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

---

FORM 10-Q

|ý                                            | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|-------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended June 30, 2004
|or                                          
|o                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to          

Commission file number 0-14680

---

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 an accelerated filer (as defined by Rule 12b-2 of the Exchange
Act). Yes ý    No o

The number of shares of Genzyme Stock outstanding as of July 31, 2004: 227,990,022



---



NOTE REGARDING REFERENCES TO GENZYME DIVISIONS AND SERIES OF STOCK

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

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



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



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

Effective
July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for
0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock and
options to purchase shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. Effective July 1, 2003, we have one outstanding
series of common stock, which we referred to as Genzyme General Stock (subsequently referred to as Genzyme Stocksee below).

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

On
July 1, 2003, we reclassified the Biosurgery Stock and Molecular Oncology Stock equity accounts into the Genzyme General Stock equity accounts. The elimination of our tracking
stock capital structure had no effect on our consolidated net income or loss. Because we now have only one series of common stock outstanding, we rescinded the management and accounting policies that

i

---



governed
the relationships between our former divisions. In this Quarterly Report on Form 10-Q, and future Quarterly and Annual Reports, we will not provide separate financial
statements and management's discussion and analysis for each of our former divisions, but will continue to provide our consolidated financial statements and management's discussion and analysis for
the corporation as a whole.

From
July 1, 2003 through May 27, 2004, we referred to our one outstanding series of common stock as Genzyme General Stock. At our annual meeting of shareholders on
May 27, 2004, our shareholders approved an amendment to our charter that eliminated the designation of separate series of common stock, resulting in 690,000,000 authorized shares of a single
series of common stock, which we now refer to as Genzyme Stock.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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



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



ii

---





iii

---





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

NOTE REGARDING INCORPORATION BY REFERENCE

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

NOTE REGARDING TRADEMARKS

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

iv

---





GENZYME CORPORATION AND SUBSIDIARIES  FORM 10-Q, JUNE 30, 2004  TABLE OF CONTENTS

|           |  |                                                                                                            |  | PAGE NO.
|---------- |  | ---------------------------------------------------------------------------------------------------------- |  | --------
|PART I.    |  | FINANCIAL INFORMATION                                                                                      |  |         
|ITEM 1.    |  | Financial Statements                                                                                       |  | 1       
|           |  | Unaudited, Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 |  | 1       
|           |  | Unaudited, Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003                           |  | 3       
|           |  | Unaudited, Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003           |  | 4       
|           |  | Notes to Unaudited, Consolidated Financial Statements                                                      |  | 5       
|ITEM 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                      |  | 25      
|ITEM 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                 |  | 55      
|ITEM 4.    |  | Controls and Procedures                                                                                    |  | 55      
|PART II.   |  | OTHER INFORMATION                                                                                          |  |         
|ITEM 1.    |  | Legal Proceedings                                                                                          |  | 56      
|ITEM 2.    |  | Changes in Securities and Use of Proceeds                                                                  |  | 57      
|ITEM 4.    |  | Submission of Matters to a Vote of Security Holders                                                        |  | 57      
|ITEM 6.    |  | Exhibits and Reports on Form 8-K                                                                           |  | 59      
|Signatures |  | 60                                                                                                        

v

---





PART I.   FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

|                                         |                                                                                    | Three Months Ended
June 30,                  |                                                                      | Six Months Ended
June 30, |        
|---------------------------------------- | ---------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------------------------------- | ------------------------- | -------
|
|Revenues:                                |                                                                                    |                                              |                                                                      |                           |        
|                                         | Net product sales                                                                  |                                              | $                                                                    | 491,264                   |        
|                                         | Net service sales                                                                  |                                              |                                                                      | 54,777                    |        
|                                         | Revenues from research and development contracts:                                  |                                              |                                                                      |                           |        
|                                         |                                                                                    | Related parties                              |                                                                      |                           |       
|                                         |                                                                                    | Other                                        |                                                                      |                           | 3,547  
|                                         |                                                                                    |                                              |                                                                      |                           |        
|                                         |                                                                                    |                                              | Total revenues                                                       |                           |        
|                                         |                                                                                    |                                              |                                                                      |                           |        
|Operating costs and expenses:            |                                                                                    |                                              |                                                                      |                           |        
|                                         | Cost of products sold                                                              |                                              |                                                                      | 107,442                   |        
|                                         | Cost of services sold                                                              |                                              |                                                                      | 35,426                    |        
|                                         | Selling, general and administrative                                                |                                              |                                                                      | 152,850                   |        
|                                         | Research and development (including research and development related to contracts) |                                              |                                                                      | 99,370                    |        
|                                         | Amortization of intangibles                                                        |                                              |                                                                      | 27,245                    |        
|                                         | Charge for impairment of goodwill                                                  |                                              |                                                                      |                          |        
|                                         | Charge for impaired asset                                                          |                                              |                                                                      |                          |        
|                                         |                                                                                    |                                              |                                                                      |                           |        
|                                         |                                                                                    | Total operating costs and expenses           |                                                                      |                           | 422,333
|                                         |                                                                                    |                                              |                                                                      |                           |        
|Operating income (loss)                  |                                                                                    |                                              | 127,255                                                              |                           |        
|                                         |                                                                                    |                                              |                                                                      |                           |        
|Other income (expenses):                 |                                                                                    |                                              |                                                                      |                           |        
|                                         | Equity in loss of equity method investments                                        |                                              |                                                                      | (4,274                    | )      
|                                         | Minority interest                                                                  |                                              |                                                                      | 964                       |        
|                                         | Gain (loss) on investments in equity securities                                    |                                              |                                                                      | 71                        |        
|                                         | Loss on sale of product line                                                       |                                              |                                                                      |                          |        
|                                         | Other                                                                              |                                              |                                                                      | (390                      | )      
|                                         | Investment income                                                                  |                                              |                                                                      | 5,603                     |        
|                                         | Interest expense                                                                   |                                              |                                                                      | (17,495                   | )      
|                                         |                                                                                    |                                              |                                                                      |                           |        
|                                         |                                                                                    | Total other income (expenses)                |                                                                      |                           | (15,521
|                                         |                                                                                    |                                              |                                                                      |                           |        
|Income (loss) before income taxes        |                                                                                    |                                              | 111,734                                                              |                           |        
|Provision for income taxes               |                                                                                    |                                              | (33,558                                                              | )                         |        
|                                         |                                                                                    |                                              |                                                                      |                           |        
|Net income (loss)                        |                                                                                    | $                                            | 78,176                                                               |                           | $      
|                                         |                                                                                    |                                              |                                                                      |                           |        
|Comprehensive income (loss), net of tax: |                                                                                    |                                              |                                                                      |                           |        
|                                         | Net income (loss)                                                                  |                                              | $                                                                    | 78,176                    |        
|                                         |                                                                                    |                                              |                                                                      |                           |        
|                                         | Other comprehensive income (loss), net of tax:                                     |                                              |                                                                      |                           |        
|                                         |                                                                                    | Foreign currency translation adjustments     |                                                                      |                           | (5,856 
|                                         |                                                                                    | Gain on affiliate sale of stock, net of tax  |                                                                      |                           |       
|                                         |                                                                                    | Other                                        |                                                                      |                           | 392    
|                                         |                                                                                    | Unrealized gains (losses) on securities:     |                                                                      |                           |        
|                                         |                                                                                    |                                              | Unrealized gains (losses) arising during the period                  |                           |        
|                                         |                                                                                    |                                              | Reclassification adjustment for losses included in net income (loss) |                           |        
|                                         |                                                                                    |                                              |                                                                      |                           |        
|                                         |                                                                                    | Unrealized gains (losses) on securities, net |                                                                      |                           | (4,320 
|                                         |                                                                                    |                                              |                                                                      |                           |        
|                                         | Other comprehensive income (loss)                                                  |                                              |                                                                      | (9,784                    | )      
|                                         |                                                                                    |                                              |                                                                      |                           |        
|Comprehensive income (loss)              |                                                                                    | $                                            | 68,392                                                               |                           | $      
|                                         |                                                                                    |                                              |                                                                      |                           |        

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

1

---



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

|                                            |                                                                  | Three Months Ended
June 30, |   | Six Months Ended
June 30, |        
|------------------------------------------- | ---------------------------------------------------------------- | --------------------------- | - | ------------------------- | -------
|
|Net income (loss) per share:                |                                                                  |                             |   |                           |        
|Allocated to Genzyme Stock(1,2):            |                                                                  |                             |   |                           |        
|                                            | Genzyme General net income                                       |                             | $ | 78,176                    |        
|                                            | Tax benefit allocated from Genzyme Biosurgery                    |                             |   |                          |        
|                                            | Tax benefit allocated from Genzyme Molecular Oncology            |                             |   |                          |        
|                                            |                                                                  |                             |   |                           |        
|                                            | Net income allocated to Genzyme Stock                            |                             | $ | 78,176                    |        
|                                            |                                                                  |                             |   |                           |        
|                                            | Net income per share of Genzyme Stock:                           |                             |   |                           |        
|                                            |                                                                  | Basic                       |   | $                         | 0.35   
|                                            |                                                                  |                             |   |                           |        
|                                            |                                                                  | Diluted                     |   | $                         | 0.34   
|                                            |                                                                  |                             |   |                           |        
|                                            | Weighted average shares outstanding:                             |                             |   |                           |        
|                                            |                                                                  | Basic                       |   |                           | 226,578
|                                            |                                                                  |                             |   |                           |        
|                                            |                                                                  | Diluted                     |   |                           | 231,544
|                                            |                                                                  |                             |   |                           |        
|Allocated to Biosurgery Stock(1,2):         |                                                                  |                             |   |                           |        
|                                            | Genzyme Biosurgery net loss                                      |                             |   |                           |        
|                                            | Allocated tax benefit                                            |                             |   |                           |        
|                                            |                                                                  |                             |   |                           |        
|                                            | Net loss allocated to Biosurgery Stock                           |                             |   |                           |        
|                                            |                                                                  |                             |   |                           |        
|                                            | Net loss per share of Biosurgery Stockbasic and diluted         |                             |   |                           |        
|                                            |                                                                  |                             |   |                           |        
|                                            | Weighted average shares outstanding                              |                             |   |                           |        
|                                            |                                                                  |                             |   |                           |        
|Allocated to Molecular Oncology Stock(1,2): |                                                                  |                             |   |                           |        
|                                            | Net loss allocated to Molecular Oncology Stock                   |                             |   |                           |        
|                                            |                                                                  |                             |   |                           |        
|                                            | Net loss per share of Molecular Oncology Stockbasic and diluted |                             |   |                           |        
|                                            |                                                                  |                             |   |                           |        
|                                            | Weighted average shares outstanding                              |                             |   |                           |        
|                                            |                                                                  |                             |   |                           |        

