Use these links to rapidly review the documentGENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, SEPTEMBER 30, 2007 TABLE OF CONTENTS



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

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FORM 10-Q

(Mark One)

|ý                                                                  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------
|For the quarterly period ended September 30, 2007
or              
|o                                                                  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from  to

Commission file number 0-14680

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large
accelerated filer ý        Accelerated
filer o        Non-accelerated filer o

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

The number of shares of Genzyme Stock outstanding as of October 31, 2007: 265,975,721



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NOTE REGARDING REFERENCES TO OUR COMMON STOCK

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

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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



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



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We
provide more detailed descriptions of these and other risks and uncertainties under the heading "Risk Factors," included in this report. We encourage you to read those descriptions
carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the
date of this report

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(unless
another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

NOTE REGARDING INCORPORATION BY REFERENCE

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

NOTE REGARDING TRADEMARKS

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

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GENZYME CORPORATION AND SUBSIDIARIES    FORM 10-Q, SEPTEMBER 30, 2007    TABLE OF CONTENTS



|           |  |                                                                                                                                          
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|PART I.    |  | FINANCIAL INFORMATION                                                                                                                    
|ITEM 1.    |  | Financial Statements                                                                                                                     
|           |  | Unaudited, Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2007 and 2006
|           |  | Unaudited, Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006                                                    
|           |  | Unaudited, Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006                                   
|           |  | Notes to Unaudited, Consolidated Financial Statements                                                                                    
|ITEM 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                    
|ITEM 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                               
|ITEM 4.    |  | Controls and Procedures                                                                                                                  
|PART II.   |  | OTHER INFORMATION                                                                                                                        
|ITEM 1.    |  | Legal Proceedings                                                                                                                        
|ITEM 1A.   |  | Risk Factors                                                                                                                             
|ITEM 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                              
|ITEM 6.    |  | Exhibits                                                                                                                                 
|Signatures

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

|                                          |                                                      | Three Months Ended
September 30,                                                  |         | Nine Months Ended
September 30, |        
|----------------------------------------- | ---------------------------------------------------- | --------------------------------------------------------------------------------- | ------- | ------------------------------- | -------
|
|Revenues:                                 |                                                      |                                                                                   |         |                                 |        
|                                          | Net product sales                                    |                                                                                   | $       | 867,682                         |        
|                                          | Net service sales                                    |                                                                                   |         | 83,177                          |        
|                                          | Research and development revenue                     |                                                                                   |         | 9,300                           |        
|                                          |                                                      |                                                                                   |         |                                 |        
|                                          |                                                      | Total revenues                                                                    |         |                                 | 960,159
|                                          |                                                      |                                                                                   |         |                                 |        
|Operating costs and expenses:             |                                                      |                                                                                   |         |                                 |        
|                                          | Cost of products sold                                |                                                                                   |         | 190,475                         |        
|                                          | Cost of services sold                                |                                                                                   |         | 54,137                          |        
|                                          | Selling, general and administrative                  |                                                                                   |         | 270,306                         |        
|                                          | Research and development                             |                                                                                   |         | 175,800                         |        
|                                          | Amortization of intangibles                          |                                                                                   |         | 49,819                          |        
|                                          | Charge for impaired goodwill                         |                                                                                   |         |                                |        
|                                          |                                                      |                                                                                   |         |                                 |        
|                                          |                                                      | Total operating costs and expenses                                                |         |                                 | 740,537
|                                          |                                                      |                                                                                   |         |                                 |        
|Operating income (loss)                   |                                                      |                                                                                   | 219,622 |                                 |        
|                                          |                                                      |                                                                                   |         |                                 |        
|Other income (expenses):                  |                                                      |                                                                                   |         |                                 |        
|                                          | Equity in income (loss) of equity method investments |                                                                                   |         | (12,648                         | )      
|                                          | Minority interest                                    |                                                                                   |         | 5                               |        
|                                          | Gains on investments in equity securities, net       |                                                                                   |         | 1,105                           |        
|                                          | Other                                                |                                                                                   |         | 913                             |        
|                                          | Investment income                                    |                                                                                   |         | 18,222                          |        
|                                          | Interest expense                                     |                                                                                   |         | (1,474                          | )      
|                                          |                                                      |                                                                                   |         |                                 |        
|                                          |                                                      | Total other income                                                                |         |                                 | 6,123  
|                                          |                                                      |                                                                                   |         |                                 |        
|Income (loss) before income taxes         |                                                      |                                                                                   | 225,745 |                                 |        
|(Provision for) benefit from income taxes |                                                      |                                                                                   | (66,432 | )                               |        
|                                          |                                                      |                                                                                   |         |                                 |        
|Net income                                |                                                      | $                                                                                 | 159,313 |                                 | $      
|                                          |                                                      |                                                                                   |         |                                 |        
|Net income per share:                     |                                                      |                                                                                   |         |                                 |        
|                                          | Basic                                                |                                                                                   | $       | 0.61                            |        
|                                          |                                                      |                                                                                   |         |                                 |        
|                                          | Diluted                                              |                                                                                   | $       | 0.58                            |        
|                                          |                                                      |                                                                                   |         |                                 |        
|Weighted average shares outstanding:      |                                                      |                                                                                   |         |                                 |        
|                                          | Basic                                                |                                                                                   |         | 262,775                         |        
|                                          |                                                      |                                                                                   |         |                                 |        
|                                          | Diluted                                              |                                                                                   |         | 279,206                         |        
|                                          |                                                      |                                                                                   |         |                                 |        
|Comprehensive income, net of tax:         |                                                      |                                                                                   |         |                                 |        
|Net income                                |                                                      | $                                                                                 | 159,313 |                                 | $      
|                                          |                                                      |                                                                                   |         |                                 |        
|Other comprehensive income (loss):        |                                                      |                                                                                   |         |                                 |        
|                                          | Foreign currency translation adjustments             |                                                                                   |         | 76,836                          |        
|                                          |                                                      |                                                                                   |         |                                 |        
|                                          | Other, net of tax                                    |                                                                                   |         | (274                            | )      
|                                          |                                                      |                                                                                   |         |                                 |        
|                                          | Unrealized gains (losses) on securities, net of tax: |                                                                                   |         |                                 |        
|                                          |                                                      | Unrealized gains arising during the period, net of tax                            |         |                                 | 7,450  
|                                          |                                                      | Reclassification adjustment for (gains) losses included in net income, net of tax |         |                                 | (991   
|                                          |                                                      |                                                                                   |         |                                 |        
|                                          |                                                      | Unrealized gains (losses) on securities, net of tax                               |         |                                 | 6,459  
|                                          |                                                      |                                                                                   |         |                                 |        
|Other comprehensive income                |                                                      |                                                                                   | 83,021  |                                 |        
|                                          |                                                      |                                                                                   |         |                                 |        
|Comprehensive income                      |                                                      | $                                                                                 | 242,334 |                                 | $      
|                                          |                                                      |                                                                                   |         |                                 |        

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

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

|                                             |                                                                 | September 30,
2007                         |           | December 31,
2006 |          
|-------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------ | --------- | ----------------- | ---------
|ASSETS                                       |                                                                
|Current assets:                              |                                                                 |                                            |           |                   |          
|                                             | Cash and cash equivalents                                       |                                            | $         | 849,864           |          
|                                             | Short-term investments                                          |                                            |           | 87,503            |          
|                                             | Accounts receivable, net                                        |                                            |           | 879,163           |          
|                                             | Inventories                                                     |                                            |           | 438,872           |          
|                                             | Prepaid expenses and other current assets                       |                                            |           | 137,793           |          
|                                             | Deferred tax assets                                             |                                            |           | 131,772           |          
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total current assets                       |           |                   | 2,524,967
|Property, plant and equipment, net           |                                                                 |                                            | 1,850,754 |                   |          
|Long-term investments                        |                                                                 |                                            | 512,181   |                   |          
|Note receivablerelated party                |                                                                 |                                            |          |                   |          
|Goodwill, net                                |                                                                 |                                            | 1,299,946 |                   |          
|Other intangible assets, net                 |                                                                 |                                            | 1,389,180 |                   |          
|Deferred tax assetsnoncurrent               |                                                                 |                                            | 78,243    |                   |          
|Investments in equity securities             |                                                                 |                                            | 107,734   |                   |          
|Other noncurrent assets                      |                                                                 |                                            | 79,296    |                   |          
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total assets                               |           | $                 | 7,842,301
|                                             |                                                                 |                                            |           |                   |          
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                                                
|Current liabilities:                         |                                                                 |                                            |           |                   |          
|                                             | Accounts payable                                                |                                            | $         | 77,823            |          
|                                             | Accrued expenses                                                |                                            |           | 569,559           |          
|                                             | Income taxes payable                                            |                                            |           |                  |          
|                                             | Deferred revenue and other income                               |                                            |           | 39,307            |          
|                                             | Current portion of long-term debt and capital lease obligations |                                            |           | 6,519             |          
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total current liabilities                  |           |                   | 693,208  
|Long-term debt and capital lease obligations |                                                                 |                                            | 115,096   |                   |          
|Convertible notes                            |                                                                 |                                            | 690,000   |                   |          
|Deferred revenuenoncurrent                  |                                                                 |                                            | 5,574     |                   |          
|Deferred tax liabilities                     |                                                                 |                                            |          |                   |          
|Other noncurrent liabilities                 |                                                                 |                                            | 54,652    |                   |          
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total liabilities                          |           |                   | 1,558,530
|                                             |                                                                 |                                            |           |                   |          
|Commitments and contingencies                |                                                                 |                                            |           |                   |          
|Stockholders' equity:                        |                                                                 |                                            |           |                   |          
|                                             | Preferred stock, $0.01 par value                                |                                            |           |                  |          
|                                             | Common stock, $0.01 par value                                   |                                            |           | 2,635             |          
|                                             | Additional paid-in capital                                      |                                            |           | 5,193,116         |          
|                                             | Notes receivable from stockholders                              |                                            |           | (15,516           | )        
|                                             | Accumulated earnings                                            |                                            |           | 747,816           |          
|                                             | Accumulated other comprehensive income                          |                                            |           | 355,720           |          
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total stockholders' equity                 |           |                   | 6,283,771
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total liabilities and stockholders' equity |           | $                 | 7,842,301
|                                             |                                                                 |                                            |           |                   |          

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

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

|                                                 |                                                                       | Nine Months Ended
September 30,                                                                                         |                                                        
|------------------------------------------------ | --------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------
|
|Cash Flows from Operating Activities:            |                                                                       |                                                                                                                         |                                                        
|                                                 | Net income                                                            |                                                                                                                         | $                                                      
|                                                 | Reconciliation of net income to cash flows from operating activities: |                                                                                                                         |                                                        
|                                                 |                                                                       | Depreciation and amortization                                                                                           |                                                        
|                                                 |                                                                       | Stock-based compensation                                                                                                |                                                        
|                                                 |                                                                       | Provision for bad debts                                                                                                 |                                                        
|                                                 |                                                                       | Charge for impaired goodwill                                                                                            |                                                        
|                                                 |                                                                       | Equity in income (loss) of equity method investments                                                                    |                                                        
|                                                 |                                                                       | Minority interest                                                                                                       |                                                        
|                                                 |                                                                       | Gains on investments in equity securities, net                                                                          |                                                        
|                                                 |                                                                       | Deferred income tax benefit                                                                                             |                                                        
|                                                 |                                                                       | Tax benefit from employee stock-based compensation                                                                      |                                                        
|                                                 |                                                                       | Excess tax benefits from stock-based compensation                                                                       |                                                        
|                                                 |                                                                       | 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              
|                                                 |                                                                       |                                                                                                                         | Income taxes payable                                   
|                                                 |                                                                       |                                                                                                                         | Accounts payable, accrued expenses and deferred revenue
|                                                 |                                                                       |                                                                                                                         |                                                        
|                                                 |                                                                       |                                                                                                                         |                                                        
|                                                 |                                                                       |                                                                                                                         |                                                        
|Cash Flows from Investing Activities:            |                                                                       |                                                                                                                         |                                                        
|                                                 | Purchases of investments                                              |                                                                                                                         |                                                        
|                                                 | Sales and maturities of investments                                   |                                                                                                                         |                                                        
|                                                 | Purchases of equity securities                                        |                                                                                                                         |                                                        
|                                                 | Proceeds from sales of investments in equity securities               |                                                                                                                         |                                                        
|                                                 | Purchases of property, plant and equipment                            |                                                                                                                         |                                                        
|                                                 | Acquisition of Bioenvision stock                                      |                                                                                                                         |                                                        
|                                                 | Distributions from equity method investments                          |                                                                                                                         |                                                        
|                                                 | Payment of note receivable from Dyax Corp.                            |                                                                                                                         |                                                        
|                                                 | Purchases of other intangible assets                                  |                                                                                                                         |                                                        
|                                                 | Other                                                                 |                                                                                                                         |                                                        
|                                                 |                                                                       |                                                                                                                         |                                                        
|                                                 |                                                                       |                                                                                                                         |                                                        
|                                                 |                                                                       |                                                                                                                         |                                                        
|Cash Flows from Financing Activities:            |                                                                       |                                                                                                                         |                                                        
|                                                 | Proceeds from issuance of common stock                                |                                                                                                                         |                                                        
|                                                 | Repurchase of common stock                                            |                                                                                                                         |                                                        
|                                                 | Excess tax benefits from stock-based compensation                     |                                                                                                                         |                                                        
|                                                 | Payments of debt and capital lease obligations                        |                                                                                                                         |                                                        
|                                                 | Increase (decrease) in bank overdrafts                                |                                                                                                                         |                                                        
|                                                 | Minority interest contributions                                       |                                                                                                                         |                                                        
|                                                 | Other                                                                 |                                                                                                                         |                                                        
|                                                 |                                                                       |                                                                                                                         |                                                        
|                                                 |                                                                       |                                                                                                                         |                                                        
|                                                 |                                                                       |                                                                                                                         |                                                        
|Effect of exchange rate changes on cash          |                                                                       |                                                                                                                         | (16,423                                                
|                                                 |                                                                       |                                                                                                                         |                                                        
|Increase in cash and cash equivalents            |                                                                       |                                                                                                                         | 357,694                                                
|Cash and cash equivalents at beginning of period |                                                                       |                                                                                                                         | 492,170                                                
|                                                 |                                                                       |                                                                                                                         |                                                        
|Cash and cash equivalents at end of period       |                                                                       | $                                                                                                                       | 849,864                                                
|                                                 |                                                                       |                                                                                                                         |                                                        

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

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GENZYME CORPORATION AND SUBSIDIARIES        Notes to Unaudited, Consolidated Financial Statements

1. Description of Business

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



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

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

Our unaudited, consolidated financial statements for each period include the statements of operations and comprehensive income, balance sheets and statements of
cash flows for our operations taken as a whole. We have eliminated all intercompany items and transactions in consolidation. We have reclassified certain 2006 data to conform to our 2007 presentation.
We prepare our unaudited, consolidated financial statements following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other
financial information that are normally required by accounting principles generally accepted in the United States.

