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



FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
 to


Commission File No. 0-14680

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

Massachusetts(State or other jurisdiction of
incorporation or organization)

06-1047163(I.R.S. Employer Identification No.)500 Kendall Street
Cambridge, Massachusetts(Address of principal executive offices)

02142(Zip Code)(617) 252-7500(Registrant's telephone number, including area code)




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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


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

Number of shares of Genzyme Stock outstanding as of October 31, 2008: 270,519,673



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NOTE REGARDING REFERENCES TO OUR COMMON STOCK

Throughout this Form 10-Q, the words "we," "us," "our" and "Genzyme" refer to Genzyme Corporation as a whole, and
"our board of directors" refers to the board of directors of Genzyme Corporation. We have one outstanding series of common stock, which we refer to as "Genzyme Stock" or "our common stock."

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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



2

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



3

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We
have included more detailed descriptions of these and other risks and uncertainties under the heading "Management's Discussion and Analysis of Financial Condition and Results of
OperationsRisk Factors," in Part I., Item 2. of this Quarterly Report on Form 10-Q. We encourage you to read those descriptions carefully. We caution
investors not to place substantial reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report
(unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

NOTE REGARDING INCORPORATION BY REFERENCE

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

NOTE REGARDING TRADEMARKS

Genzyme®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®,
Myozyme®, Renagel®, Renvela®, Campath®, Clolar®, Evoltra®, Thymoglobulin®, Synvisc®,
Sepra®, Seprafilm®, Carticel®, Epicel®, MACI®, Hylaform® and Hectorol® are registered trademarks, and
Cholestagel, Mozobil, Lymphoglobuline and Synvisc-One are trademarks, of Genzyme or its subsidiaries. WelChol® is a
registered trademark of Sankyo Pharma, Inc. Aldurazyme® is a registered trademark of BioMarin/Genzyme LLC. All rights reserved.

4

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GENZYME CORPORATION AND SUBSIDIARIES        FORM 10-Q, SEPTEMBER 30, 2008        TABLE OF CONTENTS

PAGE NO.PART I.

FINANCIAL INFORMATION


6ITEM 1.

Financial Statements


6Unaudited, Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2008
and 2007


6Unaudited, Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007


7Unaudited, Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007


8Notes to Unaudited, Consolidated Financial Statements


9ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations


31ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk


75ITEM 4.

Controls and Procedures


76PART II.

OTHER INFORMATION


76ITEM 1.

Legal Proceedings


76ITEM 1A.

Risk Factors


76ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds


77ITEM 6.

Exhibits


77Signatures


78


5

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PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

GENZYME CORPORATION AND SUBSIDIARIES        Consolidated Statements of Operations and Comprehensive Income (Loss)        (Unaudited, amounts in thousands, except per
share amounts)

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Revenues:Net product sales

$
1,058,296

$
867,682

$
3,136,365

$
2,511,354Net service sales


92,586


83,177


269,072


241,533Research and development revenue


9,402


9,300


26,042


23,874Total revenues


1,160,284


960,159


3,431,479


2,776,761Operating costs and expenses:Cost of products sold


225,691


190,475


683,773


508,451Cost of services sold


59,517


54,137


174,078


156,222Selling, general and administrative


331,170


270,306


996,861


878,807Research and development


305,242


175,800


949,900


540,362Amortization of intangibles


55,295


49,819


166,558


149,301Total operating costs and expenses


976,915


740,537


2,971,170


2,233,143Operating income


183,369


219,622


460,309


543,618Other income (expenses):Equity in income (loss) of equity method investments





(12,648
)

188


(1,091
)Minority interest


566


5


1,592


3,932Gain (loss) on investments in equity securities, net


(14,129
)

1,105


(4,201
)

14,036Other


(699
)

913


(840
)

110Investment income


11,793


18,222


40,015


51,687Interest expense


(792
)

(1,474
)

(3,596
)

(9,283
)Total other income (expenses)


(3,261
)

6,123


33,158


59,391Income before income taxes


180,108


225,745


493,467


603,009Provision for income taxes


(60,512
)

(66,432
)

(159,036
)

(201,715
)Net income

$
119,596

$
159,313

$
334,431

$
401,294Net income per share:Basic

$
0.44

$
0.61

$
1.25

$
1.52Diluted

$
0.42

$
0.58

$
1.19

$
1.45Weighted average shares outstanding:Basic


269,176


262,775


267,767


263,387Diluted


288,179


279,206


286,003


279,898Comprehensive income (loss), net of tax:Net income

$
119,596

$
159,313

$
334,431

$
401,294Other comprehensive income (loss):Foreign currency translation adjustments


(172,636
)

76,836


(66,963
)

98,082Pension liability adjustments, net of tax


2,019


(274
)

2,090


(540
)Unrealized gains (losses) on securities, net of tax:Unrealized gains (losses) arising during the period


475


7,450


5,186


12,812Reclassification adjustments for losses included in net income


(141
)

(991
)

(6,039
)

(8,839
)Unrealized gains (losses) on securities, net of tax


334


6,459


(853
)

3,973Other comprehensive income (loss)


(170,283
)

83,021


(65,726
)

101,515Comprehensive income (loss)

$
(50,687
)
$
242,334

$
268,705

$
502,809


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

6

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

September 30,
2008

December 31,
2007ASSETSCurrent assets:Cash and cash equivalents

$
918,736

$
867,012Short-term investments


76,570


80,445Accounts receivable, net


1,013,534


904,101Inventories


442,899


439,115Prepaid expenses and other current assets


200,666


154,183Deferred tax assets


157,701


164,341Total current assets


2,810,106


2,609,197Property, plant and equipment, net


2,268,854


1,968,402Long-term investments


477,943


512,937Goodwill


1,403,570


1,403,828Other intangible assets, net


1,935,034


1,555,652Deferred tax assets


331,370


95,664Investments in equity securities


169,678


89,181Other noncurrent assets


19,030


66,880Total assets

$
9,415,585

$
8,301,741LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
120,729

$
128,380Accrued expenses


640,023


645,645Income taxes payable





18,479Deferred revenue


17,850


13,277Current portion of long-term debt and capital lease obligations


697,426


696,625Total current liabilities


1,476,028


1,502,406Long-term debt and capital lease obligations


125,348


113,748Deferred revenuenoncurrent


14,312


16,662Other noncurrent liabilities


564,013


55,988Total liabilities


2,179,701


1,688,804Commitments and contingenciesStockholders' equity:Preferred stock, $0.01 par value





Common stock, $0.01 par value


2,703


2,660Additional paid-in capital


5,736,675


5,385,154Notes receivable from stockholders


(12,992
)

(15,670
)Accumulated earnings


1,161,146


826,715Accumulated other comprehensive income


348,352


414,078Total stockholders' equity


7,235,884


6,612,937Total liabilities and stockholders' equity

$
9,415,585

$
8,301,741


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

7

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

Nine Months Ended
September 30,2008

2007Cash Flows from Operating Activities:Net income

$
334,431

$
401,294Reconciliation of net income to cash flows from operating activities:Depreciation and amortization


276,042


246,556Stock-based compensation


143,141


146,441Provision for bad debts


9,065


7,045Equity in (income) loss of equity method investments


(188
)

1,091Minority interest


(1,592
)

(3,932
)(Gains) losses on investments in equity securities, net


4,201


(14,036
)Deferred income tax benefit


(236,307
)

(81,629
)Tax benefit from employee stock-based compensation


57,149


12,459Excess tax benefits from stock-based compensation


(17,470
)

(1,229
)Other


4,716


5,585Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities):Accounts receivable


(99,579
)

(103,285
)Inventories


(12,651
)

(32,559
)Prepaid expenses and other current assets


(7,107
)

(16,790
)Income taxes payable


(20,061
)

(17,419
)Accounts payable, accrued expenses and deferred revenue


275


61,235Cash flows from operating activities


434,065


610,827Cash Flows from Investing Activities:Purchases of investments


(382,954
)

(602,451
)Sales and maturities of investments


412,690


796,612Purchases of equity securities


(87,695
)

(20,362
)Proceeds from sales of investments in equity securities


16,519


20,712Purchases of property, plant and equipment


(433,987
)

(281,309
)Acquisition of Bioenvision


(16,561
)

(72,229
)Distributions from equity method investments, net


5,995


17,100Payment of note receivable from Dyax Corp.





7,771Purchases of other intangible assets


(82,898
)

(45,821
)Other


5,161


658Cash flows from investing activities


(563,730
)

(179,319
)Cash Flows from Financing Activities:Proceeds from issuance of our common stock


294,603


100,276Repurchases of our common stock


(143,012
)

(181,210
)Excess tax benefits from stock-based compensation


17,470


1,229Payments of debt and capital lease obligations


(5,281
)

(4,606
)Increase in bank overdrafts


20,889


19,259Payments of notes receivable from stockholders


2,770


Minority interest contributions


1,244


4,136Other


(1,160
)

3,525Cash flows from financing activities


187,523


(57,391
)Effect of exchange rate changes on cash


(6,134
)

(16,423
)Increase in cash and cash equivalents


51,724


357,694Cash and cash equivalents at beginning of period


867,012


492,170Cash and cash equivalents at end of period

$
918,736

$
849,864Supplemental disclosures of non-cash transactions:Long-Term DebtNote 11


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

8

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GENZYME CORPORATION AND SUBSIDIARIES        Notes to Unaudited, Consolidated Financial Statements

1.    Description of Business

We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad product and service portfolio is focused on rare
disorders, renal diseases, orthopaedics, organ transplant, diagnostic and predictive testing, and cancer. We are organized into six financial reporting units, which we also consider to be our
reporting segments:



We
report the activities of our diagnostic products, bulk pharmaceuticals and cardiovascular business units under the caption "Other." We report our corporate, general and administrative
operations and corporate science activities under the caption "Corporate."

Effective
January 1, 2008, as a result of changes in how we review our business, certain general and administrative expenses, which were formerly allocated amongst our reporting
segments and Other, are now allocated to Corporate.

As
a result of our acquisition of Bioenvision in October 2007, our Oncology business unit, which was formerly reported combined with Other, now meets the criteria for disclosure as a
separate reporting segment. We have revised our 2007 segment disclosures to conform to our 2008 presentation.

9

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

2.    Basis of Presentation and Significant Accounting Policies

Basis of Presentation

Our unaudited, consolidated financial statements for each period include the statements of operations and comprehensive income (loss),
balance sheets and statements of cash flows for our operations taken as a whole. We have eliminated all intercompany items and transactions in consolidation. We prepare our unaudited, consolidated
financial statements following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are
normally required by accounting principles generally accepted in the United States.

These
financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial condition and results of operations. Since
these are interim financial statements, you should also read our audited, consolidated financial statements and notes included in our 2007 Form 10-K. Revenues, expenses, assets and
liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

Our
unaudited, consolidated financial statements for each period include the accounts of our wholly owned and majority owned subsidiaries. As a result of our adoption of Financial
Accounting Standards Board, or FASB, Interpretation No., or FIN, 46R, "Consolidation of Variable Interest Entities," we also consolidate certain
variable interest entities for which we are the primary beneficiary. For consolidated subsidiaries in which we have less than a 100% interest, we record minority interest in our consolidated
statements of operations for the ownership interest of the minority owner. We use the equity method of accounting to account for our investments in entities in which we have a substantial ownership
interest (20% to 50%) which do not fall in the scope of FIN 46R, or over which we exercise significant influence. Our consolidated net income includes our share of the earnings or losses of
these entities.

Recent Accounting Pronouncements

Adopted in 2008

FASB Statement of Financial Accounting Standards No., or FAS, 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement
No. 115."Effective January 1, 2008, we adopted FAS 159, which permits, but does not require, entities to irrevocably elect to measure certain
financial instruments and other assets and liabilities at fair value on an instrument-by-instrument basis, with subsequent unrealized gains and losses recognized in earnings as
changes in fair value occur. In adopting FAS 159, we did not elect to measure any new assets or liabilities at their respective fair values and, therefore, the adoption of FAS 159 did
not have an impact on our results of operations or financial position.

Emerging Issues Task Force, or EITF, Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development
Activities."In June 2007, the FASB ratified EITF Issue No. 07-3, which requires that nonrefundable advanced payments for goods or services
that will be used or rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the goods are delivered or the
related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. EITF Issue No. 07-3 was effective for us beginning

10

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

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

January 1,
2008 and we applied it prospectively to new contracts we entered into on or after that date. The implementation of EITF Issue No. 07-3 did not have a material
impact on our financial position, results of operations or cash flows.

FASB Staff Position No., or FSP, 157-3, "Determining Fair Value of a Financial Asset in a Market That Is Not Active."In October 2008, the FASB issued
FSP 157-3, which clarified how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance,
including for prior periods for which financial statements had not been issued. The implementation of FSP 157-3 did not have a material impact on our results of operations or financial
position.

Effective in 2009

EITF Issue No. 07-1, "Accounting for Collaborative Arrangements."In December 2007, the FASB ratified EITF Issue No. 07-1,
which defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and
third parties, including the appropriate income statement presentation and classification of, and the required disclosures related to, these arrangements. EITF Issue No. 07-1 is
effective January 1, 2009 and we will apply it retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. We are evaluating the impact, if
any, that EITF Issue No. 07-1 will have on our consolidated financial statements.

FAS 141(revised 2007), or FAS 141R, "Business Combinations."In December 2007, the FASB issued FAS 141R, which replaces FAS 141,
"Business Combinations." FAS 141R retains the fundamental concept of the purchase method of accounting and introduces new requirements for the recognition and measurement of assets acquired,
liabilities assumed, and noncontrolling interests. Under FAS 141R, acquisition costs will generally be expensed as incurred and restructuring costs will be expensed subsequent to the
acquisition date. IPR&D will be capitalized as an indefinite-lived intangible asset at the acquisition date and will either be amortized over the life of the related product or written off as a charge
to earnings if the project is subsequently abandoned or becomes impaired. FAS 141R is effective for all business combinations occurring on or after January 1, 2009. Early adoption is not
permitted. We are currently evaluating the effects that FAS 141R will have on our consolidated financial statements.

FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51."In December 2007, the FASB
issued FAS 160, which establishes new accounting and reporting standards for noncontrolling interests, formerly known as minority interests, including the amount of net income attributable to
the parent and to the noncontrolling interest, changes in parent's ownership interest and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated.
FAS 160 requires noncontrolling interests to be reclassified from the liabilities section or the mezzanine section between liabilities and equity to the equity section of the consolidated
balance sheet and to be reported separately from the parent's equity. In addition, FAS 160 requires the results from operations attributed to the noncontrolling interest to be disclosed
separately from those of the parent on the face of the consolidated statement of operations. FAS 160 is effective for us January 1, 2009 and adoption is prospective only. However, upon
adoption, presentation and disclosure requirements described above must be applied retrospectively for all periods presented in our

11

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

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

consolidated
financial statements. We are currently evaluating the effects, if any, that FAS 160 will have on our consolidated financial statements.

FSP 157-2, "Effective Date of FASB Statement No. 157."In February 2008, the FASB issued FSP 157-2, which allowed us to defer
the implementation of FAS 157, "Fair Value Measurements," as it relates to our non-financial assets and non-financial liabilities that are recognized and disclosed at
fair value in our consolidated financial statements on a nonrecurring basis, until January 1, 2009. We are evaluating the impact, if any, the adoption of FAS 157, for those assets and
liabilities within the scope of FSP 157-2, will have on our financial position, results of operations and liquidity. We did not have any non-financial assets or
non-financial liabilities that would be recognized or disclosed on a recurring basis as of September 30, 2008.

FAS No. 161, "Disclosures About Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133."In March 2008, the
FASB issued FAS 161, which amends and expands the disclosure requirements for derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. FAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. We are currently evaluating the effects, if any, that FAS 161 will have on our consolidated financial statements.

FSP 142-3, "Determination of the Useful Life of Intangible Assets."In April 2008, the FASB issued FSP 142-3, which amends the factors that
should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142, "Goodwill and Other Intangible Assets."
This change is intended to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of
the asset under FAS 141R and other generally accepted accounting principles. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the
effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP 142-3 is effective for
fiscal years beginning after December 15, 2008. We are currently evaluating the effects, if any, that FSP 142-3 will have on our consolidated financial statements.

EITF Issue No. 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities."In June 2008, the FASB issued EITF Issue No. 03-6-1, which clarifies that all outstanding unvested share-based payment
awards that contain rights to nonforfeitable dividends, whether paid or unpaid, participate in undistributed earnings with common stockholders. Awards of this nature are considered participating
securities and the two-class method of computing basic and diluted earnings per share must be applied. EITF Issue No. 03-6-1 is effective for us on
January 1, 2009 with retrospective application. We do not expect the implementation of EITF Issue No. 03-6-1 to have a material impact on our consolidated
financial position and results of operations.

EITF Issue No. 07-5, "Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock."In June 2008, the FASB
ratified EITF Issue No. 07-5, which provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument's contingent exercise

12

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

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

and
settlement provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF Issue
No. 07-5 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the effects, if any, that EITF Issue No. 07-5 will
have on our consolidated financial statements.

3.    Fair Value Measurements

A significant number of our financial instruments are carried at fair value. These assets and liabilities include:



Fair Value MeasurementDefinition and Hierarchy

Effective January 1, 2008, we implemented FAS 157 for our financial assets and liabilities that are
re-measured and reported at fair value at each reporting period. The adoption of FAS 157 for our financial assets and liabilities did not have a material impact on our consolidated
financial position and results of operations.

FAS 157
provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FAS 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. In determining fair
value, FAS 157 permits the use of various valuation approaches, including market, income and cost approaches. FAS 157 establishes a hierarchy for inputs used in measuring fair value that
maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available.