---

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

2

---





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

|                                             |                                                                                    | June 30,
2004                              |           | December 31,
2003 |          
|-------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ----------------- | ---------
|ASSETS                                       |                                                                                    |                                            |           |                   |          
|Current assets:                              |                                                                                    |                                            |           |                   |          
|                                             | Cash and cash equivalents                                                          |                                            | $         | 289,857           |          
|                                             | Short-term investments                                                             |                                            |           | 10,543            |          
|                                             | Accounts receivable, net                                                           |                                            |           | 473,053           |          
|                                             | Inventories                                                                        |                                            |           | 268,920           |          
|                                             | Prepaid expenses and other current assets                                          |                                            |           | 69,422            |          
|                                             | Deferred tax assets                                                                |                                            |           | 133,433           |          
|                                             |                                                                                    |                                            |           |                   |          
|                                             |                                                                                    | Total current assets                       |           |                   | 1,245,228
|Property, plant and equipment, net           |                                                                                    |                                            | 1,202,580 |                   |          
|Long-term investments                        |                                                                                    |                                            | 356,647   |                   |          
|Notes receivablerelated parties             |                                                                                    |                                            | 9,470     |                   |          
|Goodwill, net                                |                                                                                    |                                            | 803,178   |                   |          
|Other intangible assets, net                 |                                                                                    |                                            | 895,237   |                   |          
|Investments in equity securities             |                                                                                    |                                            | 121,651   |                   |          
|Other noncurrent assets                      |                                                                                    |                                            | 70,764    |                   |          
|                                             |                                                                                    |                                            |           |                   |          
|                                             |                                                                                    | Total assets                               |           | $                 | 4,704,755
|                                             |                                                                                    |                                            |           |                   |          
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                                                                    |                                            |           |                   |          
|Current liabilities:                         |                                                                                    |                                            |           |                   |          
|                                             | Accounts payable                                                                   |                                            | $         | 77,543            |          
|                                             | Accrued expenses                                                                   |                                            |           | 262,869           |          
|                                             | Deferred revenue and other income                                                  |                                            |           | 12,611            |          
|                                             | Current portion of long-term debt, convertible notes and capital lease obligations |                                            |           | 144,480           |          
|                                             |                                                                                    |                                            |           |                   |          
|                                             |                                                                                    | Total current liabilities                  |           |                   | 497,503  
|Long-term debt and capital lease obligations |                                                                                    |                                            | 148,131   |                   |          
|Convertible notes and debentures             |                                                                                    |                                            | 690,000   |                   |          
|Deferred revenuenoncurrent                  |                                                                                    |                                            | 7,870     |                   |          
|Deferred tax liabilities                     |                                                                                    |                                            | 186,213   |                   |          
|Other noncurrent liabilities                 |                                                                                    |                                            | 51,349    |                   |          
|                                             |                                                                                    |                                            |           |                   |          
|                                             |                                                                                    | Total liabilities                          |           |                   | 1,581,066
|                                             |                                                                                    |                                            |           |                   |          
|Commitments and contingencies (Note 11)      |                                                                                    |                                            |           |                   |          
|Stockholders' equity:                        |                                                                                    |                                            |           |                   |          
|                                             | Preferred stock, $0.01 par value                                                   |                                            |           |                  |          
|                                             | Common stockGenzyme Stock, $0.01 par value                                        |                                            |           | 2,269             |          
|                                             | Additional paid-in capital-Genzyme Stock                                           |                                            |           | 3,015,917         |          
|                                             | Notes receivable from stockholders                                                 |                                            |           | (13,557           | )        
|                                             | Accumulated deficit                                                                |                                            |           | (52,490           | )        
|                                             | Accumulated other comprehensive income                                             |                                            |           | 171,550           |          
|                                             |                                                                                    |                                            |           |                   |          
|                                             |                                                                                    | Total stockholders' equity                 |           |                   | 3,123,689
|                                             |                                                                                    |                                            |           |                   |          
|                                             |                                                                                    | Total liabilities and stockholders' equity |           | $                 | 4,704,755
|                                             |                                                                                    |                                            |           |                   |          

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

3

---





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

|                                                 |                                                                                   | Six Months Ended
June 30,                                                                                               |                                                        
|------------------------------------------------ | --------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------
|
|Cash Flows from Operating Activities:            |                                                                                   |                                                                                                                         |                                                        
|                                                 | Net income (loss)                                                                 |                                                                                                                         |                                                        
|                                                 | Reconciliation of net income (loss) to net cash provided by operating activities: |                                                                                                                         |                                                        
|                                                 |                                                                                   | Depreciation and amortization                                                                                           |                                                        
|                                                 |                                                                                   | Provision for bad debts                                                                                                 |                                                        
|                                                 |                                                                                   | Charge for impairment of goodwill                                                                                       |                                                        
|                                                 |                                                                                   | Charge for impaired asset                                                                                               |                                                        
|                                                 |                                                                                   | Equity in loss of equity method investments                                                                             |                                                        
|                                                 |                                                                                   | Minority interest                                                                                                       |                                                        
|                                                 |                                                                                   | Loss on investments in equity securities                                                                                |                                                        
|                                                 |                                                                                   | Loss on sale of product line                                                                                            |                                                        
|                                                 |                                                                                   | Write off of unamortized debt fees                                                                                      |                                                        
|                                                 |                                                                                   | Deferred income tax benefit                                                                                             |                                                        
|                                                 |                                                                                   | Tax benefit from employee stock options                                                                                 |                                                        
|                                                 |                                                                                   | Other                                                                                                                   |                                                        
|                                                 |                                                                                   | Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities): |                                                        
|                                                 |                                                                                   |                                                                                                                         | Accounts receivable                                    
|                                                 |                                                                                   |                                                                                                                         | Inventories                                            
|                                                 |                                                                                   |                                                                                                                         | Prepaid expenses and other current assets              
|                                                 |                                                                                   |                                                                                                                         | Accounts payable, accrued expenses and deferred revenue
|                                                 |                                                                                   |                                                                                                                         |                                                        
|                                                 |                                                                                   |                                                                                                                         |                                                        
|                                                 |                                                                                   |                                                                                                                         |                                                        
|Cash Flows from Investing Activities:            |                                                                                   |                                                                                                                         |                                                        
|                                                 | Purchases of investments                                                          |                                                                                                                         |                                                        
|                                                 | Sales and maturities of investments                                               |                                                                                                                         |                                                        
|                                                 | Purchases of equity securities                                                    |                                                                                                                         |                                                        
|                                                 | Purchases of property, plant and equipment                                        |                                                                                                                         |                                                        
|                                                 | Investments in equity investees                                                   |                                                                                                                         |                                                        
|                                                 | Purchases of intangible assets                                                    |                                                                                                                         |                                                        
|                                                 | Acquisitions, net of acquired cash                                                |                                                                                                                         |                                                        
|                                                 | Other                                                                             |                                                                                                                         |                                                        
|                                                 |                                                                                   |                                                                                                                         |                                                        
|                                                 |                                                                                   |                                                                                                                         |                                                        
|                                                 |                                                                                   |                                                                                                                         |                                                        
|Cash Flows from Financing Activities:            |                                                                                   |                                                                                                                         |                                                        
|                                                 | Proceeds from issuance of common stock                                            |                                                                                                                         |                                                        
|                                                 | Proceeds from draw on credit facility                                             |                                                                                                                         |                                                        
|                                                 | Payments of debt and capital lease obligations                                    |                                                                                                                         |                                                        
|                                                 | Bank overdraft                                                                    |                                                                                                                         |                                                        
|                                                 | Minority interest payable                                                         |                                                                                                                         |                                                        
|                                                 | Other                                                                             |                                                                                                                         |                                                        
|                                                 |                                                                                   |                                                                                                                         |                                                        
|                                                 |                                                                                   |                                                                                                                         |                                                        
|                                                 |                                                                                   |                                                                                                                         |                                                        
|Effect of exchange rate changes on cash          |                                                                                   |                                                                                                                         | (2,497                                                 
|                                                 |                                                                                   |                                                                                                                         |                                                        
|Decrease in cash and cash equivalents            |                                                                                   |                                                                                                                         | (2,917                                                 
|Cash and cash equivalents at beginning of period |                                                                                   |                                                                                                                         | 292,774                                                
|                                                 |                                                                                   |                                                                                                                         |                                                        
|Cash and cash equivalents at end of period       |                                                                                   | $                                                                                                                       | 289,857                                                
|                                                 |                                                                                   |                                                                                                                         |                                                        

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

4

---





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 services portfolio is
focused on rare genetic disorders, renal disease, osteoarthritis, organ transplant, and diagnostic and predictive testing. We are organized into five financial reporting units, which we also consider
to be our reportable segments:



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

2. Basis of Presentation and Significant Accounting Policies



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

These
financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results. Since these
are interim financial statements, you should also read our audited, consolidated financial statements and notes included in

5

---



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

Elimination of Tracking Stock Structure

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

Effective
July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for
0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. In the aggregate, 1,997,392 shares of Genzyme General Stock were
exchanged for the outstanding shares of Biosurgery Stock and 959,045 shares of Genzyme General Stock were exchanged for the outstanding shares of Molecular Oncology Stock. Options and warrants to
purchase shares of Biosurgery Stock were converted into options and warrants to purchase 401,257 shares of Genzyme General Stock, with exercise prices ranging from $24.27 to $2,356.12, and options to
purchase shares of Molecular Oncology Stock were converted into options to purchase 198,855 shares of Genzyme General Stock, with exercise prices ranging from $26.01 to $478.27. Effective
July 1, 2003, we have one outstanding series of common stock, which we refer to as Genzyme General Stock (subsequently referred to as Genzyme Stocksee below).

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

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

6

---



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



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

The
tax benefits allocated to Genzyme General and included in earnings attributable to Genzyme General Stock for the three and six months ended June 30, 2003 were (amounts in
thousands):

Three Months Ended
June 30, 2003

Six Months Ended
June 30, 2003Tax benefits allocated from:Genzyme Biosurgery

$
6,398

$
8,720Genzyme Molecular Oncology


1,657


3,420Total

$
8,055

$
12,140


From July 1, 2003 through May 27, 2004, we referred to our outstanding series of common stock as Genzyme General Stock. At our
annual meeting of shareholders on May 27, 2004, our shareholders approved an amendment to our charter that eliminated the designation of separate series of common stock, resulting in
690,000,000 authorized shares of a single series of common stock, which we now refer to as Genzyme Stock.

7

---



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

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

Net Income (Loss) Per Share

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

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

Accounting for Stock-Based Compensation

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

8

---



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

|                   |                                                                   | Three Months Ended
June 30, |   | Six Months Ended
June 30, |  
|------------------ | ----------------------------------------------------------------- | --------------------------- | - | ------------------------- | -
|
|Net income (loss): |                                                                   |                             |   |                           |  
|                   | As reported                                                       |                             | $ | 78,176                    |  
|                   | Add: stock-based compensation included in as reported, net of tax |                             |   | 3                         |  
|                   | Deduct: pro forma stock-based compensation expense, net of tax    |                             |   | (35,754                   | )
|                   |                                                                   |                             |   |                           |  
|                   | Pro forma                                                         |                             | $ | 42,425                    |  
|                   |                                                                   |                             |   |                           |  

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

|                                                                               |          | Three Months Ended
June 30, |  | Six Months Ended
June 30, |     
|------------------------------------------------------------------------------ | -------- | --------------------------- |  | ------------------------- | ----
|
|Net income per share allocated to Genzyme Stock(1,2):                          |          |                             |  |                           |     
|                                                                               | Basic:   |                             |  |                           |     
|                                                                               |          | As reported                 |  | $                         | 0.35
|                                                                               |          |                             |  |                           |     
|                                                                               |          | Pro forma                   |  | $                         | 0.19
|                                                                               |          |                             |  |                           |     
|                                                                               | Diluted: |                             |  |                           |     
|                                                                               |          | As reported                 |  | $                         | 0.34
|                                                                               |          |                             |  |                           |     
|                                                                               |          | Pro forma                   |  | $                         | 0.18
|                                                                               |          |                             |  |                           |     
|Net loss per share allocated to Biosurgery Stockbasic and diluted(1):         |          |                             |  |                           |     
|                                                                               |          | As reported                 |  |                           |     
|                                                                               |          |                             |  |                           |     
|                                                                               |          | Pro forma                   |  |                           |     
|                                                                               |          |                             |  |                           |     
|Net loss per share allocated to Molecular Oncology Stockbasic and diluted(1): |          |                             |  |                           |     
|                                                                               |          | As reported                 |  |                           |     
|                                                                               |          |                             |  |                           |     
|                                                                               |          | Pro forma                   |  |                           |     
|                                                                               |          |                             |  |                           |     

---

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

9

---



Recent Accounting Pronouncements

Participating Securities and the Two-Class Method under Financial Accounting Standards Board, or FASB, Statement No. 128, Earnings Per
Share.In April 2004, the EITF issued Statement No. 03-6, "Participating Securities and the Two-Class Method under FASB
Statement No. 128, Earnings Per Share." EITF 03-6 addresses a number of questions regarding the computation of earnings per share by a company that has issued securities other than
common stock that contractually entitle the holder to the right to participate in dividends when, and if, declared. The issue also provides further guidance in applying the two-class
method of calculating earnings per share, clarifying the definition of a participating security and how to apply the
two-class method. EITF 03-6 was effective for fiscal periods beginning after March 31, 2004 and was required to be retroactively applied. We evaluated the terms of our
convertible notes and debentures and determined that none of these instruments qualified as participating securities under the provisions of EITF 03-6. As a result, the adoption of EITF
03-6 had no effect on our earnings or earnings per share for the three and six months ended June 30, 2004 and 2003.

