Use these links to rapidly review the documentGENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, SEPTEMBER 30, 2005 TABLE OF CONTENTS



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

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FORM 10-Q

|ý                                                 |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------- |  | ----------------------------------------------------------------------------------------
|For the quarterly period ended September 30, 2005
|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                                                  |  | 06-1047163                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|500 Kendall Street, Cambridge, Massachusetts                   |  | 02142                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

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

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

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

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, 2005: 258,226,227



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NOTE REGARDING REFERENCES TO OUR SERIES OF STOCK

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



2

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These
statements are subject to risks and uncertainties, and our actual results may differ materially from those in the forward-looking statements included in this report. These risks
and uncertainties include:



3

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

NOTE REGARDING INCORPORATION BY REFERENCE

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

NOTE REGARDING TRADEMARKS

Genzyme®, Renagel®, Hectorol®, Cerezyme®, Fabrazyme®, Thyrogen®, Synvisc®,
Carticel®, Hylaform®, Seprafilm®, Epicel®, IMPATH®, Myozyme® Aldurazyme®, Thymoglobulin®,
Lymphoglobuline®, Campath® and MACI® are registered trademarks of Genzyme or its subsidiaries. Sepra, VERIGEN and Clolar are
trademarks of Genzyme or its subsidiaries. WelChol® is a registered trademark of Sankyo Pharma, Inc. Gengraf® is a registered trademark of Abbott Laboratories. All
rights reserved.

4

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GENZYME CORPORATION AND SUBSIDIARIES  FORM 10-Q, SEPTEMBER 30, 2005  TABLE OF CONTENTS



|           |  |                                                                                                                                           |  | PAGE NO.
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|PART I.    |  | FINANCIAL INFORMATION                                                                                                                     |  | 6       
|ITEM 1.    |  | Financial Statements                                                                                                                      |  | 6       
|           |  | Unaudited, Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2005 and 2004 |  | 6       
|           |  | Unaudited, Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004                                                     |  | 7       
|           |  | Unaudited, Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004                                    |  | 8       
|           |  | Notes to Unaudited, Consolidated Financial Statements                                                                                     |  | 9       
|ITEM 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                     |  | 31      
|ITEM 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                |  | 65      
|ITEM 4.    |  | Controls and Procedures                                                                                                                   |  | 66      
|PART II.   |  | OTHER INFORMATION                                                                                                                         |  | 67      
|ITEM 1.    |  | Legal Proceedings                                                                                                                         |  | 67      
|ITEM 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                               |  | 68      
|ITEM 6.    |  | Exhibits                                                                                                                                  |  | 68      
|Signatures |  | 69                                                                                                                                       

5

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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                                    |                                          | $                                                                     | 633,605                         |       
|                                     | Net service sales                                    |                                          |                                                                       | 69,845                          |       
|                                     | Revenues from research and development contracts     |                                          |                                                                       | 4,613                           |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|                                     |                                                      |                                          | Total revenues                                                        |                                 |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|Operating costs and expenses:        |                                                      |                                          |                                                                       |                                 |       
|                                     | Cost of products sold                                |                                          |                                                                       | 110,353                         |       
|                                     | Cost of services sold                                |                                          |                                                                       | 42,355                          |       
|                                     | Selling, general and administrative                  |                                          |                                                                       | 202,002                         |       
|                                     | Research and development                             |                                          |                                                                       | 128,000                         |       
|                                     | Amortization of intangibles                          |                                          |                                                                       | 50,847                          |       
|                                     | Purchase of in-process research and development      |                                          |                                                                       | 12,700                          |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|                                     |                                                      |                                          | Total operating costs and expenses                                    |                                 |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|Operating income                     |                                                      |                                          | 161,806                                                               |                                 |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|Other income (expenses):             |                                                      |                                          |                                                                       |                                 |       
|                                     | Equity in income (loss) of equity method investments |                                          |                                                                       | 940                             |       
|                                     | Minority interest                                    |                                          |                                                                       | 3,670                           |       
|                                     | Gains (losses) on investment in equity securities    |                                          |                                                                       | 214                             |       
|                                     | Other                                                |                                          |                                                                       | (1,021                          | )     
|                                     | Investment income                                    |                                          |                                                                       | 8,073                           |       
|                                     | Interest expense                                     |                                          |                                                                       | (6,749                          | )     
|                                     |                                                      |                                          |                                                                       |                                 |       
|                                     |                                                      |                                          | Total other income (expenses)                                         |                                 |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|Income before income taxes           |                                                      |                                          | 166,933                                                               |                                 |       
|Provision for income taxes           |                                                      |                                          | (51,279                                                               | )                               |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|Net income                           |                                                      | $                                        | 115,654                                                               |                                 | $     
|                                     |                                                      |                                          |                                                                       |                                 |       
|Net income per share:                |                                                      |                                          |                                                                       |                                 |       
|                                     | Basic                                                |                                          | $                                                                     | 0.45                            |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|                                     | Diluted                                              |                                          | $                                                                     | 0.43                            |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|Weighted average shares outstanding: |                                                      |                                          |                                                                       |                                 |       
|                                     | Basic                                                |                                          |                                                                       | 256,490                         |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|                                     | Diluted                                              |                                          |                                                                       | 274,492                         |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|Comprehensive income, net of tax:    |                                                      |                                          |                                                                       |                                 |       
|                                     | Net income                                           |                                          | $                                                                     | 115,654                         |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|                                     | Other comprehensive income (loss), net of tax:       |                                          |                                                                       |                                 |       
|                                     |                                                      | Foreign currency translation adjustments |                                                                       |                                 | (7,792
|                                     |                                                      | Gain on affiliate sale of stock          |                                                                       |                                 |      
|                                     |                                                      | Other                                    |                                                                       |                                 | 119   
|                                     |                                                      | Unrealized gains (losses) on securities: |                                                                       |                                 |       
|                                     |                                                      |                                          | Unrealized gains (losses) arising during the period                   |                                 |       
|                                     |                                                      |                                          | Reclassification adjustment for (gains) losses included in net income |                                 |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|                                     |                                                      |                                          | Unrealized gains (losses) on securities, net                          |                                 |       
|                                     |                                                      |                                          |                                                                       |                                 |       
|                                     | Other comprehensive income (loss)                    |                                          |                                                                       | (4,156                          | )     
|                                     |                                                      |                                          |                                                                       |                                 |       
|Comprehensive income                 |                                                      | $                                        | 111,498                                                               |                                 | $     
|                                     |                                                      |                                          |                                                                       |                                 |       