The
fair value hierarchy is broken down into three levels based on the reliability of inputs. We have categorized our fixed income, derivatives and equity securities within the hierarchy
as follows:



13

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GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

3.    Fair Value Measurements (Continued)



Valuation Techniques

Fair value is a market-based measure considered from the perspective of a market participant who would buy the asset or assume the
liability rather than our own specific measure. All of our fixed income securities are priced using a variety of daily data sources, largely readily-available market data and broker quotes. To
validate these prices, we compare the fair market values of our fixed income investments using market data from observable and corroborated sources. We also perform the fair value calculations for our
derivative and equity securities using market data from observable and corroborated sources. In periods of market inactivity, the observability of prices and inputs may be reduced for certain
instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3.

The
following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2008 (amounts in thousands):

Description

Total

Level 1

Level 2

Level 3Fixed income investments(1):

Cash equivalents:

Money market funds/other

$
702,745

$
702,745

$


$
Short-term investments:

U.S. Treasury notes


3,563


3,563





U.S. agency notes


10,605





10,605


Corporate notesglobal


62,402





62,402


Total


76,570


3,563


73,007


Long-term investments:

U.S. Treasury notes


113,684


113,684





U.S. agency notes


148,691





148,691


Corporate notesglobal


215,568





215,568


Total


477,943


113,684


364,259


Total fixed
income
investments


1,257,258


819,992


437,266


Derivatives:

Foreign exchange contracts(2)


1,475





1,475


Equity holdings(1):

Publicly-traded equity securities


63,591


63,591





Total assets (liabilities) at fair value

$
1,322,324

$
883,583

$
438,741

$



---

14

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

3.    Fair Value Measurements (Continued)

The carrying amounts reflected in our consolidated balance sheets for cash, accounts receivable, prepaid expenses and other current assets,
accounts payable and accrued expenses approximate fair value due to their short-term maturities.

4.    Net Income Per Share

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

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Net incomebasic

$
119,596

$
159,313

$
334,431

$
401,294Effect of dilutive securities:Interest expense and debt fee amortization, net of tax, related to our 1.25% convertible senior notes


1,885


1,886


5,658


5,658Net incomediluted

$
121,481

$
161,199

$
340,089

$
406,952Shares used in computing net income per common sharebasic


269,176


262,775


267,767


263,387Effect of dilutive securities:Shares issuable upon the assumed conversion of our 1.25% convertible senior notes


9,686


9,686


9,686


9,686Stock options(1)


8,081


6,584


7,665


6,747Restricted stock units (RSUs)(2)


871


150


618


67Other


365


11


267


11Dilutive potential common shares


19,003


16,431


18,236


16,511Shares used in computing net income per common sharediluted(1)


288,179


279,206


286,003


279,898Net income per common share:Basic

$
0.44

$
0.61

$
1.25

$
1.52Diluted

$
0.42

$
0.58

$
1.19

$
1.45


---

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Shares issuable upon exercise of outstanding options


3,123


17,689


3,121


15,408


15

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

5.    Mergers and Acquisitions

Bioenvision

Effective October 23, 2007, we completed our acquisition of Bioenvision through the culmination of a two-step process consisting
of a tender offer completed in July 2007, and
a merger approved in October 2007. We paid gross consideration of $349.9 million in cash, including $345.4 million for the outstanding shares of Bioenvision common and preferred stock
and options to purchase shares of Bioenvision common stock, and approximately $5 million for acquisition costs. The acquisition of Bioenvision provided us with the rights to clofarabine outside
North America.

In
connection with the merger, holders of 2,880,000 shares of Bioenvision common stock, representing less than 5% of the outstanding shares of Bioenvision common stock on an
as-converted basis immediately before the merger became effective, submitted written demands for appraisal of their shares and elected not to accept the $5.60 per share merger
consideration. We referred to these holders as dissenters. In September 2008, the appraisal demand was resolved with substantially all of the dissenters for a total of $16.6 million in cash,
consisting of the merger price paid to all other Bioenvision stockholders, plus interest accrued.

The
purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the
purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $85.3 million, which was allocated to goodwill. We anticipate that substantially all of
the amount allocated to goodwill will be deductible for tax purposes.

The
allocation of purchase price remains subject to potential adjustments, including adjustments for liabilities associated with certain exit and tax restructuring activities. We
recorded immaterial adjustments to the purchase price in the nine months ended September 30, 2008.

Purchase of In-Process Research and Development

We did not complete any acquisitions in the nine months ended September 30, 2008. In connection with certain acquisitions that
we completed between January 1, 2006 and December 31, 2007, we acquired various IPR&D projects. The following table sets forth the significant IPR&D projects for the companies we
acquired between January 1, 2006 and December 31, 2007 (amounts in millions):

Company Acquired

Purchase
Price

IPR&D

Programs Acquired

Discount Rate
Used in
Estimating
Cash Flows

Year of
Expected
LaunchBioenvision (2007)

$
349.9

$
125.5

Clolar/Evoltra (clofarabine)(1,2)


17
%

2009-2013AnorMED Inc. (AnorMED) (2006)

$
589.2

$
526.8
26.1

Mozobil (stem cell transplant)(3)
AMD070 (HIV)(4)


15
15
%%

2009-2014
$
552.9


---

16

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

5.    Mergers and Acquisitions (Continued)

Exit Activities

In connection with our acquisitions of AnorMED and Bioenvision, we initiated integration plans to consolidate and restructure certain
functions and operations, including the relocation and termination of certain personnel of these acquired entities and the closure of certain of the acquired entities' leased facilities. These costs
have been recognized as liabilities in accordance with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase or Business Combination," and are subject to
potential adjustments as certain exit activities are confirmed or refined. The following table summarizes the liabilities established for exit activities related to these acquisitions (amounts in
thousands):

Employee
Related
Benefits

Closure of
Leased
Facilities

Other
Exit
Activities

Total
Exit
ActivitiesBalance at December 31, 2006

$
6,105

$
24

$


$
6,129Acquisition(1)


2,601





70


2,671Revision of estimates


(931
)

2,593





1,662Payments


(5,602
)

(453
)




(6,055
)Balance at December 31, 2007


2,173


2,164


70


4,407Revision of estimates


(182
)







(182
)Payments


(1,834
)

(530
)

(70
)

(2,434
)Balance at September 30, 2008(2)

$
157

$
1,634

$


$
1,791


---

Pro Forma Financial Summary

The following pro forma financial summary is presented as if the acquisition of Bioenvision had been completed as of January 1,
2007. These pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated on that date, or of the future operations of
the combined entities. Material nonrecurring charges related to the

17

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

5.    Mergers and Acquisitions (Continued)

acquisition
of Bioenvision, such as IPR&D charges of $125.5 million, are included in the following pro forma financial summary as of January 1, 2007 (amounts in thousands, except per
share amounts):

Three Months Ended
September 30, 2007

Nine Months Ended
September 30, 2007Total revenues

$
964,776

$
2,787,518Net income

$
154,055

$
271,020Net income per share:Basic

$
0.59

$
1.03Diluted

$
0.56

$
0.99Weighted average shares outstanding:Basic


262,775


263,387Diluted


279,206


279,898


6.    Strategic Transactions

We classify nonrefundable fees paid outside of a business combination for the acquisition or licensing of products that have not received regulatory approval and have no future
alternative use as research and development expense.

Strategic Alliance with Osiris Therapeutics, Inc.

In October 2008, we entered into a strategic alliance with Osiris Therapeutics, Inc., or Osiris, whereby we obtained an exclusive
license to develop and commercialize Prochymal and Chondrogen, mesenchymal stem cell products, outside of the United States and Canada. Osiris will commercialize Prochymal and Chondrogen in the United
States and Canada. We will pay Osiris a nonrefundable upfront payment of $75.0 million by November 21, 2008, and an additional $55.0 million nonrefundable upfront license fee on
July 1, 2009, both of which will be charged to research and development expense in our consolidated statements of operations during the fourth quarter of 2008.

Osiris
will be responsible for completing, at its own expense, all clinical trials of Prochymal for the treatment of GvHD and Crohn's disease, both of which are in phase 3 trials,
and clinical trials of Prochymal and Chondrogen through phase 2 for all other indications. Osiris will be responsible for 60% and we will be responsible for 40% of the clinical trial costs for
phase 3 and 4 clinical trials of Prochymal (other than for the treatment of GvHD and Crohn's disease) and Chondrogen. Osiris is eligible to receive:



18

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

6.    Strategic Transactions (Continued)



Osiris
is also eligible to receive tiered, double-digit royalties from us on sales of Prochymal and Chondrogen outside of the United States and Canada.

Collaboration with PTC Therapeutics, Inc.

On July 15, 2008, we entered into a collaboration agreement with PTC Therapeutics, Inc., or PTC, to develop and
commercialize PTC124, PTC's novel oral therapy in late-stage development for the treatment of nonsense-mutation-mediated Duchenne muscular dystrophy, or DMD, and nonsense-mutation-mediated
cystic fibrosis, or CF. Under the terms of the agreement, PTC will commercialize PTC124 in the United States and Canada, and we will commercialize the treatment in all other countries. In connection
with the collaboration agreement, we paid PTC a nonrefundable upfront payment of $100.0 million, which we recorded as a charge to research and development expense for our Therapeutics segment
in our consolidated statements of operations in July 2008. PTC will conduct and be responsible for the phase 2b trial of PTC124 in DMD, the phase 2b trial of PTC124 in CF and two
proof-of-concept studies in other indications to be determined. Once these four studies have been completed, we and PTC will share research and development costs for PTC124
equally. We and PTC will each bear the sales and marketing and other costs associated with the commercialization of PTC124 in our respective territories. PTC is eligible to receive up to
$337.0 million in milestone payments as follows:



PTC
is also eligible to receive tiered, double-digit royalties from sales of PTC124 outside of the United States and Canada.

Strategic Alliance with Isis Pharmaceuticals, Inc.

On January 7, 2008, we entered into a strategic alliance with Isis Pharmaceuticals, Inc., or Isis, whereby we obtained an
exclusive, worldwide license to develop and commercialize mipomersen, a lipid-lowering drug targeting apolipoprotein B-100, which is currently being developed for the treatment of familial
hypercholesterolemia, or FH, an inherited
disorder that causes exceptionally high levels of LDL-cholesterol. In February 2008, we made a nonrefundable payment to Isis of $150.0 million, of which $80.1 million was
recorded as an investment in equity securities in our consolidated balance sheets based on the fair value of the five million shares of Isis common stock we acquired in connection with the
transaction, and the remaining $69.9 million was allocated to the mipomersen license, which had not reached technological feasibility and did not have alternative future use. We recorded the
$69.9 million license fee as a charge to research and development expense in our consolidated statements of operations for the three months ended March 31, 2008.

In
June 2008, we finalized the terms of our license and collaboration agreement with Isis and paid Isis an additional $175.0 million upfront nonrefundable license fee, which we
recorded as a charge to research and development expense in our consolidated statements of operations in June 2008. Under the terms of the agreement, Isis will contribute up to the first
$125.0 million in funding for the

19

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

6.    Strategic Transactions (Continued)

development
of mipomersen and, thereafter, we and Isis will share development costs for mipomersen equally. The initial funding commitment by Isis and shared development funding would end when the
mipomersen program is profitable. In the event the research and development of mipomersen is terminated prior to Isis completing their funding obligation, we are not entitled to any refund of our
$175.0 million upfront payment. Isis is eligible to receive up to $750.0 million in commercial milestone payments and up to $825.0 million in development and regulatory milestone
payments.

We
will be responsible for funding sales and marketing expenses until mipomersen revenues are sufficient to cover such costs. Profits on mipomersen initially will be allocated 70% to us
and 30% to Isis. The profit ratio would be adjusted on a sliding scale if and as annual revenues for mipomersen ramp up to $2.0 billion, at which point we would share profits equally with Isis.
The results of our mipomersen program are included in the results of our cardiovascular business unit, which are reported under the caption "Other" in our segment disclosures.

7.    Inventories

September 30,
2008

December 31,
2007(Amounts in thousands)Raw materials

$
95,904

$
120,409Work-in-process


135,290


130,812Finished goods


211,705


187,894Total

$
442,899

$
439,115


We
capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval. If a product is not approved for sale, it would
result in the write off of the inventory and a charge to earnings. Our total inventories at September 30, 2008 included $9.4 million of Myozyme and $4.9 million of Campath
inventory, produced at our manufacturing facility in Belgium, that have not yet been approved for sale.

8.    Goodwill and Other Intangible Assets

Goodwill

The following table contains the change in our goodwill during the nine months ended September 30, 2008 (amounts in thousands):

As of
December 31,
2007

Adjustments

As of
September 30,
2008Renal

$
303,951

$


$
303,951Therapeutics


355,494





355,494Transplant


163,061





163,061Biosurgery


7,585





7,585Oncology


530,909


478


531,387Other


42,828


(736
)

42,092Goodwill

$
1,403,828

$
(258
)
$
1,403,570


20

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

8.    Goodwill and Other Intangible Assets (Continued)

We
are required to perform impairment tests related to our goodwill under FAS 142 annually and whenever events or changes in circumstances suggest that the carrying value of an
intangible asset may not be recoverable. We completed the required annual impairment tests for our $1.4 billion of net goodwill in the third quarter of 2008 and determined that no impairment
charges were required.

Other Intangible Assets

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

As of September 30, 2008

As of December 31, 2007Gross
Other
Intangible
Assets

Accumulated
Amortization

Net
Other
Intangible
Assets

Gross
Other
Intangible
Assets

Accumulated
Amortization

Net
Other
Intangible
AssetsTechnology(1)

$
2,160,328

$
(666,450
)
$
1,493,878

$
1,680,190

$
(545,817
)
$
1,134,373Patents


194,560


(117,426
)

77,134


194,560


(104,413
)

90,147Trademarks


60,610


(40,851
)

19,759


60,634


(36,787
)

23,847License fees


90,504


(35,432
)

55,072


90,237


(28,833
)

61,404Distribution rights(2)


391,530


(157,929
)

233,601


307,260


(125,678
)

181,582Customer lists(3)


87,704


(32,281
)

55,423


97,031


(33,209
)

63,822Other


2,045


(1,878
)

167


2,050


(1,573
)

477Total

$
2,987,281

$
(1,052,247
)
$
1,935,034

$
2,431,962

$
(876,310
)
$
1,555,652


---

All
of our other intangible assets are amortized over their estimated useful lives.

21

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

8.    Goodwill and Other Intangible Assets (Continued)

The
estimated future amortization expense for our other intangible assets for the remainder of fiscal year 2008, the four succeeding fiscal years and thereafter is as follows (amounts in
thousands):

Year Ended December 31,

Estimated
Amortization
Expense(1,2)2008 (remaining three months)

$
57,8842009


228,8872010


241,7942011


259,9222012


200,776Thereafter


568,166


---

22

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

9.    Investments in Equity Securities

We recorded the following gains (losses) on investments in equity securities, net of charges for impairment of investments, for the periods presented (amounts in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Gross gains (losses) on investments in equity securities:Sirtris Pharmaceuticals, Inc. (Sirtris)

$


$


$
10,304

$
Therapeutic Human Polyclonals, Inc. (THP)


1,042





1,042


10,848Other


(9,861
)

1,105


(8,948
)

3,188Total


(8,819
)

1,105


2,398


14,036Less: charges for impairment of investments


(5,310
)




(6,599
)

Gains (losses) on investments in equity securities, net

$
(14,129
)
$
1,105

$
(4,201
)
$
14,036


In
the fourth quarter of 2007, we purchased an exclusive option to acquire equity of a private company for $10.0 million in cash. We terminated the option
agreement prior to the deadline for exercise and, as a result, we recorded a charge of $10.0 million in the third quarter of 2008 to write off the purchase price of the option. We also recorded
a charge of $5.3 million in the third quarter of 2008 to write down our investments in certain venture capital funds to fair value.

In
the second quarter of 2008, we recorded a $10.3 million gain resulting from the liquidation of our investment in the common stock of Sirtris for net cash proceeds of
$14.8 million.

In
March 2007, we recorded a $10.8 million gain in connection with the sale of our entire investment in the capital stock of THP, which had a zero cost basis, for net cash
proceeds of $10.8 million.

At
September 30, 2008, our stockholders' equity includes $32.7 million of unrealized gains and $0.1 million of unrealized losses related to our strategic investments
in equity securities.

10.    Joint Venture with BioMarin

In 1998, we and BioMarin Pharmaceutical Inc., or BioMarin, formed BioMarin/Genzyme LLC to develop and commercialize Aldurazyme, a recombinant form of the human enzyme
alpha-L-iduronidase, used to treat an LSD known as mucopolysaccharidosis I, or MPS I. Prior to January 1, 2008, we recorded our portion of the results of
BioMarin/Genzyme LLC in equity in income (loss) of equity method investments in our consolidated statements of operations. Our portion of BioMarin/Genzyme LLC's net income was
$8.2 million for the three months ended September 30, 2007 and $20.8 million for the nine months ended September 30, 2007.

23

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

10.    Joint Venture with BioMarin (Continued)

Condensed
financial information for BioMarin/Genzyme LLC is summarized below for the three and nine months ended September 30, 2007 (amounts in thousands):

Three Months Ended
September 30, 2007

Nine Months Ended
September 30, 2007Revenue

$
32,322

$
88,270Gross margin


25,284


68,241Operating expenses


(8,709
)

(26,743
)Net income


16,793


42,029


Effective
January 1, 2008, we restructured our relationship with BioMarin/Genzyme LLC regarding the manufacturing and commercialization of Aldurazyme by
entering into several new agreements. BioMarin/Genzyme LLC no longer engages in commercial activities related to Aldurazyme and solely:



Under
the restructured relationship, BioMarin/Genzyme LLC has licensed all intellectual property related to Aldurazyme and other collaboration products on a royalty-free basis to
BioMarin and us. BioMarin holds the manufacturing rights and we hold the global marketing rights. We are required to pay BioMarin a tiered payment ranging from 39.5% to 50% of worldwide net product
sales of Aldurazyme.