3. Net Income (Loss) Per Share



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

|                                                             |                                | Three Months Ended
June 30,        |                                  | Six Months Ended
June 30,
|------------------------------------------------------------ | ------------------------------ | ---------------------------------- | -------------------------------- | -------------------------
|
|Net income                                                   |                                | $                                  | 78,176                           |                          
|Tax benefit allocated from Genzyme Biosurgery                |                                |                                    |                                 |                          
|Tax benefit allocated from Genzyme Molecular Oncology        |                                |                                    |                                 |                          
|                                                             |                                |                                    |                                  |                          
|Net income allocated to Genzyme Stockbasic and diluted      |                                | $                                  | 78,176                           |                          
|                                                             |                                |                                    |                                  |                          
|Shares used in computing net income per common sharebasic   |                                |                                    | 226,578                          |                          
|                                                             | Effect of dilutive securities: |                                    |                                  |                          
|                                                             |                                | Stock options(3)                   |                                  |                          
|                                                             |                                | Warrants and stock purchase rights |                                  |                          
|                                                             |                                |                                    |                                  |                          
|                                                             |                                |                                    | Dilutive potential common shares |                          
|                                                             |                                |                                    |                                  |                          
|Shares used in computing net income per sharediluted(3,4,5) |                                |                                    | 231,544                          |                          
|                                                             |                                |                                    |                                  |                          
|Net income per share of Genzyme Stock:                       |                                |                                    |                                  |                          
|                                                             | Basic                          |                                    | $                                | 0.35                     
|                                                             |                                |                                    |                                  |                          
|                                                             | Diluted                        |                                    | $                                | 0.34                     
|                                                             |                                |                                    |                                  |                          

---

10

---





Three Months Ended
June 30,

Six Months Ended
June 30,2004

2003

2004

2003Shares of Genzyme Stock issuable for options

13,050

15,095

9,188

14,417




For the three and six months ended June 30, 2003, basic and diluted net loss per share of Biosurgery Stock are the same. We did not include the securities
described in the following table in the computation of Biosurgery Stock diluted net loss per share, because these securities would have an anti-dilutive effect due to the net loss
allocated to Biosurgery Stock (amounts in thousands):

Three Months Ended
June 30, 2003

Six Months Ended
June 30, 2003Shares of Biosurgery Stock issuable for options

7,727

7,796Warrants to purchase shares of Biosurgery Stock

7

7Biosurgery designated shares(2)

3,128

3,128Biosurgery designated shares reserved for options(2)

62

62Total

10,924

10,993


---



For the three and six months ended June 30, 2003, basic and diluted net loss per share of Molecular Oncology Stock are the same. We did not include the
securities described in the following

11

---



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

Three Months Ended
June 30, 2003

Six Months Ended
June 30, 2003Shares of Molecular Oncology Stock issuable for options

3,429

3,465Molecular Oncology designated shares(2)

1,651

1,651Total

5,080

5,116


---

4. Mergers and Acquisitions



In February 2004, we entered into an Agreement and Plan of Merger with ILEX, an oncology drug development company. The business combination will take the
form of a stock-for-stock merger. Under the terms of the merger agreement, ILEX shareholders will receive shares of Genzyme Stock for each ILEX share owned based on an exchange
ratio. This exchange ratio will equal $26.00 divided by the average (rounded to the nearest cent) of the per share closing prices of Genzyme Stock as reported by Nasdaq during the 20 trading days
ending on the fifth trading day prior to the closing of the transaction, provided that if this average is greater than $59.88, then the exchange ratio will be 0.4342, and if this average is less than
$46.58, then the exchange ratio will be 0.5582. Cash will be paid for fractional shares. The transaction has a total value of approximately $1 billion, based on ILEX's 39.0 million
shares outstanding on February 26, 2004, and our offer price of $26.00 per share. The transaction is expected to be accounted for as a purchase and to qualify as a tax-free
reorganization. The business combination has been approved by the board of directors of both companies, and on July 1, 2004, was approved by the holders of a majority of the shares of ILEX
common stock. The transaction is subject to clearance under the Hart-Scott-Rodino Act. In connection with the transaction, we anticipate incurring charges related to IPR&D that will be
determined following the closing.

In
April 2004, the FTC requested additional information from us and ILEX related to the proposed transaction. This "second request" extended the waiting period under the
Hart-Scott-Rodino Act during which the FTC is permitted to review the transaction. After further discussions with the FTC staff, we submitted a draft settlement agreement that is now under
review. We expect to close the merger with ILEX this summer.

12

---





In
May 2004, we acquired substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business units of IMPATH, a national
medical testing provider, for total cash consideration of $215.3 million. The acquisition allows us to leverage our genetic testing expertise with IMPATH's medical experience in improving
diagnosis, treatment and outcomes for cancer patients. We accounted for the acquisition as a purchase and, accordingly, included its results of operations in our consolidated statements of operations
from May 1, 2004, the date of acquisition. The purchase price is subject to adjustment based upon the completion of a post-closing assessment of the working capital of the acquired business
units as of April 30, 2004.

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

Cash paid

$
212,093Acquisition costs


2,830Transfer taxes


353Total purchase price.

$
215,276Accounts receivable

$
14,483Inventory


1,956Deferred tax assetscurrent


541Other current assets


2,524Property, plant & equipment


24,079Goodwill


148,465Other intangible assets (to be amortized straight-line over 0.4 to 10 years)


34,760Deferred tax assetsnoncurrent


835Other non current assets


213Assumed liabilities:Customer credit balances


(6,674
)Unfavorable lease liability


(2,269
)Liabilities for exit activities


(1,470
)Other assumed liabilities


(2,167
)Allocated purchase price

$
215,276


The
purchase price was allocated to the 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 $148.5 million, which was allocated to goodwill. We expect that substantially all of the goodwill
will not be deductible for tax purposes. We will perform an impairment test for the goodwill on a periodic basis in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." The
allocation of the purchase price to the estimated fair values remains subject to the completion of a post-closing working capital assessment and to the completion of a final valuation, which we expect
to complete in the fourth quarter of 2004.

13

---



Pro
forma results are not presented for the acquisition of the Physician Services and Analytical Services business units of IMPATH because the acquisition did not have a significant effect on our
results of operations.

In
connection with the acquisition of these assets, we initiated an integration plan to consolidate and restructure certain functions and operations, including the relocation and
termination of certain personnel and the closure of certain of the facilities leased by these business units of IMPATH. These costs have been recognized as liabilities assumed in connection with the
purchase of the IMPATH assets in accordance with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with Purchase Business Combinations." The following table summarizes
the liabilities established for exit activities related to the acquisition of the Physician Services and Analytical Services business units of IMPATH (amounts in thousands):

Employee
Related
Benefits

Closure of
Leased
Facilities

Total
Exit
ActivitiesRecorded at acquisition date

$
1,434

$
36

$
1,470


We
expect to pay employee related benefits to the former employees of the Physician Services and Analytical Services business units of IMPATH and make payments related to the closure of
certain of the facilities leased by these business units through the end of 2005.



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

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

Cash paid

$
47,500Acquisition costs


100Total purchase price.

$
47,600Current assets

$
129Property, plant & equipment


1,245Goodwill


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


13,000Assumed liabilities


(69
)Allocated purchase price

$
47,600


The
purchase price was allocated to the intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The allocation of the purchase
price to the

14

---



estimated
fair values remains subject to the final valuation. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to
$33.3 million, which was allocated to goodwill. We expect that substantially all of the goodwill will not be deductible for tax purposes. We will perform an impairment test for the goodwill on
a periodic basis in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." Pro forma results are not presented for the acquisition of Alfigen because the acquisition did not have
a significant effect on our results of operations.



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

In
connection with the acquisition of SangStat, we initiated an integration plan to consolidate and restructure certain functions and operations of SangStat, including the relocation and
termination of certain SangStat personnel and the closure of certain of SangStat's leased facilities. These costs have been recognized as liabilities assumed in connection with the purchase of
SangStat in accordance with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with Purchase Business Combinations." The following table summarizes the liabilities
established for exit activities related to the acquisition of SangStat (amounts in thousands):

Employee
Related
Benefits

Closure of
Leased
Facilities(1)

Other
Exit
Activities

Total
Exit
ActivitiesRecorded at acquisition date

$
7,118

$
2,561

$
49

$
9,728Revision of estimate


1,315


(233
)

257


1,339Payments in 2003


(831
)







(831
)Balance at December 31, 2003


7,602


2,328


306


10,236Revision of estimate





122





122Payments in 2004


(3,827
)

(508
)

(26
)

(4,361
)Balance at June 30, 2004

$
3,775

$
1,942

$
280

$
5,997


---

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



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

15

---



such
as acquired IPR&D charges of $158.0 million, are included in the following pro forma financial summary (amounts in thousands, except per share amounts):

Three Months Ended
June 30, 2003

Six Months Ended
June 30, 2003Total revenue

$
451,511

$
862,108Net loss

$
(241,041
)
$
(204,108
)Net loss allocated to Genzyme Stock(1)

$
(95,675
)
$
(42,233
)Net loss per share allocated to Genzyme Stock(1):Basic and diluted

$
(0.44
)
$
(0.20
)Weighted average shares outstanding:Basic and diluted


216,313


215,702


---

5. Inventories

June 30,
2004

December 31,
2003(Amounts in thousands)Raw materials

$
57,721

$
53,056Work-in-process


84,567


96,088Finished products


126,632


118,328Total

$
268,920

$
267,472


We capitalize inventory produced for commercial sale, which may result in the capitalization of inventory that has not been approved for sale. If
a product is not approved for sale, it would likely result in the write-off of the inventory and a charge to earnings. At June 30, 2004 and December 31, 2003, all of our
inventories are for products that have been approved for sale.

16

---





6. Goodwill and Other Intangible Assets



The following table contains the changes in our net goodwill during the six months ended June 30, 2004 (amounts in thousands):

As of
December 31,
2003

Acquisition

Adjustments

As of
June 30,
2004Renal

$
76,753

$


$


$
76,753Therapeutics


354,709








354,709Transplant(1)


132,550





(513
)

132,037Biosurgery


7,585








7,585Diagnostic/Genetics (2,3)


49,249


181,760


(2
)

231,007Other (3)


1,101





(14
)

1,087Goodwill, net

$
621,947

$
181,760

$
(529
)
$
803,178


---

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



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

|                        |  | As of June 30, 2004 |           | As of December 31, 2003
|----------------------- |  | ------------------- | --------- | -----------------------
|
|Technology              |  | $                   | 785,865   |                        
|Patents                 |  |                     | 183,360   |                        
|Trademarks              |  |                     | 58,027    |                        
|License fees            |  |                     | 42,872    |                        
|Distribution agreements |  |                     | 13,950    |                        
|Customer lists (1)      |  |                     | 83,578    |                        
|Other                   |  |                     | 11,420    |                        
|                        |  |                     |           |                        
|Total                   |  | $                   | 1,179,072 |                        
|                        |  |                     |           |                        

---

17

---



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



The
estimated future amortization expense for our other intangible assets as of June 30, 2004, for the remainder of fiscal year 2004 and the five succeeding fiscal years is as
follows (amounts in thousands):

Year ended December 31,

Estimated
Amortization
Expense2004 (remaining six months)

$
55,5162005


104,3302006


95,8992007


95,8992008


95,1272009


94,086


7. Investments in Equity Securities

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

At
June 30, 2004, our stockholders' equity includes $26.1 million of unrealized gains and $5.4 million of unrealized losses related to our investments in strategic
equity securities. We believe the unrealized losses related to our other investments in equity securities are temporary.