These
financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and results of operations. Since
these are interim financial statements, you should also read our audited, consolidated financial statements and notes included in our 2006 Form 10-K. Revenues, expenses, assets and
liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

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Our
unaudited, consolidated financial statements for each period include the accounts of our wholly-owned and majority-owned subsidiaries. As a result of our adoption of FIN 46R,
"Consolidation of Variable Interest Entities," we also consolidate certain variable interest entities for which we are the primary beneficiary. For consolidated subsidiaries in which we have less than
a 100% interest, we record minority interest in our consolidated statements of operations for the ownership interest of the minority owner. We use the equity method of accounting to account for our
investments in entities in which we have a substantial ownership interest (20% to 50%) which do not fall in the scope of FIN 46R, or over which we exercise significant influence. Our consolidated net
income includes our share of the earnings of these entities.

Income Taxes

Effective January 1, 2007, we adopted the provisions of FIN 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement
No. 109," which clarifies the accounting for income tax positions by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on the derecognition of previously recognized deferred tax items, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition. Under FIN 48, we recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the
taxing authorities, based on the technical merits of the tax position. The tax benefits recognized in our financial statements from such a position are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate resolution. For more information regarding the impact the adoption of FIN 48 had on our results of operations, financial condition and
liquidity, see Note 13., "(Provision for) Benefit from Income Taxes," included in this report.

Recent Accounting Pronouncements

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

FAS 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement
No. 115."In February 2007, the FASB issued FAS 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an
Amendment of FASB Statement No. 115," which permits, but does not require, entities to measure certain financial instruments and other assets and liabilities at fair value on an
instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected should be recognized in earnings at each subsequent
reporting date. FAS 159 will be effective for us as of January 1, 2008 and cannot be adopted early unless FAS 157 is also adopted. We are currently evaluating the impact, if any,
the adoption of FAS 159 may have on our financial position and results of operations.

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EITF Issue No. 07-3,"Accounting for Nonrefundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities." In June 2007, the FASB ratified the EITF consensus reached in EITF Issue No. 07-3,
"Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities," which provides guidance for nonrefundable prepayments for goods or
services that will be used or rendered for future research and development activities and directs that such payments should be deferred and capitalized. Such amounts should be recognized as an expense
as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. EITF 07-3 is effective for us
January 1, 2008 and will be applied prospectively to new contracts we enter into on or after that date. Earlier application is not permitted. We are currently evaluating the impact, if any, the
adoption of EITF No. 07-3 will have on our financial position, results of operations or cash flows.

3. Stockholders' Equity

Stock Repurchase

In May 2007, our board of directors authorized a stock repurchase program to repurchase up to an aggregate maximum amount of $1.5 billion or
20,000,000 shares of our outstanding common stock over the next three years, beginning in June 2007. The repurchases are being made from time to time and can be effectuated through open market
purchases, privately negotiated transactions, transactions structured through investment banking institutions, or by other means, subject to management's discretion and as permitted by securities laws
and other legal requirements. As of September 30, 2007, we have repurchased a total of 2,808,738 shares of our common stock at an average price of $64.50 per share for a total of
$181.2 million of cash, including fees. In July 2004, the Massachusetts Business Corporation Act, or MBCA, became effective and eliminated the concept of treasury shares. Under the MBCA,
shares repurchased by Massachusetts corporations constitute authorized but unissued shares. As result, we recorded the repurchases in our consolidated balance sheet as of September 30, 2007, as
a reduction to our common stock account for the par value of the repurchased shares and as a reduction to our additional paid-in capital account.

Equity Plans

At our annual meeting of shareholders held on May 24, 2007, which we refer to as our 2007 Annual Meeting, our shareholders approved the merger of our 1997
Equity Incentive Plan into our 2004 Equity Incentive Plan and authorized an increase of 3,500,000 shares for issuance under our 2004 Equity Incentive Plan. Our 2004 Equity Incentive Plan authorizes
the issuance of stock options, restricted stock and restricted stock units, or RSUs. We began issuing RSUs under our 2004 Equity Incentive Plan in connection with a general grant to employees in
May 2007.

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

12

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Employee Stock Purchase Plan

At our 2007 Annual Meeting, our shareholders approved an increase of 1,500,000 shares authorized for issuance under our 1999 Employee Stock Purchase Plan.

Stock-Based Compensation Expense, Net of Estimated Forfeitures

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

|                                                                                   |                                             | Three Months Ended
September 30,                   |        | Nine Months Ended
September 30, |        
|---------------------------------------------------------------------------------- | ------------------------------------------- | -------------------------------------------------- | ------ | ------------------------------- | -------
|
|Pre-tax stock-based compensation expense, net of estimated forfeitures charged to: |                                             |                                                    |        |                                 |        
|                                                                                   | Cost of products and services sold(1)       |                                                    | $      | (5,779                          | )      
|                                                                                   | Selling, general and administrative expense |                                                    |        | (25,091                         | )      
|                                                                                   | Research and development expense            |                                                    |        | (13,518                         | )      
|                                                                                   |                                             |                                                    |        |                                 |        
|                                                                                   |                                             | Total                                              |        |                                 | (44,388
|Less: tax benefit from stock options                                               |                                             |                                                    | 14,093 |                                 |        
|                                                                                   |                                             |                                                    |        |                                 |        
|                                                                                   |                                             | Total stock-based compensation expense, net of tax |        | $                               | (30,295
|                                                                                   |                                             |                                                    |        |                                 |        
|Effect per common share:                                                           |                                             |                                                    |        |                                 |        
|                                                                                   | Basic                                       |                                                    | $      | (0.12                           | )      
|                                                                                   |                                             |                                                    |        |                                 |        
|                                                                                   | Diluted                                     |                                                    | $      | (0.11                           | )      
|                                                                                   |                                             |                                                    |        |                                 |        

---

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006Stock-based compensation expense capitalized to inventory

$
2,484

$
3,377

$
10,323

$
11,640


In
July 2006, we began amortizing stock-based compensation expense capitalized to inventory based on inventory turns.

At
September 30, 2007, there was $292.6 million of pre-tax stock-based compensation expense, net of estimated forfeitures, related to unvested awards not yet
recognized which are expected to be recognized over a weighted average period of 2.3 years.

13

---



4. Net Income Per Share

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

|                                                                  |                                                                                                       | Three Months Ended
September 30, |         | Nine Months Ended
September 30,
|----------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | -------------------------------- | ------- | -------------------------------
|
|Net incomebasic                                                  |                                                                                                       | $                                | 159,313 |                                
|Effect of dilutive securities:                                    |                                                                                                       |                                  |         |                                
|                                                                  | Interest expense and debt fee amortization, net of tax, related to our 1.25% convertible senior notes |                                  |         | 1,886                          
|                                                                  |                                                                                                       |                                  |         |                                
|Net incomediluted                                                |                                                                                                       | $                                | 161,199 |                                
|                                                                  |                                                                                                       |                                  |         |                                
|Shares used in computing net income per common
sharebasic        |                                                                                                       |                                  | 262,775 |                                
|Effect of dilutive securities:                                    |                                                                                                       |                                  |         |                                
|                                                                  | Shares issuable upon the assumed conversion of our 1.25% convertible senior notes                     |                                  |         | 9,686                          
|                                                                  | Stock options(1)                                                                                      |                                  |         | 6,584                          
|                                                                  | Restricted stock units(2)                                                                             |                                  |         | 150                            
|                                                                  | Warrants and stock purchase rights                                                                    |                                  |         | 11                             
|                                                                  |                                                                                                       |                                  |         |                                
|                                                                  |                                                                                                       | Dilutive potential common shares |         |                                
|                                                                  |                                                                                                       |                                  |         |                                
|Shares used in computing net income per common
sharediluted(1,2) |                                                                                                       |                                  | 279,206 |                                
|                                                                  |                                                                                                       |                                  |         |                                
|Net income per common share:                                      |                                                                                                       |                                  |         |                                
|                                                                  | Basic                                                                                                 |                                  | $       | 0.61                           
|                                                                  |                                                                                                       |                                  |         |                                
|                                                                  | Diluted                                                                                               |                                  | $       | 0.58                           
|                                                                  |                                                                                                       |                                  |         |                                

---

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006Shares issuable upon exercise of outstanding options

17,689

14,278

15,408

11,199


14

---





5. Mergers and Acquisitions

Pending Acquisition of the Diagnostics Division of Diagnostic Chemicals Limited

On November 2, 2007, we entered into an agreement with DCL, a privately-held diagnostics and biopharmaceutical company based in Charlottetown,
Prince Edward Island, Canada, to acquire DCL's diagnostics division, including DCL's line of over 50 formulated clinical chemistry reagents and its diagnostics operations
in Prince Edward Island, Canada and Connecticut, for an aggregate purchase price of approximately $53 million Canadian dollars, or approximately $57 million U.S. dollars (based on the
November 2, 2007 spot rate for the Canadian dollar), in cash. We expect to close the transaction in December 2007.

Acquisition of Bioenvision

On May 29, 2007, we entered into an agreement and plan of merger with Bioenvision, a publicly-traded biopharmaceutical company based in New York City and
Edinburgh, Scotland, and Wichita Bio Corporation, one of our wholly-owned subsidiaries, to acquire Bioenvision in an all-cash transaction valued at $11.20 per outstanding share of
Bioenvision Series A Preferred Stock (plus accrued but unpaid dividends) and $5.60 per outstanding share of Bioenvision Common Stock, or approximately $345 million in aggregate.
Bioenvision is focused on the acquisition, development and marketing of compounds and technologies for the treatment of cancer, autoimmune disease and infection. Effective October 23, 2007, we
completed the acquisition of Bioenvision. This acquisition was completed through a two step process consisting of a tender offer completed in July 2007, and a merger approved in
October 2007.

The
acquisition of Bioenvision provides us with the exclusive, worldwide rights to clofarabine. We currently market clofarabine in the United States and Canada under the brand name
Clolar for relapsed and refractory pediatric acute lymphoblastic leukemia, or ALL, patients. In Europe, we co-developed clofarabine with Bioenvision and Bioenvision has been marketing the
product under the brand name Evoltra, also for the treatment of relapsed and refractory pediatric ALL patients. We and Bioenvision have been developing clofarabine for diseases with significantly
larger patient populations, including use as a first-line therapy for the treatment of adult acute myeloid leukemia, or AML. Clofarabine has been granted orphan drug status for ALL and AML
in both the United States and European Union.



On July 10, 2007, we completed the tender offer and purchased 2,250,000 shares of Bioenvision Series A Preferred Stock for $25.2 million,
which we recorded as a component of investments in equity securities, and 8,398,098 shares of Bioenvision Common Stock for $47.0 million, which we recorded as a component of other noncurrent
assets in our consolidated balance sheet. As a result of the tender offer, we acquired approximately 22% of the then outstanding shares of Bioenvision Common Stock on an as-converted
basis, including 100% of the outstanding Bioenvision Series A Preferred Stock.

We
accounted for our investments in Bioenvision Series A Preferred Stock and Bioenvision Common Stock using two different methods. In the third quarter of 2007, we accounted for
our investment in Bioenvision Series A Preferred Stock under the cost method of accounting because these shares did not qualify as similar or substantially similar to common stock
(in-substance common stock) under the guidance of EITF Issue No. 02-14, "Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in
Voting Stock of an Investee but Exercises

15

---



Significant
Influence through Other Means." Our initial investments in Bioenvision Common Stock and Bioenvision Series A Preferred Stock gave us significant influence over Bioenvision and, as a
result, we accounted for our investment in Bioenvision Common Stock under the equity method of accounting. Accordingly, in July 2007, we recorded our initial $47.0 million investment in
Bioenvision Common Stock as a single amount in other noncurrent assets in our consolidated balance sheet. Of this amount, we attributed $7.1 million to our 15% proportional share of the assets
and liabilities of Bioenvision and $39.9 million, representing the excess of the purchase price over our proportional share of the net assets of Bioenvision, to the underlying intangible
assets, IPR&D and goodwill based on their fair values, including $16.8 million, net of tax, to intangible assets, $19.1 million to IPR&D and $4.0 million to goodwill. Equity in
income (loss) of equity method investments for the three and nine months ended September 30, 2007 reflects a total of $20.5 million of charges related to our initial investment in
Bioenvision Common Stock, including a $19.1 million charge for IPR&D and a total of $1.4 million of charges for the period from July 10, 2007 through September 30, 2007, of
which $1.0 million represents our portion of the losses of Bioenvision for that period and $0.4 million represents amortization expense, net of tax, related to the value assigned to
technology and other intangible assets. As of September 30, 2007, other noncurrent assets in our consolidated balance sheet includes a net balance of $26.5 million for our initial
investment in Bioenvision Common Stock including $47.0 million for the cash consideration we paid, which was offset by the $20.5 million of charges described above.



On October 22, 2007, a special meeting of the Bioenvision stockholders was held to seek approval for the merger. Holders of a majority of the issued and
outstanding shares of Bioenvision Common Stock and Bioenvision Series A Preferred Stock, voting together as a single class on an as converted basis, approved the merger. On October 23,
2007, we paid approximately $245 million in cash consideration to the former Bioenvision stockholders and Bioenvision Common Stock ceased trading and was delisted from The Nasdaq Stock Market,
Inc., or NASDAQ. In the fourth quarter of 2007, we will pay approximately $11 million of cash for the outstanding options to purchase shares of Bioenvision Common Stock. The full purchase
accounting for our acquisition of Bioenvision, including the impact of our merger in October 2007, will be reflected in our consolidated financial statements as of December 31, 2007 and
for the year ended December 31, 2007.

In
connection with the merger, holders of 2,880,000 shares of Bioenvision Common Stock, representing less than 5% of the outstanding shares of Bioenvision Common Stock on an as-converted
basis
immediately before the merger became effective, submitted written demands for appraisal of their shares and have, as a result, elected not to accept the $5.60 per share merger consideration. We refer
to these stockholders as dissenting stockholders.