As
a result of the restructuring of our relationship with BioMarin/Genzyme LLC, effective January 1, 2008, in accordance with the provisions of FIN 46R, we began
consolidating the results of BioMarin/Genzyme LLC. Upon consolidation of BioMarin/Genzyme LLC, we recorded the assets and liabilities of the joint venture in our consolidated balance
sheets at fair value. The value of the intellectual property of the joint venture of approximately $480.5 million was recorded as an intangible asset in our consolidated balance sheets and will
be amortized over a useful life of 20 years. As this intellectual property has been outlicensed from the joint venture to BioMarin and us for no consideration, a noncurrent liability was
recorded for an amount equal to the negative value of these licenses. The noncurrent liability is being amortized over a period of 20 years. We recorded BioMarin's portion of the joint
venture's losses, the amount of which was not significant for the three and nine months ended September 30, 2008, as minority interest in our consolidated statements of operations.

11.    Long-Term Debt

1.25% Convertible Senior Notes

In October 2008, we notified the holders of our $690.0 million in principal of 1.25% convertible senior notes that we plan to
redeem the notes on December 1, 2008 using available cash. The notes will be redeemed for cash at 100% of the principal amount of the notes plus accrued interest unless they are converted, at
the option of the noteholders, into shares of our common stock on or before November 25, 2008, at a conversion price of $71.24 per share.

24

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

11.    Long-Term Debt (Continued)

Revolving Credit Facility

As of September 30, 2008, no amounts were outstanding under our five-year $350.0 million senior unsecured
revolving credit facility, which matures on July 14, 2011. The terms of this credit facility include various covenants, including financial covenants, that require us to meet minimum interest
coverage ratios and maximum leverage ratios. As of September 30, 2008, we were in compliance with these covenants.

Mortgage

In July 2008, we purchased land and a manufacturing facility we formerly leased in Framingham, Massachusetts, for an aggregate purchase
price of $38.9 million, including fees. We paid $20.8 million in cash and assumed the remaining $18.1 million in principal outstanding under the existing mortgage for the
facility, which bears interest at 5.57% annually and is due in May 2020. We allocated the purchase price to the fair value of the acquired land and buildings in our consolidated balance sheets in July
2008, of which $20.6 million was allocated to land and $18.3 million was allocated to buildings.

12.    Stockholders' Equity

Stock Repurchase

During the three months ended September 30, 2008, we did not repurchase any shares of our common stock under our stock
repurchase program. Since June 2007, when we first began repurchasing shares of our common stock under this program, we have repurchased a cumulative total of 5,500,000 shares of our common stock at
an average price of $68.09 per share for a total of $374.6 million in cash, including fees. We recorded the repurchases in our consolidated balance sheets as a reduction to our common stock
account for the par value of the repurchased shares and as a reduction to our additional paid-in capital account.

25

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

12.    Stockholders' Equity (Continued)

Stock-Based Compensation Expense, Net of Estimated Forfeitures

We allocated pre-tax stock-based compensation expense, net of estimated forfeitures, based on the functional cost center of
each employee as follows (amounts in thousands, except per share amounts):

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Pre-tax stock-based compensation expense, net of estimated forfeitures, charged to:Cost of products and services sold(1)

$
(6,926
)
$
(5,779
)
$
(19,751
)
$
(18,540
)Selling, general and administrative expense


(24,222
)

(25,091
)

(79,015
)

(82,838
)Research and development expense


(14,645
)

(13,518
)

(43,322
)

(44,973
)Total


(45,793
)

(44,388
)

(142,088
)

(146,351
)Less: tax benefit from stock options


14,025


14,093


43,396


45,228Total stock-based compensation expense, net of tax

$
(31,768
)
$
(30,295
)
$
(98,692
)
$
(101,123
)Effect per common share:Basic

$
(0.12
)
$
(0.12
)
$
(0.37
)
$
(0.38
)Diluted

$
(0.11
)
$
(0.11
)
$
(0.35
)
$
(0.36
)


---

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Stock-based compensation expense capitalized to inventory

$
3,486

$
2,484

$
10,482

$
10,323


We
amortize stock-based compensation expense capitalized to inventory based on inventory turns.

At
September 30, 2008, there was $289.5 million of pre-tax stock-based compensation expense, net of estimated forfeitures, related to unvested awards not yet
recognized that is expected to be recognized over a weighted average period of 2.2 years.

Notes Receivable from Stockholders

In connection with our acquisition of Biomatrix, we assumed notes receivable from five former employees, directors and consultants of
Biomatrix, who we refer to as the Makers of the notes. The notes are full-recourse promissory notes that accrue interest at rates ranging from 5.30% to 7.18% and mature at various dates
from May 2007 through September 2009. We record the amount of principal and interest outstanding under the notes in stockholders' equity because the notes were originally received in exchange for the
issuance of Biomatrix common stock, which was subsequently converted into Genzyme Stock.

26

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

12.    Stockholders' Equity (Continued)

As
of September 30, 2008, there was a total of $13.0 million of principal and interest outstanding for these notes, of which a total of $12.8 was attributable to one Maker,
the majority of which was past due.

In
October 2008, we received a total of $10.1 million of cash from this Maker, including $0.3 million for the reimbursement of collection costs, and shares of Genzyme Stock
valued at $1.7 million as payment in full of the past due amounts. Two notes remain outstanding, both of which mature in 2009. The amount of principal and accrued interest for the remaining
notes is not material.

13.    Commitments and Contingencies

Legal Proceedings

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

In
April 2005, Church & Dwight Co., Inc., or Church & Dwight, filed a suit in U.S. District Court for the District of New Jersey against Abbott Laboratories,
or Abbott, claiming that certain over-the-counter pregnancy tests distributed by Abbott between 1999 and 2003 infringed upon patents owned by Church & Dwight. During
part of this period, a portion of the test kits distributed by Abbott were manufactured by Wyntek Diagnostics, Inc., or Wyntek, which had agreed to indemnify Abbott for patent infringement
related costs and damages for these products. In 2002, we acquired Wyntek and assumed the obligations under this agreement. In June 2008, the court issued a ruling awarding Church & Dwight
approximately $29 million in damages based on a jury finding of willful infringement by Abbott. This award has not yet been entered as a final ruling. Abbott will
have 60 days from the final entry of this award to file an appeal. Because multiple parties, including Abbott, manufactured infringing product for Abbott during this period, any responsibility
that we may have for indemnifying Abbott is only for a portion of its costs and damages related to this case. We currently are disputing with Abbott the percentage of infringing product that was
supplied by us and may in the future assert additional claims that, if successful, would reduce or relieve us of any liability.

Through
June 30, 2003, we had three outstanding series of common stock, which we referred to as tracking stocks; Genzyme General Stock (which we now refer to as Genzyme Stock),
Biosurgery Stock and Molecular Oncology Stock. On August 6, 2007, we reached an agreement in principle to settle for $64.0 million, lawsuits related to our 2003 exchange of Genzyme Stock
for Biosurgery Stock. As a result, we recorded a liability for the settlement payment of $64.0 million as a charge to SG&A in our consolidated statements of operations in June 2007, which we
subsequently paid in August 2007. The court approved the settlement in October 2007. We have submitted claims to our insurers for reimbursement of portions of the expenses incurred in connection with
these cases; the insurers have purported to deny coverage, and therefore, we have not recorded a receivable for any potential recovery from our insurers. We intend to vigorously pursue our rights with
respect to insurance coverage and to the extent we are successful, we will record the recovery in our consolidated statements of operations.

We
periodically become subject to legal proceedings and claims arising in connection with our business. Although we cannot predict the outcome of these additional proceedings and claims,
we do not believe the ultimate resolution of any of these existing matters would have a material adverse affect on our consolidated financial position or results of operations.

27

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

14.    Provision for Income Taxes

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007(Amounts in thousands)Provision for income taxes

$
60,512

$
66,432

$
159,036

$
201,715Effective tax rate


34
%

29
%

32
%

33
%


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



In
addition, during the three months ended September 30, 2008, we recorded net tax benefits of $10.1 million, principally related to a change in our estimate of the amount
of foreign production income for the prior year. Our effective tax rate for the three and nine months ended September 30, 2008 was also impacted by the settlement of IRS audits for the tax
years 2004 to 2005. During the first half of 2008, we recorded a total of $5.1 million of tax benefits to our income tax provision reflecting the settlement of various issues. In conjunction
with those settlements, we reduced our tax reserves by $4.9 million and recorded current and deferred tax benefits for the remaining portion of the settlement amounts.

We
are currently under IRS audit for the tax years 2006 to 2007 and various states for the tax years 1999 to 2005. We believe that we have provided sufficiently for all audit exposures.
Settlement of these audits or the expiration of the statute of limitations on the assessment of income taxes for any tax year may result in an adjustment of future tax provisions. Any such adjustment
would be recorded upon the effective settlement of the audit or expiration of the applicable statute of limitations.

15.    Segment Information

In accordance with FAS 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent with the method we use to
report this information to our management. Applying FAS 131, we have six reporting segments as described above in Note 1, "Description of Business," to these consolidated financial
statements. Effective January 1, 2008, as a result of changes in how we review our business, certain general and administrative expenses, which were formerly allocated amongst our reporting
segments and Other, are now allocated to Corporate. We have revised our 2007 segment presentation to conform to our 2008 presentation.

28

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

15.    Segment Information (Continued)

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

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Revenues:Renal

$
204,817

$
184,424

$
602,006

$
522,350Therapeutics(1)


599,329


471,351


1,779,957


1,365,617Transplant


47,860


42,881


141,633


127,582Biosurgery


122,962


106,146


365,839


312,428Genetics


82,058


73,050


234,921


212,922Oncology


33,978


22,730


96,350


62,609Other


68,895


59,111


209,548


172,084Corporate


385


466


1,225


1,169Total

$
1,160,284

$
960,159

$
3,431,479

$
2,776,761Income (loss) before income taxes:Renal

$
91,398

$
81,171

$
272,843

$
218,931Therapeutics(1,2)


271,878


315,098


1,015,287


905,096Transplant


(14,360
)

(18,211
)

(33,770
)

(28,536
)Biosurgery


23,454


18,991


70,910


50,826Genetics


3,025


4,371


10,754


20,140Oncology(3)


(24,694
)

(33,728
)

(76,345
)

(53,440
)Other(4)


4,010


1,620


(236,568
)

3,035Corporate(5)


(174,603
)

(143,567
)

(529,644
)

(513,043
)Total

$
180,108

$
225,745

$
493,467

$
603,009


---

29

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes to Unaudited, Consolidated Financial Statements (Continued)

15.    Segment Information (Continued)



Segment Assets

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

September 30,
2008

December 31,
2007Segment Assets(1):Renal

$
1,387,762

$
1,468,428Therapeutics(2)


1,772,381


1,230,128Transplant


424,746


415,903Biosurgery


506,203


458,412Genetics


184,429


148,787Oncology


925,792


940,097Other


232,539


246,496Corporate(3)


3,981,733


3,393,490Total

$
9,415,585

$
8,301,741


---

September 30,
2008

December 31,
2007Cash, cash equivalents, short- and long-term investments in debt securities

$
1,473,249

$
1,460,394Deferred tax assets, net


489,071


260,005Property, plant & equipment, net


1,484,523


1,240,992Investments in equity securities


169,678


89,181Other assets


365,212


342,918Total

$
3,981,733

$
3,393,490


30

---





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

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

INTRODUCTION

We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad
product and service portfolio is focused on rare disorders, renal diseases, orthopaedics, organ transplant, diagnostic and predictive testing, and cancer. We are organized into six financial reporting
units, which we also consider to be our reporting segments:



We
report the activities of our diagnostic products, bulk pharmaceuticals and cardiovascular business units under the caption "Other." We report our corporate, general and administrative
operations and corporate science activities under the caption "Corporate."

31

---



Effective
January 1, 2008, as a result of a change in how we review our business, certain general and administrative expenses which were formerly allocated amongst our reporting segments
and Other, are now allocated to Corporate.

As
a result of our acquisition of Bioenvision in October 2007, our Oncology business unit, which was formerly reported combined with "Other," now meets the criteria for disclosure as a
separate reporting segment. We have revised our 2007 segment disclosures to conform to our 2008 presentation.

MERGERS AND ACQUISITIONS

The following acquisitions were accounted for as business combinations and, accordingly, we have included their results of operations
in our consolidated statements of operations from the date of acquisition.

Diagnostic Assets of Diagnostic Chemicals Limited

On December 3, 2007, we acquired certain diagnostic assets from Diagnostic Chemicals Limited, or DCL, a privately-held diagnostics and
biopharmaceutical company, including DCL's line of over 50 formulated clinical chemistry reagents and their diagnostics operations in Prince Edward Island, Canada and Connecticut. We paid
consideration of $53.8 million in cash.

Bioenvision

Effective October 23, 2007, we completed our acquisition of Bioenvision through the culmination of a two-step process consisting of a
tender offer completed in July 2007, and a merger approved in October 2007. We paid gross consideration of $349.9 million in cash, including
$345.4 million for the outstanding shares of Bioenvision common and preferred stock and options to purchase shares of Bioenvision common stock, and approximately $5 million for acquisition
costs. Net consideration was $304.7 million as we acquired Bioenvision's cash and cash equivalents totaling $45.2 million.

Bioenvision
was focused on the acquisition, development and marketing of compounds and technologies for the treatment of cancer, autoimmune disease and infection. The acquisition of
Bioenvision provided us with the rights to clofarabine outside North America. Clofarabine, which is approved for the treatment of relapsed and refractory pediatric ALL, is marketed under the name
Clolar in North and South America and as Evoltra elsewhere in the world. We are developing clofarabine for diseases with significantly larger patient populations, including use as a first-line therapy
for the treatment of acute myelogenous leukemia, or AML, in adults. Clofarabine has been granted orphan drug status for the treatment of ALL and AML in both the United States and the European Union.

STRATEGIC TRANSACTIONS

We classify nonrefundable fees paid outside of a business combination for the acquisition or licensing of products that have not
received regulatory approval and have no future alternative use as research and development expense.

Strategic Alliance with Osiris

In October 2008, we entered into a strategic alliance with Osiris, whereby we obtained an exclusive license to develop and
commercialize Prochymal and Chondrogen, mesenchymal stem cell products, outside of the United States and Canada. Osiris will commercialize Prochymal and Chondrogen in the United States and Canada. We
will pay Osiris a nonrefundable upfront payment of $75.0 million by November 21, 2008 and an additional $55.0 million nonrefundable upfront license fee on July 1, 2009,

32

---



both
of which will be charged to research and development expense in our consolidated statements of operations during the fourth quarter of 2008.

Osiris
will be responsible for completing, at its own expense, all clinical trials of Prochymal for the treatment of GvHD and Crohn's disease, both of which are in phase 3 trials,
and clinical trials of Prochymal and Chondrogen through phase 2 for all other indications. Osiris will be responsible for 60% and we will be responsible for 40% of the clinical trial costs for
phase 3 and 4 clinical trials of Prochymal (other than for the treatment of GvHD and Crohn's disease) and Chondrogen. Osiris is eligible to receive:



Osiris
is also eligible to receive tiered, double-digit royalties from sales of Prochymal and Chondrogen outside of the United States and Canada.

Collaboration with PTC

On July 15, 2008, we entered into a collaboration agreement with PTC to develop and commercialize PTC124, PTC's novel oral therapy in
late-stage development for the treatment of nonsense-mutation-mediated DMD and nonsense-mutation-mediated CF. Under the terms of the agreement, PTC will commercialize PTC124 in the United States and
Canada, and we will commercialize the treatment in all other countries. In connection with the collaboration agreement, we paid PTC a nonrefundable upfront payment of $100.0 million, which we recorded
as a charge to research and development expense for our Therapeutics segment in our consolidated statements of operations in July 2008. PTC will conduct and be responsible for the phase 2b trial of
PTC124 in DMD, the phase 2b trial of PTC124 in CF and two proof-of-concept studies in other indications to be determined. Once these four studies have been completed, we and PTC will share research
and development costs for PTC124 equally. We and PTC will each bear the sales and marketing and other costs associated with the commercialization of PTC124 in our respective territories. PTC is
eligible to receive up to $337.0 million in milestone payments as follows:



PTC
is also eligible to receive tiered, double-digit royalties from sales of PTC124 outside of the United States and Canada.

Strategic Alliance with Isis

On January 7, 2008, we entered into a strategic alliance with Isis, whereby we obtained an exclusive, worldwide license to develop and
commercialize mipomersen, a lipid-lowering drug targeting apolipoprotein B-100, which is currently being developed for the treatment of FH, an inherited disorder that causes exceptionally high levels
of LDL-cholesterol. In February 2008, we made a nonrefundable payment to Isis of $150.0 million, of which $80.1 million was recorded as an investment in equity securities in our consolidated
balance sheets based on the fair value of the five million shares

33

---



of
Isis common stock we acquired in connection with the transaction and the remaining $69.9 million was allocated to the mipomersen license, which had not reached technological feasibility and did not
have alternative future use. We recorded the $69.9 million license fee as a charge to research and development expense in our consolidated statements of operations in the first quarter of 2008.

