and services.**

Our success will depend on our ability to satisfyregulatory requirements. We may not receive required regulatory approvals on atimely basis or at all. Government agencies heavily regulate the production andsale of healthcare products and the provision of healthcare services. Inparticular, the FDA and comparable regulatory agencies in foreign jurisdictionsmust approve human therapeutic and diagnostic products before they aremarketed, as well as the facilities in which they are made. This approvalprocess can involve lengthy and detailed laboratory and clinical testing,sampling activities and other costly and time-consuming procedures. Severalbiotechnology companies have failed to obtain regulatory approvals becauseregulatory agencies were not satisfied with the structure or conduct ofclinical trials. Similar problems could delay or prevent us from obtainingapprovals. Furthermore, regulatory authorities, including the FDA, may notagree with our interpretations of our clinical trial data, which could delay,limit or prevent regulatory approvals.

59

----

Therapies that havereceived regulatory approval for commercial sale may continue to faceregulatory difficulties. If we fail to comply with applicable regulatoryrequirements, regulatory authorities could take actions against us, including:

·       issuingwarning letters;

·       issuingfines and other civil penalties;

·       suspendingregulatory approvals;

·       refusingto approve pending applications or supplements to approved applications;

·       suspendingproduct sales, imports and/or exports;

·       requiringus to communicate with physicians and other customers about concerns related topotential safety, efficacy, and other issues involving Genzyme products;

·       mandatingproduct recalls; and

·       seizingproducts.

Furthermore, the FDA andcomparable foreign regulatory agencies may require post-marketing clinicaltrials or patient outcome studies. We have agreed with the FDA, for example, toa number of post-marketing commitments as a condition to U.S. marketingapproval for Fabrazyme, Aldurazyme and Myozyme. In addition, regulatoryagencies subject a marketed therapy, its manufacturer and the manufacturer’sfacilities to continual review and periodic inspections. The discovery ofpreviously unknown problems with a therapy or the facility or process used toproduce the therapy could prompt a regulatory authority to impose restrictionson us, or could cause us to voluntarily adopt such restrictions, includingwithdrawal of one or more of our products or services from the market.

**We may incursubstantial costs as a result of litigation or other proceedings.**

A third party maysue us or one of our strategic collaborators for infringing the third party’spatent or other intellectual property rights. Likewise, we or one of ourstrategic collaborators may sue to enforce intellectual property rights or todetermine the scope and validity of third party proprietary rights. If we donot prevail in this type of litigation, we or our strategic collaborators maybe required to:

·       paymonetary damages;

·       stopcommercial activities relating to the affected products or services;

·       obtaina license in order to continue manufacturing or marketing the affected productsor services; or

·       competein the market with a different product.

We are also currently involved in litigation mattersand investigations that do not involve intellectual property claims and may besubject to additional actions in the future. For example, the federalgovernment, state governments and private payors are investigating and havebegun to file actions against numerous pharmaceutical and biotechnologycompanies, including Genzyme, alleging that the companies have overstatedprices in order to inflate reimbursement rates. Domestic and internationalenforcement authorities also have instituted actions under healthcare “fraudand abuse” laws, including anti-kickback and false claims statutes. Moreover,individuals who use our products or services, including our diagnostic productsand genetic testing services, sometimes bring product and professionalliability claims against us or our subsidiaries.

60

----

We may also become subject to investigations bygovernment authorities in connection with our business activities. For example,we are currently cooperating with an investigation of Bone Care by the UnitedStates Attorney for the Eastern District of New York which was initiated inOctober 2004, when Bone Care received a subpoena requiring it to provide awide range of documents related to numerous aspects of its business.

We believe some of our products are prescribed byphysicians for uses not approved by the FDA or comparable regulatory agenciesoutside the United States. Although physicians may lawfully prescribe ourproducts for off-label uses, any promotion by us of off-label uses would beunlawful. Some of our practices intended to make physicians aware of off-labeluses of our products without engaging in off-label promotion could nonethelessbe construed as off-label promotion. Although we have policies and proceduresin place designed to help assure ongoing compliance with regulatoryrequirements regarding off-label promotion, some non-compliant actions maynonetheless occur. Regulatory authorities could take enforcement action againstus if they believe we are promoting, or have promoted, our products foroff-label use.