Acquisition of AnorMED

In November 2006, we acquired AnorMED, a publicly-held chemical-based biopharmaceutical company based in Langley, British Columbia, Canada,
with a focus on the discovery, development and commercialization of new therapeutic products in the area of hematology, oncology and human immunodeficiency virus, or HIV. We paid gross consideration
of $589.2 million in cash, including $584.2 million for the shares of AnorMED's common stock outstanding on the date of acquisition and $5.0 million for acquisition costs. Net
consideration was $569.0 million as we acquired AnorMED's cash and cash equivalents totaling $20.2 million. We accounted for the acquisition as a business combination

16

---



and
accordingly, included AnorMED's results of operations in our consolidated statements of operations from November 7, 2006, 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, except share data):

Purchase of 43,272,085 shares of AnorMED common stock

$
584,173Acquisition costs


5,000Total purchase price

$
589,173Cash and cash equivalents

$
20,220Other current assets


6,340Property, plant and equipment


758Goodwill


31,703Other intangible assets (to be amortized over 10 years)


3,500In-process research and development


552,900Deferred tax assetsnoncurrent


27,380Other noncurrent assets


573Assumed liabilities:Deferred tax liability


(25,288
)Liabilities for exit activities


(7,733
)Other liabilities


(21,180
)Allocated purchase price

$
589,173


The
allocation of the purchase price was adjusted in 2007 to:



The
purchase price, as adjusted, was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The
excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $31.7 million, which was allocated to goodwill. We expect that
substantially all of the amount allocated to goodwill will be deductible for tax purposes.

The
allocation of the purchase price remains subject to potential adjustments, including adjustments for liabilities associated with certain exit activities and tax restructuring
activities.

In-Process Research and Development

In connection with five of our acquisitions completed between January 1, 2004 and September 30, 2007, we have acquired various IPR&D projects.
Substantial additional research and development costs 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 will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to

17

---



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 technological 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.

The
following table sets forth IPR&D projects for companies and certain assets we have acquired between January 1, 2004 and September 30, 2007 (amounts in millions):

|Company/Assets Acquired              |  | Purchase
Price |         | IPR&D(1) |   | Programs Acquired |                         | Discount Rate
Used in
Estimating
Cash
Flows(1) |     | Year of
Expected
Launch
|------------------------------------ |  | -------------- | ------- | -------- | - | ----------------- | ----------------------- | ---------------------------------------------- | --- | -----------------------
|AnorMED (2006)                       |  | $              | 589.2   |          | $ | 526.8             |                         | Mozobil (stem cell transplant)                 |     | 15%                    
|                                     |  |                |         |          |   | 26.1              |                         | AMD070 (HIV)(2)                                |     | 15%                    
|                                     |  |                |         |          |   |                   |                         |                                                |     |                        
|                                     |  |                |         |          | $ | 552.9             |                         |                                                |     |                        
|                                     |  |                |         |          |   |                   |                         |                                                |     |                        
|Avigen, Inc. (2005)                  |  | $              | 12.0    |          | $ | 7.0               |                         | AV201 (Parkinson's disease)                    |     | N/A                    
|                                     |  |                |         |          |   |                   |                         |                                                |     |                        
|Bone Care International, Inc. (2005) |  | $              | 712.3   |          | $ | 12.7              |                         | LR-103 (secondary                              |     |                        
|                                     |  |                |         |          |   |                   | hyperparathyroidism)(3) |                                                | 25% |                        
|Verigen (2005)                       |  | $              | 12.7    |          | $ | 9.5               |                         | MACI (cartilage repair)                        |     | 24%                    
|                                     |  |                |         |          |   |                   |                         |                                                |     |                        
|ILEX Oncology, Inc. (2004)           |  | $              | 1,080.3 |          | $ | 96.9              |                         | Campath(4)                                     |     | 11%                    
|                                     |  |                |         |          |   | 113.4             |                         | Clolar(4)                                      |     | 12%                    
|                                     |  |                |         |          |   | 44.2              |                         | Tasidotin                                      |     | 16%                    
|                                     |  |                |         |          |   |                   |                         |                                                |     |                        
|                                     |  |                |         |          | $ | 254.5             |                         |                                                |     |                        
|                                     |  |                |         |          |   |                   |                         |                                                |     |                        

---

In addition, we account for our investment in Bioenvision Common Stock under the equity method of accounting and, accordingly, we recorded a
charge of $19.1 million in equity in income (loss) of equity method investments in our consolidated statement of operations for the three and nine months ended September 2007 for the
portion of the purchase price for this investment that we allocated to IPR&D. The full purchase accounting for our acquisition of Bioenvision, including the impact of our merger in
October 2007, will be reflected in our consolidated financial statements as of December 31, 2007 and for the year ended December 31, 2007.

18

---



Exit Activities

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

|                              |                       | Employee
Related
Benefits |       | Closure of
Leased
Facilities |   | Other Exit
Activities |       | Total
Exit
Activities |      
|----------------------------- | --------------------- | ------------------------- | ----- | ---------------------------- | - | --------------------- | ----- | --------------------- | -----
|Balance at December 31, 2005  |                       | $                         | 2,249 |                              | $ | 199                   |       | $                     | 8,117
|                              | Acquisition(1)        |                           |       | 6,478                        |   |                       |      |                       |      
|                              | Revision of estimates |                           |       | (165                         | ) |                       | (132  | )                     |      
|                              | Payments              |                           |       | (2,457                       | ) |                       | (43   | )                     |      
|                              |                       |                           |       |                              |   |                       |       |                       |      
|Balance at December 31, 2006  |                       |                           | 6,105 |                              |   | 24                    |       |                       |     
|                              | Revision of estimates |                           |       | (75                          | ) |                       | 1,307 |                       |      
|                              | Payments              |                           |       | (4,870                       | ) |                       |      |                       |      
|                              |                       |                           |       |                              |   |                       |       |                       |      
|Balance at September 30, 2007 |                       | $                         | 1,160 |                              | $ | 1,331                 |       | $                     |     
|                              |                       |                           |       |                              |   |                       |       |                       |      

---

Pro Forma Financial Summary

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

Three Months Ended
September 30, 2006

Nine Months Ended
September 30, 2006Total revenues

$
823,078

$
2,347,514Net income (loss)

$
17,783

$
(168,271
)Net income (loss) per share:Basic

$
0.07

$
(0.65
)Diluted

$
0.07

$
(0.65
)Weighted average shares outstanding:Basic


261,541


260,565Diluted


278,271


260,565


19

---





6. Inventories

September 30,
2007

December 31,
2006(Amounts in thousands)Raw materials

$
125,841

$
100,698Work-in-process


120,735


119,510Finished goods


192,296


154,436Total

$
438,872

$
374,644


We
capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval of a product. In no event is
inventory capitalized prior to the completion of a phase 3 clinical trial. If a product is not approved for sale, it would result in the write off of the inventory and a charge to earnings. Our
total inventories at September 30, 2007, included $17.4 million of inventory for Renvela that had not yet been approved for sale. On October 22, 2007, the FDA granted marketing
approval for Renvela.

As
of June 30, 2007, we had placed four lots of Thymoglobulin finished goods inventory, valued at $11.8 million, under review pending investigation and resolution of out of
trend assay results we observed during quality testing. In September 2007, we determined that these lots did not meet our specifications for saleable product and recorded a charge of
$11.8 million to cost of products sold to write off the inventory for these lots. Currently, we have three additional finished lots of Thymoglobulin, valued at approximately $8 million,
which are under review to determine whether they meet product specifications. If we determine that any of these lots do not meet the specifications for saleable product, we will write off that
inventory as a charge to earnings.

7. Goodwill and Other Intangible Assets

Goodwill

The following table contains the change in our net goodwill during the nine months ended September 30, 2007 (amounts in thousands):

December 31,
2006

Adjustments

September 30,
2007Renal(1)

$
305,528

$
(1,577
)
$
303,951Therapeutics


354,709





354,709Transplant(2)


157,591


2,563


160,154Biosurgery


7,585





7,585Other


473,368


179


473,547Net goodwill

$
1,298,781

$
1,165

$
1,299,946




20

---





We
are required to perform impairment tests related to our goodwill under FAS 142, "Goodwill and Other Intangible Assets," annually and whenever events or changes
in circumstances suggest that the carrying value of an intangible asset may not be recoverable. We completed the required annual impairment tests for our $1.3 billion of net goodwill in the
third quarter of 2007 and determined that no impairment charge was required.

Other Intangible Assets

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

|                       |       | September 30, 2007 |           | December 31, 2006
|---------------------- | ----- | ------------------ | --------- | -----------------
|
|Technology             |       | $                  | 1,506,998 |                  
|Patents                |       |                    | 194,561   |                  
|Trademarks             |       |                    | 60,227    |                  
|License fees(1)        |       |                    | 90,084    |                  
|Distribution rights(2) |       |                    | 293,217   |                  
|Customer lists(3)      |       |                    | 67,082    |                  
|Other                  |       |                    | 2,050     |                  
|                       |       |                    |           |                  
|                       | Total |                    | $         | 2,214,219        
|                       |       |                    |           |                  

---

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



21

---





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

Year ended December 31,

Estimated
Amortization
Expense(1)2007 (remaining three months)

$
49,8782008


209,3872009


215,6202010


227,6652011


238,507Thereafter


625,327




8. Investments in Equity Securities

We recorded the following gains on investments in equity securities, net of charges for impairment of investments, for the three and nine months ended
September 30, 2007 and 2006 (amounts in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006Gross gains on investments in equity securities:Therapeutic Human Polyclonals, Inc. (THP)

$


$


$
10,848

$
Cambridge Antibody Technology Group plc (CAT)











69,359BioMarin Pharmaceutical Inc. (BioMarin)











6,417Other


1,105


128


3,188


2,154Total


1,105


128


14,036


77,930Less: charges for impairment of investments











(2,893
)Gains on investments in equity securities, net

$
1,105

$
128

$
14,036

$
75,037


Unrealized Gains (Losses)

At September 30, 2007, our stockholders' equity included $23.3 million of unrealized gains and $0.4 million of unrealized losses related to
our investments in equity securities.

22

---





9. Payment of Note Receivable from Dyax Corp.

In 2007, we received cash payments totaling $7.8 million from Dyax Corp., or Dyax, to settle the secured promissory note receivable from Dyax, including
$7.0 million to satisfy the outstanding principal balance due under the note and $0.8 million of accrued interest.

10. Joint Venture with BioMarin

We and BioMarin formed BioMarin/Genzyme LLC to develop and commercialize Aldurazyme, a recombinant form of the human enzyme
alpha-L-iduronidase, used to treat an LSD known as mucopolysaccharidosis I, or MPS I. We record our portion of the income of BioMarin/Genzyme LLC in equity in income of equity
method investments in our unaudited, consolidated statements of operations. Our portion of BioMarin/Genzyme LLC's net income was:



During
the nine months ended September 30, 2007, we received $17.1 million of cash distributions from BioMarin/Genzyme LLC.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006Revenue

$
32,322

$
25,029

$
88,270

$
69,891Gross margin


25,284


18,883


68,241


51,674Operating expenses


(8,709
)

(9,110
)

(26,743
)

(26,209
)Net income


16,793


9,959


42,029


25,953


11. Revolving Credit Facility

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

12. Other Commitments and Contingencies



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

23

---



Through
June 30, 2003, we had three outstanding series of common stock, which we referred to as tracking stocks; Genzyme General Stock (which we now refer to as Genzyme Stock),
Biosurgery Stock and Molecular Oncology Stock. Four lawsuits were filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection
with the elimination of our tracking stocks in July 2003. Each of the lawsuits was a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in the Massachusetts
Superior Court (MSC) in May 2003, alleged 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 sought an injunction to adjust the exchange ratio for the tracking stock exchange. The MSC dismissed the complaint in its entirety in November 2003. Upon appeal, the Massachusetts
Appeals Court upheld the dismissal by the MSC of the fiduciary duty claim, but reversed the earlier decision to dismiss the implied covenant claim. The Massachusetts Supreme Judicial Court (SJC)
granted our petition for further appellate review. On June 4, 2007, the SJC reversed the Appeals Court's decision and affirmed dismissal of the complaint in its entirety. On July 25,
2007, the SJC denied the plaintiff's petition for rehearing. Two substantially similar cases were filed in the MSC in August and October 2003. These cases were consolidated in
January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in
June 2003. As amended, this complaint alleged violations of federal securities laws, as well as various state law claims, related to the exchange, on behalf of a certified class of holders of
Biosurgery Stock as of May 8, 2003. On August 6, 2007, we reached an agreement-in-principle with counsel for the plaintiff class to settle and dismiss this case
for approximately $64 million. A definitive settlement agreement was approved by the court on October 26, 2007. Because the members
of the class in the New York action released all claims, the settlement has, as a practical matter, resolved the consolidated case in the MSC. We have submitted claims to our insurers for
reimbursement of portions of the expenses incurred and to be incurred in connection with these cases; the insurer has purported to deny coverage. We intend to vigorously pursue our rights with respect
to insurance coverage. As a result, we recorded a liability for the settlement payment of approximately $64 million as a charge to selling, general and administrative expense, or SG&A, in our
consolidated statement of operations in June 2007, which we subsequently paid in August 2007.

We
are not able to predict the outcome of other legal proceedings, to which we may become subject in the normal course of business or estimate the amount or range of any reasonably
possible loss we might incur if we do not prevail in the final, non-appealable determinations of such matters. Therefore, we have no current accruals for these potential contingencies. We
cannot provide you with assurance that other legal proceedings will not have a material adverse impact on our financial condition or results of operations.

13. (Provision for) Benefit from Income Taxes

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006(Amounts in thousands)(Provision for) benefit from income taxes

$
(66,432
)
$
44,530

$
(201,715
)
$
(60,841
)Effective tax rate


29
%

(156
)%

33
%

19
%


24

---



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



Our
effective tax rate for the three and nine months ended September 30, 2006, was also impacted by a charge for impaired goodwill of $219.2 million of which $29.5 million was not
deductible for tax purposes.

Effective
January 1, 2007, we adopted FIN 48 and recognized a cumulative effect adjustment of $33.9 million to increase our retained earnings balance as of
January 1, 2007, which consisted of $25.8 million to record the combined effect of our gain contingency and the change in the recognition standard pursuant to the settlement criteria of
FASB Staff Position, or FSP, FIN 48-1, "Definition ofSettlementin FASB Interpretation No. 48," or FSP FIN 48-1, and
$8.1 million resulting from our settlement of the IRS audit for tax years 2002 to 2003. After these adjustments, as of January 1, 2007, we had approximately $36.5 million of total
gross unrealized tax benefits, of which approximately $26.6 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate
in future periods. These gross unrealized tax benefits did not change significantly during the nine months ended September 30, 2007.