In
June 2008, we finalized the terms of our license and collaboration agreement with Isis and paid Isis an additional $175.0 million upfront nonrefundable license fee, which we recorded
as a charge to research and development expense in our consolidated statements of operations in June 2008. Under the terms of the agreement, Isis will contribute up to the first $125.0 million in
funding for the development of mipomersen and, thereafter, we and Isis will share development costs for mipomersen equally. The initial funding commitment by Isis and shared development funding would
end when the mipomersen program is profitable. In the event the research and development of mipomersen is terminated prior to Isis completing their funding obligation, we are not entitled to any
refund of our $175.0 million upfront payment. Accordingly, the $175.0 million was recorded as research and
development expense in June 2008. Isis is eligible to receive up to $750.0 million in commercial milestone payments and up to $825.0 million in development and regulatory milestone payments.

We
will be responsible for funding sales and marketing expenses until mipomersen revenues are sufficient to cover such costs. Profits on mipomersen initially will be allocated 70% to us
and 30% to Isis. The profit ratio would be adjusted on a sliding scale if and as annual revenues for mipomersen ramp up to $2.0 billion, at which point we would share profits equally with Isis. The
results of our mipomersen program will be included in the results of our cardiovascular business unit, which are reported under the caption "Other" in our segment disclosures.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Our critical accounting policies and significant judgments and estimates are set forth under the heading "Management's Discussion and
Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and Significant Judgments and Estimates" in Exhibit 13 to our 2007 Form 10-K. There have been no
significant changes to our critical accounting policies or significant judgments and estimates since December 31, 2007.

During
the third quarter of 2008, we completed the required annual impairment tests for our $1.4 billion of net goodwill and determined that no impairment charge was required.

Additional
information regarding our provisions and estimates for our product sales allowances, sales allowance reserves and accruals, and distributor fees, and the key assumptions we
use to determine the fair value assigned to IPR&D are included below.

Revenue Recognition

Product Sales Allowances

Sales of many biotechnology products in the United States are subject to increased pricing pressure from managed care groups,
institutions, government agencies, and other groups seeking discounts. We and other biotechnology companies in the U.S. market are also required to provide statutorily defined rebates and discounts to
various U.S. government agencies in order to participate in the Medicaid program and other government-funded programs. In most international markets, we operate in an environment where governments
may, and in some cases have, mandated cost-containment programs, placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted
across-the-board price cuts as methods to control costs. The sensitivity of our estimates can vary by program, type of customer and geographic location. Estimates associated with Medicaid and other
government allowances may become subject to adjustment in a subsequent period.

34

---



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



Our
provisions for product sales allowances reduced gross product sales as follows (amounts in thousands):

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007Product sales allowances:Contractual adjustments

$
153,799

$
106,807


44
%
$
362,813

$
292,998


24
%Discounts


5,655


5,296


7
%

16,663


14,489


15
%Sales returns


8,434


1,826


>100
%

20,102


9,248


>100
%Total product sales allowances

$
167,888

$
113,929


47
%
$
399,578

$
316,735


26
%Total gross product sales

$
1,226,184

$
981,611


25
%
$
3,535,943

$
2,828,089


25
%Total product sales allowances as a percent of total gross product sales


14
%

12
%




11
%

11
%


Total product sales allowances increased $54.0 million, or 47%, for the three months ended September 30, 2008, as compared to the same
period of 2007, and $82.8 million, or 26%, for the nine months ended September 30, 2008, as compared to the same period of 2007, primarily due to an increase in overall gross product
sales and changes in rebate rates and product mix. The increase in sales returns allowances for the three months ended September 30, 2008, as compared to the same

35

---



period
of 2007, is primarily due to increased sales returns allowances for our Renal segment due to a Renagel price increase in August 2008 and revisions to our estimates of the volume of
product returns for Hectorol. The increase in sales returns allowances for the nine months ended September 30, 2008, as compared to the same period of 2007, is primarily due to price increases and
increased estimates for the volume of product returns for our Renal, Transplant and Biosurgery segments.

Total
estimated product sales allowance reserves and accruals in our consolidated balance sheets increased 27% to approximately $198 million as of September 30, 2008, as
compared to approximately $155 million as of December 31, 2007, primarily due to increased product sales and changes in the timing of certain payments. Our actual results have not
differed materially 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. 01-9, "Accounting for Consideration given by a Vendor to a Customer (including a Reseller of a Vendor's Products)"
specifies that cash consideration (including a sales incentive) given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor's products or services and, therefore,
should be characterized as a reduction of revenue. We include such fees in contractual adjustments, which are recorded as a reduction to product sales. That presumption is overcome and the
consideration should be characterized as a cost incurred if, and to the extent that, both of the following conditions are met:



We
record fees paid to our distributors for services as a charge to SG&A, a component of operating expenses, only if the criteria set forth above are met. The following table sets forth
the distributor fees recorded as a reduction to product sales and charged to SG&A (amounts in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Distributor fees:Included in contractual adjustments and recorded as a reduction to product sales

$
3,437

$
2,948

$
9,723

$
9,238Charged to SG&A


3,519


3,210


10,039


9,644Total distributor fees

$
6,956

$
6,158

$
19,762

$
18,882


In-Process Research and Development

In-process research and development represents the fair value assigned to incomplete technologies that we acquire, which at the time of
acquisition have not reached technological feasibility and have no alternative future use. The fair value of such technologies is expensed upon acquisition. A technology is considered to have an
alternative future use if it is probable that the acquirer will use the asset in its current, incomplete state as it existed at the acquisition date, the asset will be used in another research and
development project that has not yet commenced, and economic benefit is anticipated from that use. If a technology is determined to have an alternative future use, then the fair value of the program
would be recorded as an asset on the balance sheet rather than expensed. None of the incomplete technology programs we have acquired through our business combinations have reached technological
feasibility nor had an alternative future use and, therefore, the fair value of those programs was

36

---



expensed
on the acquisition date. Substantial additional research and development will be required before any of our acquired programs reach technological feasibility. In addition, once research is
completed, each underlying product candidate will need to complete a series of clinical trials and receive regulatory approvals prior to commercialization.

Charges
for in-process research and development acquired through business combinations, which we refer to as IPR&D, are classified in our consolidated statements of operations within the
line item
Purchase of In-Process Research and Development. Conversely, nonrefundable fees paid outside of a business combination for the acquisition or licensing of products that have not received regulatory
approval and have no future alternative use are classified in our consolidated statements of operations within the line item Research and Development.

Management
assumes responsibility for determining the valuation of the acquired IPR&D programs. The fair value assigned to IPR&D for each acquisition is estimated by discounting, to
present value, the future cash flows expected from the programs since the date of our acquisition. Accordingly, such cash flows reflect our estimates of revenues, costs of sales, operating expenses
and income taxes from the acquired IPR&D programs based on the following factors:



The
discount rates used are commensurate with the uncertainties associated with the economic estimates described above. The resulting discounted future cash flows are then
probability-adjusted to reflect the different stages of development, the time and resources needed to complete the development of the product and the risks of advancement through the product approval
process. In estimating the future cash flows, we also consider the tangible and intangible assets required for successful exploitation of the technology resulting from the purchased IPR&D programs and
adjust future cash flows for a charge reflecting the contribution to value of these assets. Such contributory tangible and intangible assets may include, but are not limited to, working capital, fixed
assets, assembled workforce, customer relationships, patents, trademarks, and core technology.

Use
of different estimates and judgments could yield materially different results in our analysis and could result in materially different asset values and IPR&D expense. There can be no
assurance that we will be able to successfully develop and complete the acquired IPR&D programs and profitably commercialize the underlying product candidates before our competitors develop and
commercialize products for the same indications. Moreover, if certain of the acquired IPR&D programs fail, are abandoned during development, or do not receive regulatory approval, then we may not
realize the future cash flows we have estimated and recorded as IPR&D on the acquisition date, and we may also not recover the research and development investment made since the acquisition to further
develop that program. If such circumstances were to occur, our future operating results could be materially adversely impacted.

37

---



We
have included additional information on the nature, timing and estimated costs necessary to complete our acquired IPR&D programs and the key assumptions used to determine the fair
value of specific IPR&D programs under the caption "Purchase of In-Process Research and Development" in this "Management's Discussion and Analysis of Financial Condition and Results of Operations."

RESULTS OF OPERATIONS

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

REVENUES

The components of our total revenues are described in the following table (amounts in thousands):

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007Product revenue

$
1,058,296

$
867,682


22
%
$
3,136,365

$
2,511,354


25
%Service revenue


92,586


83,177


11
%

269,072


241,533


11
%Total product and service revenue


1,150,882


950,859


21
%

3,405,437


2,752,887


24
%Research and development revenue


9,402


9,300


1
%

26,042


23,874


9
%Total revenues

$
1,160,284

$
960,159


21
%
$
3,431,479

$
2,776,761


24
%


Product Revenue

We derive product revenue from sales of:



38

---





The following table sets forth our product revenue on a reporting segment basis (amounts in thousands):

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007Renal:Renagel/Renvela (including sales of bulk sevelamer)

$
170,992

$
154,159


11
%
$
508,253

$
436,497


16
%Hectorol


33,825


30,265


12
%

93,753


85,853


9
%Total Renal


204,817


184,424


11
%

602,006


522,350


15
%Therapeutics:Cerezyme


309,280


286,071


8
%

932,943


832,841


12
%Fabrazyme


125,619


104,610


20
%

368,702


309,623


19
%Thyrogen


38,153


26,828


42
%

111,386


82,706


35
%Myozyme


76,663


53,568


43
%

221,209


138,232


60
%Aldurazyme


38,236





N/A


113,742





N/AOther Therapeutics


11,367


153


>100
%

31,576


1,025


>100
%Total Therapeutics


599,318


471,230


27
%

1,779,558


1,364,427


30
%Transplant:Thymoglobulin/Lymphoglobuline


45,492


41,036


11
%

134,757


121,854


11
%Other Transplant


2,368


1,845


28
%

6,876


5,548


24
%Total Transplant


47,860


42,881


12
%

141,633


127,402


11
%Biosurgery:Synvisc/Synvisc-One


67,513


61,175


10
%

194,582


179,634


8
%Sepra products


33,001


26,381


25
%

98,385


74,572


32
%Other Biosurgery


11,859


7,107


67
%

38,832


26,065


49
%Total Biosurgery


112,373


94,663


19
%

331,799


280,271


18
%Oncology


25,828


16,131


60
%

74,048


47,402


56
%Other product revenue


68,100


58,353


17
%

207,321


169,502


22
%Total product revenues

$
1,058,296

$
867,682


22
%
$
3,136,365

$
2,511,354


25
%


Renal

On October 22, 2007, the FDA granted marketing approval for Renvela, a second generation buffered form of Renagel for the
control of serum phosphorus in patients with chronic kidney disease, or CKD, on dialysis. In March 2008, we launched Renvela for dialysis patients in the United States and the product is
now included in most U.S. health plan formularies. We are currently pursuing regulatory approvals for Renvela in Europe, South America and other international markets.

Sales
of Renagel/Renvela, including sales of bulk sevelamer, increased 11% to $171.0 million for the three months ended September 30, 2008, as compared to the same period
of 2007, primarily due to the addition of $9.1 million of revenue from sales of Renvela in the United States, for which there was no similar amount in the same period of 2007, and
a $7.7 million increase in sales of Renagel, including sales of bulk sevelamer. The strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, positively impacted Renagel
revenue by $5.5 million and increased end-user demand accounted for an additional $2.9 million of revenue. A Renagel price increase in the United States in
August 2008 did not have a material impact on Renagel revenue for the period. Sales of Renagel/

39

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Renvela,
including sales of bulk sevelamer, were 15% of our total revenues for the three months ended September 30, 2008, as compared to 16% for the same period of 2007.

Sales
of Renagel/Renvela, including sales of bulk sevelamer, increased 16% to $508.3 million for the nine months ended September 30, 2008, as compared to the same period
of 2007, primarily due to the addition of $14.5 million of revenue from sales of Renvela in the United States, for which there was no similar amount in the same period of 2007,
and a $57.3 million increase in sales of Renagel, including sales of bulk sevelamer. Increased end-user demand accounted for $26.1 million of the additional revenue and a
Renagel price increase in the United States in April 2007 accounted for $9.9 million of the additional Renagel revenue. The strengthening of foreign currencies, primarily the
Euro, against the U.S. dollar, positively impacted Renagel revenue by $23.2 million. Sales of Renagel/Renvela, including sales of bulk sevelamer, were 15% of our total revenues for the three
months ended September 30, 2008, as compared to 16% for the same period of 2007.

In
October 2007, an FDA advisory committee voted to recommend that the agency extend the indications for phosphate binders to include pre-dialysis patients with hyperphosphatemia. In
June 2008, we and two other companies submitted a position paper to the FDA regarding the expanded use of phosphate binders. We received a written response from the FDA and we are in the process of
providing the additional information requested. We anticipate that this indication will be added to Renvela's label by the middle of 2009. In addition, we expect to file for approval of a powder form
of Renvela that may make it easier for patients to comply with their prescribed treatment program. While Renagel will remain available for a period of time, our long-term goal is to transition all
patients to Renvela.

Sales
of Hectorol increased 12% to $33.8 million for the three months ended and 9% to $93.8 million for the nine months ended September 30, 2008, as compared to the
same periods of 2007, primarily due to Hectorol price increases in the third quarter of 2007 and second quarter of 2008, which accounted for $3.1 million for the three months ended and
$6.7 million for the nine months ended September 30, 2008 of the additional revenue.

We
expect sales of Renagel/Renvela and Hectorol to continue to increase, driven primarily by growing patient access to these products, including through the Medicare Part D program in
the United States, and the continued adoption of the products by nephrologists worldwide. Adoption rates for Renagel/Renvela are expected to trend favorably as a result of the recent introduction of
Renvela in the U.S. market, the potential label expansion to include hyperphosphatemic patients who are not on dialysis, and the introduction of a powder formulation expected in the first half of
2009. Adoption rates for Hectorol are expected to trend favorably as a result of growth in the CKD market and the anticipated launch of a 1 mg capsule form of Hectorol in the first half of 2009. In
addition, we expect adoption rates to increase for both Renagel/Renvela and Hectorol as a result of our recent expansion and redeployment of our Renal sales force.

Renagel/Renvela
and Hectorol compete with several other marketed products and our future sales may be impacted negatively by these products. Both Renagel and Hectorol are also subjects
of Abbreviated New Drug Applications, or ANDAs, containing "Paragraph IV certifications," which is the filing a generic drug manufacturer uses to challenge one or more patents in order to seek U.S.
regulatory approval to market a generic version of a drug prior to the expiration date of those patents.

In
the case of Renagel, the ANDA Paragraph IV certification relates only to one of our Renagel patents, namely our patent that covers features of our tablet dosage form. This patent
expires in 2020, and the ANDA applicant alleged that its proposed product would not infringe that patent. We reviewed the Paragraph IV certification and did not initiate patent infringement litigation
within the 45-day statutory period. The ANDA does not contain a Paragraph IV certification with respect to our Renagel pharmaceutical composition and medical use patent estate, which protect the
product and its approved indications until 2014.

40

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In
the case of Hectorol, the ANDA applicant has submitted a Paragraph IV certification alleging the invalidity of our patent related to the use of Hectorol to treat hyperparathyroidism
secondary to end-stage renal disease (which patent expires in 2014), and alleging non-infringement of our patent covering our highly purified form of Hectorol (which patent expires in 2021). We
initiated patent infringement litigation in February 2008. We believe that our patents are valid, and are currently assessing the merits of the ANDA applicant's non-infringement positions.

If
either of the ANDA filers or any other generic drug manufacturer were to receive approval to sell a generic version of Renagel or Hectorol, our revenues from those products would be
adversely affected. In addition, our ability to continue to increase sales of Renagel/Renvela and Hectorol will depend on many other factors, including our ability to optimize dosing and improve
patient compliance with Renagel/Renvela dosing, the availability of reimbursement from third-party payors and the extent of coverage, including under the Medicare Part D program. Also, the accuracy of
our estimates of fluctuations in the payor mix and our ability to effectively manage wholesaler inventories and the levels of compliance with the inventory management programs we implemented for
Renagel/Renvela and Hectorol with our wholesalers could impact the revenue from our Renal reporting segment that we record from period to period.

Therapeutics

Therapeutics product revenue increased 27% to $599.3 million for the three months ended and 30% to $1.8 billion for the nine
months ended September 30, 2008, as compared to the same periods of 2007, due to continued growth in sales of Cerezyme, Fabrazyme and Myozyme and the inclusion of Aldurazyme sales in our
results of operations beginning on January 1, 2008. As a result of our restructured relationship with BioMarin and BioMarin/Genzyme LLC regarding the manufacturing, marketing and sale of
Aldurazyme, effective January 1, 2008, we began to record all sales of Aldurazyme.

Sales
of Cerezyme increased 8% to $309.3 million for the three months ended and 12% to $932.9 million for the nine months ended September 30, 2008, as compared to
the same periods of 2007. This is primarily attributable to our continued identification of new Gaucher disease patients, particularly in international markets. We implemented a 3% price increase for
Cerezyme in the United States in November 2007 and a 4% price increase for Cerezyme in the United States in August 2008. These price increases accounted for $1.9 million for the
three months ended and $9.9 million for the nine months ended September 30, 2008 of the additional Cerezyme revenue. Although we expect Cerezyme to continue to be a substantial
contributor to our total revenues in the future, it is a mature product and we do not expect the current new patient growth trend to continue. The strengthening of foreign currencies, primarily the
Euro, against the U.S. dollar, positively impacted Cerezyme revenue by $11.9 million for the three months ended and $48.3 million for the nine months ended September 30, 2008, as
compared to the same periods of 2007.