8. Joint Venture with BioMarin Pharmaceutical Inc.

We formed BioMarin/Genzyme LLC, a joint venture with BioMarin Pharmaceutical Inc., to develop and market Aldurazyme. Aldurazyme is a recombinant form of
the human enzyme alpha-L-iduronidase which is being developed to treat an LSD known as mucopolysaccharidosis I, or MPS I. We record our portion of the losses of
BioMarin/Genzyme LLC in equity in loss of equity method investments in our consolidated statements of operations. Our portion of the losses were:



18

---





Condensed
financial information for BioMarin/Genzyme LLC is summarized below (amounts in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2004

2003

2004

2003Revenue

$
9,241

$
1,116

$
16,636

$
1,450Gross profit


5,666


855


10,689


1,165Operating expenses


(12,932
)

(9,839
)

(24,124
)

(17,510
)Net loss


(7,247
)

(8,969
)

(13,394
)

(16,307
)


9. Investment in MG Biotherapeutics LLC

In June 2004, we entered into a collaboration with Medtronic, Inc. for the development of new treatments for heart disease. One aspect of this
collaboration involved the formation of MG Biotherapeutics LLC. In June 2004, we made an initial capital contribution of $10.0 million to MG Biotherapeutics LLC, which is included in
other noncurrent assets in our consolidated balance sheet as of June 30, 2004.

10. Long-Term Debt



In December 2003, we entered into a three year, $350.0 million revolving credit facility. In June 2004, we drew down $135.0 million
under this facility to maintain a certain level of cash balances. As of June 30, 2004, $135.0 million remained outstanding under this credit facility. This amount is included in current
portion of long-term debt and capital lease obligations in our consolidated balance sheet because we plan to repay this borrowing within a year. Borrowings under this credit facility bear
interest at LIBOR plus an applicable margin, which was 1.66% at June 30, 2004. The terms of the revolving credit facility include various covenants, including financial covenants, that require
us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants.



On June 1, 2004, we redeemed our outstanding 3% convertible subordinated debentures for $580.1 million, which amount includes $575 million of
principal, $4.3 million of premium and $0.8 million of accrued interest. In connection with the redemption, we also recorded a non-cash charge of $5.3 million to
interest expense in our consolidated statements of operations in June 2004 to write off the unamortized debt fees incurred with the original issuance of these debentures.

11. Other Commitments and Contingencies



We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims
against us as of June 30, 2004, which, if adversely decided, would have a material adverse effect on our results of operations, financial condition or liquidity.

19

---



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

On
March 27, 2003, the Office of Fair Trading, which we refer to as the OFT, in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding
that Genzyme Limited held a dominant position and abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers
from the market for the supply of home delivery and homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and
required modification to its list price for Cerezyme in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal. On May 6, 2003, the Tribunal issued an
order that stayed the OFT's decision, but required Genzyme Limited to provide a homecare distributor a discount of 3% per unit during the appeal process. The Tribunal issued its judgment on Genzyme
Limited's appeal on March 11, 2004, rejecting portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme should not be reduced, but that Genzyme
Limited must negotiate a price for Cerezyme that will allow homecare distributors an appropriate margin. The Tribunal also reduced the fine imposed by the OFT for violation of U.K. competition laws.
In response to the Tribunal's decision, we recorded an initial liability of approximately $11 million in our 2003 financial statements and additional liabilities totaling approximately
$1 million during the six months ended June 30, 2004, all of which remains in accrued expenses in our consolidated balance sheet as of June 30, 2004. On April 13,
2004, Genzyme Limited filed an application with the Tribunal for permission to appeal to the High Court.

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

20

---



pending
the outcome of the litigation. We have received notice from Columbia that we are in breach of our license agreement. In the event we were to lose our lawsuit, we estimate our royalty
obligation to Columbia would be between $10 million and $20 million per year through 2019, the precise amount depending on sales levels of the affected products and the level of third
party royalty offsets available as provided for in our license agreement with Columbia. A hearing on motions for summary judgment is scheduled in November 2004.

On
August 7, 2003, a purported shareholder class action was filed in California Superior Court, County of Alameda, under the captionPignone v. SangStat
Medical Corp., et al.(Case No. RG 03110801). The plaintiff alleged that he was a stockholder of SangStat and purported to bring the action on behalf of the holders of SangStat
common stock. The plaintiff named as defendants in the action are SangStat and each of SangStat's former directors. The plaintiff's complaint asserts that SangStat and each of its former directors
breached fiduciary duties to SangStat stockholders by consenting to the acquisition by Genzyme. The plaintiff's complaint did not seek monetary damages but instead sought only equitable relief,
including an order rescinding the transaction to the extent already implemented. The plaintiff also sought costs of suit, including attorneys' fees. On April 19, 2004, the Court entered final
judgment in favor of SangStat, and dismissed the action with prejudice.

We
are not able to predict the outcome of the pending cases or estimate with certainty the amount or range of any possible loss we might incur if we do not prevail in the final,
non-appealable determinations of these matters. Therefore, except for approximately $1 million in additional liabilities arising from the Tribunal's decision regarding Cerezyme
pricing in the United Kingdom, we have not accrued any amounts in connection with these potential contingencies.

12. Provision for Income Taxes

Three Months Ended
June 30,



Six Months Ended
June 30,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2004

2003

2004

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

$
(33,558
)
$
(9,726
)
245
%
$
(62,382
)
$
(28,724
)
117
%Effective tax rate


30
%

15
%



30
%

6,573
%


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



We
are currently under IRS audit for tax years 1996 to 1999. We believe that we have provided sufficiently for all audit exposures. A favorable settlement of this audit or the expiration
of the statute of limitations on the assessment of income taxes for any tax year may result in a reduction of future tax provisions, which could be significant. Any such benefit would be recorded upon
final resolution of the audit or expiration of the statute.

21

---



13. Defined Benefit Pension Plans

In December 2003, the FASB issued SFAS No. 132 (revised) "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement
revises employers' disclosures about pension plans and other postretirement benefit plans. It requires additional disclosures related to the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit postretirement plans. For U.S. defined benefit pension plans and other defined benefit postretirement plans, SFAS No. 132
(revised) is effective for fiscal years ending after December 15, 2003. Disclosure of information about foreign plans required under SFAS No. 132 (revised) is effective for fiscal years
ending after June 15, 2004. The adoption of SFAS No 132 (revised) did not have a material impact on our disclosures about pensions and other postretirement benefits for the three and six months
ended June 30, 2004 because we only have one U.S. defined benefit plan, which has been frozen since December 1995 and is fully funded as of June 30, 2004.

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



The components of net pension expense for the three and six months ended June 30, 2004 and 2003 are as follows (amounts in thousands):

|                                            |  | Three Months Ended
June 30, |      | Six Months Ended
June 30, |  
|------------------------------------------- |  | --------------------------- | ---- | ------------------------- | -
|
|Service cost                                |  | $                           | 618  |                           | $
|Interest cost                               |  |                             | 577  |                           |  
|Expected return on plan assets              |  |                             | (684 | )                         |  
|Amortization and deferral of actuarial loss |  |                             | 151  |                           |  
|                                            |  |                             |      |                           |  
|Net pension expense                         |  | $                           | 662  |                           | $
|                                            |  |                             |      |                           |  



At December 31, 2003, we recorded net prepaid benefit costs of $4.9 million related to our defined benefit pension plans. For the three and six
months ended June 30, 2004, we contributed $0.3 million and $0.8 million to our pension plan in the United Kingdom. We anticipate making $1.1 million of additional
contributions to this plan in 2004 to satisfy our annual funding obligation.

14. Segment Information

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

22

---



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

|                                      |                         | Three Months Ended
June 30, |   | Six Months Ended
June 30, |        
|------------------------------------- | ----------------------- | --------------------------- | - | ------------------------- | -------
|
|Revenues(1):                          |                         |                             |   |                           |        
|                                      | Renal                   |                             | $ | 87,617                    |        
|                                      | Therapeutics            |                             |   | 276,482                   |        
|                                      | Transplant(2)           |                             |   | 36,495                    |        
|                                      | Biosurgery              |                             |   | 59,579                    |        
|                                      | Diagnostics/Genetics(2) |                             |   | 71,726                    |        
|                                      | Other                   |                             |   | 16,982                    |        
|                                      | Corporate               |                             |   | 707                       |        
|                                      |                         |                             |   |                           |        
|                                      |                         | Total                       |   | $                         | 549,588
|                                      |                         |                             |   |                           |        
|Income (loss) before income taxes(1): |                         |                             |   |                           |        
|                                      | Renal                   |                             | $ | 24,311                    |        
|                                      | Therapeutics            |                             |   | 143,700                   |        
|                                      | Transplant(2)           |                             |   | (6,141                    | )      
|                                      | Biosurgery              |                             |   | 3,923                     |        
|                                      | Diagnostics/Genetics(2) |                             |   | (2,273                    | )      
|                                      | Other                   |                             |   | (21,042                   | )      
|                                      | Corporate               |                             |   | (30,744                   | )      
|                                      |                         |                             |   |                           |        
|                                      |                         | Total                       |   | $                         | 111,734
|                                      |                         |                             |   |                           |        

---



Company/Assets Acquired

Date Acquired

Business Segment(s)Assets related to the Physician Services
and Analytical Services business units of IMPATH

May 1, 2004

Diagnostics/GeneticsAlfigen

February 21, 2004

Diagnostics/GeneticsSangStat

September 11, 2003

Transplant and Corporate


23

---





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

|                   |                         | June 30,
2004 |   | December 31,
2003
|------------------ | ----------------------- | ------------- | - | -----------------
|Segment Assets(1): |                         |               |   |                  
|                   | Renal                   |               | $ | 586,552          
|                   | Therapeutics            |               |   | 891,614          
|                   | Transplant              |               |   | 430,946          
|                   | Biosurgery              |               |   | 313,572          
|                   | Diagnostics/Genetics(2) |               |   | 461,254          
|                   | Other                   |               |   | 235,181          
|                   | Corporate(3)            |               |   | 1,785,636        
|                   |                         |               |   |                  
|                   |                         | Total         |   | $                
|                   |                         |               |   |                  

---

Accounts receivable

$
14,483Other current assets


5,021Property, plant & equipment


24,079Goodwill


148,465Other intangible assets


34,760Other non current assets


1,048Total

$
227,856




Current assets

$
129Property, plant and equipment


1,245Goodwill


33,295Other intangible assets


13,000Total

$
47,669


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

June 30,
2004

December 31,
2003Cash, cash equivalents, short- and long-term investments

$
657,047

$
1,227,460Deferred tax assetscurrent


133,433


133,707Property, plant & equipment, net


726,468


730,107Investments in equity securities


121,651


110,620Other


147,037


187,813Total

$
1,785,636

$
2,389,707


24

---





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

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

INTRODUCTION

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



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

Through
June 30, 2003, we had three series of common stockGenzyme General Stock, Biosurgery Stock and Molecular Oncology Stock. We also referred to these series of stock as
"tracking stock." Unlike typical common stock, each of our tracking stocks was designed to reflect the value and

25

---



track
the financial performance of a specific subset of our business operations and its allocated assets, rather than the operations and assets of our entire company. Through June 30, 2003, we
allocated earnings or losses to each series of tracking stock based on the net income or loss attributable to the corresponding division determined in accordance with accounting principles generally
accepted in the United States as adjusted for the allocation of tax benefits.

Effective
July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for
0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock, and
options to purchase
shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. Effective July 1, 2003, we have one outstanding series of common stock,
which we refer to as Genzyme General Stock (subsequently referred to as Genzyme Stocksee below).

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

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



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

26

---



had
generated taxable income, providing it with the ability to utilize the tax benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology. Consistent with our policy, we allocated the tax
benefits generated by Genzyme Biosurgery and Genzyme Molecular Oncology through June 30, 2003 to Genzyme General without making any compensating payments or allocations to the division that
generated the benefit.

From
July 1, 2003 through May 27, 2004, we referred to our outstanding series of common stock as Genzyme General Stock. At our annual meeting of shareholders on May 27, 2004, our
shareholders approved an amendment to our charter that eliminated the designation of separate series of common stock, resulting in 690,000,000 authorized shares of a single series of common stock,
which we now refer to as Genzyme Stock.