We
continue to recognize interest relating to unrecognized tax benefits within our provision for income taxes but have not recorded any amounts related to potential penalties. The amount
of accrued interest related to unrecognized tax benefits within our provision for income taxes for the three and nine months ended September 30, 2007, and our accrued interest related to
unrecognized tax benefits as of January 1, 2007 and September 30, 2007 were not significant.

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

25

---



14. Segment Information

In accordance with FAS 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent
with the method we use to report this information to our management. Applying FAS 131, we have five reporting segments as described in Note 1., "Description of Business," to these
consolidated financial statements.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006Revenues:Renal

$
184,424

$
160,204

$
522,350

$
446,774Therapeutics


471,351


388,267


1,365,617


1,107,262Transplant


42,881


39,241


127,582


114,719Biosurgery


106,146


93,449


312,428


286,386Genetics


73,050


61,360


212,922


179,853Other


81,841


66,043


234,693


197,674Corporate


466


10


1,169


104Total

$
960,159

$
808,574

$
2,776,761

$
2,332,772Income (loss) before income taxes:Renal

$
75,706

$
52,243

$
201,796

$
126,313Therapeutics(1)


304,376


259,137


870,706


741,124Transplant(2)


(19,902
)

4,809


(33,645
)

15,160Biosurgery(2)


15,526


10,773


41,577


28,021Genetics(3)


4,277


(220,778
)

19,909


(224,995
)Other(4)


(32,330
)

(11,273
)

(51,079
)

(35,253
)Corporate(5)


(121,908
)

(123,475
)

(446,255
)

(338,092
)Total

$
225,745

$
(28,564
)
$
603,009

$
312,278




26

---







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

September 30,
2007

December 31,
2006Segment Assets(1):Renal

$
1,439,908

$
1,380,003Therapeutics


1,221,528


1,094,520Transplant


411,530


410,436Biosurgery


470,765


477,334Genetics


148,311


133,839Other


854,763


851,343Corporate(2)


3,295,496


2,843,713Total

$
7,842,301

$
7,191,188




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

September 30,
2007

December 31,
2006Cash, cash equivalents, short- and long-term investments

$
1,449,548

$
1,285,604Deferred tax assets, net


210,015


136,925Property, plant & equipment, net


1,180,890


1,036,182Investments in equity securities


107,734


66,563Other


347,309


318,439Total

$
3,295,496

$
2,843,713


27

---



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

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

INTRODUCTION

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



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

MERGERS AND ACQUISITIONS

Pending Acquisition of the Diagnostics Division of Diagnostic Chemicals Limited

On November 2, 2007, we entered into an agreement with DCL, a privately-held diagnostics and biopharmaceutical company based in Charlottetown,
Prince Edward Island, Canada, to acquire DCL's diagnostics division, including DCL's line of over 50 formulated clinical chemistry reagents and its diagnostics operations
in Prince Edward Island, Canada and Connecticut, for an aggregate purchase price of approximately $53 million Canadian dollars, or approximately $57 million U.S. dollars (based

28

---



on
the November 2, 2007 spot rate for the Canadian dollar), in cash. We expect to close the transaction in December 2007.

Acquisition of Bioenvision

On May 29, 2007, we entered into an agreement and plan of merger with Bioenvision, a publicly-traded biopharmaceutical company based in New York City and
Edinburgh, Scotland, and Wichita Bio Corporation, one of our wholly-owned subsidiaries, to acquire Bioenvision in an all-cash transaction valued at $11.20 per outstanding share of
Bioenvision Series A Preferred Stock (plus accrued but unpaid dividends) and $5.60 per outstanding share of Bioenvision Common Stock, or approximately $345 million in aggregate.
Bioenvision is focused on the acquisition, development and marketing of compounds and technologies for the treatment of cancer, autoimmune disease and infection. Effective October 23, 2007, we
completed the acquisition of Bioenvision. This acquisition was completed through a two step process consisting of a tender offer completed in July 2007, and a merger approved in
October 2007.

The
acquisition of Bioenvision provides us with the exclusive, worldwide rights to clofarabine. We currently market clofarabine in the United States and Canada under the brand name
Clolar for relapsed and refractory pediatric ALL patients. In Europe, we co-developed clofarabine with Bioenvision and Bioenvision has been marketing the product under the brand name
Evoltra, also for the treatment of relapsed and refractory pediatric ALL patients. We and Bioenvision have been developing clofarabine for diseases with significantly larger patient populations,
including use as a first-line therapy for the treatment of adult acute myeloid leukemia, or AML. Clofarabine has been granted orphan drug status for ALL and AML in both the United States
and European Union.



On July 10, 2007, we completed the tender offer and purchased 2,250,000 shares of Bioenvision Series A Preferred Stock for $25.2 million,
which we recorded as a component of investments in equity securities, and 8,398,098 shares of Bioenvision Common Stock for $47.0 million, which we recorded as a component of other noncurrent
assets in our consolidated balance sheet. As a result of the tender offer, we acquired approximately 22% of the then outstanding shares of Bioenvision Common Stock on an as-converted
basis, including 100% of the outstanding Bioenvision Series A Preferred Stock.

We
accounted for our investments in Bioenvision Series A Preferred Stock and Bioenvision Common Stock using two different methods. In the third quarter of 2007, we accounted for
our investment in Bioenvision Series A Preferred Stock under the cost method of accounting because these shares did not qualify as similar or substantially similar to common stock
(in-substance common stock) under the guidance of EITF Issue No. 02-14, "Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in
Voting Stock of an Investee but Exercises Significant Influence through Other Means." Our initial investments in Bioenvision Common Stock and Bioenvision Series A Preferred Stock gave us
significant influence over Bioenvision and, as a result, we accounted for our investment in Bioenvision Common Stock under the equity method of accounting. Accordingly, in July 2007, we
recorded our initial $47.0 million investment in Bioenvision Common Stock as a single amount in other noncurrent assets in our consolidated balance sheet. Of this amount, we attributed
$7.1 million to our 15% proportional share of the assets and liabilities of Bioenvision and $39.9 million, representing the excess of the purchase price over our proportional share of
the net assets of Bioenvision, to the underlying intangible assets, IPR&D and goodwill based on their fair values, including $16.8 million, net of tax, to intangible assets,
$19.1 million to IPR&D and $4.0 million to goodwill. Equity in income (loss) of equity method investments for the three and nine months ended September 30, 2007, reflects a total
of $20.5 million of charges related to our initial investment in Bioenvision Common Stock, including a $19.1 million charge for IPR&D and a total of $1.4 million of charges for
the period from July 10, 2007 through September 30, 2007, of which $1.0 million represents

29

---



our
portion of the losses of Bioenvision for that period and $0.4 million represents amortization expense, net of tax, related to the value assigned to technology and other intangible assets.
As of September 30, 2007, other noncurrent assets in our consolidated balance sheet includes a net balance of $26.5 million for our initial investment in Bioenvision Common Stock,
consisting of the $47.0 million cash consideration we paid, which was offset by the $20.5 million of charges described above.



On October 22, 2007, a special meeting of the Bioenvision stockholders was held to seek approval for the merger. Holders of a majority of the issued and
outstanding shares of Bioenvision Common Stock and Bioenvision Series A Preferred Stock, voting together as a single class on an as converted basis, approved the merger. On October 23,
2007, we paid approximately $245 million in cash consideration to the former Bioenvision stockholders and Bioenvision Common Stock ceased trading and was delisted from NASDAQ. In the fourth
quarter of 2007, we will pay approximately $11 million of cash for the outstanding options to purchase shares of Bioenvision Common Stock. The full purchase accounting for our acquisition of
Bioenvision, including the impact of our merger in October 2007, will be reflected in our consolidated financial statements as of December 31, 2007 and for the year ended
December 31, 2007.

In
connection with the merger, holders of 2,880,000 shares of Bioenvision Common Stock, representing less than 5% of the outstanding shares of Bioenvision Common Stock on an as-converted
basis immediately before the merger became effective, submitted written demands for appraisal of their shares and have, as a result, elected not to accept the $5.60 per share merger consideration. We
refer to these stockholders as dissenting stockholders.

Acquisition of AnorMED

In November 2006, we acquired AnorMED, a publicly-traded chemical-based biopharmaceutical company based in Langley, British Columbia, Canada, with a focus
on the discovery, development and commercialization of new therapeutic products in the area of hematology, oncology and human immunodeficiency virus, or HIV. We paid gross consideration of
$589.2 million in cash, including $584.2 million for the shares of AnorMED's common stock outstanding on the date of acquisition and $5.0 million for acquisition costs. Net
consideration was $569.0 million as we acquired AnorMED's cash and cash equivalents totaling $20.2 million. As part of the transaction, we acquired Mozobil, a late-stage
product candidate in development for hematopoietic stem cell transplantation, which we have added to our Transplant business. Multiple early studies showed that Mozobil rapidly increases the number of
stem cells that move out of the bone marrow and into a patient's blood, which is an important step in preparing a patient for a stem cell transplant. On July 19, 2007, we announced the
successful completion of a phase 3 clinical trial of Mozobil in treating non-Hodgkin's lymphoma and on August 2, 2007, we announced the successful completion of a second phase 3
clinical trial of Mozobil in treating multiple myeloma. The trials met their respective primary and secondary endpoints. We accounted for the acquisition as a business combination and accordingly, we
included AnorMED's results of operations in our consolidated statements of operations from November 7, 2006, the date of acquisition.

The
purchase price, as adjusted, was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The
excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $31.7 million, which was allocated to goodwill. We expect that
substantially all of the amount allocated to goodwill will be deductible for tax purposes. The allocation of the purchase price remains subject to potential adjustments, including adjustments for
liabilities associated with certain exit activities and tax restructuring activities.

30

---



CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Our critical accounting policies and significant judgments and estimates are set forth under the heading "Management's Discussion and Analysis of Genzyme
Corporation and Subsidiaries' Financial Condition and Results of OperationsCritical Accounting Policies and Significant Judgments and Estimates" in Exhibit 13 to our 2006
Form 10-K. Additional information regarding significant judgments, estimates and updates to our policies for Revenue Recognition, Income Taxes and Inventories are included below.
Excluding these additional disclosures, there have been no significant changes to our other critical accounting policies or significant judgments and estimates since December 31, 2006.

Revenue Recognition

Product Sales

The timing of product shipments and receipts by the customer can have a significant impact on the amount of revenue recognized in a particular period. A
significant portion of our products are sold at least in part through wholesalers and specialty distributors, along with direct sales to hospitals, homecare providers, government agencies and
physicians. Consequently, our net sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of our major distributors and other trade buyers, which may result from
seasonality, pricing, wholesaler buying decisions or other factors. Inventory in the distribution channel consists of inventory held by wholesalers and specialty distributors, who are our customers,
and inventory held by their retail customers, such as pharmacies and hospitals. Our revenue in a particular period can be impacted by increases or decreases in channel inventories. Significant
increases in wholesaler or retail inventories could result in reduced purchases in
subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand or product expiration.

We
use a variety of data sources to determine the amount of inventory in the distribution channel. For most product lines, we receive data on sales and inventory levels directly from our
primary customers. For key product lines in our Renal and Therapeutics areas, our data sources also include prescription and wholesaler data purchased from external data providers. As part of our
efforts to limit the amount of Renal and Therapeutics inventory held by distributors and to gain improved visibility into the distribution channel, we have executed agreements to limit the amounts of
inventory they carry and to provide us ongoing reports to verify distributor inventory levels and sales data.

Product Sales Allowances

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

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



31

---





Our
provisions for product sales allowances reduced gross product sales as follows:

|                                                                         |                         | Three Months Ended
September 30, |         |        |         | Nine Months Ended September 30, |        |        |    
|------------------------------------------------------------------------ | ----------------------- | -------------------------------- | ------- | ------ | ------- | ------------------------------- | ------ | ------ | ---
|
|
|
|Product sales allowances:                                                |                         |                                  |         |        |         |                                 |        |        |    
|                                                                         | Contractual adjustments |                                  | $       | 66,931 |         | $                               | 49,661 |        | 35 
|                                                                         | Discounts               |                                  |         | 45,065 |         |                                 | 33,384 |        | 35 
|                                                                         | Sales returns           |                                  |         | 1,827  |         |                                 | 2,570  |        | (29
|                                                                         |                         |                                  |         |        |         |                                 |        |        |    
|                                                                         |                         | Total product sales allowances   |         | $      | 113,823 |                                 | $      | 85,615 |    
|                                                                         |                         |                                  |         |        |         |                                 |        |        |    
|Total gross product sales                                                |                         | $                                | 981,505 |        | $       | 819,846                         |        | 20     | %  
|                                                                         |                         |                                  |         |        |         |                                 |        |        |    
|Total product sales allowances as a percent of total gross product sales |                         |                                  | 12      | %      |         | 10                              | %      |        |    

Product
sales allowances for contractual adjustments and discounts increased for the three and nine months ended September 30, 2007, as compared to the same periods of 2006,
primarily due to growth in overall gross product sales.

Total
estimated product sales allowance reserves and accruals in our consolidated balance sheets, increased 23% to approximately $159 million as of September 30, 2007, as
compared to approximately $129 million as of December 31, 2006, primarily due to increased product sales. Historically, our actual results have not differed materially from amounts
estimated. The annual variation has been less than 0.5% of total product sales for each of the last three years.

32

---



Distributor Fees

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



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

|                  |                                                                                  | Three Months Ended
September 30, |   | Nine Months Ended
September 30,
|----------------- | -------------------------------------------------------------------------------- | -------------------------------- | - | -------------------------------
|
|
|Distributor fees: |                                                                                  |                                  |   |                                
|                  | Included in contractual adjustments and recorded as a reduction to product sales |                                  | $ | 2,948                          
|                  | Charged to SG&A                                                                  |                                  |   | 3,210                          
|                  |                                                                                  |                                  |   |                                
|                  |                                                                                  | Total distributor fees           |   | $                              
|                  |                                                                                  |                                  |   |                                

Income Taxes

Effective January 1, 2007, we adopted the provisions of FIN 48, which clarifies the accounting for income tax positions by prescribing a minimum
recognition threshold that a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on the derecognition of previously recognized deferred
tax items, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under FIN 48, we recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. The tax benefits recognized in our
financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

We
operate in numerous countries where our income tax returns are subject to audit and adjustment by local tax authorities. Because we operate globally, the nature of the uncertain tax
positions is often very complex and subject to change and the amounts at issue can be substantial. We develop our cumulative probability assessment of the measurement of uncertain tax positions using
internal expertise, experience, judgment and assistance from professional advisors. Estimates are refined as additional information becomes known. Any outcome upon settlement that differs from our
current estimate may result in additional or lower tax expense in future periods.