Sales
of Fabrazyme increased 20% to $125.6 million for the three months ended and 19% to $368.7 million for the nine months ended September 30, 2008, as compared to
the same periods of 2007, primarily due to increased patient identification worldwide as Fabrazyme is introduced into new markets. We implemented a 3% price increase for Fabrazyme in the United States
in November 2007 and a 4% price increase for Fabrazyme in the United States in August 2008. These price increases accounted for $2.2 million for the three months ended and $4.1 million
for the nine months ended September 30, 2008 of the additional Fabrazyme revenue. The strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, positively impacted
Fabrazyme revenue by $4.4 million for the three months ended and by $20.3 million for the nine months ended September 30, 2008, as compared to the same periods of 2007.

41

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Sales
of Myozyme increased 43% to $76.7 million for the three months ended and 60% to $221.2 million for the nine months ended September 30, 2008, as compared to
$53.6 million and $138.2 million for the same periods of 2007. We launched Myozyme in the United 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 received orphan drug designation in both the United States, which provides
seven years of market exclusivity, and in the European Union, which provides ten years of market exclusivity. In June 2007, we launched the product in Japan after receipt of marketing and
reimbursement approvals. We expect to file for approval in several additional countries by the end of 2008. The strengthening of foreign currencies, primarily the Euro, against the U.S. dollar,
positively impacted Myozyme revenue by $3.4 million for the three months ended and $11.4 million for the nine months ended September 30, 2008, as compared to the same periods of
2007.

We
currently manufacture Myozyme (alglucosidase alfa) in the United States at the 160 liter bioreactor, or 160L, scale at our manufacturing facility in Framingham, Massachusetts and at
the 2000L scale at our manufacturing facility in Allston, Massachusetts. We have begun Myozyme fill-finish at our 2000L
facility in Waterford, Ireland. We have approval to sell Myozyme manufactured at the 160L scale in the United States and Myozyme produced at the 2000L scale has been approved for sale in more than 40
countries outside the United States.

In
October 2007, we submitted an application to the FDA seeking approval of alglucosidase alfa produced at the 2000L scale to meet the expected demand for the product in the U.S. market
going forward. In April 2008, the FDA concluded that alglucosidase alfa produced at the 160L scale and at the 2000L scale should be classified as two different products because of differences in the
carbohydrate structures of the molecules. As a result, the FDA required us to submit a separate Biologics License Application, or BLA, to gain U.S. approval for alglucosidase alfa produced at the
2000L scale. In May 2008, we submitted the BLA for alglucosidase alfa produced at the 2000L scale to the FDA. In October 2008, the Endocrinologic and Metabolic Drugs Advisory Committee affirmed by a
vote of 16 to 1 that our Late Onset Treatment Study, or LOTS study, established the clinical effectiveness of alglucosidase alfa produced at the 2000L scale. We expect the FDA to act on
the BLA by November 29, 2008. We anticipate that this process will culminate in the availability of two commercial versions of alglucosidase alfa in the United States: one produced at the 160L
scale and the other produced at the 2000L scale. The decision by the FDA to treat alglucosidase alfa produced using the 160L and 2000L scale processes as separate products will negatively impact our
anticipated 2008 Myozyme revenue growth by approximately $45 million and since we will continue to provide Myozyme at no cost to some patients through a clinical access program, we anticipate
that costs related to Myozyme in 2008 will be approximately $8 to $10 million more than originally expected. We expect demand for Myozyme to continue to grow and expect to begin providing U.S.
patients with commercial 2000L product during the first quarter of 2009.

To
meet the global demand for Myozyme, we are working to secure approval from the EMEA to produce Myozyme at our 4000L scale manufacturing facility in Belgium. We have successfully
completed the required three consecutive process validation runs for Myozyme produced at the 4000L scale and we expect to file for EMEA approval of the 4000L production in January 2009. We anticipate
EMEA approval during the first half of 2009. Approval of 4000L scale production will be necessary to meet the anticipated global demand for Myozyme. Product supply of Myozyme is expected to remain
tight until the 4000L process is approved.

Effective
January 1, 2008, we, BioMarin and BioMarin/Genzyme LLC restructured our relationship regarding the manufacturing, marketing and sale of Aldurazyme and entered into several new
agreements. BioMarin continues to manufacture Aldurazyme. We continue to purchase Aldurazyme exclusively from BioMarin and globally market and sell the product. Effective January 1, 2008, instead of
sharing all costs and profits of Aldurazyme equally, we began to record all sales of Aldurazyme and

42

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began
paying BioMarin a tiered payment ranging from approximately 39.5% to 50% of worldwide net product sales of Aldurazyme. Aldurazyme product revenue was $38.2 million for the three months
ended and $113.7 million for the nine months ended September 30, 2008. Prior to January 1, 2008, we were commercializing Aldurazyme on behalf of BioMarin/Genzyme LLC in the United
States, Canada, the European Union, Latin America and the Asia-Pacific regions and continuing to launch Aldurazyme
on a country-by-country basis as pricing and reimbursement approvals were obtained. BioMarin/Genzyme LLC's Aldurazyme product revenue recorded by BioMarin/Genzyme LLC was $32.3 million for the
three months ended and $88.3 million for the nine months ended September 30, 2007. We implemented a 3% price increase for Aldurazyme in the United States in November 2007
and a 4% price increase for Aldurazyme in the United States in August 2008, which did not have a significant impact on Aldurazyme revenue for the three and nine months ended
September 30, 2008. The increases in Aldurazyme sales of $5.9 million for the three months ended and $25.5 million for the nine months ended September 30, 2008, as compared
to the same periods of 2007, are primarily attributable to increased patient identification worldwide as Aldurazyme was introduced into new markets. We have applications for marketing approval for
Aldurazyme currently pending in several countries in Latin America, Central and Eastern Europe and the Asia-Pacific region. The strengthening of foreign currencies, primarily the Euro, against the
U.S. dollar, positively impacted Aldurazyme revenue by $1.7 million for the three months ended and $6.6 million for the nine months ended September 30, 2008, as compared to
the same periods of 2007.

Sales
of Thyrogen increased 42% to $38.2 million for the three months ended and 35% to $111.4 million for the nine months ended September 30, 2008, as compared to
the same periods of 2007. We implemented a 9.7% price increase for Thyrogen in the United States in April 2007 and a 15% price increase for Thyrogen in the United States in March 2008. These price
increases accounted for $3.1 million for the three months ended and $7.3 million for the nine months ended September 30, 2008 of additional Thyrogen revenue. In addition,
worldwide volume growth, driven by a significant increase in the use of the product in thyroid remnant ablation procedures, positively impacted Thyrogen revenue by $8.3 million for the three
months ended and $18.3 million for the nine months ended September 30, 2008. The strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, positively impacted
Thyrogen revenue by $0.9 million for the three months ended and by $4.8 million for the nine months ended September 30, 2008, as compared to the same periods of 2007.

Transplant

Transplant product revenue increased 12% to $47.9 million for the three months ended and 11% to $141.6 million for the
nine months ended September 30, 2008, as compared to the same periods of 2007. This was primarily due to a $2.1 million increase for the three months ended and a $13.7 million
increase for the nine months ended September 30, 2008 in Thymoglobulin revenue as a result of an 11% increase in the worldwide average sales price of Thymoglobulin. In addition, sales of
Thymoglobulin increased $2.8 million for the three months ended and $4.9 million for the nine months ended September 30, 2008, as compared to the same periods of 2007, due to an
increase in sales volume resulting from increased utilization of Thymoglobulin in transplant procedures worldwide. The strengthening of foreign currencies, primarily the Euro, against the U.S. dollar,
positively impacted Transplant product revenue by $1.1 million for the three months ended and $5.5 million for the nine months ended September 30, 2008, as compared to the same
periods of 2007.

In
March 2008 we recalled one lot, in April 2008 we recalled an additional three lots, and in September 2008 we recalled one other lot of Thymoglobulin that no longer met our
specifications for product appearance. The value of the product returned as a result of these recalls was not significant. In July 2008, we wrote off one lot of Thymoglobulin, valued at approximately
$5 million, due to a filter failure at our fill-finish facility in Waterford, Ireland. We will continue to closely monitor our Thymoglobulin inventory levels and have increased production in an
effort to maintain adequate supply

43

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levels
throughout the remainder of 2008. Construction is underway on a new manufacturing plant for Thymoglobulin in Lyon, France to support the anticipated long-term demand for the product. Regulatory
approvals of the facility are expected beginning in 2010, and production at this plant is expected to commence in 2011.

Biosurgery

Biosurgery product revenue increased 19% to $112.4 million for the three months ended and 18% to $331.8 million for the
nine months ended September 30, 2008, as compared to the same periods of 2007. Seprafilm revenue increased $6.7 million for the three months ended and $21.6 million for the nine
months ended September 30, 2008, as compared to the same periods of 2007, primarily due to greater penetration of the product into the United States, Japanese and European markets and expanded use of
Seprafilm in C-sections and gynecological procedures. The strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, positively impacted Biosurgery product revenue by
$1.5 million for the three months ended and $6.8 million for the nine months ended September 30, 2008, as compared to the same periods of 2007.

We
received approval to market Synvisc-One, a single injection regimen, in the European Union in December 2007. In November 2007, we received a letter from the FDA requesting additional
analysis and data regarding our marketing application for Synvisc-One in the United States. We responded to the FDA's letter in June 2008 and our marketing application will be the subject of an FDA
advisory committee meeting in December when the panel is expected to discuss the clinical data we submitted to support the approval and labeling of the product. The FDA is expected to act on the
application by December 23, 2008. We also plan on pursuing marketing approvals for Synvisc-One in Canada, Asia and Latin America.

The
combined revenues of Synvisc/Synvisc-One increased 10% to $67.5 million for the three months ended and 8% to $194.6 million for the nine months ended
September 30, 2008, as compared to the same periods of 2007, primarily due to an expanded sales and marketing investment and the initiation of direct sales of the product in Latin America.

Other
Biosurgery product revenue increased 67% to $11.9 million for the three months ended and 49% to $38.8 million for the nine months ended September 30, 2008, as
compared to the same periods of 2007, primarily due to $2.0 million of revenue for the three months ended and $8.3 million of revenue for the nine months ended September 30, 2008,
related to a dermal filler we are developing with and manufacturing for sale to Mentor Corporation for which there were no comparable amounts in the same periods of 2007.

Oncology

Oncology product revenue increased 60% to $25.8 million for the three months ended and 56% to $74.0 million for the nine
months ended September 30, 2008, as compared to the same periods of 2007, primarily due to the addition of sales of clofarabine outside of North America, which rights we acquired in connection
with our acquisition of Bioenvision in October 2007. Clofarabine, which is approved for the treatment of relapsed or refractory pediatric ALL, is marketed under the name Clolar in North and South
America and as Evoltra elsewhere in the world.

We
are developing the intravenous formulation of clofarabine for new indications, including first-line and relapsed or refractory adult AML. We expect to submit a supplemental BLA this
year to expand Clolar's U.S. labeling to include adult AML. FDA action is expected by the middle of 2009. A similar submission in Europe is expected during the first half of 2009. We are also
developing an oral formulation of clofarabine and have initiated clinical trials for the treatment of myelodysplastic syndrome, or MDS. Clofarabine has been granted orphan drug status for the
treatment of ALL and AML in both the United States and the European Union.

44

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In
September 2007, the FDA approved expanded labeling for Campath to include first-line treatment of patients with B-cell chronic lymphocytic leukemia, or B-CLL, significantly increasing
the number of patients eligible to receive the product. In December 2007, we received European approval for this expanded indication as well.

Other Product Revenue

Other product revenue increased 17% to $68.1 million for the three months ended and 22% to $207.3 million for the nine
months ended September 30, 2008, as compared to the same periods of 2007, primarily due to:



Service Revenue

We derive service revenue primarily from the following sources:



45

---





The following table sets forth our service revenue on a segment basis (amounts in thousands):

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007Therapeutics

$


$



N/A

$
343

$



N/ABiosurgery


9,928


9,786


1
%

31,958


27,486


16
%Genetics


82,058


73,050


12
%

234,921


212,922


10
%Oncology


424


269


58
%

1,258


897


40
%Other


176


72


>100
%

592


228


>100
%Total service revenue

$
92,586

$
83,177


11
%
$
269,072

$
241,533


11
%


Service
revenue attributable to our Biosurgery reporting segment increased 1% to $9.9 million for the three months ended and 16% to $32.0 million for the nine months ended
September 30, 2008, as compared to the same periods of 2007. The increases were primarily due to higher demand for Epicel and MACI.

Service
revenue attributable to our Genetics reporting segment increased 12% to $82.1 million for the three months ended and 10% to $234.9 million for the nine months ended
September 30, 2008, as compared to the same periods of 2007. The increases were primarily attributable to continued growth in revenue from our genetic testing and prenatal screening services
and the increase in demand for certain testing services for patients diagnosed with cancer.

The
strengthening of foreign currencies against the U.S. dollar for the three and nine months ended September 30, 2008, as compared to the same periods of 2007, did not have a
significant impact on service revenue.

International Product and Service Revenue

A substantial portion of our revenue is generated outside of the United States. The following table provides information regarding the
change in international product and service revenue as a percentage of total product and service revenue during the periods presented (amounts in thousands):

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007International product and service revenue

$
578,744

$
451,881


28
%
$
1,770,426

$
1,302,797


36
%% of total product and service revenue


50
%

48
%




52
%

47
%


The
28% increase, to $578.7 million, in international product and service revenue for the three months ended and the 36% increase, to $1.8 billion, for the nine months ended September
30, 2008, as compared to the same periods of 2007, is primarily due to a $68.5 million increase for the three months ended and a $265.7 million increase for the nine months ended
September 30, 2008 in the combined international sales of Renagel, Cerezyme, Fabrazyme and Myozyme, primarily due to an increase in the number of patients using these products in the European
Union, South America and the Asia-Pacific rim. In addition, in 2008 we began to record worldwide Aldurazyme revenue and revenue for clofarabine sold outside North America. Due to the restructured
relationship with BioMarin/Genzyme LLC, we began to record Aldurazyme revenue effective January 1, 2008. Revenue generated outside the United States for Aldurazyme was $30.3 million for the three
months ended and $91.5 million for the nine months ended September 30, 2008, which had been recorded as joint venture revenue by

46

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BioMarin/Genzyme
LLC in 2007. In October 2007, as a result of our acquisition of Bioenvision, we began selling Clolar/Evoltra for the treatment of relapsed or refractory pediatric ALL outside of North
America. Revenue generated outside the United States for Clolar/Evoltra was $8.5 million for the three months ended and $21.6 million for the nine months ended September 30, 2008.
There were no comparable amounts for the same periods of 2007.

International
product and service revenue as a percentage of total product and service revenue increased due primarily to the addition of revenue generated outside the United States for
Aldurazyme and clofarabine.

The
strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, positively impacted total product and service revenue by $30.7 million for the three months ended
and $129.2 million for the nine months ended September 30, 2008, as compared to the same periods of 2007.

Research and Development Revenue

The following table sets forth our research and development revenue on a segment basis (amounts in thousands):

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007Therapeutics

$
11

$
121


(91
)%
$
56

$
1,190


(95
)%Transplant








N/A





180


(100
)%Biosurgery


661


1,697


(61
)%

2,082


4,671


(55
)%Oncology


7,726


6,330


22
%

21,044


14,310


47
%Other


625


686


(9
)%

1,656


2,355


(30
)%Corporate


379


466


(19
)%

1,204


1,168


3
%Total research and development revenue

$
9,402

$
9,300


1
%
$
26,042

$
23,874


9
%


Total
research and development revenue increased by $0.1 million for the three months ended and $2.2 million for the nine months ended September 30, 2008, as compared to the same
periods of 2007, primarily due to increases in revenue recognized by our Oncology reporting segment due to higher development activity for alemtuzumab under our collaboration with Bayer, particularly
in the multiple sclerosis development program.

47

---



MARGINS

The components of our total margins are described in the following table (amounts in thousands):

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007Product margin

$
832,605

$
677,207


23
%
$
2,452,592

$
2,002,903


22
%% of total product revenue


79
%

78
%




78
%

80
%Service margin

$
33,069

$
29,040


14
%
$
94,994

$
85,311


11
%% of total service revenue


36
%

35
%




35
%

35
%Total product and service margin

$
865,674

$
706,247


23
%
$
2,547,586

$
2,088,214


22
%% of total product and service revenue


75
%

74
%




75
%

76
%


Product Margin

Our overall product margin increased $155.4 million, or 23%, for the three months ended and $449.7 million, or 22%, for the nine
months ended September 30, 2008, as compared to the same periods of 2007. This is primarily due to:



There
was also a $31.9 million favorable effect of exchange rates for the three months ended and $110.6 million for the nine months ended September 30, 2008, as compared to
the same periods of 2007, due to the strengthening of foreign currencies, primarily the Euro, against the U.S. dollar.

Total
product margin as a percentage of product revenue increased for the three months ended September 30, 2008, as compared to the same period of 2007, due to a decrease in
manufacturing-related charges recorded to write off finished lots of Thymoglobulin that did not meet product specifications for saleable product from $11.8 million recorded in September 2007 to
$4.8 million recorded in September 2008. Total product margin as a percentage of product revenue decreased for the nine months ended September 30, 2008, as compared to the same period of
2007, due to the increase in sales of Myozyme and the addition of Aldurazyme to the results, both of which have lower than average margins, and to higher unit costs for Cerezyme and Fabrazyme, offset
by the decrease in manufacturing-related charges recorded.