We have only limited amounts of insurance, which maynot provide coverage to offset a negative judgment or a settlement payment. Wemay be unable to obtain additional insurance in the future, or we may be unableto do so on acceptable terms. Our insurers may dispute our claims for coverage.For example, we have submitted claims to our insurers for reimbursement of portionsof the expenses incurred and to be incurred with the litigation related to theconsolidation of our tracking stock. The insurer has purported to denycoverage. Any additional insurance we do obtain may not provide adequatecoverage against any asserted claims.

Regardless of meritor eventual outcome, investigations and litigations can result in:

·       diversionof management’s time and attention;

·       expenditureof large amounts of cash on legal fees, expenses, and payment of damages;

·       limitationson our ability to continue some of our operations;

·       decreaseddemand for our products and services; and

·       injuryto our reputation.

**Our internationalsales, clinical activities, manufacturing and other operations are subject tothe economic, political, legal and business environments of the countries inwhich we do business, and our failure to operate successfully or adapt tochanges in these environments could cause our international sales andoperations to be limited or disrupted.**

Our internationaloperations accounted for approximately 47% of our consolidated product andservice revenues for the six months ended June 30, 2007. We expect thatinternational product and service sales will continue to account for asignificant percentage of our revenues for the foreseeable future. In addition,we have direct investments in a number of subsidiaries outside of the UnitedStates, primarily in the European Union, Latin America and Japan. Ourinternational sales and operations could be limited or disrupted, and the valueof our direct investments may be diminished, by any of the following:

·       economicproblems that disrupt foreign healthcare payment systems;

·       fluctuationsin currency exchange rates;

·       theimposition of governmental controls;

·       lessfavorable intellectual property or other applicable laws;

·       theinability to obtain any necessary foreign regulatory or pricing approvals ofproducts in a timely manner;

61

----

·       theinability to obtain third party reimbursement support for products;

·       productcounterfeiting and intellectual property piracy;

·       parallelimports;

·       anti-competitivetrade practices;

·       importand export license requirements;

·       politicalinstability;

·       terroristactivities, armed conflict, or outbreak of diseases such as severe acuterespiratory syndrome (SARS) or avian influenza;

·       restrictionson direct investments by foreign entities and trade restrictions;

·       changesin tax laws and tariffs;

·       difficultiesin staffing and managing international operations; and

·       longer payment cycles.

Our operations and marketing practices are alsosubject to regulation and scrutiny by the governments of the other countries inwhich we operate. In addition, the United States Foreign Corrupt Practices Actprohibits U.S. companies and their representatives from offering, promising,authorizing or making payments to foreign officials for the purpose ofobtaining or retaining business abroad. Failure to comply with domestic orforeign laws could result in various adverse consequences, including possibledelay in approval or refusal to approve a product, recalls, seizures,withdrawal of an approved product from the market, and/or the imposition ofcivil or criminal sanctions.

A significant portion ofour business is conducted in currencies other than our reporting currency, theU.S. dollar. We recognize foreign currency gains or losses arising from ouroperations 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 dobusiness have caused foreign currency translation gains and losses in the pastand will likely do so in the future. Because of the number of currenciesinvolved, the variability of currency exposures and the potential volatility ofcurrency exchange rates, we may suffer significant foreign currency translationlosses in the future due to the effect of exchange rate fluctuations.