As
of January 1, 2007, we had approximately $36.5 million of total gross unrealized tax benefits, of which approximately $26.6 million represents the amount of
unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate in future periods. These gross unrealized tax benefits did not change significantly during the nine
months ended September 30, 2007.

We
continue to recognize interest related to unrecognized tax benefits within our provision for income taxes but have not recorded any amounts related to potential penalties. The amount
of accrued interest related to unrecognized tax benefits included in our provision for income taxes for the three and nine months ended September 30, 2007, and our accrued interest related to
unrecognized tax benefits as of January 1, 2007 and September 30, 2007, were not significant.

33

---



Inventories

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

We
capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval. In no event is inventory capitalized prior to the
completion of a phase 3 clinical trial. If a product is not approved for sale, it would result in the write off of the inventory and a charge to earnings. Our total inventories at September 30,
2007 included $17.4 million of inventory for Renvela that had not yet been approved for sale. On October 22, 2007, the FDA granted marketing approval for Renvela.

As
of June 30, 2007, we had placed four lots of Thymoglobulin finished goods inventory, valued at $11.8 million, under review pending investigation and resolution of out of
trend assay results we observed during quality testing. In September 2007, we determined that these lots did not meet our specifications for saleable product and recorded a charge of
$11.8 million to cost of products sold to write off the inventory for these lots. Currently, we have three additional finished lots of Thymoglobulin, valued at approximately $8 million,
which are under review to determine whether they meet product specifications. If we determine that any of those lots do not meet the specifications for saleable product, we will write off that
inventory as a charge to earnings. Even with the four finished lots of Thymoglobulin that have been written off and the possibility of lots under review being written off, we currently expect to be
able to meet projected market demand. We will continue to closely monitor our inventory levels and intend to manage production in order to maintain adequate supply levels in 2008.

A.    RESULTS OF OPERATIONS

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

REVENUES

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

|                                 |                                   | Three Months Ended
September 30, |         |         |   | Nine Months Ended September 30, |         |      |   
|-------------------------------- | --------------------------------- | -------------------------------- | ------- | ------- | - | ------------------------------- | ------- | ---- | --
|
|
|
|Product revenue                  |                                   | $                                | 867,682 |         | $ | 734,231                         |         | 18   | % 
|Service revenue                  |                                   |                                  | 83,177  |         |   | 71,153                          |         | 17   | % 
|                                 |                                   |                                  |         |         |   |                                 |         |      |   
|                                 | Total product and service revenue |                                  |         | 950,859 |   |                                 | 805,384 |      | 18
|Research and development revenue |                                   |                                  | 9,300   |         |   | 3,190                           |         | >100 | % 
|                                 |                                   |                                  |         |         |   |                                 |         |      |   
|                                 | Total revenues                    |                                  | $       | 960,159 |   | $                               | 808,574 |      | 19
|                                 |                                   |                                  |         |         |   |                                 |         |      |   

Product Revenue

We derive product revenue from sales of:



34

---





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

|                      |                                             | Three Months Ended
September 30, |        |         |         | Nine Months Ended
September 30, |         |         |     
|--------------------- | ------------------------------------------- | -------------------------------- | ------ | ------- | ------- | ------------------------------- | ------- | ------- | ----
|
|
|
|Renal:                |                                             |                                  |        |         |         |                                 |         |         |     
|                      | Renagel (including sales of bulk sevelamer) |                                  | $      | 154,159 |         | $                               | 134,722 |         | 14  
|                      | Hectorol                                    |                                  |        | 30,265  |         |                                 | 25,482  |         | 19  
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total Renal                      |        |         | 184,424 |                                 |         | 160,204 |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|Therapeutics:         |                                             |                                  |        |         |         |                                 |         |         |     
|                      | Cerezyme                                    |                                  |        | 286,071 |         |                                 | 252,227 |         | 13  
|                      | Fabrazyme                                   |                                  |        | 104,610 |         |                                 | 93,170  |         | 12  
|                      | Thyrogen                                    |                                  |        | 26,828  |         |                                 | 22,396  |         | 20  
|                      | Myozyme                                     |                                  |        | 53,568  |         |                                 | 20,402  |         | >100
|                      | Other Therapeutics                          |                                  |        | 153     |         |                                 | 72      |         | >100
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total Therapeutics               |        |         | 471,230 |                                 |         | 388,267 |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|Transplant:           |                                             |                                  |        |         |         |                                 |         |         |     
|                      | Thymoglobulin/ Lymphoglobuline              |                                  |        | 41,036  |         |                                 | 37,619  |         | 9   
|                      | Other Transplant                            |                                  |        | 1,845   |         |                                 | 1,622   |         | 14  
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total Transplant                 |        |         | 42,881  |                                 |         | 39,241  |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|Biosurgery:           |                                             |                                  |        |         |         |                                 |         |         |     
|                      | Synvisc                                     |                                  |        | 61,175  |         |                                 | 55,929  |         | 9   
|                      | Sepra products                              |                                  |        | 26,381  |         |                                 | 21,054  |         | 25  
|                      | Other Biosurgery                            |                                  |        | 7,107   |         |                                 | 7,067   |         | 1   
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total Biosurgery                 |        |         | 94,663  |                                 |         | 84,050  |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|Other product revenue |                                             |                                  | 74,484 |         |         | 62,469                          |         | 19      | %   
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total product revenues           |        | $       | 867,682 |                                 | $       | 734,231 |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     

35

---



Renal

Sales of Renagel, including sales of bulk sevelamer, increased 14% to $154.2 million for the three months ended September 30, 2007, as compared to the same period
of 2006. Renagel price increases in the United States in December 2006 and April 2007 accounted for $9.5 million of the additional revenue while increased end-user demand worldwide accounted
for $9.9 million of additional revenue. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar for the three months ended September 30,
2007, as compared to the same period of 2006, positively impacted Renagel revenue by $3.7 million. Sales of Renagel, including sales of bulk sevelamer, were 16% of our total revenue for the three
months ended September 30, 2007, compared to 17% of our total revenue for the same period of 2006.

Sales
of Renagel, including sales of bulk sevelamer, increased 15% to $436.5 million for the nine months ended September 30, 2007, as compared to the same period of 2006.
Price increases for Renagel in the United States in December 2006 and April 2007 accounted for $25.1 million of additional revenue, while increased end-user demand worldwide accounted for
$31.4 million of the additional revenue. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar for the nine months ended
September 30, 2007, as compared to the same period of 2006, positively impacted Renagel revenue by $10.8 million. Sales of Renagel, including sales of bulk sevelamer, were 16% of our
total revenue for both the nine months ended September 30, 2007 and 2006.

Hectorol,
used to treat secondary hyperparathyroidism in patients on dialysis and those with CKD, is sold to nephrologists in the United States. Sales of Hectorol increased 19% to
$30.3 million for the
three months ended and increased 29% to $85.9 million for the nine months ended September 30, 2007, as compared to $25.5 million for the three months ended and
$66.8 million for the nine months ended September 30, 2006, primarily due to price increases for the 0.5 and 2.5 microgram tablets in July and December 2006 and a price increase
for Hectorol IV in April 2006, as well as higher end-user demand during both periods.

We
expect sales of Renagel and Hectorol to continue to increase, driven primarily by growing patient access to these products, including through the Medicare Part D program in the
United States, and the continued adoption of the products by nephrologists worldwide. We expect adoption rates for Renagel to trend favorably as a result of our DCOR trial and the growing acceptance
of the National Kidney Foundation's 2003 Kidney Disease Outcome Quality Initiative, or K/DOQI, Guidelines for Bone Metabolism and Disease in CKD and the RIND study. Renagel and Hectorol compete with
several other products and our future sales may be impacted negatively by these products. We discuss some of these competitors under the heading "Risk FactorsOur future success will
depend on our ability to effectively develop and market our products and services against those of our competitors," included in this report. In addition, our ability to continue to increase sales of
Renagel and Hectorol will depend on many other factors, including our ability to optimize dosing and improve patient compliance with Renagel dosing, the availability of reimbursement from third-party
payors and the extent of coverage, including under the Medicare Part D program. Also, the accuracy of our estimates of fluctuations in the payor mix and our ability to effectively manage
wholesaler inventories and the levels of compliance with the inventory management programs we implemented for Renagel and Hectorol with our wholesalers, could impact the revenue from our Renal
reporting segment that we record from period to period.

On
October 22, 2007, the FDA granted marketing approval for Renvela, a second-generation buffered form of Renagel for the control of serum phosphorus in patients with CKD on
dialysis. We expect to launch Renvela for dialysis patients in the United States during the first quarter of 2008 and are pursuing regulatory approvals in Europe, South America and in other markets
internationally. We will continue to make Renagel available, with the long-term goal of transitioning patients to Renvela.

36

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We
expect Renvela will enable us to expand the market for our phosphate binder by reaching patients with CKD who have not progressed to dialysis. In October 2007, an FDA advisory
committee voted to recommend that the agency extend the indications for phosphate binders to include pre-dialysis patients with hyperphosphatemia. During the first half of 2008, we plan to
file a supplemental New Drug Application with the FDA seeking approval of Renvela for hyperphosphatemic patients with CKD who are not on dialysis. In addition, we expect to file for approval of a
powder form of Renvela that may make it easier for patients to comply with their prescribed treatment program.

Therapeutics

Therapeutics product revenue increased 21% to $471.2 million for the three months ended and 23% to $1.4 billion for the nine months ended
September 30, 2007, as compared to the same periods of 2006, due to continued growth in sales of Cerezyme, Fabrazyme and Thyrogen and to the launch of Myozyme in the European Union, the United
States and Canada in 2006.

The
13% growth in sales of Cerezyme to $286.1 million for the three months ended and 12% growth in sales to $832.8 million for the nine months ended September 30,
2007, as compared to the same periods of 2006, is attributable to our continued identification of new Gaucher disease patients, particularly in international markets. Through October 2007, our price
for Cerezyme has remained consistent from period to period. However, effective November 1, 2007, we implemented a 3% price increase for Cerezyme. Although we expect Cerezyme to continue to be a
substantial contributor to revenues in the future, it is a mature product, and as a result, we do not expect that the current new patient growth trend will continue. The strengthening of foreign
currencies, primarily the Euro and British pound sterling, against the U.S. dollar positively impacted Cerezyme revenue by $8.4 million for the three months ended and by
$25.0 million for the nine months ended September 30, 2007, as compared to the same periods of 2006.

Our
results of operations are highly dependent on sales of Cerezyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Sales of
Cerezyme were approximately 30% of our total revenue for the three months ended September 30, 2007, as compared to 31% for the same period of 2006, and 30% of our total revenue for the nine
months ended September 30, 2007, as compared to 32% for the same period of 2006. 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 coverage, pricing or reimbursement is limited. Although orphan drug status for
Cerezyme, which provided us with exclusive marketing rights for Cerezyme in the United States for seven years, 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 developed or have initiated efforts to
develop competitive products, and other companies may do so in the future. We discuss these competitors under the heading "Risk FactorsOur future success will depend on our ability to
effectively develop and market our products and services against those of our competitors," in this report.

The
12% increase to $104.6 million for the three months ended and the 18% increase to $309.6 million for the nine months ended September 30, 2007 in sales of
Fabrazyme, as compared to the same periods of 2006, is primarily attributable to increased patient identification worldwide as Fabrazyme is introduced into new markets. The strengthening of foreign
currencies, primarily the Euro and British pound sterling, against the U.S. dollar positively impacted Fabrazyme revenue by $2.9 million for the three months ended and by $8.3 million
for the nine months ended September 30, 2007, as compared to the same periods of 2006.

37

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Sales
of Thyrogen increased 20% to $26.8 million for the three months ended and 20% to $82.7 million for the nine months ended September 30, 2007, as compared to the
same periods of 2006, due to worldwide volume growth which impacted sales by $2.7 million in the three month period and $11.5 million in the nine month period. The strengthening of
foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar did not have a material impact on Thyrogen revenue for the three months ended but positively impacted
Thyrogen revenue by $2.0 million for the nine months ended September 30, 2007, as compared to the same periods of 2006. We expect to receive FDA approval for the use of Thyrogen in
thyroid cancer remnant ablation procedures by the end of 2007.

Sales
of Myozyme were $53.6 million for the three months ended and $138.2 million for the nine months ended September 30, 2007, as compared to $20.4 million
for the three months ended and $29.0 million for the nine months ended September 30, 2006. In March 2006, we received marketing authorization for Myozyme in the European Union. In
April 2006, the FDA granted marketing approval for Myozyme in the United States. We launched Myozyme in the United States in May 2006, in Europe a month later and in Canada in
September 2006. We are introducing Myozyme on a country-by-country basis in the European Union, as pricing and reimbursement approvals are obtained. Myozyme has received
orphan drug designation in the United States, which provides seven years of market exclusivity, and in the European Union, which provides ten years of market exclusivity. In April 2007, Myozyme
was approved for commercial sale in Japan and in June 2007 we launched the product after we received reimbursement approval. We expect to file for approval in several additional countries in
2007. The 8% increase in the Euro against the U.S. dollar for the three months ended September 30, 2007, as compared to the same period of 2006, positively impacted Myozyme revenue by
$1.2 million. The 8% increase in the Euro against the U.S. dollar for the nine months ended September 30, 2007, as compared to the same period of 2006, positively impacted Myozyme
revenue by $1.7 million. The positive impact of the increase in the Euro against the U.S. dollar on Myozyme revenue for both the three and nine months ended September 30, 2007, is driven
by the growth in sales volume of Myozyme in Europe, in each such period, as compared to the same periods of 2006.

We
currently manufacture Myozyme in the United States and have begun Myozyme fill-finish at our facility in Waterford, Ireland. We expect to commence Myozyme engineering runs
at our protein manufacturing facility in Geel, Belgium later this year. In addition, in October 2007, we submitted an application to the FDA seeking approval of a larger-scale manufacturing process,
based in Allston, Massachusetts, to enable us to meet the expected demand for Myozyme in the U.S. market going forward. We currently anticipate a decision from the FDA on the
application for our larger-scale manufacturing process in the first quarter of 2008. In the meantime, we are continuing our efforts to optimize supply for the U.S. market, including temporarily
transitioning some patients to a clinical access program through which they may receive Myozyme until the FDA approves the larger-scale manufacturing process. Production at this larger scale is
already approved in 33 countries. We discuss the risks involved in manufacturing Myozyme and other products under the heading "Risk FactorsManufacturing problems may cause product launch
delays, inventory shortages, recalls and unanticipated costs," in this report.