48

---



For
purposes of this discussion, the amortization of product related intangible assets is included in amortization expense and, as a result, is excluded from cost of products sold and
the determination of product margins.

Service Margin

Our overall service margin increased $4.0 million, or 14%, for the three months ended and $9.7 million, or 11%, for the nine
months ended September 30, 2008, as compared to the same periods of 2007. The increases were primarily attributable to increases in revenue from our genetic testing and prenatal screening
services and the increase in demand for certain testing services for patients diagnosed with cancer.

Total
service margin as a percent of total service revenue increased by 1% for the three months ended September 30, 2008, as compared to the same period of 2007, due to an increase in
MACI and Carticel revenue. Total service margin as a percent of total service revenue was consistent for the nine months ended September 30, 2008 and 2007.

OPERATING EXPENSES

Selling, General and Administrative Expenses

Effective January 1, 2008, as a result of changes in how we review our business, certain general and administrative expenses which were
formerly allocated amongst our reporting segments and Other, are now allocated to Corporate. We have revised our 2007 segment disclosures to conform to our 2008 presentation.

The
following table provides information regarding the change in SG&A during the periods presented (amounts in thousands):

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007Selling, general and administrative expenses

$
331,170

$
270,306


23
%
$
996,861

$
878,807


13
%% of total revenue


29
%

28
%




29
%

32
%


SG&A
increased by $60.9 million for the three months ended and $118.1 million for the nine months ended September 30, 2008, as compared to the same periods of 2007, primarily due
to spending increases of:



49

---





These
increases were partially offset by a decrease in SG&A for the three and nine months ended September 30, 2008 for Corporate because we recorded a $64.0 million charge in
June 2007 for the settlement of the litigation related to the consolidation of our former tracking stocks for which there was no comparable amount recorded in 2008.

Research and Development Expenses

The following table provides information regarding the change in research and development expenses during the periods presented
(amounts in thousands):

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007Research and development expenses

$
305,242

$
175,800


74
%
$
949,900

$
540,362


76
%% of total revenue


26
%

18
%




28
%

19
%


Research
and development expenses increased $129.4 million for the three months ended and $409.5 million for the nine months ended September 30, 2008, as compared to the same periods of
2007, primarily due to:



50

---





These
increases were partially offset by spending decreases of:



Amortization of Intangibles

The following table provides information regarding the change in amortization of intangibles expense during the periods presented
(amounts in thousands):

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007Amortization of intangibles

$
55,295

$
49,819


11
%
$
166,558

$
149,301


12
%% of total revenue


5
%

5
%




5
%

5
%


Amortization
of intangibles expense increased by $5.5 million for the three months ended and $17.3 million for the nine months ended September 30, 2008, as compared to the same periods
of 2007, primarily due to the acquisition of technology in connection with our acquisition of Bioenvision in October 2007 and the acquisition of customer lists and trademarks in connection with our
acquisition of certain diagnostic assets from DCL in December 2007.

As
discussed in Note 8., "Goodwill and Other Intangible Assets," to our consolidated financial statements included in this report, we calculate amortization expense for the Synvisc sales
and marketing rights we reacquired from Wyeth and the Myozyme patent and technology rights pursuant to a licensing agreement with Synpac by taking into account forecasted future sales of the products,
and the resulting estimated future contingent payments we will be required to make. As a result, we expect amortization of intangibles expense to fluctuate over the next five years based on these
future contingent payments.

Purchase of In-Process Research and Development

We did not complete any acquisitions in the nine months ended September 30, 2008. In connection with certain of our acquisitions we
completed between January 1, 2006 and December 31, 2007, we

51

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have
acquired various IPR&D projects. The following table sets forth IPR&D projects for companies we have acquired between January 1, 2006 and December 31, 2007 (amounts in millions):

Company Acquired

Purchase
Price

IPR&D

Programs Acquired

Discount Rate
Used in
Estimating
Cash
Flows

Year of
Expected
Launch

Estimated
Cost to
CompleteBioenvision (2007)

$
349.9

$
125.5

Clolar/Evoltra (clofarabine)(1,2)


17
%

2009-2013

$
35.3AnorMED (2006)

$
589.2

$
526.8

Mozobil (stem cell transplant)(3)


15
%

2009-2014

$
12526.1

AMD070 (HIV)(4)


15
%



$
$
552.9


---

OTHER INCOME AND EXPENSES

Three Months Ended
September 30,



Nine Months Ended
September 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2008

2007

2008

2007(Amounts in thousands)Equity in income (loss) of equity method investments

$


$
(12,648
)

(100)
%
$
188

$
(1,091
)

>(100)
%Minority interest


566


5


>100
%

1,592


3,932


(60)
%Gains (losses) on investments in equity securities, net


(14,129
)

1,105


>(100)
%

(4,201
)

14,036


>(100)
%Other


(699
)

913


>(100)
%

(840
)

110


>(100)
%Investment income


11,793


18,222


(35)
%

40,015


51,687


(23)
%Interest expense


(792
)

(1,474
)

(46)
%

(3,596
)

(9,283
)

(61)
%Total other income (expenses)

$
(3,261
)
$
6,123


>(100)
%
$
33,158

$
59,391


(44)
%


Equity in Income (Loss) of Equity Method Investments

Under this caption, we record our portion of the results of our joint venture with Medtronic, Inc., and our investment in Peptimmune,
Inc. and for the three and nine months ended September 30, 2007, our portion of the results of BioMarin/Genzyme LLC. Also under this caption, for the period from July 10, 2007 through September 30,
2007, we recorded our portion of the results of our investment in Bioenvision, which we subsequently acquired in October 2007.

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Equity in loss of equity method investments decreased by $12.6 million, or 100%, for the three months ended and $1.3 million, or more than 100%, for the nine months ended
September 30, 2008, as compared to the same periods of 2007. These decreases are primarily due to $20.5 million of charges in the three months ended September 30, 2007 related to our investment in
Bioenvision common stock, including a $19.1 million charge for IPR&D, representing our proportionate share of the fair value of the IPR&D programs of Bioenvision for which there are no comparable
amounts in the same periods of 2008 because we completed our acquisition of Bioenvision in October 2007. These charges were offset in part by our portion of the net income from BioMarin/Genzyme LLC of
$8.2 million for the three months ended and $20.8 million for the nine months ended September 30, 2007, for which there are no comparable amounts in the same periods of 2008, since, beginning January
1, 2008, as a result of our restructured relationship with BioMarin, we no longer account for BioMarin/Genzyme LLC using the equity method of accounting.

Minority Interest

As a result of the restructuring of our relationship with BioMarin/Genzyme LLC, effective January 1, 2008, in accordance with
the provisions of FIN 46R, we began consolidating the results of BioMarin/Genzyme LLC. We recorded BioMarin's portion of this joint venture's income for the three and nine months ended
September 30, 2008 as minority interest in our consolidated statements of operations, the amounts of which were not significant.

As
a result of our application of FIN 46R, prior to October 15, 2007, we consolidated the results of Excigen Inc., or Excigen, and, prior to February 20, 2007,
Dyax-Genzyme LLC. On February 20, 2007, we agreed with Dyax to terminate our participation and interest in Dyax-Genzyme LLC. We recorded Dyax's portion of this joint venture's
losses as minority interest in our consolidated statements of operations through February 20, 2007. The results of Excigen were not significant for the three and nine months ended
September 30, 2007.

Gains (Losses) on Investments in Equity Securities, Net

We recorded the following gains (losses) on investments in equity securities, net of charges for impairment of investments, for the
periods presented (amounts in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Gross gains (losses) on investments in equity securities:Sirtris

$


$


$
10,304

$
THP


1,042





1,042


10,848Other


(9,861
)

1,105


(8,948
)

3,188Total


(8,819
)

1,105


2,398


14,036Less: charges for impairment of investments


(5,310
)




(6,599
)

Gains (losses) on investments in equity securities, net

$
(14,129
)
$
1,105

$
(4,201
)
$
14,036


In
the fourth quarter of 2007, we purchased an exclusive option to acquire equity of a private company for $10.0 million in cash. We terminated the option agreement prior to the
deadline for exercise and, as a result, we recorded a charge of $10.0 million in the third quarter of 2008 to write off the purchase price of the option. We also recorded a charge of
$5.3 million in the third quarter of 2008 to write down our investments in certain venture capital funds to fair value.

In
the second quarter of 2008, we recorded a $10.3 million gain resulting from the liquidation of our investment in the common stock of Sirtris for net cash proceeds of
$14.8 million.

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In
March 2007, we recorded a $10.8 million gain in connection with the sale of our entire investment in the capital stock of THP, which had a zero cost basis, for net cash proceeds of
$10.8 million.

At
September 30, 2008, our stockholders' equity includes $32.7 million of unrealized gains and $0.1 million of unrealized losses related to our strategic investments in
equity securities.

Investment Income

Our investment income decreased 35% to $11.8 million for the three months ended and 23% to $40.0 million for the nine
months ended September 30, 2008, as compared to $18.2 million and $51.7 million for the same periods of 2007, primarily due to a decrease in our average portfolio yield in each
period.

Interest Expense

Our interest expense decreased 46% to $0.8 million for the three months ended and 61% to $3.6 million for the nine months
ended September 30, 2008, as compared to $1.5 million and $9.3 million for the same periods of 2007, primarily due to a $1.5 million increase in capitalized interest for
the three months ended and $3.9 million for the nine months ended September 30, 2008. In addition, there was a $1.7 million decrease in interest expense related to asset
retirement obligations in the nine months ended September 30, 2008, as compared to the same period of 2007.

Provision for Income Taxes

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007(Amounts in thousands)Provision for income taxes

$
60,512

$
66,432

$
159,036

$
201,715Effective tax rate


34
%

29
%

32
%

33
%


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



In
addition, during the three months ended September 30, 2008, we recorded net tax benefits of $10.1 million, principally related to a change in our estimate of the amount
of foreign production income in the prior year. Our effective tax rate for the three and nine months ended September 30,
2008 was also impacted by the settlement of IRS audits for the tax years 2004 to 2005. During the first half of 2008, we recorded a total of $5.1 million of tax benefits to our income tax
provision reflecting the settlement of various issues. In conjunction with those settlements, we reduced our tax reserves by $4.9 million and recorded current and deferred tax benefits for the
remaining portion of the settlement amounts.

54

---



We
are currently under IRS audit for the tax years 2006 to 2007 and various states for the tax years 1999 to 2005. We believe that we have provided sufficiently for all audit exposures.
Settlement of these audits or the expiration of the statute of limitations on the assessment of income taxes for any tax year may result in an adjustment of future tax provisions. Any such adjustment
would be recorded upon the effective settlement of the audit or expiration of the applicable statute of limitations.

LIQUIDITY AND CAPITAL RESOURCES

We continue to generate cash from operations. We had cash, cash equivalents and short- and long-term investments of
$1.47 billion at both September 30, 2008 and December 31, 2007.

The
following is a summary of our statements of cash flows for the nine months ended September 30, 2008 and 2007.

Cash Flows from Operating Activities

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

Nine Months Ended
September 30,2008

2007Cash flows from operating activities:Net income

$
334,431

$
401,294Non-cash charges


238,757


318,351Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities)


(139,123
)

(108,818
)Cash flows from operating activities

$
434,065

$
610,827


Cash
provided by operating activities decreased by $176.8 million for the nine months ended September 30, 2008, as compared to the same period of 2007, primarily driven
by:



The
net decrease in non-cash charges for the nine months ended September 30, 2008, as compared to the same period of 2007, is primarily attributable to an increase in
deferred income tax benefits of $154.7 million, offset by:



Cash Flows from Investing Activities

For the nine months ended September 30, 2008, net purchases of investments in equity securities, purchases of other intangible
assets, capital expenditures and settlement of the appraisal demand with

55

---



substantially
all of the Bioenvision dissenters accounted for significant cash outlays for investing activities. During the nine months ended September 30, 2008, we
used:



These
cash outlays were partially offset by $16.5 million of net cash proceeds from the sale of investments in equity securities.

Cash Flows from Financing Activities

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

Nine Months Ended
September 30,2008

2007Cash flows from financing activities:Proceeds from issuance of our common stock

$
294,603

$
100,276Repurchases of our common stock


(143,012
)

(181,210
)Excess tax benefits from stock-based compensation


17,470


1,229Payments of debt and capital lease obligations


(5,281
)

(4,606
)Increase in bank overdrafts


20,889


19,259Payments of notes receivable from stockholders


2,770


Minority interest contributions


1,244


4,136Other financing activities


(1,160
)

3,525Cash flows from financing activities

$
187,523

$
(57,391
)


In
May 2007, our board of directors authorized a stock 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 three years, beginning in June 2007. The repurchases are being made from time to time and can be effectuated through open market purchases, privately negotiated transactions,
transactions structured through investment banking institutions, or by other means, subject to management's discretion and as
permitted by securities laws and other legal requirements. During the three months ended September 30, 2008, we did not repurchase any shares of our common stock under our stock repurchase
program. During the nine months ended September 30, 2008, we repurchased an additional 2,000,000 shares of our common stock at an average price of $71.49 per share for a total of
$143.0 million in cash, including fees. As of September 30, 2008, we have repurchased a cumulative total of 5,500,000 shares of our common stock at an average price of $68.09 per share
for a total of $374.6 million in cash, including fees.

56

---



Revolving Credit Facility

As of September 30, 2008, no amounts were outstanding under our five year, $350.0 million senior unsecured revolving
credit facility, which expires on July 14, 2011. The terms of this credit facility include various covenants, including financial covenants that require us to meet minimum interest coverage
ratios and maximum leverage ratios. As of September 30, 2008, we were in compliance with these covenants.

Contractual Obligations

The disclosure of payments we have committed to make under our contractual obligations is set forth under the heading "Management's
Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources" in Exhibit 13 to our 2007 Form 10-K. As of
September 30, 2008, there have been no material changes to our contractual obligations since December 31, 2007 except the following:



Financial Position

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



Our
cash reserves may be further reduced to pay principal and interest on the $690.0 million in principal under our 1.25% convertible senior notes due December 1, 2023. We
plan to redeem all $690.0 million in principal of these notes on December 1, 2008 using available cash. The notes will be redeemed for cash at 100% of the principal amount of the notes
plus accrued interest unless they are converted, at the option of the noteholders, into shares of our common stock on or before November 25, 2008, at a conversion price of $71.24 per share. If
our common stock is trading below the conversion price on and before November 25, 2008, we expect that the noteholders will choose to redeem their notes for cash.

57

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In
addition, we have several outstanding legal proceedings. Involvement in investigations and litigation can be expensive and a court may ultimately require that we pay expenses and
damages. As a result of legal proceedings, we may also be required to pay fees to a holder of proprietary rights in order to continue certain operations.

Recently,
the general economic, global capital and credit market conditions in the United States and other parts of the world have deteriorated significantly and have adversely affected
access to capital and increased the cost of capital. However, we continue to believe that our available cash, investments and cash flow from operations, together with our revolving credit facility and
other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. We currently do not rely on short-term borrowing to fund
our operations and, as a result, we do not believe that existing global capital and credit market conditions will have a significant impact on our near-term liquidity. We are closely
monitoring our liquidity as well as the condition of these markets. If these conditions continue or become worse, our future cost of debt and equity capital and our future access to capital markets
could be adversely affected. We cannot
guarantee that we will be able to obtain any additional financing in the future or extend any existing financing arrangements on favorable terms or at all.

Off-Balance Sheet Arrangements

We do not use special purpose entities or other off-balance sheet financing arrangements. We enter into guarantees in the
ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries. In addition, we have joint ventures and certain other arrangements that are focused
on the research, development and commercialization of products. Entities falling within the scope of FIN 46R are included in our consolidated statements of operations if we qualify as the
primary beneficiary. Entities not subject to consolidation under FIN 46R are accounted for under the equity method of accounting if our ownership percent exceeds 20% or if we exercise
significant influence over the entity. We account for our portion of the results of these entities in the line item "Equity in income of equity method investments" in our consolidated statements of
operations. We also acquire companies in which we agree to pay contingent consideration based on attaining certain thresholds.

Recent Accounting Pronouncements

Adopted in 2008

FAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115."Effective
January 1, 2008, we adopted FAS 159, which permits, but does not require, entities to irrevocably elect to measure certain financial instruments and other assets and liabilities at fair
value on an instrument-by-instrument basis, with subsequent unrealized gains and losses recognized in earnings as changes in fair value occur. In adopting FAS 159, we
did not elect to measure any new assets or liabilities at their respective fair values and, therefore, the adoption of FAS 159 did not have an impact on our results of operations or financial
position.

EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development
Activities."In June 2007, the FASB ratified EITF Issue No. 07-3, which requires that nonrefundable advanced payments for goods or services that
will be used or rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the goods are delivered or the related
services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. EITF Issue No. 07-3 was effective for us beginning
January 1, 2008 and we applied it prospectively to new contracts we entered into on or after that date. The implementation of EITF Issue No. 07-3 did not have a material
impact on our financial position, results of operations or cash flows.

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FSP 157-3, "Determining Fair Value of a Financial Asset in a Market That Is Not Active."In October 2008, the FASB issued FSP 157-3, which
clarified how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including for prior periods for
which financial statements had not been issued. The implementation of FSP 157-3 did not have a material impact on our results of operations or financial position.

Effective in 2009

EITF Issue No. 07-1, "Accounting for Collaborative Arrangements."In December 2007, the FASB ratified EITF Issue No. 07-1,
which defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and
third parties, including the appropriate income statement presentation and classification of, and the required disclosures related to, these arrangements. EITF Issue No. 07-1 is
effective January 1, 2009 and we will apply it retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. We are evaluating the impact, if
any, that EITF Issue No. 07-1 will have on our consolidated financial statements.