**We may fail toadequately protect our proprietary technology, which would allow competitors orothers to take advantage of our research and development efforts.**

Our long-term success largely depends on our abilityto market technologically competitive products. If we fail to obtain ormaintain adequate intellectual property protection in the United States orabroad, we may not be able to prevent third parties from using our proprietarytechnologies. Our currently pending or future patent applications may notresult in issued patents. Patent applications are confidential for 18 monthsfollowing their filing, and because third parties may have filed patentapplications for technology covered by our pending patent applications withoutus being aware of those applications, our patent applications may not havepriority over patent applications of others. In addition, our issued patentsmay not contain claims sufficiently broad to protect us against third partieswith similar technologies or products, or provide us with any competitiveadvantage. If a third party initiates litigation regarding our patents, ourcollaborators’ patents, or those patents for which we have license rights, andis successful, a court could declare our patents invalid or unenforceable orlimit the scope of coverage of those patents. Governmental patent offices andcourts have not consistently treated the breadth of claims allowed inbiotechnology patents. If patent offices or the courts begin to allow orinterpret claims more broadly, the incidence and cost of patent interferenceproceedings and the risk of infringement litigation will likely increase. Onthe other hand, if patent offices or the courts begin to allow or interpretclaims more 

62

----

narrowly, the value of ourproprietary rights may be reduced. Any changes in, or unexpectedinterpretations of, the patent laws may adversely affect our ability to enforceour patent position.

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

**We may be required to license technology fromcompetitors or others in order to develop and commercialize some of ourproducts and services, and it is uncertain whether these licenses would beavailable.**

Third party patents may cover some of the products orservices that we or our strategic partners are developing or producing. Apatent is entitled to a presumption of validity and accordingly, we facesignificant hurdles in any challenge to a patent. In addition, even if we aresuccessful in challenging the validity of a patent, the challenge itself may beexpensive and require significant management attention.

To the extent valid thirdparty patent rights cover our products or services, we or our strategiccollaborators would be required to seek licenses from the holders of thesepatents in order to manufacture, use, or sell these products and services, andpayments under them would reduce our profits from these products and services.We may not be able to obtain these licenses on acceptable terms, or at all. Ifwe fail to obtain a required license or are unable to alter the design of ourtechnology to fall outside the scope of a third party patent, we may be unableto market some of our products and services, which would limit ourprofitability.

**Importation ofproducts may lower the prices we receive for our products.**

In the United States andabroad, many of our products are subject to competition from lower-pricedversions of our products and competing products from other countries wheregovernment price controls or other market dynamics result in lower prices forsuch products. Our products that require a prescription in the United Statesmay be available to consumers in markets such as Canada, Mexico, Taiwan and theMiddle East without a prescription, which may cause consumers to further seekout these products in these lower priced markets. The ability of patients andother customers to obtain these lower priced imports has grown significantly asa result of the Internet, an expansion of pharmacies in Canada and elsewherethat target American purchasers, the increase in U.S.-based businessesaffiliated with Canadian pharmacies marketing to American purchasers, and otherfactors. Most of these foreign imports are illegal under current United Stateslaw. However, the volume of imports continues to rise due to the limitedenforcement resources of the FDA and the United States Customs Service, andthere is increased political pressure to permit such imports as a mechanism forexpanding access to lower priced medicines. The importation of lower-pricedversions of our products into the United States and other markets adverselyaffects our profitability. This impact could become more significant in thefuture.

**Legislative orregulatory changes may adversely impact our business.**

The United Statesgovernment and other governments have shown significant interest in pursuinghealthcare reform. Any government-adopted reform measures could adverselyimpact:

·       thepricing of healthcare products in the United States or internationally; and

·       theamount of reimbursement available from governmental agencies or other thirdparty payors.

63

----

New laws, regulations andjudicial decisions, or new interpretations of existing laws, regulations anddecisions, that relate to healthcare availability, methods of delivery orpayment for products and services, or sales, marketing or pricing may cause ourrevenue to decline, and we may need to revise our research and developmentprograms.

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

As of June 30, 2007, we had $1.5 billion incash, cash equivalents and short- and long-term investments, excluding ourinvestments in equity securities.