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

6

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

|                                             |                                                                 | September 30,
2005                         |           | December 31,
2004 |          
|-------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------ | --------- | ----------------- | ---------
|ASSETS                                       |                                                                 |                                            |           |                   |          
|Current assets:                              |                                                                 |                                            |           |                   |          
|                                             | Cash and cash equivalents                                       |                                            | $         | 325,926           |          
|                                             | Short-term investments                                          |                                            |           | 123,501           |          
|                                             | Accounts receivable, net                                        |                                            |           | 600,576           |          
|                                             | Inventories                                                     |                                            |           | 309,769           |          
|                                             | Prepaid expenses and other current assets                       |                                            |           | 85,657            |          
|                                             | Notes receivablerelated parties                                |                                            |           | 2,413             |          
|                                             | Deferred tax assets                                             |                                            |           | 199,944           |          
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total current assets                       |           |                   | 1,647,786
|Property, plant and equipment, net           |                                                                 |                                            | 1,294,990 |                   |          
|Long-term investments                        |                                                                 |                                            | 500,915   |                   |          
|Notes receivablerelated parties             |                                                                 |                                            | 7,195     |                   |          
|Goodwill                                     |                                                                 |                                            | 1,503,660 |                   |          
|Other intangible assets, net                 |                                                                 |                                            | 1,620,516 |                   |          
|Investments in equity securities             |                                                                 |                                            | 137,213   |                   |          
|Other noncurrent assets                      |                                                                 |                                            | 69,690    |                   |          
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total assets                               |           | $                 | 6,781,965
|                                             |                                                                 |                                            |           |                   |          
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                                                 |                                            |           |                   |          
|Current liabilities:                         |                                                                 |                                            |           |                   |          
|                                             | Accounts payable                                                |                                            | $         | 68,995            |          
|                                             | Accrued expenses                                                |                                            |           | 427,391           |          
|                                             | Income taxes payable                                            |                                            |           | 74,734            |          
|                                             | Deferred revenue                                                |                                            |           | 15,531            |          
|                                             | Current portion of long-term debt and capital lease obligations |                                            |           | 30,332            |          
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total current liabilities                  |           |                   | 616,983  
|Long-term debt and capital lease obligations |                                                                 |                                            | 126,790   |                   |          
|Convertible notes                            |                                                                 |                                            | 690,000   |                   |          
|Deferred revenuenoncurrent                  |                                                                 |                                            | 13,177    |                   |          
|Deferred tax liabilities                     |                                                                 |                                            | 334,018   |                   |          
|Other noncurrent liabilities                 |                                                                 |                                            | 20,781    |                   |          
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total liabilities                          |           |                   | 1,801,749
|                                             |                                                                 |                                            |           |                   |          
|Commitments and contingencies (Notes 4,10)   |                                                                 |                                            |           |                   |          
|Stockholders' equity:                        |                                                                 |                                            |           |                   |          
|                                             | Preferred stock, $0.01 par value                                |                                            |           |                  |          
|                                             | Common stock, $0.01 par value                                   |                                            |           | 2,575             |          
|                                             | Additional paid-in capital                                      |                                            |           | 4,602,758         |          
|                                             | Notes receivable from stockholders                              |                                            |           | (14,290           | )        
|                                             | Accumulated earnings (deficit)                                  |                                            |           | 222,810           |          
|                                             | Accumulated other comprehensive income                          |                                            |           | 166,363           |          
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total stockholders' equity                 |           |                   | 4,980,216
|                                             |                                                                 |                                            |           |                   |          
|                                             |                                                                 | Total liabilities and stockholders' equity |           | $                 | 6,781,965
|                                             |                                                                 |                                            |           |                   |          