FAS 141R, "Business Combinations."In December 2007, the FASB issued FAS 141R, which replaces FAS 141. FAS 141R retains the fundamental
concept of the purchase method of accounting and introduces new requirements for the recognition and measurement of assets acquired, liabilities assumed, and noncontrolling interests. Under
FAS 141R, acquisition costs will generally be expensed as incurred and restructuring costs will be expensed subsequent to the acquisition date. IPR&D will be capitalized as an indefinite-lived
intangible asset at the acquisition date and will either be amortized over the life of the related product or written off as a charge to earnings if the project is subsequently abandoned or becomes
impaired. FAS 141R is effective for all business combinations occurring on or after January 1, 2009. Early adoption is not permitted. We are currently evaluating the effects that
FAS 141R will have on our consolidated financial statements.

FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51."In December 2007, the FASB
issued FAS 160, which establishes new accounting and reporting standards for noncontrolling interests, formerly known as minority interests, including the amount of net income attributable to
the parent and to the noncontrolling interest, changes in parent's ownership interest and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated.
FAS 160 requires noncontrolling interests to be reclassified from the liabilities section or the mezzanine section between liabilities and equity to the equity section of the consolidated
balance sheet and to be reported separately from the parent's equity. In addition, FAS 160 requires the results from operations attributed to the noncontrolling interest to be disclosed
separately from those of the parent on the face of the consolidated statement of operations. FAS 160 is effective for us January 1, 2009 and adoption is prospective only. However, upon
adoption, presentation and disclosure requirements described above must be applied retrospectively for all periods presented in our consolidated financial statements. We are currently evaluating the
effects, if any, that FAS 160 will have on our consolidated financial statements.

FSP 157-2, "Effective Date of FASB Statement No. 157."In February 2008, the FASB issued FSP 157-2, which allowed us to defer
the implementation of FAS 157 as it relates to our non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in our consolidated
financial statements on a nonrecurring basis, until January 1, 2009. We are evaluating the impact, if any, the adoption of FAS 157, for those assets and liabilities within the scope of
FSP 157-2, will have on our financial position, results of operations and liquidity. We did not have any non-financial assets or non-financial liabilities that
would be recognized or disclosed on a recurring basis as of September 30, 2008.

59

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FAS No. 161, "Disclosures About Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133."In March 2008, the
FASB issued FAS 161, which amends and expands the disclosure requirements for derivative instruments and hedging activities. FAS 161 requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. FAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. We are currently evaluating the effects, if any, that FAS 161 will have on our consolidated financial statements.

FSP 142-3, "Determination of the Useful Life of Intangible Assets."In April 2008, the FASB issued FSP 142-3, which amends the factors that
should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142. This change is intended to improve the
consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under FAS 141R and
other generally accepted accounting principles. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure
requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP 142-3 is effective for fiscal years beginning after
December 15, 2008. We are currently evaluating the effects, if any, that FSP 142-3 will have on our consolidated financial statements.

EITF Issue No. 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities."In June 2008, the FASB issued EITF Issue No. 03-6-1, which clarifies that all outstanding unvested share-based payment
awards that contain rights to nonforfeitable dividends, whether paid or unpaid, participate in undistributed earnings with common stockholders. Awards of this nature are considered participating
securities and the two-class method of computing basic and diluted earnings per share must be applied. EITF Issue No. 03-6-1 is effective for us on
January 1, 2009 with retrospective application. We do not expect the implementation of EITF Issue No. 03-6-1 to have a material impact on our consolidated
financial position and results of operations.

EITF Issue No. 07-5, "Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock."In June 2008, the FASB
ratified EITF Issue No. 07-5, which provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based
employee stock option valuation instruments on the evaluation. EITF Issue No. 07-5 is effective for fiscal years beginning after December 15, 2008. We are currently
evaluating the effects, if any, that EITF Issue No. 07-5 will have on our consolidated financial statements.

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RISK FACTORS

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

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

Over the next few years, our success will depend substantially on our ability to increase revenue from our existing products and
services. These products and services include Renagel/Renvela, Synvisc, Synvisc-One, Fabrazyme, Myozyme, Aldurazyme, Hectorol, Thymoglobulin, Thyrogen, Clolar/Evoltra, Campath, and
diagnostic testing services. Our ability to increase sales will depend on a number of factors, including:



Part
of our growth strategy involves conducting additional clinical trials to support approval of expanded uses of some of our products, including Clolar/Evoltra and alemtuzumab,
pursuing marketing approval for our products in new jurisdictions and developing next generation products, such as Genz-112638. The success of this component of our growth strategy will
depend on the outcome of these additional clinical trials, the content and timing of our submissions to regulatory authorities and whether and when those authorities determine to grant approvals.

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

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

The human healthcare products and services industry is extremely competitive. Other organizations, including pharmaceutical,
biotechnology, device and diagnostic testing companies, have developed and are developing products and services to compete with our products, services, and product candidates. If healthcare providers,
patients or payors prefer these competitive products or services or these competitive

61

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products
or services have superior safety, efficacy, pricing or reimbursement characteristics, we will have difficulty maintaining or increasing the sales of our products and services.

Renagel/Renvela
primarily competes with two other products approved in the United States for the control of elevated phosphorus levels in patients with chronic kidney failure on
hemodialysis. Fresenius Medical Care markets PhosLo®, a calcium-based phosphate binder. Shire plc, or Shire, markets Fosrenol®, a non-calcium based phosphate
binder. In 2007, Amgen, Inc. acquired Ilypsa and its product candidate, ILY101 (now AMG 223), a polymeric phosphate binder that completed a phase 2 trial in CKD patients on dialysis.
Amgen is currently conducting a phase 2b study. Outside the United States, Renagel/Renvela also compete with calcium-based phosphate binders and Fosrenol. Renagel also competes with
over-the-counter calcium carbonate products such as TUMS® and metal-based options such as aluminum and magnesium.

UCB S.A.
has developed Zavesca®, a small molecule drug for the treatment of Gaucher disease, the disease addressed by Cerezyme. Zavesca, sold by Actelion Ltd.,
has been approved in the United States, European Union and Israel as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement therapy is
unsuitable. In addition, Shire reported top-line data from a phase 1/2 clinical trial for its gene-activated glucocerebrosidase program, also to treat Gaucher disease, and
initiated phase 3 studies in July 2007. Protalix Biotherapeutics Ltd. initiated a phase 3 trial for a plant-derived enzyme replacement therapy to treat Gaucher disease in the
third quarter of 2007. Amicus Therapeutics, Inc., or Amicus, is conducting phase 2 trials for oral chaperone medication to treat Gaucher disease. We are also aware of other development
efforts aimed at treating Gaucher disease.

Outside
the United States, Shire is marketing Replagal, a competitive enzyme replacement therapy for Fabry disease which is the disease addressed by Fabrazyme. In addition,
while Fabrazyme has received orphan drug designation, which provides us with seven years of market exclusivity for the product in the United States, other companies may seek to overcome our market
exclusivity and, if successful, compete with Fabrazyme in the United States. Amicus has completed phase 2 trials for an oral chaperone medication to treat Fabry disease and is in discussions
with the FDA and EMEA regarding the conduct of phase 3 clinical trials. We are aware of other development efforts aimed at treating Fabry disease.

Current
competition for Synvisc and Synvisc-One includes Supartz®, a product manufactured by Seikagaku Corporation that is sold in the United States by
Smith & Nephew Orthopaedics 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 Anika Therapeutics, Inc., and marketed in the United States by Johnson & Johnson's Mitek division and marketed
outside the United States through distributors; Euflexxa, a product manufactured and sold by Ferring Pharmaceuticals and marketed by Ferring in the United States and Europe; and
Durolane®, manufactured by Q-Med AB and distributed outside the United States by Smith & Nephew Orthopedics. Durolane and Euflexxa are produced by bacterial
fermentation, which may provide these products a competitive advantage over avian-sourced Synvisc and Synvisc-One. We are aware of various viscosupplementation products on the market or in
development, but are unaware of any products that have physical properties of viscosity, elasticity or molecular weight comparable to those of Synvisc and Synvisc-One. Furthermore, several
companies market products that are not viscosupplementation products but which are designed to relieve the pain associated with osteoarthritis. Synvisc and Synvisc-One will have difficulty
competing with any of these products to the extent the competitive products have a similar safety profile and are considered more efficacious, less burdensome to administer or more
cost-effective.

Myozyme
has marketing exclusivity in the United States until 2013 and in the European Union until 2016 due to its orphan drug status, although companies may seek to overcome the
associated

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marketing
exclusivity. Amicus Therapeutics has completed two phase 1 clinical studies for a small molecule treatment for Pompe disease and initiated a phase 2 clinical trial in
June 2008.

Several
companies market products that, like Thymoglobulin, are used for the prevention and treatment of acute rejection in renal transplant. These products include Novartis'
Simulect® and Roche's ZENAPAX®. Competition in the acute transplant rejection market is driven largely by product efficacy due to the potential decreased long-term
survival of transplanted organs as the result of an acute organ rejection episode.

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

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

A substantial portion of our domestic and international revenue comes from payments by third party payors, including government health
administration authorities and private health insurers. Governments and other third party payors may not provide adequate insurance coverage or reimbursement for our products and services, which could
impair our financial results.

Third
party payors are increasingly scrutinizing pharmaceutical budgets and healthcare expenses and are attempting to contain healthcare costs by:



Efforts
by third party payors to reduce costs could decrease demand for our products and services. In addition, in certain countries, including countries in the European Union and
Canada, the coverage of prescription drugs, pricing and levels of reimbursement are subject to governmental control. Therefore, we may be unable to negotiate coverage, pricing and/or reimbursement on
terms that are favorable to us. Government health administration authorities may also rely on analyses of the cost-effectiveness of certain therapeutic products in determining whether to
provide reimbursement for such products. Our ability to obtain satisfactory pricing and reimbursement may depend in part on whether our products, the cost of some of which is high in comparison to
other therapeutic products, are viewed as cost-effective.

Furthermore,
governmental regulatory bodies, such as the Centers for Medicare and Medicaid Services (CMS), may from time-to-time make unilateral changes to
reimbursement rates for our products and services. These changes could reduce our revenue by causing healthcare providers to be

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less
willing to use our products and services. Although we actively seek to assure that any initiatives that are undertaken by regulatory agencies involving reimbursement for our products and services
do not have an adverse impact on us, we may not always be successful in these efforts.

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

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

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



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



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

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

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Our financial results are dependent on sales of Cerezyme.

Sales of Cerezyme, our enzyme-replacement product for patients with Gaucher disease, totaled $932.9 million for the nine months
ended September 30, 2008, representing approximately 27% of our total revenue. Because our business is dependent on Cerezyme, negative trends in revenue from this product could have an adverse
effect on our results of operations and cause the value of our securities to decline. We will lose revenue if alternative treatments gain commercial acceptance, if our marketing activities are
restricted, or if coverage, pricing or reimbursement is limited. In addition, the patient population with Gaucher disease is not large. Because a significant percentage of that population already uses
Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating patients with Gaucher disease, including treatment protocols that combine Cerezyme
with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a decline, in Cerezyme sales.

We may encounter substantial difficulties managing our growth.

Several risks are inherent to our plans to grow our business. Achieving our goals will require substantial investments in research and
development, sales and marketing, and facilities. For example, we have spent considerable resources building and seeking regulatory approvals for our manufacturing plants. We cannot assure you that
these facilities will prove sufficient to meet demand for our products or that we will not have excess capacity at these facilities. In addition, building our facilities is expensive, and our ability
to recover these costs will depend on increased revenue from the products produced at the facilities.

We
produce relatively small amounts of material for research and development activities and pre-clinical trials. Even if a product candidate receives all necessary approvals
for commercialization, we may not be able to successfully scale-up production of the product material at a reasonable cost or at all and we may not receive manufacturing approvals in
sufficient time to meet product demand. For example, the FDA has concluded that alglucosidase alfa produced in our 2000 liter bioreactors is a different product than alglucosidase alfa produced in our
160 liter bioreactors and therefore required us to submit a separate BLA for the 2000 liter product. This delay in receipt of FDA approval has had an adverse effect on our revenues and earnings and
will continue to have an adverse effect until we receive regulatory approval. In addition, to meet the global demand for Myozyme, we are working to secure EMEA approval of Myozyme produced at our 4000
liter bioreactor scale manufacturing plant in Belgium. Product supply of Myozyme is expected to remain tight until the 4000 liter process is approved, and delay in securing approval would have an
adverse effect on our revenues and earnings.

If
we are able to increase sales of our products, we may have difficulty managing inventory levels. Marketing new therapies is a complicated process, and gauging future demand is
difficult. With Renagel, for example, we have encountered problems in the past managing inventory levels at wholesalers. Comparable problems may arise with any of our products, particularly during
market introduction.

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



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

Our operating results and financial position may be negatively impacted when we attempt to grow through business combination transactions.

We may encounter problems assimilating operations acquired in business combination transactions. These transactions often entail the
assumption of unknown liabilities, the loss of key employees, and the diversion of management attention. Furthermore, in any business combination, including our acquisition of Bioenvision, there is a
substantial risk that we will fail to realize the benefits we anticipated when we decided to undertake the transaction. We have in the past taken significant charges for impaired goodwill and for
impaired assets acquired in business combination transactions. We may be required to take similar charges in the future. We enter into most such transactions with an expectation that an acquired
business will enhance the long-term strength of our business. These transactions, however, often depress our earnings in the near-term and the expected long-term
benefits may never be realized. Business combination transactions also deplete cash resources and some may require us to issue substantial equity or incur significant debt.

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

In order to generate revenue from our approved products, we must be able to produce sufficient quantities of the products. Many of our
products are difficult to manufacture. Our products that are biologics, for example, require product characterization steps that are more onerous than those required for most chemical pharmaceuticals.
Accordingly, we employ multiple steps to attempt to control the manufacturing processes. Minor deviations in these manufacturing processes could result in unacceptable changes in the products that
result in lot failures, product recalls, product liability claims and insufficient inventory. For example, we have experienced manufacturing issues with
Thymoglobulin that resulted in write-offs or recalls of lots that went out of specification prior to expiry.

Certain
of the raw materials required in the commercial manufacturing and the formulation of our products are derived from biological sources, including mammalian sources and human
plasma. Such raw materials may be difficult to procure and subject to contamination or recall. Also, some countries in which we market our products may restrict the use of certain biologically derived
substances in the manufacture of drugs. A material shortage, contamination, recall, or restriction on the use of certain biologically derived substances in the manufacture of our products could
adversely impact or disrupt our commercial manufacturing of our products or could result in a withdrawal of our products from markets. This too, in turn, could adversely affect our ability to satisfy
demand for our products, which could materially and adversely affect our operating results.

In
addition, we may only be able to produce some of our products at a very limited number of facilities and, in some cases, we rely on third parties to formulate and manufacture our
products. For example, we manufacture all of our Cerezyme and a portion of our Fabrazyme and Myozyme products at our facility in Allston, Massachusetts. A number of factors could cause production
interruptions at our facilities or the facilities of our third party providers, including equipment malfunctions, labor problems, raw material shortages, natural disasters, power outages, terrorist
activities, or disruptions in the operations of our suppliers.

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Manufacturing
is also subject to extensive government regulation. Regulatory authorities must approve the facilities in which human healthcare products are produced and those facilities
are subject to ongoing inspections. In addition, changes in manufacturing processes may require additional regulatory approvals. Obtaining and maintaining these regulatory approvals could cause us to
incur significant additional costs and lose revenue. Furthermore, any third party we use to manufacture, fill-finish or package our products to be sold must also be licensed by the
applicable regulatory authorities. As a result, alternative third party providers may not be readily available on a timely basis.

Our international sales and operating expenses are subject to fluctuations in currency exchange rates.

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

Guidelines and recommendations published by various organizations can reduce the use of our products.

Professional societies, practice management groups, private health/science foundations, and organizations involved in various diseases
may publish guidelines or recommendations to the healthcare and patient communities from time to time. Recommendations of government agencies or these other groups/organizations may relate to such
matters as usage, dosage, route of administration, cost-effectiveness, and use of related therapies. Organizations like these have in the past made recommendations about our products and
products of our competitors. Recommendations or guidelines that are followed by patients and healthcare providers could result in decreased use of our products. The perception by the investment
community or stockholders that recommendations or guidelines will result in decreased use of our products could adversely affect prevailing market price for our common stock. In addition, our success
also depends on our ability to educate patients and healthcare providers about our products and their uses. If these education efforts are not effective, then we may not be able to increase the sales
of our existing products or successfully introduce new products to the market.

We rely on third parties to provide us with materials and services in connection with the manufacture of our products and the performance of our services.

Some materials necessary for commercial production of our products, including specialty chemicals and components necessary for
manufacture, fill-finish and packaging, are provided by unaffiliated third party suppliers. In some cases, such materials are specifically cited in our marketing applications with
regulatory authorities so that they must be obtained from that specific source unless and until the applicable authority approves another supplier. In addition, there may only be one available source
for a particular chemical or component. For example, we acquire polyalylamine (PAA), used in the manufacture of Renagel, Renvela, Cholestagel and WelChol, from Cambrex Charles City, Inc., the
only source for this material currently qualified in our FDA drug applications for these products. Our suppliers also may be subject to FDA regulations or the regulations of other governmental
agencies outside the United States regarding manufacturing practices. We may be unable to manufacture our products or to perform our services in a timely manner or at all if these third party
suppliers were to cease or interrupt production or otherwise fail to supply sufficient quantities of these materials or products to us for any reason, including due to regulatory requirements or
actions, adverse financial developments at or affecting the supplier, or labor shortages or disputes.