We intend to usesubstantial portions of our available cash for:

·       productdevelopment and marketing;

·       businesscombinations and other strategic business initiatives, including the approximately$345 million in cash we intend to spend in acquiring Bioenvision;

·       our$1.5 billion stock repurchase program;

·       upgradingour systems;

·       expandingexisting and constructing additional manufacturing facilities;

·       expandingstaff; and

·       workingcapital, including the approximately $64 million we expect to pay, subjectto court approval, for the proposed settlement of the litigation related to theconsolidation of our former tracking stocks, and satisfaction of ourobligations under capital and operating leases.

We may further reduce available cash reserves to payprincipal and interest on outstanding debt, including our $690.0 millionin principal of 1.25% convertible senior notes.

To satisfy our cashrequirements, we may have to obtain additional financing. We may be unable toobtain any additional financing or extend any existing financing arrangementsat all or on terms that we or our investors consider favorable.

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

As of June 30,2007, we had $697.8 million of outstanding indebtedness, excluding capitalleases. We may incur additional indebtedness in the future. Our level ofindebtedness will have several important effects on our future operations,including:

·       increasingour vulnerability to adverse changes in general economic and industryconditions; and

·       limitingour ability to obtain additional financing for capital expenditures,acquisitions and general corporate and other purposes.

Our ability to makepayments and interest on our indebtedness depends upon our future operating resultsand financial performance.

**ITEM 3.**                QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

**Market Risk**

We are exposed topotential loss from market risks represented principally by changes in foreignexchange rates, interest rates and equity prices. At June 30, 2007, weheld derivative contracts in the form of foreign exchange forward contracts. Wealso held a number of other financial instruments, including 

64

----

investmentsin marketable securities and debt securities outstanding. We do not holdderivatives or other financial instruments for speculative purposes.

**Foreign ExchangeRisk**

As a result of our worldwide operations, we faceexposure to potential adverse movements in foreign currency exchange rates,primarily to the Euro, British pound and Japanese yen. Exposures to currency fluctuationsthat result from sales of our products in foreign markets are partially offsetby the impact of currency fluctuations on our international expenses. We useforward foreign exchange contracts to further reduce our exposure to changes inexchange rates. We also hold a limited amount of foreign cash and equitysecurities.

As of June 30, 2007, we estimate the potentialloss in fair value of our foreign currency contracts, foreign cash, and foreignequity holdings that would result from a hypothetical 10% adverse change inexchange rates to be $18.2 million, as compared to $34.2 million asof December 31, 2006. The change from the prior period is primarily due toa reduction in forward contracts and to a decrease in foreign currency beingheld.

**Interest Rate Risk**

We are exposed to potential loss due to changes ininterest rates. Our principal interest rate exposure is to changes in U.S.interest rates. Instruments with interest rate risk include short- andlong-term investments in fixed income securities. Other exposures to interestrate risk include the fair value of fixed rate convertible debt and other fixedrate debt. To estimate the potential loss due to changes in interest rates, weperformed a sensitivity analysis using the instantaneous adverse change ininterest rates of 100 basis points across the yield curve.

We used thefollowing assumptions in preparing the sensitivity analysis for our convertiblenotes:

·       notes that are “in-the-money”at June 30, 2007 are considered equity securities and are excluded;

·       notes that are “out-of-the-money”at June 30, 2007 are analyzed by taking into account both fixed income andequity components; and

·       notes will mature on thefirst available put or call date.

On this basis, we estimatethe potential loss in fair value that would result from a hypothetical 1% (100basis points) decrease in interest rates to be $2.3 million as of June 30,2007, as compared to $4.2 million as of December 31, 2006.

**Equity Price Risk**

We hold investments in alimited number of U.S. and European equity securities. We estimate thepotential loss in fair value due to a 10% decrease in equity prices ofmarketable securities held at June 30, 2007 to be $5.5 million, ascompared to $4.2 million at December 31, 2006. The increase is due tothe acquisition of 4.4 million additional shares of Dyax common stock. Thisestimate assumes no change in foreign exchange rates from quarter-end spotrates and excludes any potential risk associated with securities that do nothave a readily determinable market value.