Transplant

Transplant product revenue increased 9% to $42.9 million for the three months ended and 11% to $127.4 million for the nine months ended
September 30, 2007, as compared to the same periods of 2006. The increases are primarily due to a $5.6 million increase for the three month period and an $11.9 million increase
for the nine month period in sales of Thymoglobulin as a result of its increased utilization in transplant procedures worldwide.

We
received a warning letter from the FDA on September 19, 2007 that addresses certain of our manufacturing procedures in our Thymoglobulin production facility in Lyon, France. There is
no

38

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current
impact to product supply as a result of the FDA warning letter and we are in ongoing discussions with the FDA to resolve the issues described in the letter.

Additionally,
we determined that four lots of Thymoglobulin finished goods inventory did not meet our internal specifications for saleable product which caused those lots to be written
off. Currently, we have three additional finished lots of Thymoglobulin, valued at approximately $8 million, which are under review to determine whether they meet product specifications. If we
determine that any of those lots do not meet the specifications for saleable product, we will write off that inventory as a charge to earnings. Even with the four finished lots of Thymoglobulin that
have been written off and the possibility of lots under review being written off, we currently expect to be able to meet projected market demand. We will continue to closely monitor our inventory
levels and intend to manage production to maintain adequate supply levels in 2008.

We
discuss the risks involved in manufacturing Thymoglobulin and our other products under the heading "Risk FactorsManufacturing problems may cause product launch delays,
inventory shortages, recalls and unanticipated costs," in this report.

Biosurgery

Biosurgery product revenue increased 13% to $94.7 million for the three months ended and increased 9% to $280.3 million for the nine months ended
September 30, 2007, as compared to the same periods of 2006. There was a $5.5 million increase for the three month period and a $13.5 million increase for the nine month period,
in sales of Seprafilm primarily due to greater penetration into the United States, Japanese and European markets.

Synvisc
sales increased $5.2 million for the three months ended and $6.9 million for the nine months ended September 30, 2007, as compared to the same periods of
2006, primarily due to a $2.5 million adjustment recorded in September 2007 to accruals related to our reacquisition of the sales and marketing rights to Synvisc in January 2005. Currently,
Synvisc is delivered through three injections administered at one-week intervals. In November 2006 we completed a pivotal trial evaluating Synvisc-One, a
single-injection regimen of Synvisc, which showed that patients who received a single-injection regimen of Synvisc achieved a statistically significant improvement in the pain caused by osteoarthritis
of the knee in 26 weeks compared to those using placebo. We filed for marketing approval of Synvisc-One in the United States in June 2007 and in the European Union in July 2007. We
anticipate receiving U.S. and European regulatory action this year on our marketing applications. The clinical advantages of Synvisc-One have the potential to expand the market for
Synvisc.

We
are aware of several products that compete with Synvisc, several companies that have initiated efforts to develop competitive products and several companies that market products
designed to relieve the pain of osteoarthritis. We discuss some of these competitors under the heading "Risk FactorsOur future success will depend on our ability to effectively develop
and market our products and services against those of our competitors," included in this report.

39

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Other Product Revenue

Other product revenue increased 19% to $74.5 million for the three months ended and 17% to $216.9 million for the nine months ended
September 30, 2007, as compared to the same periods of 2006, primarily due to:



In
September 2007, the FDA approved expanded labeling for Campath to include first-line treatment of patients with B-cell chronic lymphocytic leukemia,
significantly increasing the number of patients eligible to receive the product. We expect to receive European approval for an expanded indication by the end of 2007, following the positive opinion
issued in October 2007 by the Committee for Medicinal Products for Human Use.

In
October 2007, we obtained European Union marketing approval for and subsequently launched Cholestagel in Europe. Cholestagel is a new, non-absorbed, cholesterol-lowering
agent aimed at treating patients with primary hypercholesterolemia who cannot meet their targeted cholesterol levels with standard therapies alone.

Service Revenue

We derive service revenue primarily from the following sources:



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

|           |                       | Three Months Ended
September 30, |        |        |   | Nine Months Ended
September 30, |        |     |   
|---------- | --------------------- | -------------------------------- | ------ | ------ | - | ------------------------------- | ------ | --- | --
|
|
|
|Biosurgery |                       | $                                | 9,786  |        | $ | 9,399                           |        | 4   | % 
|Genetics   |                       |                                  | 73,050 |        |   | 61,360                          |        | 19  | % 
|Other      |                       |                                  | 341    |        |   | 394                             |        | (13 | )%
|           |                       |                                  |        |        |   |                                 |        |     |   
|           | Total service revenue |                                  | $      | 83,177 |   | $                               | 71,153 |     | 17
|           |                       |                                  |        |        |   |                                 |        |     |   

Service
revenue attributable to our Biosurgery segment increased 4% to $9.8 million for the three months ended September 30, 2007, as compared to the same period of 2006.
The increase is primarily due to higher demand for Carticel, offset, in part, by a decline in sales of Epicel due to a decrease in patients requesting this service.

40

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Service
revenue attributable to our Biosurgery segment decreased 8% to $27.5 million for the nine months ended September 30, 2007, as compared to the same period of 2006 as
a result of a decline in the sales of Epicel due to a decrease in patients requesting this service.

Service
revenue attributable to our Genetics reporting segment increased 19% to $73.1 million for the three months ended and 18% to $212.9 million for the nine months ended
September 30, 2007, as compared to the same periods of 2006. These increases were primarily attributable to continued growth in sales of DNA and cancer testing services as well as growth in the
prenatal screening and diagnosis market.

International Product and Service Revenue

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

|                                          |  | Three Months Ended
September 30, |         |  |   | Nine Months Ended
September 30, |  |    
|----------------------------------------- |  | -------------------------------- | ------- |  | - | ------------------------------- |  | ---
|
|
|
|International product and service revenue |  | $                                | 451,881 |  | $ | 375,211                         |  | 20%
|% of total product and service revenue    |  |                                  | 48%     |  |   | 47%                             |  |    

The
20% increase to $451.9 million for the three months ended and the 23% increase to $1.3 billion for the nine months ended September 30, 2007, in international
product and service revenue, as compared to the same periods of 2006, is primarily due to a $71.5 million increase for the three month period and a $284.7 million increase for the nine
month period, in the combined international sales of Renagel, Cerezyme, Fabrazyme and Myozyme primarily due to an increase in the number of patients using these products in the European Union and the
Asia-Pacific rim.

The
strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar positively impacted total product and service revenue by
$19.8 million for the three months ended and $57.5 million for the nine months ended September 30, 2007, as compared to the same periods of 2006.

Research and Development Revenue

The following table sets forth our research and development revenue on a segment basis:

|             |                                        | Three Months Ended
September 30, |       |       |   | Nine Months Ended
September 30, |       |      |     
|------------ | -------------------------------------- | -------------------------------- | ----- | ----- | - | ------------------------------- | ----- | ---- | ----
|
|
|
|Therapeutics |                                        | $                                | 121   |       | $ |                                |       | N/A  |     
|Transplant   |                                        |                                  |      |       |   |                                |       | N/A  |     
|Biosurgery   |                                        |                                  | 1,697 |       |   |                                |       | N/A  |     
|Other        |                                        |                                  | 7,016 |       |   | 3,180                           |       | >100 | %   
|Corporate    |                                        |                                  | 466   |       |   | 10                              |       | >100 | %   
|             |                                        |                                  |       |       |   |                                 |       |      |     
|             | Total research and development revenue |                                  | $     | 9,300 |   | $                               | 3,190 |      | >100
|             |                                        |                                  |       |       |   |                                 |       |      |     

41

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Total
research and development revenue increased $6.1 million for the three months ended and $12.4 million for the nine months ended September 30, 2007, as compared
to the same periods of 2006, primarily due to increases in revenue recognized by our Biosurgery reporting segment and Other research and development revenue. Biosurgery research and development
revenue primarily represents work done related to dermal filler products as a result of new contracts entered into with Mentor Corporation in September 2006 and February 2007, for which
there were no comparable amounts for the three and nine months ended September 30, 2006. Other research and development revenue includes $2.9 million of revenue for the three months
ended and $8.7 million for the nine months ended September 30, 2007, for research and development work related to alemtuzumab for the treatment of multiple sclerosis that we perform on
behalf of Bayer Schering Pharma AG for which there were no comparable amounts for the same periods of 2006. Other research and development revenue also includes revenue related to our pharmaceuticals
and cardiovascular businesses.

MARGINS

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

|                                       |  | Three Months Ended
September 30, |         |   |   | Nine Months Ended
September 30, |   |    
|-------------------------------------- |  | -------------------------------- | ------- | - | - | ------------------------------- | - | ---
|
|
|
|Product margin                         |  | $                                | 677,207 |   | $ | 600,091                         |   | 13%
|% of total product revenue             |  |                                  | 78      | % |   | 82                              | % |    
|Service margin                         |  | $                                | 29,040  |   | $ | 20,617                          |   | 41%
|% of total service revenue             |  |                                  | 35      | % |   | 29                              | % |    
|Total product and service margin       |  | $                                | 706,247 |   | $ | 620,708                         |   | 14%
|% of total product and service revenue |  |                                  | 74      | % |   | 77                              | % |    

Product Margin

Our overall product margin increased $77.1 million, or 13%, for the three months ended and $281.2 million, or 16%, for the nine months ended
September 30, 2007, as compared to the same periods of 2006. This is primarily due to:



These
increases in product margin were partially offset by a $5.6 million increase in stock-based compensation expenses charged to cost of goods sold for the nine months ended
September 30, 2007, as compared to the same period of 2006. In July 2006, we began amortizing stock-based compensation expense capitalized to inventory based on margin turns.

42

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Total
product margin as a percentage of total product revenue for the three and nine months ended September 30, 2007, decreased as compared to the same periods of 2006, due to the
change in product mix of the lower margin Myozyme and an $11.8 million manufacturing-related charge recorded in September 2007 to write off four finished lots of Thymoglobulin that did not meet
product specifications for saleable product. Three additional finished lots of Thymoglobulin are currently under review to determine whether they meet product specifications.

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

Service Margin

Our overall service margin increased $8.4 million, or 41%, for the three months ended and $22.7 million, or 36%, for the nine months ended
September 30, 2007. This is primarily due to the increases in
revenue recorded from our DNA and cancer testing services as well as the prenatal screening and diagnosis market for the three and nine months ended September 30, 2007.

Total
service margin as a percent of total service revenue increased for the three and nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due
to increased productivity and efficiencies in lab operations for our Genetics reporting segment.

OPERATING EXPENSES

Selling, General and Administrative Expenses

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

|                                             |  | Three Months Ended
September 30, |         |   |   | Nine Months Ended
September 30, |   |    |  
|-------------------------------------------- |  | -------------------------------- | ------- | - | - | ------------------------------- | - | -- | -
|
|
|
|Selling, general and administrative expenses |  | $                                | 270,306 |   | $ | 239,700                         |   | 13 | %
|% of total revenue                           |  |                                  | 28      | % |   | 30                              | % |    |  

SG&A
increased $30.6 million for the three months ended and $135.0 million for the nine months ended September 30, 2007, as compared to the same periods of 2006,
primarily due to spending increases of:



43

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These
increases were partially offset in the nine month period by decreases of:



Research and Development Expenses

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

|                                  |  | Three Months Ended
September 30, |         |   |   | Nine Months Ended
September 30, |   |   |  
|--------------------------------- |  | -------------------------------- | ------- | - | - | ------------------------------- | - | - | -
|
|
|
|Research and development expenses |  | $                                | 175,800 |   | $ | 162,293                         |   | 8 | %
|% of total revenue                |  |                                  | 18      | % |   | 20                              | % |   |  

Research
and development expenses increased $13.5 million for the three months ended and $56.8 million for the nine months ended September 30, 2007, as compared to
the same periods of 2006, primarily due to:



These
increases were partially offset by decreases of:



44

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Amortization of Intangibles

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

|                            |  | Three Months Ended
September 30, |        |   |   | Nine Months Ended
September 30, |   |    |   
|--------------------------- |  | -------------------------------- | ------ | - | - | ------------------------------- | - | -- | --
|
|
|
|Amortization of intangibles |  | $                                | 49,819 |   | $ | 50,542                          |   | (1 | )%
|% of total revenue          |  |                                  | 5      | % |   | 6                               | % |    |   

Amortization
of intangibles expense decreased by $0.7 million for the three months ended and $6.8 million for the nine months ended September 30, 2007, as compared
to the same periods of 2006, primarily due to $23.7 million of customer lists related to our acquisition of Bone Care in July 2005, which became fully amortized in the first quarter of
2007.

As
discussed in Note 7., "Goodwill and Other Intangible Assets," to our financial statements included in this report, we calculate amortization expense for the Synvisc sales and
marketing rights we reacquired from Wyeth and the Myozyme patent and technology rights acquired pursuant to a licensing agreement with Synpac by taking into account forecasted future sales of Synvisc
and Myozyme, respectively, and the resulting future contingent payments we will be required to make to Wyeth and Synpac. As a result, we expect amortization of intangibles to fluctuate over the next
five years based on these future contingent payments.

Charge for Impaired Goodwill

We are required to perform impairment tests related to our goodwill under FAS 142 annually and whenever events or changes in circumstances suggest that the
carrying value of an asset may not be recoverable. We completed the required annual impairment tests for our $1.3 billion of net goodwill in the third quarter of 2007 and determined that no
impairment charges were required.

As
a result of the required annual impairment tests we performed on our $1.5 billion of net goodwill in the third quarter of 2006, we determined that the $219.2 million of
goodwill assigned to our Genetics reporting unit was fully impaired and we recorded a pre-tax impairment charge of $219.2 million and $69.8 million of related tax benefits in
September 2006.

Purchase of In-Process Research and Development

In connection with five of our acquisitions completed between January 1, 2004 and September 30, 2007, we have acquired various IPR&D projects.
Substantial additional research and development costs 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 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

45

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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 technological 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.