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We
also source some of our manufacturing, fill-finish, packaging and distribution operations to third party contractors. The manufacture of products, fill-finish,
packaging and distribution of our products requires successful coordination among these third party providers and Genzyme. Our inability to coordinate these efforts, the inability of a third party
contractor to secure sufficient source materials, the lack of capacity available at a third party contractor or any other problems with the operations of a third party contractor could require us to
delay shipment of saleable products, recall products previously shipped or impair our ability to supply products at all. This could increase our costs, cause us to lose revenue or market share and
damage our reputation.

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

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

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



Furthermore,
the FDA and comparable foreign regulatory agencies may require post-marketing clinical trials or patient outcome studies. We have agreed with the FDA, for
example, to a number of post-marketing commitments as a condition to U.S. marketing approval for Fabrazyme, Aldurazyme, Myozyme and Clolar. In addition, regulatory agencies subject a
marketed therapy, its manufacturer and the manufacturer's facilities to continual review and periodic inspections. The discovery of previously unknown problems with a therapy or the facility or
process used to produce the therapy could prompt a regulatory authority to impose restrictions on us, or could cause us to voluntarily adopt such restrictions, including withdrawal of one or more of
our products or services from the market. For example, we received a warning letter from the FDA in September 2007 that addressed certain of our manufacturing procedures in our Thymoglobulin
production facility in Lyon, France. The FDA has

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accepted
our response to the warning letter and we continue to work to optimize our processes at this plant.

If regulatory authorities fail to approve pending applications in a timely matter, our results of operations will suffer.

We expect regulatory action on several matters during the next 12 months. We, for example, anticipate regulatory action on our
marketing applications for alglucosidase alfa produced at the 2000L scale in the United States and for Myozyme produced at the 4000L scale in Europe; our marketing applications for Mozobil in the
United States and Europe; the expansion of labeling for clofarabine to include the treatment of adults with AML in the United States and Europe; our marketing application for Renvela in Europe and a
label expansion of Renvela in the United States to include the treatment of CKD; and our marketing application for Synvisc-One in the United States.

Regulatory
authorities denying or delaying these approvals would adversely impact our projected revenue and income growth. A regulatory authority may deny or delay an approval due to its
assessment of the data we supply. A regulatory authority, for instance, may not believe that we have adequately established a product's risk-benefit profile or adequately addressed
negative safety signals. Clinical data are subject to varied interpretations, and regulatory authorities may disagree with our assessments of our data. In any such case, a regulatory authority could
insist that we provide additional data, which could substantially delay or even prevent commercialization efforts, particularly if we are required to conduct additional pre-approval
clinical studies. In addition, the FDA has failed to respond to companies by their Prescription Drug User Fee Act response dates, which failure causes a delay in the approval process. We have
confronted delays in marketing in the United States for alglucosidase alfa produced at the 2000L scale, which has harmed our financial results, and we could face additional delays with this product or
other products. Adverse events in clinical trials have resulted in regulatory problems for several drug candidates and our product candidates are susceptible to similar risks.

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

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



We
are also currently involved in litigation matters and investigations that do not involve intellectual property claims and may be subject to additional actions in the future. For
example, the federal government, state governments and private payors are investigating and have begun to file actions against numerous pharmaceutical and biotechnology companies, including Genzyme,
alleging that the companies have overstated prices in order to inflate reimbursement rates. Domestic and international enforcement authorities also have instituted actions under healthcare "fraud and
abuse" laws, including anti-kickback and false claims statutes. Moreover, individuals who use our products or services, including our diagnostic products and genetic testing services,
sometimes bring product and professional liability claims against us or our subsidiaries.

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Some
of our products are prescribed by physicians for uses not approved by the FDA or comparable regulatory agencies outside the United States. Although physicians may lawfully prescribe
our products for off-label uses, any promotion by us of off-label uses would be unlawful. Some of our practices intended to make physicians aware of off-label uses
of our products without engaging in off-label promotion could nonetheless be construed as off-label promotion. Although we have policies and procedures in place designed to
help assure ongoing compliance with regulatory requirements regarding off-label promotion, some non-compliant actions may nonetheless occur. Regulatory authorities could take
enforcement action against us if they believe we are promoting, or have promoted, our products for off-label use.

We
have only limited amounts of insurance, which may not provide coverage to offset a negative judgment or a settlement payment. We may be unable to obtain additional insurance in the
future, or we may be unable to do so on favorable terms. Our insurers may dispute our claims for coverage. For example, we have submitted claims to our insurers for reimbursement of portions of the
expenses incurred in connection with the litigation and settlement related to the consolidation of our tracking stock and are seeking coverage for the settlement. The insurers have purported to deny
coverage. Any additional insurance we do obtain may not provide adequate coverage against any asserted claims.

Regardless
of merit or eventual outcome, investigations and litigation can result in:



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

Our
international operations accounted for approximately 52% of our consolidated product and service revenues for the nine months ended September 30, 2008. We expect that
international product and service sales will continue to account for a significant percentage of our revenues for the foreseeable future. In addition, we have direct investments in a number of
subsidiaries outside of the United States. Our international sales and operations could be limited or disrupted, and the value of our direct investments may be diminished, by any of the
following:



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

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

Our long-term success largely depends on our ability to market technologically competitive products. If we fail to obtain
or maintain adequate intellectual property protection in the United States or abroad, we may not be able to prevent third parties from using our proprietary technologies. Our currently pending or
future patent applications may not result in issued patents. Patent applications are confidential for 18 months following their filing, and because third parties may have filed patent
applications for technology covered by our pending patent applications without us being aware of those applications, our patent applications may not have priority over patent applications of others.
In addition, our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products, or provide us with any competitive advantage. If a
third party initiates litigation regarding our patents, our collaborators' patents, or those patents for which we have license rights, and is successful, a court could declare our patents invalid or
unenforceable or limit the scope of coverage of those patents. Governmental patent offices and courts have not consistently treated the breadth of claims allowed in biotechnology patents. If patent
offices or the courts begin to allow or interpret claims more broadly, the incidence and cost of patent interference proceedings and the risk of infringement litigation will likely increase. On the
other hand, if patent offices or the courts begin to allow or interpret claims more narrowly, the value of our proprietary rights may be reduced. Any changes in, or unexpected interpretations of, the
patent laws may adversely affect our ability to enforce our patent position.

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

Some of our products may face competition from lower cost generic or follow-on products.

Some of our drug products, for example Renagel, Renvela, Clolar and Hectorol, are approved under the provisions of the United States
Food, Drug and Cosmetic Act that render them susceptible to potential competition from generic manufacturers via the Abbreviated New Drug Application (ANDA) procedure. Generic manufacturers pursuing
ANDA approval are not required to conduct

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costly
and time-consuming clinical trials to establish the safety and efficacy of their products; rather, they are permitted to rely on the innovator's data regarding safety and efficacy.
Thus, generic manufacturers can sell their products at prices much lower than those charged by the innovative pharmaceutical or biotechnology companies who have incurred substantial expenses
associated with the research and development of the drug product.

The
ANDA procedure includes provisions allowing generic manufacturers to challenge the effectiveness of the innovator's patent protection long prior to the generic manufacturer actually
commercializing their productsthe so-called "Paragraph IV" certification procedure. In recent years, generic manufacturers have used Paragraph IV certifications
extensively to challenge patents on a wide array of innovative pharmaceuticals, and we expect this trend to continue and to implicate drug products with even relatively modest revenues.

Both
Renagel and Hectorol are subjects of ANDAs containing Paragraph IV certifications. In the case of Renagel, the ANDA Paragraph IV certification relates only to one of
our Renagel patents, namely our patent that covers features of our tablet dosage form. This patent expires in 2020, and the ANDA applicant alleged that its proposed product would not infringe that
patent. We reviewed the Paragraph IV certification and did not initiate patent litigation within the 45-day statutory period. The ANDA does not contain a Paragraph IV certification with
respect to our Renagel pharmaceutical composition and medical use patent estate, which protect the product and its approved indications until 2014. Because the last of our composition of matter
patents expire in 2014, we would expect Renagel to be subject to competition beginning in 2014.

In
the case of Hectorol, the ANDA applicant has submitted a Paragraph IV certification alleging the invalidity of our patent related to the use of Hectorol to treat
hyperparathyroidism secondary to
end-stage renal disease (which patent expires in 2014), and alleging non-infringement of our patent claiming our highly purified form of Hectorol (which patent expires in
2021). We initiated patent infringement litigation in February 2008. We believe that our patents are valid and are currently assessing the merits of the ANDA applicant's non-infringement
positions.

Other
of our products, including Cerezyme, Fabrazyme, Aldurazyme, Myozyme and Campath (so-called "biotech drugs") are not currently considered susceptible to an abbreviated
approval procedure, either due to current United States law or FDA practice in approving biologic products. However, the United States Congress is expected to continue to explore, and ultimately
enact, legislation that would establish a procedure for the FDA to accept ANDA-like abbreviated applications for the approval of "follow-on," "biosimilar" or "comparable"
biotech drugs. Such legislation has already been adopted in the European Union.

If
either of the ANDA filers or any other generic manufacturer were to receive approval to sell a generic or follow-on version of one of our products, that product would
become subject to increased competition and our revenues for that product would be adversely affected.

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

Third party patents may cover some of the products or services that we or our strategic partners are developing or producing. A patent
is entitled to a presumption of validity and accordingly, we face significant hurdles in any challenge to a patent. In addition, even if we are successful in challenging the validity of a patent, the
challenge itself may be expensive and require significant management attention.

To
the extent valid third party patent rights cover our products or services, we or our strategic collaborators would be required to seek licenses from the holders of these patents in
order to manufacture, use or sell these products and services, and payments under them would reduce our

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profits
from these products and services. We may not be able to obtain these licenses on favorable terms, or at all. If we fail to obtain a required license or are unable to alter the design of our
technology to fall outside the scope of a third party patent, we may be unable to market some of our products and services, which would limit our profitability.

Importation of products may lower the prices we receive for our products.

In the United States and abroad, many of our products are subject to competition from lower-priced versions of our products and
competing products from other countries where government price controls or other market dynamics result in lower prices for such products. Our products that require a prescription in the United States
may be available to consumers in markets such as Canada, Mexico, Taiwan and the Middle East without a prescription, which may cause consumers to seek out these products in these lower priced markets.
The ability of patients and other customers to obtain these lower priced imports has grown significantly as a result of the Internet, an expansion of pharmacies in Canada and elsewhere that target
American purchasers, an increase in U.S.-based businesses affiliated with these Canadian pharmacies and other factors. Most of these foreign imports are illegal under current United States law.
However, the volume of imports continues to rise due to the limited enforcement resources of the FDA and the United States Customs Service, and there is increased political pressure to permit such
imports as a mechanism for expanding access to lower-priced medicines. The importation of lower-priced versions of our products into the United States and other markets adversely affects our
profitability. This impact could become more significant in the future.

Legislative or regulatory changes may adversely impact our business.

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



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

On
September 27, 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-market authority, including the authority to
require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with risk evaluations and mitigation strategies approved by the FDA.
The FDA's exercise of its new authority could result in delays or increased costs during the period of product development, clinical trials and regulatory review and approval, increased costs to
assure compliance with new post-approval regulatory requirements, and potential restrictions on the sale of approved products.

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

Several of our strategic initiatives involve alliances with other biotechnology and pharmaceutical companies. The success of these
arrangements is largely dependent on technology and other intellectual property contributed by our strategic partners or the resources, efforts, and skills of our partners. Disputes and difficulties
in such relationships are common, often due to conflicting priorities or conflicts of interest. Merger and acquisition activity may exacerbate these conflicts. The benefits of these alliances are
reduced or eliminated when strategic partners:



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Furthermore,
payments we make under these arrangements may exacerbate fluctuations in our financial results. In addition, under some of our strategic alliances, we make upfront and
milestone payments well in advance of commercialization of products with no assurance that we will ever recoup these payments. We also may make equity investments in our strategic partners, as we did
with Isis Pharmaceuticals, Inc. in February 2008 and RenaMed Biologics, Inc., or RenaMed, in June 2005. Our strategic equity investments are subject to market fluctuations, access to capital
and other business events, such as initial public offerings, the completion of clinical trials and regulatory approvals, which can impact the value of these investments. For example, in October 2006,
RenaMed suspended clinical trials of its renal assist device which was being developed to treat patients with acute renal failure, causing us to write off our entire investment in RenaMed. If other
strategic equity investments decline in value and remain below cost for an extended duration, we may incur additional charges.

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

As of September 30, 2008, we had $1.5 billion in cash, cash equivalents and short- and long-term investments,
excluding our investments in equity securities.

We
intend to use substantial portions of our available cash for:



Our
cash reserves may likely be further reduced to pay principal and interest on the $690.0 million in principal under our 1.25% convertible senior notes due December 1,
2023. We plan to redeem all $690.0 million in principal of these notes on December 1, 2008 using available cash. The notes will be redeemed for cash at 100% of the principal amount of
the notes plus accrued interest unless they are converted, at the option of the noteholders, into shares of our common stock on or before November 25, 2008, at a conversion price of $71.24 per
share. If our common stock is trading below the conversion price on and before November 25, 2008, we expect that the noteholders will choose to redeem their notes for cash.

In
addition, we have several outstanding legal proceedings. Involvement in investigations and litigation can be expensive and a court may ultimately require that we pay expenses and
damages. As a

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result
of legal proceedings, we may also be required to pay fees to a holder of proprietary rights in order to continue certain operations.

Recently,
the general economic, global capital and credit market conditions in the United States and other parts of the world have deteriorated significantly and have adversely affected
access to capital and increased the cost of capital. However, we continue to believe that our available cash, investments and cash flow from operations, together with our revolving credit facility and
other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. We currently do not rely on short-term borrowing to fund
our operations and, as a result, we do not believe that existing global capital and credit market conditions will have a significant impact on our near-term liquidity. We are closely
monitoring our liquidity as well as the condition of these markets. If these conditions continue or become worse, our future cost of debt and equity capital and our future access to capital markets
could be adversely affected. We cannot guarantee that we will be able to obtain any additional financing in the future or extend any existing financing arrangements on favorable terms, or at all.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are exposed to potential loss from exposure to market risks represented principally by changes in foreign exchange rates, interest
rates and equity prices. At September 30, 2008, we held derivative contracts in the form of foreign exchange forward contracts. We also held a number of other financial instruments, including
investments in marketable securities and we had debt securities outstanding. We do not hold derivatives or other financial instruments for speculative purposes.

Equity Price Risk

We hold investments in a limited number of U.S. and European equity securities. We estimated the potential loss in fair value due to a
10% decrease in the equity prices of each marketable security held at September 30, 2008 to be $5.7 million, as compared to $6.5 million at December 31, 2007. This estimate
assumes no change in foreign exchange rates from quarter-end spot rates and excludes any potential risk associated with securities that do not have a readily determinable market value.

Interest Rate Risk

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

We
used the following assumptions in preparing the sensitivity analysis for our convertible bonds:



On
this basis, we estimate the potential loss in fair value that would result from a hypothetical 1% (100 basis points) decrease in interest rates to be $1.4 million as of
September 30, 2008, as compared to $3.3 million as of December 31, 2007.

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Foreign Exchange Risk

As a result of our worldwide operations, we may face exposure to adverse movements in foreign currency exchange rates, primarily to the
Euro, British Pound and Japanese Yen. Exposures to currency fluctuations that result from sales of our products in foreign markets are partially offset by the impact of currency fluctuations on our
international expenses. We use forward foreign exchange contracts to further reduce our exposure to changes in exchange rates, primarily to offset the earnings effect from intercompany
short-term foreign currency assets and liabilities. We also hold a limited amount of foreign currency denominated equity securities.

As
of September 30, 2008, we estimated the potential loss in fair value of our foreign currency contracts and foreign equity holdings that would result from a hypothetical 10%
adverse change in exchange rates to be $23.8 million, as compared to $36.2 million as of December 31, 2007. The change from the prior period is due to a decrease in our net
foreign currency contracts. Since the contracts hedge mainly transactional exchange exposures, any changes in the fair values of the contracts would be offset by changes in the underlying values of
the hedged items.

ITEM 4.    CONTROLS AND PROCEDURES

As of September 30, 2008, we evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2008.

There
were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

We periodically become subject to legal proceedings and claims arising in connection with our business. Although we cannot predict the
outcome of these additional proceedings and claims, we do not believe the ultimate resolution of any of these existing matters would have a material adverse effect on our consolidated financial
position or results of operations.

ITEM 1A.    RISK FACTORS

We incorporate by reference our disclosure related to risk factors which is set forth under the heading "Management's Discussion and
Analysis of Financial Condition and Results of OperationsRisk Factors" in Part I., Item 2. of this Quarterly Report on Form 10-Q.

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ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about our repurchases of our equity securities during the quarter ended September 30,
2008:

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
ProgramsJuly 1, 2008-July 31, 2008


2,336
(1)
$
78.97




$
1,125,521,738.47August 1, 2008-August 31, 2008











1,125,521,738.47September 1, 2008-September 30, 2008











1,125,521,738.47Total


2,336

$
78.97





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ITEM 6.    EXHIBITS

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

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SIGNATURES

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

GENZYME CORPORATIONDated: November 7, 2008

By:

/s/ MICHAEL S. WYZGAMichael S. Wyzga Executive Vice President, Finance, Chief
Financial Officer, and Chief Accounting Officer


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GENZYME CORPORATION AND SUBSIDIARIES

FORM 10-Q, SEPTEMBER 30, 2008

EXHIBIT INDEX

EXHIBIT NO.

DESCRIPTION*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 25, 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.


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