**ITEM 4.     CONTROLSAND PROCEDURES**

At the direction of our Chief Executive Officer andChief Financial Officer, we evaluated our disclosure controls and proceduresand internal control over financial reporting and concluded that (1) ourdisclosure controls and procedures were effective as of June 30, 2007, and(2) no change in internal control over financial reporting occurred duringthe quarter ended June 30, 2007 that has materially affected, or isreasonably likely to materially affect, such internal control over financialreporting.

65

----

**PART II.   OTHERINFORMATION**

**ITEM 1.**                LEGALPROCEEDINGS

***Legal Proceedings***

We periodically become subject to legal proceedingsand claims arising in connection with our business.

Through June 30, 2003, we had three outstandingseries of common stock, which we referred to as tracking stocks; GenzymeGeneral Stock (which we now refer to as Genzyme Stock), Biosurgery Stock andMolecular Oncology Stock. Four lawsuits have been filed against us regardingthe exchange of all of the outstanding shares of Biosurgery Stock for shares ofGenzyme Stock in connection with the elimination of our tracking stocks in July 2003.Each of the lawsuits is a purported class action on behalf of holders ofBiosurgery Stock. The first case, filed in the MSC in May 2003, alleged abreach of the implied covenant of good faith and fair dealing in our charterand a breach of our board of directors’ fiduciary duties. The plaintiff in thiscase sought an injunction to adjust the exchange ratio for the tracking stockexchange. The MSC dismissed the complaint in its entirety inNovember 2003. Upon appeal, the Massachusetts Appeals Court upheld thedismissal by the MSC of the fiduciary duty claim, but reversed the earlierdecision to dismiss the implied covenant claim. The Massachusetts SupremeJudicial Court (SJC) granted our petition for further appellate review. OnJune 4, 2007, the SJC reversed the Appeals Court’s decision and affirmeddismissal of the complaint in its entirety. On July 25, 2007, the SJCdenied the plaintiff’s petition for rehearing. Two substantially similar caseswere filed in the MSC in August and October 2003. These cases wereconsolidated in January 2004, and in July 2004, the consolidated casewas stayed pending disposition of a fourth case, which was filed in the U.S.District Court for the Southern District of New York in June 2003. Asamended, this complaint alleged violations of federal securities laws, as wellas various state law claims, related to the exchange, on behalf of a certifiedclass of holders of Biosurgery Stock as of May 8, 2003. On August 6,2007, we reached an agreement-in-principle with counsel for the plaintiff classto settle and dismiss this case for approximately $64 million. This settlementis subject to the execution of a definitive settlement agreement and approvalby the court. Because the members of the class in the New York action willrelease all claims, we anticipate that the settlement will, as a practicalmatter, resolve the consolidated case that remains pending in the MSC. We havesubmitted claims to our insurers for reimbursement of portions of the expensesincurred and to be incurred in connection with these cases; the insurer haspurported to deny coverage. We intend to vigorously pursue our rights withrespect to insurance coverage. As a result, we have recorded a liability forthe settlement payment of approximately $64 million as a charge to SG&A inour consolidated statements of operations in June 2007 and as an increase toaccrued expenses in our consolidated balance sheets as of June 30, 2007.

We are not able to predictthe outcome of other legal proceedings, to which we may become subject in thenormal course of business or estimate the amount or range of any reasonablypossible loss we might incur if we do not prevail in the final, non-appealabledeterminations of such matters. Therefore, we have no current accruals forthese potential contingencies. We cannot provide you with assurance that otherlegal proceedings will not have a material adverse impact on our financialcondition and results of operations.

**ITEM 1A.**        RISKFACTORS

We incorporate by referenceour disclosure related to risk factors which is set forth under the heading “Management’sDiscussion and Analysis of Genzyme Corporation and Subsidiaries’ FinancialCondition and Results of Operations—Risk Factors” in Part I., Item 2. ofthis Quarterly Report on Form 10-Q.