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

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

MERGERS AND ACQUISITIONS

Pending Merger with ILEX

In February 2004, we entered into an Agreement and Plan of Merger with ILEX, an oncology drug development company. The business combination will take the
form of a stock-for-stock merger. Under the terms of the merger agreement, ILEX shareholders will receive shares of Genzyme Stock for each ILEX share owned based on an exchange
ratio. This exchange ratio will equal $26.00 divided by the average (rounded to the nearest cent) of the per share closing prices of Genzyme Stock as reported by Nasdaq during the 20 trading days
ending on the fifth trading day prior to the closing of the transaction, provided that if this average is greater than $59.88, then the exchange ratio will be 0.4342, and if this average is less than
$46.58, then the exchange ratio will be 0.5582. Cash will be paid for fractional shares. The transaction has a total value of approximately $1 billion, based on ILEX's 39.0 million
shares outstanding on February 26, 2004, and our offer price of $26.00 per share. The transaction is expected to be accounted for as a purchase and to qualify as a tax-free
reorganization. The business combination has been approved by the board of directors of both companies, and on July 1, 2004, was approved by the holders of a majority of the shares of ILEX
common stock. The transaction is subject to clearance under the Hart-Scott-Rodino Act. In connection with the transaction, we anticipate incurring charges related to IPR&D that will be
determined following the closing.

In
April 2004, the FTC requested additional information from us and ILEX related to the proposed transaction. This "second request" extended the waiting period under the
Hart-Scott-Rodino Act during which the FTC is permitted to review the transaction. After further discussions with the FTC staff, we submitted a draft settlement that is now under review.
We expect to close the merger with ILEX this summer.

27

---



Completed Mergers and Acquisitions

Acquisition of the Physician Services and Analytical Services Business Units of IMPATH

In May 2004, we acquired substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business units of
IMPATH, a national medical testing provider, for total cash consideration of $215.3 million. The acquisition allows us to leverage our genetic testing expertise with IMPATH's medical experience
in improving diagnosis, treatments and outcomes for cancer patients. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements
of operations from May 1, 2004, the date of acquisition. The purchase price is subject to adjustment based upon the completion of a post-closing assessment of the working capital of the
acquired business units as of April 30, 2004.

The
purchase price was allocated to the estimated fair value of the acquired tangible and intangible assets and assumed liabilities as follows (amounts in thousands):

Accounts receivable

$
14,483Other current assets


5,021Property, plant and equipment


24,079Goodwill


148,465Other intangible assets (to be amortized straight-line over 0.4 to 10 years)


34,760Other noncurrent assets


1,048Assumed liabilities


(12,580
)Allocated purchase price

$
215,276


Alfigen

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

The
purchase price was allocated to the estimated fair value of the acquired tangible and intangible assets and assumed liabilities as follows (amounts in thousands):

Current assets

$
129Property, plant and equipment


1,245Goodwill


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


13,000Assumed liabilities


(69
)Allocated purchase price

$
47,600


SangStat

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

28

---



CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

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

A. RESULTS OF OPERATIONS

The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements. In
connection with the elimination of our tracking stock structure and associated changes in how we view our business, we revised our reportable segments. We have reclassified our segment presentation
for the three and six months ended June 30, 2003 to conform to the new segment presentation.

REVENUES

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

|                                 |                                   | Three Months Ended
June 30, |         |         |   | Six Months Ended
June 30, |         |     |   
|-------------------------------- | --------------------------------- | --------------------------- | ------- | ------- | - | ------------------------- | ------- | --- | --
|
|
|
|Product revenue                  |                                   | $                           | 491,264 |         | $ | 383,232                   |         | 28  | % 
|Service revenue                  |                                   |                             | 54,777  |         |   | 31,550                    |         | 74  | % 
|                                 |                                   |                             |         |         |   |                           |         |     |   
|                                 | Total product and service revenue |                             |         | 546,041 |   |                           | 414,782 |     | 32
|Research and development revenue |                                   |                             | 3,547   |         |   | 4,121                     |         | (14 | )%
|                                 |                                   |                             |         |         |   |                           |         |     |   
|                                 | Total revenues                    |                             | $       | 549,588 |   | $                         | 418,903 |     | 31
|                                 |                                   |                             |         |         |   |                           |         |     |   

Product Revenue

We derive product revenue from sales of:



29

---





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

|                      |                                             | Three Months Ended
June 30, |        |         |         | Six Months Ended
June 30, |         |         |    
|--------------------- | ------------------------------------------- | --------------------------- | ------ | ------- | ------- | ------------------------- | ------- | ------- | ---
|
|
|
|Renal:                |                                             |                             |        |         |         |                           |         |         |    
|                      | Renagel (including sales of bulk sevelamer) |                             | $      | 87,617  |         | $                         | 66,002  |         | 33 
|                      |                                             |                             |        |         |         |                           |         |         |    
|Therapeutics:         |                                             |                             |        |         |         |                           |         |         |    
|                      | Cerezyme                                    |                             |        | 209,371 |         |                           | 184,724 |         | 13 
|                      | Fabrazyme                                   |                             |        | 49,620  |         |                           | 15,430  |         | 222
|                      | Thyrogen                                    |                             |        | 16,298  |         |                           | 9,790   |         | 66 
|                      | Other Therapeutics                          |                             |        | 1,193   |         |                           | 448     |         | 166
|                      |                                             |                             |        |         |         |                           |         |         |    
|                      |                                             | Total Therapeutics          |        |         | 276,482 |                           |         | 210,392 |    
|                      |                                             |                             |        |         |         |                           |         |         |    
|Transplant:           |                                             |                             |        |         |         |                           |         |         |    
|                      | Thymoglobulin/Lymphoglobuline               |                             |        | 25,260  |         |                           |        |         | N/A
|                      | Other Transplant                            |                             |        | 11,235  |         |                           |        |         | N/A
|                      |                                             |                             |        |         |         |                           |         |         |    
|                      |                                             | Total Transplant            |        |         | 36,495  |                           |         |        |    
|                      |                                             |                             |        |         |         |                           |         |         |    
|Biosurgery:           |                                             |                             |        |         |         |                           |         |         |    
|                      | Synvisc                                     |                             |        | 27,520  |         |                           | 29,617  |         | (7 
|                      | Sepra products                              |                             |        | 15,579  |         |                           | 11,406  |         | 37 
|                      | Other Biosurgery                            |                             |        | 8,030   |         |                           | 24,240  |         | (67
|                      |                                             |                             |        |         |         |                           |         |         |    
|                      |                                             | Total Biosurgery            |        |         | 51,129  |                           |         | 65,263  |    
|                      |                                             |                             |        |         |         |                           |         |         |    
|Diagnostics/Genetics: |                                             |                             |        |         |         |                           |         |         |    
|                      | Diagnostic Products                         |                             |        | 22,917  |         |                           | 22,554  |         | 2  
|                      | Other Diagnostics/Genetics                  |                             |        | 180     |         |                           | 59      |         | 205
|                      |                                             |                             |        |         |         |                           |         |         |    
|                      |                                             | Total Diagnostics/Genetics  |        |         | 23,097  |                           |         | 22,613  |    
|                      |                                             |                             |        |         |         |                           |         |         |    
|Other product revenue |                                             |                             | 16,444 |         |         | 18,962                    |         | (13     | )% 
|                      |                                             |                             |        |         |         |                           |         |         |    
|                      |                                             | Total product revenue       |        | $       | 491,264 |                           | $       | 383,232 |    
|                      |                                             |                             |        |         |         |                           |         |         |    

Renal

Worldwide sales of Renagel, including sales of bulk sevelamer, the raw material used to formulate Renagel, increased 33% to $87.6 million for the three
months and increased 37% to $171.1 million for the six months ended June 30, 2004, as compared to the same periods in 2003, primarily due to:



30

---





Sales
of Renagel, including sales of bulk sevelamer, are 18% of our total product revenue for both the three and six months ended June 30, 2004 as compared to 17% for the same
periods of 2003. We expect sales of Renagel to increase, driven primarily by the continued adoption of the product by nephrologists worldwide. Renagel competes with several other products and our
future sales may be impacted negatively by these products.

Therapeutics

The increase in our Therapeutics product revenue for the three and six months ended June 30, 2004, as compared to the same periods of 2003, is primarily
due to continued growth in sales of Cerezyme, Fabrazyme and Thyrogen.

The
growth in sales of Cerezyme for the three and six months ended June 30, 2004, as compared to the same periods of 2003, is attributable to our continued identification of new
Gaucher disease patients, particularly internationally. Our price for Cerezyme has remained consistent for all periods presented. Although we expect Cerezyme to continue to be a substantial
contributor to revenues in the future, it is a mature product and we do not expect the current new patient growth trend to continue. The growth in sales of Cerezyme for the three months ended
June 30, 2004, as compared to the same period of 2003, was also positively impacted by a 6% increase in the average exchange rate of the Euro, which positively impacted sales of Cerezyme by
$3.5 million. During the first six months of 2004, the average exchange rate for the Euro increased 11%, as compared to the same period of 2003, which positively impacted sales of Cerezyme by
$13.6 million.

Our
results of operations are highly dependent on sales of Cerezyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Sales of
Cerezyme are 43% of our total product revenue for the three months ended June 30, 2004, as compared to 48% for the same period of 2003 and 44% of our total product revenue for the six months
ended June 30, 2004, as compared to 48% for the same period of 2003. Revenue from Cerezyme would be impacted negatively if competitors developed alternative treatments for Gaucher disease and
the alternative products gained commercial acceptance, if our marketing activities are restricted, or if reimbursement is limited. Although orphan drug status for Cerezyme, which provided us with
exclusive marketing rights for Cerezyme in the United States, expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme until 2010 and the composition of
Cerezyme as made by that process until 2013. The expiration of market exclusivity and orphan drug status will likely subject Cerezyme to increased competition, which may decrease the amount of revenue
we receive from this product or the growth of that revenue. We are aware of companies that have initiated efforts to develop competitive products, and other companies may do so in the future.

The
increase in sales of Fabrazyme for the three and six months ended June 30, 2004, as compared to the same periods of 2003, is primarily attributable to:



The
increase in sales of Thyrogen for both the three and six months ended June 30, 2004, as compared to the same periods of 2003, is attributable to increased market penetration,
particularly in

31

---



Europe,
where sales increased 65% to $6.6 million for the three month period and 62% to $13.1 million for the six month period.

Transplant

We began recording product revenue for our Transplant business unit on September 11, 2003, the day which we began including the results of operations of
SangStat in our consolidated financial statements. Other Transplant revenues include $10.2 million of sales for the three months and $20.3 million of sales for the six months ended
June 30, 2004 of Gengraf, which we co-promote with Abbott Laboratories under an agreement which expires on December 31, 2004.

Biosurgery

Biosurgery's product revenue decreased 22% to $51.1 million for the three months and 26% to $92.4 million for the six months ended June 30,
2004, as compared to the same periods of 2003. The decrease in both periods is primarily due to the absence of revenues from the line of cardiac device products we sold in June 2003. Revenues
from sales of cardiac device products were $19.5 million for the three months and $38.5 million for the six months ended June 30, 2003. Additionally, sales of Synvisc decreased
$2.1 million for the three months and $6.1 million for the six months ended June 30, 2004, as compared to the same periods of 2003. The decrease in both periods is primarily due
to inventory reductions and price discounts by our U.S. marketing partner in response to Medicare pricing rate changes. These decreases were offset by a $4.2 million increase for the three
month period and an $8.0 million increase for the six month period in sales of Sepra products, primarily due to increased
market penetration. We are aware of several competitive viscosupplementation products on the market and in development that could adversely affect our sales of Synvisc in the future.

Diagnostics/Genetics

Diagnostics/Genetics product revenue increased slightly for both the three and six month periods ended June 30, 2004, as compared to the same periods of
2003. The increase in both periods is attributable to a 23% increase to $17.8 million for the three month period and 20% increase to $34.5 million for the six month period in the
combined sales of infectious disease testing products and HDL and LDL cholesterol testing products. This increase was offset by a 21% decrease to $5.1 million for the three month period and a
14% decrease to $11.8 million for the six month period in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases, and the expiration of our royalty agreement with
Techne Corporation on June 30, 2003, which resulted in no royalty revenue in 2004, as compared to $1.6 million for the three months ended and $3.2 million for the six months ended
June 30, 2003.