The
following table sets forth IPR&D projects for companies and certain assets we have acquired between January 1, 2004 and September 30, 2007 (amounts in millions):

|Company/Assets Acquired    |  | Purchase
Price |         | IPR&D(1) |   | Programs Acquired |  | Discount Rate
Used in
Estimating
Cash Flows(1) |  | Year of
Expected
Launch |  | Estimated
Cost to
Complete
|-------------------------- |  | -------------- | ------- | -------- | - | ----------------- |  | ---------------------------------------------- |  | ----------------------- |  | --------------------------
|AnorMED (2006)             |  | $              | 589.2   |          | $ | 526.8             |  | Mozobil (stem cell transplant)                 |  | 15%                     |  | 2009-2014                 
|                           |  |                |         |          |   | 26.1              |  | AMD070 (HIV)(2)                                |  | 15%                     |  |                          
|                           |  |                |         |          |   |                   |  |                                                |  |                         |  |                           
|                           |  |                |         |          | $ | 552.9             |  |                                                |  |                         |  |                           
|                           |  |                |         |          |   |                   |  |                                                |  |                         |  |                           
|Avigen, Inc. (2005)        |  | $              | 12.0    |          | $ | 7.0               |  | AV201 (Parkinson's disease)                    |  | N/A                     |  | 2016                      
|                           |  |                |         |          |   |                   |  |                                                |  |                         |  |                           
|Bone Care (2005)           |  | $              | 712.3   |          | $ | 12.7              |  | LR-103 (secondary hyperparathyroidism)(3)      |  | 25%                     |  |                          
|                           |  |                |         |          |   |                   |  |                                                |  |                         |  |                           
|Verigen (2005)             |  | $              | 12.7    |          | $ | 9.5               |  | MACI (cartilage repair)                        |  | 24%                     |  | 2012-2014                 
|                           |  |                |         |          |   |                   |  |                                                |  |                         |  |                           
|ILEX Oncology, Inc. (2004) |  | $              | 1,080.3 |          | $ | 96.9              |  | Campath(4)                                     |  | 11%                     |  | 2009-2011                 
|                           |  |                |         |          |   | 113.4             |  | Clolar(4)                                      |  | 12%                     |  | 2008-2011                 
|                           |  |                |         |          |   | 44.2              |  | Tasidotin                                      |  | 16%                     |  | 2011-2014                 
|                           |  |                |         |          |   |                   |  |                                                |  |                         |  |                           
|                           |  |                |         |          | $ | 254.5             |  |                                                |  |                         |  |                           
|                           |  |                |         |          |   |                   |  |                                                |  |                         |  |                           

---

In addition, we account for our investment in Bioenvision Common Stock under the equity method of accounting and, accordingly, we recorded a
charge of $19.1 million in equity in income (loss) of equity method investments in our consolidated statement of operations for the three and nine months ended September 2007 for the
portion of the purchase price for this investment that we allocated to IPR&D. The full purchase accounting for our acquisition of Bioenvision, including the impact of our merger in October 2007, will
be reflected in our consolidated financial statements as of December 31, 2007 and for the year ended December 31, 2007.

46

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OTHER INCOME AND EXPENSES

|                                                     |                    | Three Months Ended
September 30, |         |       |   | Nine Months Ended
September 30, |        |       |    
|---------------------------------------------------- | ------------------ | -------------------------------- | ------- | ----- | - | ------------------------------- | ------ | ----- | ---
|
|
|
|Equity in income (loss) of equity method investments |                    | $                                | (12,648 | )     | $ | 4,530                           |        | >(100 | )% 
|Minority interest                                    |                    |                                  | 5       |       |   | 2,545                           |        | (100  | )% 
|Gains on investments in equity securities, net       |                    |                                  | 1,105   |       |   | 128                             |        | >100  | %  
|Other                                                |                    |                                  | 913     |       |   | (873                            | )      | >100  | %  
|Investment income                                    |                    |                                  | 18,222  |       |   | 16,760                          |        | 9     | %  
|Interest expense                                     |                    |                                  | (1,474  | )     |   | (3,772                          | )      | (61   | )% 
|                                                     |                    |                                  |         |       |   |                                 |        |       |    
|                                                     | Total other income |                                  | $       | 6,123 |   | $                               | 19,318 |       | (68
|                                                     |                    |                                  |         |       |   |                                 |        |       |    

Equity in Income (Loss) of Equity Method Investments

Under this caption, we record our portion of the results of our joint ventures with BioMarin and Medtronic, Inc., or Medtronic, and our investments in
Peptimmune, Inc., or Peptimmune and, for the period from July 10, 2007 through September 30, 2007, Bioenvision, which we subsequently acquired in October 2007.

Equity
in income (loss) of equity method investments decreased $17.2 million, or more than 100%, for the three months ended and $11.7 million, or more than 100%, for the
nine months ended September 30, 2007, as compared to the same periods of 2006, primarily due to $20.5 million of charges related to our investment in Bioenvision Common Stock, including
a $19.1 million charge for IPR&D, representing our proportionate share of the fair value of IPR&D programs of Bioenvision. These decreases were offset in part by an increase of
$3.2 million for the three months ended and $7.8 million for the nine months ended September 30, 2007 in our portion of the net income of BioMarin/Genzyme LLC attributable to
increased sales of Aldurazyme.

Minority Interest

Prior to February 20, 2007, as a result of our application of FIN 46R, "Consolidation of Variable Interest Entities," we consolidated the results of
Dyax-Genzyme LLC and Excigen Inc. Effective February 20, 2007, we agreed with Dyax to terminate our participation and interest in Dyax-Genzyme LLC. In connection
with this termination, we made a capital contribution of approximately $17 million in cash to Dyax-Genzyme LLC, and Dyax purchased our interest in the joint venture for
4.4 million shares of Dyax common stock, valued at $16.9 million, based on the closing price of Dyax common stock on February 23, 2007. Prior to February 20, 2007, in
accordance with FIN 46R, we consolidated the assets related to Dyax-Genzyme LLC, which were not significant and consisted primarily of lab equipment net of their associated accumulated
depreciation, and recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated statements of operations through February 20, 2007. The results of
Excigen Inc. were not significant.

47

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Gains on Investments in Equity Securities, net

We recorded the following gains on investments in equity securities, net of charges for impairment of investments, for the periods presented:

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006(Amounts in thousands)Gross gains on investments in equity securities:THP

$


$


$
10,848

$
CAT











69,359BioMarin











6,417Other


1,105


128


3,188


2,154Total


1,105


128


14,036


77,930Less: charges for impairment of investments











(2,893
)Gains on investments in equity securities, net

$
1,105

$
128

$
14,036

$
75,037


Unrealized Gains (Losses)

At September 30, 2007, our stockholders' equity included $23.3 million of unrealized gains and $0.4 million of unrealized losses related to
our investments in equity securities.

Investment Income

Our investment income increased 9% to $18.2 million for the three months ended and 31% to $51.7 million for the nine months ended
September 30, 2007, as compared to the same periods of 2006, primarily due to an increase in the average portfolio yield and higher average cash balances.

Interest Expense

Our interest expense decreased 61% to $1.5 million for the three months ended September 30, 2007, as compared to the same period of 2006, primarily
due to a $1.4 million increase in capitalized interest, which resulted in a decrease in interest expense, a $0.2 million decrease in interest related to our 2003 revolving credit
facility, which was replaced in July 2006, and a $0.5 million decrease in interest expense related to asset retirement obligations, for which there was no similar amount in 2006.

Our
interest expense decreased 24% to $9.3 million for the nine months ended September 30, 2007, as compared to the same period of 2006, primarily due to a
$4.3 million increase in capitalized interest, which resulted in a decrease in interest expense, and a $0.6 million decrease in interest related to our 2003 revolving credit facility,
which was replaced in July 2006. These overall decreases were offset in part by a $2.3 million increase in interest expense related to asset retirement obligations, for which there was
no similar amount in 2006.

(Provision for) Benefit from Income Taxes

|                                          |  | Three Months Ended
September 30, |         |   |   | Nine Months Ended
September 30, |    |       |   
|----------------------------------------- |  | -------------------------------- | ------- | - | - | ------------------------------- | -- | ----- | --
|
|
|
|(Provision for) benefit from income taxes |  | $                                | (66,432 | ) | $ | 44,530                          |    | >(100 | )%
|Effective tax rate                        |  |                                  | 29      | % |   | (156                            | )% |       |   

48

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



Our
effective tax rate for the three and nine months ended September 30, 2006, was also impacted by a charge for impaired goodwill of $219.2 million of which $29.5 million was not
deductible for tax purposes.

Effective
January 1, 2007, we adopted FIN 48 and recognized a cumulative effect adjustment of $33.9 million to increase our retained earnings balance as of
January 1, 2007, which consisted of $25.8 million to record the combined effect of our gain contingency and the change in the recognition standard pursuant to the settlement criteria of
FSP FIN 48-1 and $8.1 million resulting from our settlement of the IRS audit for tax years 2002 to 2003. After these adjustments, as of January 1, 2007, we had approximately
$36.5 million of total gross unrealized tax benefits, of which approximately $26.6 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect
our effective income tax rate in future periods. These gross unrealized tax benefits did not change significantly during the nine months ended September 30, 2007.

We
continue to recognize interest relating to unrecognized tax benefits within our provision for income taxes but have not recorded any amounts related to potential penalties. The amount
of accrued interest related to unrecognized tax benefits within our provision for income taxes for the three and nine months ended September 30, 2007 and our accrued interest related to
unrecognized tax benefits as of January 1, 2007 and September 30, 2007 were not significant.

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

Management
has concluded that it is not reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

B. LIQUIDITY AND CAPITAL RESOURCES

We continue to generate cash from operations. At September 30, 2007, we had cash, cash equivalents and short- and long-term investments of
$1.4 billion, an increase of $0.1 billion from $1.3 billion at December 31, 2006.

The
following is a summary of our statements of cash flows for the nine months ended September 30, 2007 and 2006.

49

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Cash Flows from Operating Activities

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

Nine Months Ended
September 30,2007

2006Cash flows from operating activities:Net income

$
401,294

$
251,437Non-cash charges


318,351


455,482Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities)


(108,818
)

(89,987
)Cash flows from operating activities

$
610,827

$
616,932


Cash
provided by operating activities decreased $6.1 million for the nine months ended September 30, 2007, as compared to the same period of 2006, primarily due to a
$149.9 million increase in earnings, excluding non-cash charges, offset by an $18.8 million increase in cash used for working capital.

Cash Flows from Investing Activities

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

Nine Months Ended
September 30,2007

2006Cash flows from investing activities:Net sales (purchases) of investments, excluding investments in equity securities

$
194,161

$
(107,261
)Net sales of investments in equity securities


350


131,691Purchases of property, plant and equipment


(281,309
)

(236,917
)Acquisition of Bioenvision stock


(72,229
)

Distributions from equity method investments


17,100


12,000Payment of note receivable from Dyax


7,771


370Purchases of other intangible assets


(45,821
)

(67,793
)Other investing activities


658


4,292Cash flows from investing activities

$
(179,319
)
$
(263,618
)


For
the nine months ended September 30, 2007, we used a total of $416.3 million of cash to fund capital expenditures and acquisitions including:



50

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These
decreases in cash were partially offset by:



Cash Flows from Financing Activities

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

Nine Months Ended
September 30,2007

2006Cash flows from financing activities:Proceeds from issuance of common stock

$
100,276

$
112,012Repurchases of common stock


(181,210
)

Excess tax benefits from stock-based compensation


1,229


8,979Payments of debt and capital lease obligations


(4,606
)

(3,155
)Increase (decrease) in bank overdrafts


19,259


(16,285
)Minority interest contributions


4,136


8,265Other financing activities


3,525


2,610Cash flows from financing activities

$
(57,391
)
$
112,426


In
May 2007, our board of directors authorized a stock repurchase program to repurchase up to an aggregate maximum amount of $1.5 billion or 20,000,000 shares of our
outstanding common stock over
the next three years, beginning in June 2007. The repurchases are being made from time to time and can be effectuated through open market purchases, privately negotiated transactions, transactions
structured through investment banking institutions, or by other means, subject to management's discretion and as permitted by securities laws and other legal requirements. As of September 30,
2007, we had repurchased a total of 2,808,738 shares of our common stock at an average price of $64.50 per share for a total of $181.2 million of cash, including fees.

Payment of Note Receivable from Dyax

In 2007, we received cash payments totaling $7.8 million from Dyax to settle the secured promissory note receivable from Dyax, including
$7.0 million to satisfy the outstanding principal balance due under the note and $0.8 million of accrued interest.

Revolving Credit Facility

As of September 30, 2007, no amounts were outstanding under our 2006 revolving credit facility. The terms of our 2006 revolving credit facility include
various covenants, including financial covenants that require us to meet minimum interest coverage ratios and maximum leverage ratios. As of September 30, 2007, we were in compliance with these
covenants.

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Contractual Obligations

The disclosure of payments we have committed to make under our contractual obligations is set forth under the heading "Management's Discussion and Analysis of
Genzyme Corporation and Subsidiaries' Financial Condition and Results of OperationsLiquidity and Capital Resources" in Exhibit 13 to our 2006 Form 10-K.
Excluding additional contingent payments to Wyeth for the reacquisition of the Synvisc sales and marketing rights as of September 30, 2007 there have been no material changes to our contractual
obligations since December 31, 2006.

Financial Position

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



Our
cash reserves may be further reduced to pay principal and interest on the $690.0 million in principal under our 1.25% convertible senior notes due December 1, 2023. 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, 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 litigation 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 details on one set of
pending legal proceedings in the notes to our consolidated financial statements.

52

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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 the performance of our subsidiaries. In addition, we have joint ventures and certain other arrangements that are focused on research, development,
and the commercialization of products. Entities falling within the scope of FIN 46R are included in our consolidated statements of operations if we qualify as the primary beneficiary. Entities not
subject to consolidation under FIN 46R
are accounted for under the equity method of accounting if our ownership percent exceeds 20% or if we exercise significant influence over the entity. We account for our portion of the income/losses of
these entities in the line item "Equity in income (loss) of equity method investments" in our consolidated statements of operations. We also acquire companies in which we agree to pay contingent
consideration based on attaining certain thresholds.

Recent Accounting Pronouncements

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

FAS 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement
No. 115."In February 2007, the FASB issued FAS 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an
Amendment of FASB Statement No. 115," which permits, but does not require, entities to measure certain financial instruments and other assets and liabilities at fair value on an
instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected should be recognized in earnings at each subsequent
reporting date. FAS 159 will be effective for us as of January 1, 2008 and cannot be adopted early unless FAS 157 is also adopted. We are currently evaluating the impact, if any,
the adoption of FAS 159 will have on our financial position and results of operations.

EITF Issue No. 07-3,"Accounting for Nonrefundable Advance Payments for Goods or Services
Received for Use in Future Research and Development Activities." In June 2007, the FASB ratified the EITF consensus reached in EITF Issue No. 07-3,
"Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities," which provides guidance for nonrefundable prepayments for goods or
services that will be used or rendered for future research and development activities and directs that such payments should be deferred and capitalized. Such amounts should be recognized as an expense
as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. EITF 07-3 is effective for us
January 1, 2008 and will be applied prospectively to new contracts we enter into on or after that date. Earlier application is not permitted. We are currently evaluating the impact, if any, the
adoption of EITF No. 07-3 will have on our financial position, results of operations or cash flows.