66

----

**ITEM 2.**                UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

***Stock Repurchase Program***

In May 2007,our board of directors authorized a stock repurchase program to repurchase upto an aggregate maximum amount of $1.5 billion or 20,000,000 shares of ouroutstanding common stock over the next three years. The repurchases are beingmade from time to time and can be effectuated through open market purchases, privatelynegotiated transactions, transactions structured through investment bankinginstitutions, or by other means, subject to management’s discretion and aspermitted by securities laws and other legal requirements. The manner of thepurchase, the amount that we spend and the number of shares we ultimatelypurchase will vary based on a range of factors, including share price. Theprogram does not obligate us to acquire any particular amount of common stockand the program may be suspended at any time at our discretion. 

Thefollowing table provides information about certain repurchases of equitysecurities that are registered under Section 12 of the Exchange Act duringthe quarter ended June 30, 2007:

| **Period**                              | ** ** | ** ** | ** ** | **Total  Number  of Shares  Purchased** | ** ** | **Average  Price  Paid  per  Share** | ** ** | **Total  Number of  Shares  Purchased  as Part of  Publicly  Announced  Plans or  Programs** | ** ** | **Approximate  Dollar Value  of Shares that**

**May Yet Be  Purchased  Under the  Plans or  Programs** | ** ** |
|-----------------------------------------|------------|------------|------------|----------------------------------------------|------------|--------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 1,  2007-April 30, 2007 |       |       | —     |                                         |       | —                               |       |                                                                                                             | —     |                                                                                                                                       |       | — |   |
| May 1,  2007-May 31, 2007     |       |       | 639        | (1)                                          |       | $                                    | 65.57      |                                                                                                             |       | —                                                                                                                                     |       |   | $ | 1,500,000,000 |   |
| June 1,  2007-June 30, 2007   |       |       | 968,485    | (2)                                          |       | $                                    | 65.48      | (3)                                                                                                              |       | 968,485                                                                                                                                    |       |   | 1,436,588,153 |   |
| Total                                   |       |       | 969,124    |                                         |       | $                                    | 65.48      |                                                                                                             |       | 968,485                                                                                                                                    |       |   |   |   |
|                                         |            |            |            |                                              |            |                                      |            |                                                                                                                  |            |                                                                                                                                            |            |  |  |  |  |  |  |

----

(1)          Represents shares fromstock option exercises where employees use shares of Genzyme Stock to pay theexercise price of stock options, commonly referred to as a stock swaptransaction. Shares repurchased in stock swap transactions are retired.

(2)   During the second quarter of fiscal 2007, we repurchased968,485 shares of our common stock under the stock repurchase program for $63.4million of net cash. 

(3)          Representsthe weighted average price paid per share for stock repurchases made during thesecond quarter of fiscal 2007.

67

----

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

We held our annualmeeting of shareholders on May 24, 2007. We have set forth below theresults of the voting on proposals submitted to the shareholders for a vote atthe annual meeting. Adoption of the proposals, other than the election ofdirectors required that the number of votes cast in favor of the proposalsexceed the number of votes cast against the proposals. Each director waselected by a plurality of the votes properly cast at the meeting. Abstentionsand broker non-votes were counted for determining a quorum, but were not treatedas votes cast on the proposals.

a.      Proposal to re-elect two directors, each for a one-year term:

| ** **             | ** ** | **Number of Votes** | ** ** |
|------------------------|------------|-------------------------------|------------|
| **Nominee**            | ** ** | ** **                    | ** ** | **For** | ** ** | **Withheld** | ** ** |
| Douglas A.  Berthiaume |       | 201,275,095                   |       | 26,004,600 |   |
|                        |            |                               |            |  |  |  |  |