Other Product Revenue

The decrease in Other product revenue for the three and six months ended June 30, 2004, as compared to the same periods of 2003, is primarily attributable
to a decrease in bulk sales and royalties earned on sales of WelChol, partially offset by an increase in sales of bulk pharmaceuticals. Bulk sales and royalties earned on WelChol decreased 44% to
$5.5 million for the three month period and 38% to $11.1 million for the six month period as a result of a decrease in demand from our U.S. marketing partner, Sankyo Pharma, Inc.
Sales of bulk pharmaceuticals increased 20% to $10.9 million for the three month period and 24% to $20.1 million for the six month period primarily due to increased demand for liquid
crystals.

32

---



Service Revenue

We derive service revenues primarily from genetic and pathology/oncology testing services, which are included in our Diagnostics/Genetics reporting segment.

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

|                      |                        | Three Months Ended
June 30, |        |        |   | Six Months Ended
June 30, |        |      |   
|--------------------- | ---------------------- | --------------------------- | ------ | ------ | - | ------------------------- | ------ | ---- | --
|
|
|
|Biosurgery            |                        | $                           | 6,148  |        | $ | 6,181                     |        | (1   | )%
|Diagnostics/Genetics  |                        |                             | 48,629 |        |   | 25,320                    |        | 92   | % 
|Other service revenue |                        |                             |       |        |   | 49                        |        | (100 | )%
|                      |                        |                             |        |        |   |                           |        |      |   
|                      | Total service revenues |                             | $      | 54,777 |   | $                         | 31,550 |      | 74
|                      |                        |                             |        |        |   |                           |        |      |   

Service
revenue attributable to our Diagnostics/Genetics segment increased 92% to $48.6 million in the three months ended and 55% to $77.2 million in the six months ended
June 30, 2004, as compared to the same periods of 2003. This increase is primarily attributable to:



International Product and Service Revenue

A substantial portion of our revenue was generated outside of the United States. 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:

|                                          |  | Three Months Ended
June 30, |         |   |   | Six Months Ended
June 30, |   |    |  
|----------------------------------------- |  | --------------------------- | ------- | - | - | ------------------------- | - | -- | -
|
|
|
|International product and service revenue |  | $                           | 242,160 |   | $ | 182,681                   |   | 33 | %
|% of total product and service revenue    |  |                             | 44      | % |   | 44                        | % |    |  

The
increase in international product and service revenue for both the three and six months ended June 30, 2004, as compared to the same periods of 2003, is primarily due to:



33

---





International
sales of Renagel increased 62% to $32.5 million for the three months and 71% to $63.3 million for the six months ended June 30, 2004, primarily due to:



International
sales of Cerezyme increased 18% to $128.1 million for the three months and 23% to $251.0 million for the six months ended June 30, 2004, primarily due
to an increase in the average exchange rate of the Euro of 6% for the three month period, which positively impacted sales by $3.5 million, and 11% for the six month period, which positively
impacted sales by $13.6 million.

International
sales of Fabrazyme increased 101% to $30.2 million for the three months and 95% to $52.5 million for the six months ended June 30, 2004, primarily due
to:



MARGINS

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

|                                       |  | Three Months Ended
June 30, |         |   |   | Six Months Ended
June 30, |   |    |  
|-------------------------------------- |  | --------------------------- | ------- | - | - | ------------------------- | - | -- | -
|
|
|
|Product margin                         |  | $                           | 383,822 |   | $ | 282,926                   |   | 36 | %
|% of total product revenue             |  |                             | 78      | % |   | 74                        | % |    |  
|Service margin                         |  | $                           | 19,351  |   | $ | 12,279                    |   | 58 | %
|% of total service revenue             |  |                             | 35      | % |   | 39                        | % |    |  
|Total product and service gross margin |  | $                           | 403,173 |   | $ | 295,205                   |   | 37 | %
|% of total product and service revenue |  |                             | 74      | % |   | 71                        | % |    |  

Product Margin

Our overall product margin increased $100.9 million, or 36% for the three months and $197.5 million, or 37% for the six months ended June 30,
2004, as compared to the same periods in 2003. This is primarily due to an $88.2 million, or 29%, increase for the three month period and a $179.2 million, or 31%, increase for the six
month period, in the combined sales of Renal, Therapeutics and Diagnostics/Genetics products as well as the introduction of sales of our newly acquired SangStat products beginning in
September 2003.

Product
margin for our Renal reporting segment increased 48% for the three months and 45% for the six months ended June 30, 2004, as compared to the same periods of 2003. The
increase is primarily due to a 33% increase for the three month period and a 37% increase for the six month period in sales of Renagel (including sales of bulk sevelamer), an 8% price increase, which
became

34

---



effective
in January 2004, and the scale up of our global manufacturing facilities. In March 2003, we began shipping Renagel tablets manufactured at our facility in Ireland to the European
market upon receiving approval from the European Agency for the Evaluation of Medicinal Products to commence production of Renagel at the plant. In October 2003, we received final approval of
this plant from the FDA, allowing shipment to the U.S.

Product
margin for our Therapeutics reporting segment increased 30% in the three months ended June 30, 2004, as compared to the same period of 2003. The increase is primarily due
to a 13% increase in sales of Cerezyme, a 222% increase in sales of Fabrazyme and a 66% increase in sales of Thyrogen in the three months ended June 30, 2004. Product margin for our
Therapeutics reporting segment increased 34% in the six months ended June 30, 2004, as compared to the same period of 2003. The increase is primarily due to a 17% increase in sales of Cerezyme,
a 222% increase in sales of Fabrazyme and a 55% increase in sales of Thyrogen in the six months ended June 30, 2004. In addition, product margin for our Therapeutics reporting segment for the
six months ended June 30, 2003 includes the write off of $2.3 million of Cerezyme finished goods in 2003 due to production issues, for which there is no similar write off in the six
months ended June 30, 2004.

Product
margin for our Biosurgery reporting segment decreased 3% for the three months and 5% for the six months ended June 30, 2004, as compared to the same periods of 2003. The
decreases are primarily due to a 7% decrease for the three month period and an 11% decrease for the six month period in sales of Synvisc and a 67% decrease for the three month period and a 73%
decrease for the six month period in sales of Other Biosurgery product revenue resulting from the sale of substantially all of the assets related to our cardiac devices business in June 2003.
The decrease was partially offset by a 37% increase in sales of Sepra products for both the three and six months ended June 30, 2004 as compared to the same periods of 2003.

Product
margin for our Diagnostics/Genetics reporting segment decreased 27% for the three months and 17% for the six months ended June 30, 2004, as compared to the same periods of
2003. The decrease is primarily due to a 30% increase for the three month period and 18% increase for the six month period in cost of products sold.

Service Margin

Service margin for our Biosurgery reporting segment decreased 28% in the three months and 22% in the six months ended June 30, 2004, as compared to the
same periods of 2003, primarily due to the absence of service revenue related to Synvisc in 2004. This decrease was a result of $1.6 million for the three month period and $3.2 million
for the six month period of reimbursed expenses classified as revenue, from our Synvisc distribution partner for which there were no comparable amounts in 2004.

Service
margin for our Diagnostics/Genetics reporting segment increased 91% in the three months and 40% in the six months ended June 30, 2004, as compared to the same periods of
2003, primarily due to a 92% increase for the three month period and a 55% increase for the six month period in service revenue as a result of our acquisition of the pathology/oncology testing assets
related to the Physician Services and Analytical Services business units of IMPATH in May 2004, the acquisition of Alfigen in February 2004, our continued growth in sales of prenatal
screening and diagnosis services and increased sales of DNA testing services. These increases were offset by a 93% increase for the three month period and a 65% increase for the six month period in
costs associated with these services.

35

---



OPERATING EXPENSES

Selling, General and Administrative Expenses

The
following table provides information regarding the change in selling, general and administrative expenses during the periods presented:

|                                             |  | Three Months Ended
June 30, |         |  |   | Six Months Ended
June 30, |  |    |  
|-------------------------------------------- |  | --------------------------- | ------- |  | - | ------------------------- |  | -- | -
|
|
|
|Selling, general and administrative expenses |  | $                           | 152,850 |  | $ | 130,807                   |  | 17 | %
|                                             |  |                             |         |  |   |                           |  |    |  

Selling
general and administrative expenses, or SG&A, increased $22.0 million for the three months and $51.0 million for the six months ended June 30, 2004, as
compared to the same periods of 2003, primarily due to:



These
increases were partially offset by decreases of:



36

---





Research and Development Expenses

The
following table provides information regarding the change in research and development expense during the periods presented:

|                                                                                           |  | Three Months Ended
June 30, |        |  |   | Six Months Ended
June 30, |  |    |  
|------------------------------------------------------------------------------------------ |  | --------------------------- | ------ |  | - | ------------------------- |  | -- | -
|
|
|
|Research and development expense (including research and development related to contracts) |  | $                           | 99,370 |  | $ | 79,063                    |  | 26 | %
|                                                                                           |  |                             |        |  |   |                           |  |    |  

Research
and development expenses increased $20.3 million for the three months ended June 30, 2004, as compared to the same period of 2003, primarily due to:



Research
and development expenses increased $37.5 million for the six months ended June 30, 2004, as compared to the same period of 2003, primarily due to:



Amortization of Intangibles

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

|                                    |  | Three Months Ended
June 30, |        |  |   | Six Months Ended
June 30, |  |    |  
|----------------------------------- |  | --------------------------- | ------ |  | - | ------------------------- |  | -- | -
|
|
|
|Amortization of intangibles expense |  | $                           | 27,245 |  | $ | 17,641                    |  | 54 | %
|                                    |  |                             |        |  |   |                           |  |    |  

Amortization
expense increased by $9.6 million for the three months and $18.3 million for the six months ended June 30, 2004, as compared to the same periods of
2003, primarily due to additional amortization expense attributable to the intangible assets acquired in connection with our acquisitions

37

---



of
SangStat in September 2003, Alfigen in February 2004 and the Physician Services and Analytical Services business units of IMPATH in May 2004.

Purchase of In-Process Research and Development

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

SangStat

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

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

As
of June 30, 2004, we estimated that it will take approximately ten years and an investment of approximately $75 million to $100 million to complete the
development of, obtain approval for and commercialize the first product based on the RDP58 technology for pulmonary and other disorders not licensed to PGP.

Novazyme

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

38

---



platform.
We recorded this amount as a charge to expense in our consolidated statements of operations for the year ended December 31, 2001.

The
platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the
treatment of LSDs. As of June 30, 2004, we estimated that it will take approximately four to eight years and an investment of approximately $100 million to $125 million to
complete the development of, obtain approval for and commercialize the first product based on this technology platform.

OTHER INCOME AND EXPENSES

|                                                |                               | Three Months Ended
June 30, |         |         |   | Six Months Ended
June 30, |         |      |    
|----------------------------------------------- | ----------------------------- | --------------------------- | ------- | ------- | - | ------------------------- | ------- | ---- | ---
|
|
|
|Equity in loss of equity method investments     |                               | $                           | (4,274  | )       | $ | (4,804                    | )       | (11  | )% 
|Minority interest                               |                               |                             | 964     |         |   |                          |         | N/A  |    
|Gain (loss) on investments in equity securities |                               |                             | 71      |         |   | (3,620                    | )       | (102 | )% 
|Loss on sale of product line                    |                               |                             |        |         |   | (29,367                   | )       | (100 | )% 
|Other                                           |                               |                             | (390    | )       |   | 769                       |         | (151 | )% 
|Investment income                               |                               |                             | 5,603   |         |   | 12,428                    |         | (55  | )% 
|Interest expense                                |                               |                             | (17,495 | )       |   | (6,335                    | )       | 176  | %  
|                                                |                               |                             |         |         |   |                           |         |      |    
|                                                | Total other income (expenses) |                             | $       | (15,521 | ) | $                         | (30,929 | )    | (50
|                                                |                               |                             |         |         |   |                           |         |      |    

Equity in Loss of Equity Method Investments

We record in equity in loss of equity method investments our portion of the results of our joint ventures with BioMarin Pharmaceutical Inc. and
Diacrin, Inc., and our investments in Peptimmune, Inc. and Therapeutic Human Polyclonals, Inc., which we refer to as THP.