53

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RISK FACTORS

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

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 $832.8 million for the nine months ended September 30, 2007, representing approximately 30% of our consolidated total revenue. Because our business is highly dependent on
Cerezyme, negative trends in revenue from this product could have a significant adverse effect on our results of 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.

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

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



Part
of our growth strategy involves conducting additional clinical trials to support approval of expanded uses of some of our products, including Clolar and alemtuzumab, pursuing
marketing approval for our products in new jurisdictions and developing next generation products such as Renvela and Synvisc-One. The success of this component of our growth strategy will
depend on the outcome of

54

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these
additional clinical trials, the content and timing of our submissions to regulatory authorities and whether and when those authorities determine to grant approvals.

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

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

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

Renagel
competes with two other products approved in the United States for the control of elevated phosphorus levels in patients with chronic kidney failure on hemodialysis. Fresenius
Medical Care markets PhosLo®, a calcium-based phosphate binder. Shire Pharmaceuticals Group plc, or Shire, markets Fosrenol®, a non-calcium based phosphate binder.
Amgen, Inc. recently acquired Ilypsa and its product candidate, ILY101, a polymeric phosphate binder that completed a phase 2 trial in CKD patients on dialysis. Renagel also competes with
over-the-counter calcium carbonate products such as TUMS® and metal-based options such as aluminum and magnesium.

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

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

Current
competition for Synvisc includes Supartz®, a product manufactured by Seikagaku Kogyo that is sold in the United States by Smith & Nephew Orthopaedics and in
Japan by Kaken Pharmaceutical Co. under the name Artz®; Hyalgan®, produced by Fidia Farmaceutici S.p.A. and marketed in the United States by Sanofi-Aventis;
Orthovisc®, produced by Anika Therapeutics, Inc., and marketed in the United States by Johnson & Johnson and marketed outside the United States through distributors;
Euflexxa, a product manufactured and sold by Ferring Pharmaceuticals and marketed in the United States and Europe; and Durolane®, manufactured by Q-Med AB and
distributed outside the United States by Smith & Nephew Orthopedics. We are aware of various viscosupplementation products on the market or in development, but are unaware of any products that

55

---



have
physical properties of viscosity, elasticity or molecular weight comparable to those of Synvisc. Furthermore, several companies market products that are not viscosupplementation products but
which are 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.

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

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

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

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

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



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

56

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

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

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

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



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



Few
research and development projects result in commercial products, and success in preclinical studies or early clinical trials often is not replicated in later studies. For example, in
our phase 3 trial known as the Polymer Alternative for CDAD treatment (PACT) study, tolevamer did not meet its

57

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primary
endpoint. In our pivotal study of hylastan for treatment of patients with osteoarthritis of the knee, hylastan did not meet its primary endpoint. We may decide to abandon development of a
product or service candidate at any time or we may be required to expend considerable resources repeating clinical trials or conducting additional trials, either of which would increase costs of
development and delay any revenue from those product candidates.

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

We may encounter substantial difficulties managing our growth.

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

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

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 in the past managing inventory levels at wholesalers. Comparable problems may arise with any of our products, particularly during market
introduction.

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



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

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

We may encounter problems assimilating operations acquired in business combination transactions. These transactions often entail the assumption of unknown
liabilities, the loss of key employees, and
the diversion of management attention. Furthermore, in any business combination, including our acquisitions of AnorMED Inc. and Bioenvision, there is a substantial risk that we will fail to
realize the benefits we anticipated when we decided to undertake the transaction. We have in the past taken significant charges for impaired goodwill and for impaired assets acquired in business
combination transactions. We may be required to take similar charges in the future.

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

In order to generate revenue from our approved products, we must be able to produce sufficient quantities of the products. Many of our products are difficult to
manufacture. Our products that are biologics, for example, require product characterization steps that are more onerous than those required for most chemical pharmaceuticals. Accordingly, we employ
multiple steps to attempt to control the manufacturing processes. Minor deviations in these manufacturing processes could result in unacceptable changes in the products that result in lot failures,
product recalls, product liability claims and insufficient inventory.

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

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

Manufacturing
is also subject to extensive government regulation. Regulatory authorities must approve the facilities in which human healthcare products are produced and those facilities
are subject to ongoing inspections. In addition, changes in manufacturing processes may require additional regulatory approvals. Obtaining and maintaining these regulatory approvals could cause us to
incur significant additional costs and lose revenue. For example, we are currently working with the FDA to obtain approval of a larger-scale Myozyme manufacturing process. We anticipate a decision
from the FDA in the first quarter of 2008 and, until that time, are taking actions to optimize our U.S. Myozyme supply, including making Myozyme available to some patients through a clinical access
program. Furthermore,
any third party we use to manufacture, fill-finish or package our products to be sold must also be licensed by the applicable regulatory authorities. As a result, alternative third party
providers may not be readily available on a timely basis.

Additionally,
we determined that four lots of Thymoglobulin finished goods inventory did not meet our internal specifications for saleable product which caused those lots to be written
off. Currently, we

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have
three additional finished lots of Thymoglobulin, valued at approximately $8 million, which are under review to determine whether they meet product specifications. If we determine that any
of those lots do not meet the specifications for saleable product, we will write off that inventory as a charge to earnings. Even with the four finished lots of Thymoglobulin that have been written
off and the possibility of lots under review being written off, we currently expect to be able to meet projected market demand. We will continue to closely monitor our inventory levels and intend to
manage production to maintain adequate supply levels in 2008.

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

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

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

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

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

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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, including a joint venture with BioMarin Pharmaceutical Inc. with
respect to Aldurazyme. 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 with
RenaMed Biologics, Inc., or RenaMed, in June 2005. Our strategic equity investments are subject to market fluctuations, access to capital and other business events, such as initial
public offerings, the completion of clinical trials and regulatory approvals, which can impact the value of these investments. For example, in October 2006, RenaMed suspended clinical trials of
its renal assist device which was being developed to treat patients with acute renal failure, causing us to write off our entire investment in RenaMed. If any of our other strategic equity investments
decline in value and remain below cost for an extended duration, we may incur additional financial statement charges.

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

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

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



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Furthermore,
the FDA and comparable foreign regulatory agencies may require post-marketing clinical trials or patient outcome studies. We have agreed with the FDA, for
example, to a number of post-marketing commitments as a condition to U.S. marketing approval for Fabrazyme, Aldurazyme and Myozyme. In addition, regulatory agencies subject a marketed
therapy, its manufacturer and the manufacturer's facilities to continual review and periodic inspections. The discovery of previously unknown problems with a therapy or the facility or process used to
produce the therapy could prompt a regulatory authority to impose restrictions on us, or could cause us to voluntarily adopt such restrictions, including withdrawal of one or more of our products or
services from the market. For example, we received a warning letter from the FDA on September 19, 2007 that addresses certain of our manufacturing procedures in our Thymoglobulin production facility
in Lyon, France. There is no current impact to product supply as a result of the FDA warning letter and we are in ongoing discussions with the FDA to resolve the issues described in the letter.

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

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



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

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

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

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

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



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

Our
international operations accounted for approximately 47% of our consolidated product and service revenues for the nine months ended September 30, 2007. 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:



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

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

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

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

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

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

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

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

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

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

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

Legislative or regulatory changes may adversely impact our business.

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



New
laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to healthcare availability, methods of delivery or payment
for products and

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services,
or sales, marketing or pricing may cause our revenue to decline, and we may need to revise our research and development programs.

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

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

As
of September 30, 2007, we had $1.4 billion in cash, cash equivalents and short- and long-term investments, excluding our investments in equity securities.

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



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

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

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

As
of September 30, 2007, we had $697.9 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:



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

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are exposed to potential loss from market risks represented principally by changes in foreign exchange rates, interest rates and equity prices. At
September 30, 2007, we held derivative contracts in the form of foreign exchange forward contracts. We also held a number of other financial instruments, including investments in marketable
securities and debt securities outstanding. We do not hold derivatives or other financial instruments for speculative purposes.

Foreign Exchange Risk

As a result of our worldwide operations, we face exposure to potential adverse movements in foreign currency exchange rates, primarily to the Euro, British pound
and Japanese yen. Exposures to currency fluctuations that result from sales of our products in foreign markets are partially offset by the impact of currency fluctuations on our international
expenses. We use forward foreign exchange contracts to further reduce our exposure to changes in exchange rates. We also hold a limited amount of foreign cash and equity securities.

As
of September 30, 2007, we estimate the potential loss in fair value of our foreign currency contracts, foreign cash, and foreign equity holdings that would result from a
hypothetical 10% adverse change in exchange rates to be $18.8 million, as compared to $34.2 million as of December 31, 2006. The change from the prior period is primarily due to a
reduction in forward contracts and to a decrease in foreign currency being held.

Interest Rate Risk

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

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



On
this basis, we estimate the potential loss in fair value that would result from a hypothetical 1% (100 basis points) decrease in interest rates to be $2.6 million as of
September 30, 2007, as compared to $4.2 million as of December 31, 2006.

Equity Price Risk

We hold investments in a limited number of U.S. and European equity securities. We estimate the potential loss in fair value due to a 10% decrease in equity
prices of marketable securities held at September 30, 2007 to be $6.0 million, as compared to $4.2 million at December 31, 2006. The increase

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is
due to the acquisition of 4.4 million additional shares of Dyax common stock. This estimate assumes no change in foreign exchange rates from quarter-end spot rates and excludes
any potential risk associated with securities that do not have a readily determinable market value.

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 September 30, 2007, and (2) no change in internal control over financial
reporting occurred during the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

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PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS



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

Through
June 30, 2003, we had three outstanding series of common stock, which we referred to as tracking stocks; Genzyme General Stock (which we now refer to as Genzyme Stock),
Biosurgery Stock and Molecular Oncology Stock. Four lawsuits were filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in connection
with the elimination
of our tracking stocks in July 2003. Each of the lawsuits was a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in the MSC in May 2003, alleged a
breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the
exchange ratio for the tracking stock exchange. The MSC dismissed the complaint in its entirety in November 2003. Upon appeal, the Massachusetts Appeals Court upheld the dismissal by the MSC of
the fiduciary duty claim, but reversed the earlier decision to dismiss the implied covenant claim. The Massachusetts Supreme Judicial Court (SJC) granted our petition for further appellate review. On
June 4, 2007, the SJC reversed the Appeals Court's decision and affirmed dismissal of the complaint in its entirety. On July 25, 2007, the SJC denied the plaintiff's petition for
rehearing. Two substantially similar cases were filed in the MSC in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case
was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in June 2003. As amended, this complaint alleged violations of
federal securities laws, as well as various state law claims, related to the exchange, on behalf of a certified class of holders of Biosurgery Stock as of May 8, 2003. On August 6, 2007,
we reached an agreement-in-principle with counsel for the plaintiff class to settle and dismiss this case for approximately $64 million. A definitive settlement
agreement was approved by the court on October 26, 2007. Because the members of the class in the New York action released all claims, the settlement has, as a practical matter, resolved the
consolidated case in the MSC. We have submitted claims to our insurers for reimbursement of portions of the expenses incurred and to be incurred in connection with these cases; the insurer has
purported to deny coverage. We intend to vigorously pursue our rights with respect to insurance coverage. As a result, we recorded a liability for the settlement payment of approximately
$64 million as a charge to SG&A in our consolidated statements of operations in June 2007, which we subsequently paid in August 2007.

We
are not able to predict the outcome of other legal proceedings, to which we may become subject in the normal course of business or estimate the amount or range of any reasonably
possible loss we might incur if we do not prevail in the final, non-appealable determinations of such matters. Therefore, we have no current accruals for these potential contingencies. We
cannot provide you with assurance that other legal proceedings will not have a material adverse impact on our financial condition and results of operations.

ITEM 1A.    RISK FACTORS

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

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



In May 2007, our board of directors authorized a stock repurchase program to repurchase up to an aggregate maximum amount of $1.5 billion or
20,000,000 shares of our outstanding common stock over the next three years. The repurchases are being made from time to time and can be effectuated through open market purchases, privately negotiated
transactions, transactions structured through investment banking institutions, or by other means, subject to management's discretion and as permitted by securities laws and other legal requirements.
The manner of the purchase, the amount that we spend and the number of shares we ultimately purchase will vary based on a range of factors, including share price. The program does not obligate us to
acquire any particular amount of common stock and the program may be suspended at any time at our discretion.

The
following table provides information about certain repurchases of equity securities that are registered under Section 12 of the Exchange Act during the quarter ended
September 30, 2007:

|Period                               |       | Total
Number
of Shares
Purchased |           | Average
Price
Paid
per
Share |       | Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs |           | Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
|------------------------------------ | ----- | -------------------------------- | --------- | ---------------------------- | ----- | -------------------------------------------------------------------------------- | --------- | ----------------------------------------------------------------------------------------
|July 1, 2007-July 31, 2007           |       | 803,300                          |           | $                            | 63.72 |                                                                                  | 803,300   |                                                                                         
|August 1, 2007-August 31, 2007       |       | 1,036,953                        |           | $                            | 64.18 |                                                                                  | 1,036,953 |                                                                                         
|September 1, 2007-September 30, 2007 |       |                                 |           |                              |      |                                                                                  |          |                                                                                         
|                                     |       |                                  |           |                              |       |                                                                                  |           |                                                                                         
|                                     | Total |                                  | 1,840,253 | (1)                          | $     | 63.98                                                                            | (2)       | 1,840,253                                                                               
|                                     |       |                                  |           |                              |       |                                                                                  |           |                                                                                         

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ITEM 6.    EXHIBITS

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

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GENZYME CORPORATION AND SUBSIDIARIES  FORM 10-Q, SEPTEMBER 30, 2007  SIGNATURES

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

|                       |  | GENZYME CORPORATION
|---------------------- |  | -------------------
|Date: November 8, 2007 |  | By:                

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GENZYME CORPORATION AND SUBSIDIARIES  FORM 10-Q, SEPTEMBER 30, 2007  EXHIBIT INDEX

|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                    
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|*3.1        |  | Restated Articles of Organization of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Form 10-Q for the quarter ended June 30, 2006.     
|*3.2        |  | By-laws of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Form 8-K filed May 24, 2007.                                                 
|**10.1      |  | Amended and Restated Contract Purchase and Supply Agreement between Invitrogen Corporation and Genzyme Corporation effective December 31, 2007.
|10.2        |  | Form of Severance Agreement between Genzyme and its executive officers.                                                                        
|31.1        |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                        
|31.2        |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                        
|32.1        |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.                    
|32.2        |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.                    

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