 

| ** **        | ** ** | **Number of Votes** | ** ** |
|-------------------|------------|-------------------------------|------------|
| **Nominee**       | ** ** | ** **                    | ** ** | **For** | ** ** | **Withheld** | ** ** |
| Gail K. Boudreaux |       | 223,979,015                   |       | 3,300,680 |   |
|                   |            |                               |            |  |  |  |  |

 

Eachnominee received a plurality of the votes cast, and therefore has been duly reelectedas a director of Genzyme. The terms of office for Robert J. Carpenter, CharlesL. Cooney, PhD, Victor J. Dzau, M.D., Senator Connie Mack III,Richard F. Syron and Henri A. Termeer continued as directors of Genzyme afterthe annual meeting.

b.     Proposal to amend the 2004 Equity IncentivePlan by increasing the number of shares of common stock covered by the plan by3,500,000 shares and to merge our 1997 Equity Incentive Plan into the 2004plan;

| Number of     | ** ** | **Number of**     | ** ** | **Number of**        | ** ** | **Number of**        |
|---------------|------------|-------------------|------------|----------------------|------------|----------------------|
| **Votes for** | ** ** | **Votes Against** | ** ** | **Votes Abstaining** | ** ** | **Broker Non-Votes** |
| 172,145,357   |       | 26,115,618        |       | 1,720,715            |       | 27,298,007           |

 

The number of votescast in favor of the proposal exceeded the number of votes cast against it, andtherefore the proposal was adopted.

c.      Proposal to approve the 2007 DirectorEquity Plan;

| Number of     | ** ** | **Number of**     | ** ** | **Number of**        | ** ** | **Number of**        |
|---------------|------------|-------------------|------------|----------------------|------------|----------------------|
| **Votes for** | ** ** | **Votes Against** | ** ** | **Votes Abstaining** | ** ** | **Broker Non-Votes** |
| 146,146,185   |       | 52,042,893        |       | 1,792,612            |       | 27,298,007           |

 

The number of votescast in favor of the proposal exceeded the number of votes cast against it, andtherefore the proposal was adopted.

d.     Proposal to amend the 1999 Employee StockPurchase Plan by increasing the number of shares of common stock  covered by the plan by 1,500,000 shares;

| Number of     | ** ** | **Number of**     | ** ** | **Number of**        | ** ** | **Number of**        |
|---------------|------------|-------------------|------------|----------------------|------------|----------------------|
| **Votes for** | ** ** | **Votes Against** | ** ** | **Votes Abstaining** | ** ** | **Broker Non-Votes** |
| 192,020,073   |       | 6,502,334         |       | 1,459,283            |       | 27,298,007           |

 

68

----

The number of votescast in favor of the proposal exceeded the number of votes cast against it, andtherefore the proposal was adopted.

e.      Proposal to approve an amendment to ourbylaws to provide for majority voting for the election of directors inuncontested elections;

| Number of     | ** ** | **Number of**     | ** ** | **Number of**        | ** ** | **Number of**        |
|---------------|------------|-------------------|------------|----------------------|------------|----------------------|
| **Votes for** | ** ** | **Votes Against** | ** ** | **Votes Abstaining** | ** ** | **Broker Non-Votes** |
| 192,601,240   |       | 5,865,189         |       | 1,515,260            |       | 27,298,008           |

 

The number of votes cast in favor of the proposalexceeded the number of votes cast against it, and therefore the proposal wasadopted. 

f.      Proposal to ratify the audit committee’sselection of PricewaterhouseCoopers, LLP as independent auditors for 2007;

| Number of     | ** ** | **Number of**     | ** ** | **Number of**        | ** ** | **Number of**        |
|---------------|------------|-------------------|------------|----------------------|------------|----------------------|
| **Votes for** | ** ** | **Votes Against** | ** ** | **Votes Abstaining** | ** ** | **Broker Non-Votes** |
| 222,734,443   |       | 3,057,910         |       | 1,487,344            |       | —               |

 

Thenumber of votes cast in favor of the proposal exceeded the number of votes castagainst it, and therefore the proposal was adopted.

g.      Shareholder sponsored proposal thatexecutive severance agreements be approved by shareholders;

| Number of     | ** ** | **Number of**     | ** ** | **Number of**        | ** ** | **Number of**        |
|---------------|------------|-------------------|------------|----------------------|------------|----------------------|
| **Votes for** | ** ** | **Votes Against** | ** ** | **Votes Abstaining** | ** ** | **Broker Non-Votes** |
| 73,055,854    |       | 121,807,254       |       | 5,118,581            |       | 27,298,008           |

 

The number of votes cast againstthe proposal exceeded the number of votes cast for the proposal. The proposalwas not adopted.