Our
equity in loss of equity method investments decreased 11% to $4.3 million in three months ended June 30, 2004, as compared to $4.8 million for the same period of
2003, and decreased 10% to $8.1 million in the six months ended June 30, 2004, as compared to $9.0 million for the same period of 2003. The largest component of our equity in loss
of equity method investments was net losses from our joint venture with BioMarin, which decreased 22% to $3.5 million for the three month period and 23% to $6.6 million for the six month
period, primarily due to increased sales of Aldurazyme, which was launched in the U.S. in April 2003 and in Europe in June 2003. We began to account for Peptimmune using the equity
method of accounting in April 2003 and for THP in September 2003 in connection with the acquisition of SangStat.

Minority Interest

As a result of our adoption of FASB Interpretation No., or FIN, 46, "Consolidation of Variable Interest Entities," we have consolidated the results of Kallikrein
LLC and Excigen, a collaboration partner. Our consolidated balance sheet as of June 30, 2004 includes assets of $1.2 million related to Kallikrein LLC, substantially all of which are
included in other current assets. We have recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated statements of operations for the three and six months ended
June 30, 2004. The results of Excigen are not significant.

39

---



Gain (Loss) on Investment in Equity Securities

We review the carrying value of each of our strategic investments in equity securities on a quarterly basis for potential impairment. In June 2003, we
recorded a $3.6 million impairment charge in connection with our investment in the common stock of ABIOMED, Inc. because we considered the decline in value of this investment to be other
than temporary. Given the significance and duration of the decline as of June 30, 2003, we concluded that it was unclear over what period the recovery of the stock price for this investment
would take place, and, accordingly, that any evidence suggesting that the investment would recover to at least our historical cost was not sufficient to overcome the presumption that the current
market price was the best indicator of the value of this investment.

Other

We periodically enter into foreign currency forward contracts, all of which have a maturity of less than three years. These contracts have not been designated as
hedges and, accordingly, unrealized gains or losses on these contracts are reported in current earnings. The notional settlement value of foreign currency forward contracts outstanding as of
June 30, 2004 is $67.5 million. The contracts' fair value, representing unrealized gains, was not significant at June 30, 2004.

Investment Income

Our investment income decreased 55% for the three months and 45% for the six months ended June 30, 2004, as compared to the same periods of 2003, primarily
due to a 1.6% decline in our average portfolio yield and a decrease in the overall size of our investment portfolio for both periods of 2004.

Interest Expense

Our interest expense increased 176% for the three months ended June 30, 2004, as compared to the same period of 2003, primarily due to an increase in
average debt balances outstanding in 2004 resulting from:



In
addition, in June 2004, we completed the redemption of our 3% convertible subordinated debentures for cash. This included charges of $4.3 million for premium paid upon redemption and
$5.3 million to write off the unamortized debt fees associated with these debentures. These charges were recorded as interest expense on our consolidated statements of operations for the three
months ended June 30, 2004 for which there were no similar charges in the three months ended June 30, 2003.

The
increases were offset, in part, by interest not recorded in 2004 due to the following:



Our
interest expense increased 117% for the six months ended June 30, 2004, as compared to the same period of 2003, primarily due to an increase in average debt balances
outstanding in 2004

40

---



resulting
from these factors plus $11.3 million in principal of a 6.5% convertible note due and paid on March 29, 2004 in favor of UBS AG London, which we assumed in connection with our
acquisition of SangStat in September 2003.

Provision for Income Taxes

|                           |  | Three Months Ended
June 30, |         |   |   | Six Months Ended
June 30, |   |     |  
|-------------------------- |  | --------------------------- | ------- | - | - | ------------------------- | - | --- | -
|
|
|
|Provision for income taxes |  | $                           | (33,558 | ) | $ | (9,726                    | ) | 245 | %
|Effective tax rate         |  |                             | 30      | % |   | 15                        | % |     |  

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



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

B. LIQUIDITY AND CAPITAL RESOURCES

We
continue to generate cash from operations. At June 30, 2004 we had cash, cash equivalents and short- and long-term investments of $0.7 billion, a decrease of
$0.6 billion from cash, cash equivalents and short- and long-term investments of $1.2 billion at December 31, 2003.
This decrease in our cash balance is due primarily to our expenditure of $580.1 million in connection with the redemption of our 3% convertible subordinated debentures in June 2004.

The
following is a summary of our statements of cash flows for the six months ended June 30, 2004 and 2003.

Cash Flows from Operating Activities

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

|                                                                                                            |                                      | Six Months Ended
June 30, |        
|----------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------- | -------
|
|Net cash provided by operating activities before working capital changes                                    |                                      | $                         | 266,350
|Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities) |                                      |                           | (42,043
|                                                                                                            |                                      |                           |        
|                                                                                                            | Cash flows from operating activities |                           | $      
|                                                                                                            |                                      |                           |        

Cash
provided by operating activities increased $61.2 million, or 38%, for the six months ended June 30, 2004, as compared to the same period of 2003, primarily due to
strong earnings, adjusted for non-cash items (including depreciation, amortization, deferred income taxes and impairment charges),

41

---



which
increased $83.6 million, or 46%, to $266.4 million for the six months ended June 30, 2004, as compared to the same period of 2003. This increase was offset, in part, by a
decrease of $22.4 million, or 114%, in cash from working capital changes, primarily due to increases in accounts receivable and inventory.

Cash Flows from Investing Activities

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

|                                      |                                                                                  | Six Months Ended
June 30,            |  
|------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------ | -
|
|Cash flows from investing activities: |                                                                                  |                                      |  
|                                      | Net (purchases) sales of investments, including investments in equity securities |                                      | $
|                                      | Purchases of property, plant and equipment                                       |                                      |  
|                                      | Investments in equity investees                                                  |                                      |  
|                                      | Acquisitions, net of acquired cash                                               |                                      |  
|                                      | Other investing activities                                                       |                                      |  
|                                      |                                                                                  |                                      |  
|                                      |                                                                                  | Cash flows from investing activities |  
|                                      |                                                                                  |                                      |  

For
the six months ended June 30, 2004, net sales of investments, including investments in equity securities, provided $551.8 million in cash. For the same period,
acquisitions and capital expenditures accounted for significant cash outlays for investing activities. For the six months ended June 30, 2004, we used:



Cash Flows from Financing Activities

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

Six Months Ended
June 30,2004

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

$
43,283

$
45,142Proceeds from draw on credit facility


135,000


16,000Payment of debt and capital lease obligations


(588,171
)

(10,411
)Bank overdraft


1,175


472Minority interest


2,006


Other financing activities


217


496Cash flows from financing activities

$
(406,490
)
$
51,699


42

---



For
the six months ended June 30, 2004, financing activities generated $181.7 million of cash primarily due to $43.3 million of proceeds from the issuance of common
stock under our stock plans and $135.0 million drawn under our revolving credit facility that matures in December 2006. This was offset by $588.2 million in cash utilized to repay
debt and capital lease obligations, including $575.0 million of cash used to redeem our 3% convertible subordinated debentures and $11.3 million to repay a 6.5% convertible note due
March 29, 2004 in favor of UBS AG London, which we assumed in September 2003 in connection with the acquisition of SangStat.

For
the six months ended June 30, 2003, financing activities generated $62.1 million of cash primarily due to $45.1 million of proceeds from the issuance of common
stock under our stock plans and $16.0 million drawn under our revolving credit facility that matured in December 2003.

Revolving Credit Facility

In December 2003, we entered into a three year, $350.0 million revolving credit facility. In June 2004, we drew down $135.0 million
under this facility to maintain a certain level of cash balances. As of June 30, 2004, $135.0 million remained outstanding under this credit facility. This amount is included in current
portion of long-term debt and capital lease obligations in our consolidated balance sheet because we plan to repay this borrowing within a year. Borrowings under this credit facility bear
interest at LIBOR plus an applicable margin, which was 1.66% at June 30, 2004. The terms of the revolving credit facility include various covenants, including financial covenants, that require
us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants.

3% Convertible Subordinated Debentures

On June 1, 2004, we redeemed all of our outstanding 3% convertible subordinated debentures for $580.1 million, which amount includes
$575 million of principal, $4.3 million of premium and $0.8 million of accrued interest. In connection with the redemption, we also recorded a non-cash charge of
$5.3 million to interest expense in our consolidated statements of operations in June 2004 to write off the unamortized debt fees incurred with the original issuance of these debentures.

Financial Position

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



Our
cash reserves 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. The
notes are initially convertible into Genzyme Stock at a conversion price of approximately $71.24 per share. Holders of the notes may require us to repurchase all or any part of the notes for cash,
common stock, or a combination, at our option, on December 1, 2008, 2013 or 2018, at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest through the date
prior to the date of repurchase. Additionally, upon a change of control, each holder may require us to repurchase for cash

43

---



at
100% of the principal amount of the notes plus accrued interest, all or a portion of the holder's notes. On or after December 1, 2008, we may redeem for cash at 100% of the principal amount
of the notes plus accrued interest, all or part of the notes that have not been previously converted or repurchased.

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

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

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share.In
April 2004, the EITF issued Statement No. 03-6, "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share." EITF
03-6 addresses a number of questions regarding the computation of earnings per share by a company that has issued securities other than common stock that contractually entitle the holder
to the right to participate in dividends when, and if, declared. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying the
definition of a participating security and how to apply the two-class method. EITF 03-6 was effective for fiscal periods beginning after March 31, 2004 and was required
to be retroactively applied. We evaluated the terms of our convertible notes and debentures and determined that none of these instruments qualified as participating securities under the provisions of
EITF 03-6. As a result, the adoption of EITF 03-6 had no effect on our earnings per share for the three and six months ended June 30, 2004 or 2003.

44

---





FACTORS AFFECTING FUTURE OPERATING RESULTS

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

Our financial results are highly dependent on sales of Cerezyme.

We generate a significant portion of our revenue from sales of Cerezyme, our enzyme-replacement product for patients with Gaucher disease. Sales of Cerezyme
totaled $412.3 million for the six months ended June 30, 2004, representing approximately 44% of our consolidated product revenue for the first half of 2004. Because our business is
highly dependent on Cerezyme, negative trends in revenue from this product could have a significant adverse effect on our operations and cause the value of our securities to decline substantially. We
will lose revenue if alternative treatments gain commercial acceptance, if our marketing activities are restricted, or if reimbursement is limited. In addition, the patient population with Gaucher
disease is not large. Because a significant percentage of that population already uses Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating
patients with Gaucher disease, including treatment protocols that combine Cerezyme with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a
decline, in Cerezyme sales. Historically, we have marketed Cerezyme for Type 1 Gaucher disease. In 2003, the label in the European Union was expanded to include Type 3 Gaucher disease. We do not know
whether the expanded European label will increase sales.

If we fail to increase sales of several products 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 many different products and services. The products include Fabrazyme, Renagel,
Synvisc, Thymoglobulin, Thyrogen and Diagnostic/Genetics 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 and pursuing marketing approval for our products
in new jurisdictions. With Synvisc, for example, we are pursuing marketing approval in Japan and are seeking to expand approval in the United States to cover use as a treatment of pain from
osteoarthritis in the hip. The success of this component of our growth strategy will depend on the content and timing of our submissions to regulatory authorities and whether and when those
authorities determine to grant approvals.

45

---



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 against those of our competitors.

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

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

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

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

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

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

46

---



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

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

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



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

We may encounter substantial difficulties managing our growth.

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

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

47

---



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



We
may also experience fluctuations in our quarterly results due to price changes and sales incentives. For example, 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 are subject to seasonal fluctuation in demand.

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

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

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

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

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

48

---



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, or product liability.

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

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



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

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

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

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



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



49

---





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

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

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

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

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



50

---





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

Legislative or regulatory changes may adversely impact our business.

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

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



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

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

As
of June 30, 2004, we had $657.0 million in cash, cash equivalents and short- and long-term investments, excluding investments in equity securities.

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



51

---





We
may further reduce available cash reserves to pay principal and interest on outstanding debt, including:



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

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

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

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

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

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

Third
party patents may cover some of the products or services that we or our strategic partners are developing or testing. For example, we are aware of a United States patent owned by
Columbia University relating to the manufacture of recombinant proteins in Chinese hamster ovary, or CHO, cells, which are the cells we use to manufacture Cerezyme, Fabrazyme and Thyrogen, and which
our joint venture partner, BioMarin, uses to manufacture Aldurazyme. We are challenging the validity of this patent in a federal lawsuit filed in June 2003. While we are licensed under the
patent for a royalty

52

---



of
approximately 1.5% of sales of Cerezyme, Fabrazyme and Thyrogen, we have not paid the royalty pending the outcome of the litigation. In March 2004, we received from Columbia a notice of
breach under this license agreement. If we do not prevail in this litigation challenging the patent, or if we do not prevail in any litigation related to the license agreement termination, we would be
obligated to pay a royalty on sales of products that we use CHO cells to manufacture. In the event we were to lose our lawsuit, we estimate our royalty obligation to Columbia would be between
$10 million and $20 million per year through 2019, the precise amount depending on sales levels of the affected products and the level of third party royalty offsets available as
provided for in our license agreement with Columbia.

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

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

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

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



We
are also currently involved in litigations and investigations that do not involve intellectual property claims, such as shareholder suits and government investigations regarding
certain of our business decisions and practices, and may be subject to additional actions in the future. For example, we are currently defending several lawsuits brought in connection with the
elimination of our tracking stock in June 2003, some of which claim considerable damages.

The
federal government, state governments and private payors are investigating and have begun to file actions against numerous pharmaceutical and biotechnology companies alleging that
the companies have overstated prices in order to inflate reimbursement rates. In addition, enforcement authorities have instituted actions under health care "fraud and abuse" laws, including
anti-kickback and false claims statutes. Moreover, individuals who use our products or services, including our diagnostic products and genetic testing services, may bring product liability
claims against us or our subsidiaries. If any such actions are initiated against us, those actions may have a significant negative impact on our business.

We
have only limited amounts of insurance, which may not provide coverage to offset a negative judgment or a settlement payment. We may be unable to obtain additional insurance in the
future, or

53

---



we
may be unable to do so on acceptable terms. Any additional insurance we do obtain may not provide adequate coverage against any asserted claims.

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



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

Our
international operations accounted for approximately 45% of our consolidated product and service revenues for the six months ended June 30, 2004. We expect that international
product and service sales will continue to account for a significant percentage of our revenues for the foreseeable future. In addition, we have direct investments in a number of subsidiaries outside
of the United States, primarily in the European Union, Latin America and Japan. Our international sales and operations could be limited or disrupted, and the value of our direct investments may be
diminished, by any of the following:



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

54

---



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

At
June 30, 2004, we had $830.3 million of outstanding indebtedness, excluding capital leases. We may incur additional indebtedness in the future. Our level of indebtedness
will have several important effects on our future operations, including:



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

ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK

We are exposed to potential loss from financial market risks that may occur as a result of changes in interest rates, equity prices and foreign currency exchange
rates. Our exposure to the risks associated with equity prices and foreign currency exchange rates has not materially changed since December 31, 2003. However, our interest rate risk has
increased $11.4 million since December 31, 2003. The increase is primarily due to a 60% decrease in our fixed income investment portfolio, which resulted in a $10.1 million, or
60% decrease in the fair value of the gains on our investment portfolio since December 31, 2003.

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

ITEM 4. CONTROLS AND PROCEDURES

At the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over
financial reporting and concluded that (1) our disclosure controls and procedures were effective as of June 30, 2004 and (2) no change in internal control over financial reporting
occurred during the quarter ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

55

---





PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims
against us as of June 30, 2004, which, if adversely decided, would have a material adverse effect on our results of operations, financial condition or liquidity.

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

On
March 27, 2003, the OFT in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited held a dominant position and
abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers from the market for the supply of home delivery and
homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT
imposed a fine on Genzyme Limited and required modification to its list price for Cerezyme in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal. On
May 6, 2003, the Tribunal issued an order that stayed the OFT's decision, but required Genzyme Limited to provide a homecare distributor a discount of 3% per unit during the appeal process. The
Tribunal issued its judgment on Genzyme Limited's appeal on March 11, 2004, rejecting portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme
should not be reduced, but that Genzyme Limited must negotiate a price for Cerezyme that will allow homecare distributors an appropriate margin. The Tribunal also reduced the fine imposed by the OFT
for violation of U.K. competition laws. In response to the Tribunal's decision, we recorded an initial liability of approximately $11 million in our 2003 financial statements and additional
liabilities totaling approximately $1 million during the six months ended June 30, 2004, all of which remains in accrued expenses in our consolidated balance sheet as of June 30,
2004. On April 13, 2004, Genzyme Limited filed an application with the Tribunal for permission to appeal to the High Court.

In
June 2003, we filed suit in U.S. District Court for the District of Massachusetts, as co-plaintiff with Biogen IDEC and Abbott Laboratories against Columbia
University seeking a declaration that Columbia's U.S. Patent 6,455,275 is invalid. The patent relates to the manufacture of recombinant proteins in Chinese hamster ovary, or CHO, cells, which are the
cells we use to manufacture Cerezyme, Fabrazyme and Thyrogen, and which our joint venture partner BioMarin uses to manufacture Aldurazyme. This new patent was issued by the USPTO in
September 2002 from a family of patents and patent applications originally filed in 1980. We are licensed under the patent family for a royalty of 1.5% of sales but, because we are confident
that the new patent was mistakenly issued by the USPTO

56

---



and
is invalid, we have not paid the royalty pending the outcome of the litigation. We have received notice from Columbia that we are in breach of our license agreement. In the event we were to lose
our lawsuit, we estimate our royalty obligation to Columbia would be between $10 million and $20 million per year through 2019, the precise amount depending on sales levels of the
affected products and the level of third party royalty offsets available as provided for in our license agreement with Columbia. A hearing on motions for summary judgment is scheduled in
November 2004.

On
August 7, 2003, a purported shareholder class action was filed in California Superior Court, County of Alameda, under the captionPignone v. SangStat
Medical Corp., et al.(Case No. RG 03110801). The plaintiff alleged that he was a stockholder of SangStat and purported to bring the action on behalf of the holders of SangStat
common stock. The plaintiff named as defendants in the action are SangStat and each of SangStat's former directors. The plaintiff's complaint asserts that SangStat and each of its former directors
breached fiduciary duties to SangStat stockholders by consenting to the acquisition by Genzyme. The plaintiff's complaint did not seek monetary damages but instead sought only equitable relief,
including an order rescinding the transaction to the extent already implemented. The plaintiff also sought costs of suit, including attorneys' fees. On April 19, 2004, the Court entered final
judgment in favor of SangStat, and dismissed the action with prejudice.

We
are not able to predict the outcome of the pending cases or estimate with certainty the amount or range of any possible loss we might incur if we do not prevail in the final,
non-appealable determinations of these matters. Therefore, except for approximately $1 million in additional liabilities arising from the Tribunal's decision regarding Cerezyme
pricing in the United Kingdom, we have not accrued any amounts in connection with these potential contingencies.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides information with respect to purchases we made of our common stock during the first half of our 2004 fiscal year. We purchased these
shares from employees who sold them to us to satisfy payments due for stock option exercises:

|                    |       | Total Number of
Shares (or Units)
Purchased |       | Average Price
Paid per
Share (or Unit) |       | Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced Plans
or Programs |   | Maximum
Number
(or Approximate
Dollar Value) of
Shares (or Units)
that
May Yet Be
Purchased Under
the Plans or
Programs
|------------------- | ----- | ------------------------------------------- | ----- | -------------------------------------- | ----- | ------------------------------------------------------------------------------------------- | - | -----------------------------------------------------------------------------------------------------------------------
|January 1-31, 2004  |       | 1,146                                       |       | $                                      | 12.96 |                                                                                             |  |                                                                                                                        
|February 1-29, 2004 |       | 1,139                                       |       | $                                      | 13.79 |                                                                                             |  |                                                                                                                        
|March 1-31, 2004    |       |                                            |       |                                        |      |                                                                                             |  |                                                                                                                        
|April 1-30, 2004    |       |                                            |       |                                        |      |                                                                                             |  |                                                                                                                        
|May 1-31, 2004      |       |                                            |       |                                        |      |                                                                                             |  |                                                                                                                        
|June 1-30, 2004     |       |                                            |       |                                        |      |                                                                                             |  |                                                                                                                        
|                    |       |                                             |       |                                        |       |                                                                                             |   |                                                                                                                        
|                    | Total |                                             | 2,285 |                                        | $     | 13.37                                                                                       |   |                                                                                                                       
|                    |       |                                             |       |                                        |       |                                                                                             |   |                                                                                                                        

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

We
held our annual meeting of stockholders on May 27, 2004. The following represents the results of the voting on proposals submitted to the stockholders for a vote at the annual
meeting. Adoption of the proposals set forth below, except for the election of directors and the amendment of our charter,

57

---



required
the affirmative vote of the majority of the shares of Genzyme General Stock properly cast at the meeting. Each director was elected by a plurality of the votes properly cast at the meeting.
Adoption of the charter amendment required the affirmative vote of the majority of all shares of Genzyme General Stock outstanding and entitled to vote. Abstentions and broker non-votes were counted
for determining a quorum, but were not treated as votes cast.



Number of VotesNomineeFor

WithheldDouglas A. Berthiaume

196,419,387

4,953,908


Number of VotesNomineeFor

WithheldHenry E. Blair

198,494,966

2,878,329


Number of VotesNomineeFor

WithheldGail K. Boudreaux

199,359,968

2,013,327


Each
nominee received a plurality of the votes cast, and therefore has been duly elected as a director of Genzyme. The terms of office for Constantine E. Anagnostopoulos, Robert J.
Carpenter, Charles L. Cooney, Victor J. Dzau, M.D., Senator Connie Mack III and Henri A. Termeer as directors of Genzyme continued after the annual meeting.



Number of
Votes for

Number of
Votes Against

Number of
Votes Abstaining

Number of
Broker Non-Votes166,906,444

5,168,372

1,126,602

28,171,877




Number of
Votes for

Number of
Votes Against

Number of
Votes Abstaining

Number of
Broker Non-Votes124,295,395

47,705,341

1,200,681

28,171,878




Number of
Votes for

Number of
Votes Against

Number of
Votes Abstaining

Number of
Broker Non-Votes139,815,429

32,198,974

1,187,011

28,171,876




Number of
Votes for

Number of
Votes Against

Number of
Votes Abstaining

Number of
Broker Non-Votes118,689,858

53,337,238

1,174,322

28,171,877


58

---





Number of
Votes for

Number of
Votes Against

Number of
Votes Abstaining

Number of
Broker Non-Votes197,639,620

2,733,985

999,689

1




Number of
Votes for

Number of
Votes Against

Number of
Votes Abstaining

Number of
Broker Non-Votes10,018,376

158,757,708

4,425,333

28,171,878




---

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K







59

---







GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 2004

SIGNATURES

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

|                     |  | GENZYME CORPORATION
|-------------------- |  | -------------------
|DATE: August 9, 2004 |  | By:                

60

---



GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, JUNE 30, 2004

EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1        |  | First Amendment to Credit Agreement, dated as of June 30, 2004, to Credit Agreement dated December 10, 2003, among Genzyme, SangStat Medical Corporation, each of the financial institutions identified under the
caption "Lenders" on the signature pages and Fleet National Bank as administrative agent for the Lenders. Filed herewith.
|10.2        |  | Fourth Amendment to Lease, dated June 30, 2004, to Lease dated as of October 21, 1998, by and between Wells Fargo Bank Northwest and Genzyme. Filed herewith.                                                                                                                                                                              
|31.1        |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                                                                                                    
|31.2        |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                                                                                                    
|32.1        |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                                                                                                    
|32.2        |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                                                                                                    

---



QuickLinks