**ITEM 6.**                EXHIBITS

(a)           Exhibits

See the Exhibit Index following the signature page tothis report on Form 10-Q.

69

----

**GENZYME CORPORATIONAND SUBSIDIARIESFORM 10-Q, JUNE 30, 2007SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                            | GENZYME CORPORATION |
|----------------------------|---------------------|
| Date: August 9,  2007 | By:                 | /s/  MICHAEL S. WYZGA |
| * *                   |                | Michael S. Wyzga*Executive Vice President, Finance, Chief  Financial Officer, and Chief Accounting Officer* |

 

70

----

**GENZYME CORPORATIONAND SUBSIDIARIES**

**FORM 10-Q,JUNE 30, 2007**

**EXHIBITINDEX**
| **EXHIBIT NO.**           | ** ** | **DESCRIPTION**                                                                                                                                                                                                      |
|--------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *2.1                           |       | Agreement and Plan of Merger, by and among Genzyme  Corporation, Bioenvision, Inc. and Witchita Bio Corporation, dated  May 29, 2007. Filed as Exhibit 2.1 to Genzyme’s 8-K filed May 29,  2007. |
| *3.1                           |       | Restated Articles of Organization of Genzyme, as  amended. Filed as Exhibit 3.1 to Genzyme’s Form 10-Q for the quarter  ended June 30, 2006.                                                          |
| *3.2                           |       | By-laws of Genzyme, as amended. Filed as  Exhibit 3.1 to Genzyme’s Form 8-K filed May 24, 2007.                                                                                                  |
| **10.1     |       | Amendment effective as of January 1, 2007 to  Purchase and Supply Agreement, effective as of January 1, 2005, by and  between Genzyme and Invitrogen Corporation. Filed herewith.                                    |
| 10.2                           |       | 2004 Equity Incentive Plan, as amended. Filed  herewith.                                                                                                                                                             |
| 10.3                           |       | 1999 Employee Stock Purchase Plan, as amended. Filed  herewith.                                                                                                                                                      |
| *10.4                |       | Form of Restricted Stock Unit for grants to  executive officers under Genzyme’s 2004 Equity Incentive Plan. Filed as  Exhibit 10.1 to Genzyme’s 8-K filed May 30, 2007.                               |
| *10.5                |       | 2007 Director Equity Plan. Filed as Exhibit 10.2 to  Genzyme’s 8-K filed May 30, 2007.                                                                                                                     |
| *10.6                |       | Form of Nonstatutory Stock Option for grants under  Genzyme’s 2007 Director Equity Plan. Filed as Exhibit 10.3 to Genzyme’s 8-K  filed May 30, 2007.                                                  |
| *10.7                |       | Form of Restricted Stock Unit for grants under  Genzyme’s 2007 Director Equity Plan. Filed as Exhibit 10.4 to Genzyme’s 8-K  filed May 30, 2007.                                                      |
| 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.  Furnished herewith.                                                                                   |
| 32.2                           |       | Certification of the Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  Furnished herewith.                                                                                   |

----

*                    Indicatesexhibit previously filed with the SEC and incorporated herein by reference.Exhibits filed with Forms 10-K, 10-Q, 8-K, 8-A, 8-Bor Schedule 14A of Genzyme Corporation were filed under Commission File No. 0-14680.

**             Confidentialtreatment has been requested for the deleted portions of Exhibit 10.1.

71

----