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

7

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

|                                                 |                                                                 | Nine Months Ended
September 30,                                                                                         |                                                        
|------------------------------------------------ | --------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------
|
|Cash Flows from Operating Activities:            |                                                                 |                                                                                                                         |                                                        
|                                                 | Net income                                                      |                                                                                                                         | $                                                      
|                                                 | Reconciliation of net income to cash from operating activities: |                                                                                                                         |                                                        
|                                                 |                                                                 | Depreciation and amortization                                                                                           |                                                        
|                                                 |                                                                 | Provision for bad debts                                                                                                 |                                                        
|                                                 |                                                                 | Purchase of in-process research and development                                                                         |                                                        
|                                                 |                                                                 | Equity in loss of equity method investments                                                                             |                                                        
|                                                 |                                                                 | Minority interest                                                                                                       |                                                        
|                                                 |                                                                 | (Gains) losses on investments in equity securities                                                                      |                                                        
|                                                 |                                                                 | Write off of unamortized debt fees                                                                                      |                                                        
|                                                 |                                                                 | Deferred income tax benefit                                                                                             |                                                        
|                                                 |                                                                 | Tax benefit from employee stock options                                                                                 |                                                        
|                                                 |                                                                 | Other                                                                                                                   |                                                        
|                                                 |                                                                 | Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities): |                                                        
|                                                 |                                                                 |                                                                                                                         | Accounts receivable                                    
|                                                 |                                                                 |                                                                                                                         | Inventories                                            
|                                                 |                                                                 |                                                                                                                         | Prepaid expenses and other current assets              
|                                                 |                                                                 |                                                                                                                         | Accounts payable, accrued expenses and deferred revenue
|                                                 |                                                                 |                                                                                                                         | Income taxes payable                                   
|                                                 |                                                                 |                                                                                                                         |                                                        
|                                                 |                                                                 |                                                                                                                         |                                                        
|                                                 |                                                                 |                                                                                                                         |                                                        
|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                      |                                                                                                                         |                                                        
|                                                 | Distributions from (investments in) equity investees            |                                                                                                                         |                                                        
|                                                 | Acquisitions, net of acquired cash                              |                                                                                                                         |                                                        
|                                                 | Acquisition of sales and marketing rights                       |                                                                                                                         |                                                        
|                                                 | Purchases of intangible assets                                  |                                                                                                                         |                                                        
|                                                 | Other                                                           |                                                                                                                         |                                                        
|                                                 |                                                                 |                                                                                                                         |                                                        
|                                                 |                                                                 |                                                                                                                         |                                                        
|                                                 |                                                                 |                                                                                                                         |                                                        
|Cash Flows from Financing Activities:            |                                                                 |                                                                                                                         |                                                        
|                                                 | Proceeds from issuance of common stock                          |                                                                                                                         |                                                        
|                                                 | Proceeds from draws on credit facility                          |                                                                                                                         |                                                        
|                                                 | Payments of debt and capital lease obligations                  |                                                                                                                         |                                                        
|                                                 | Bank overdraft                                                  |                                                                                                                         |                                                        
|                                                 | Minority interest payable                                       |                                                                                                                         |                                                        
|                                                 | Other                                                           |                                                                                                                         |                                                        
|                                                 |                                                                 |                                                                                                                         |                                                        
|                                                 |                                                                 |                                                                                                                         |                                                        
|                                                 |                                                                 |                                                                                                                         |                                                        
|Effect of exchange rate changes on cash          |                                                                 |                                                                                                                         | (1,965                                                 
|                                                 |                                                                 |                                                                                                                         |                                                        
|Increase (decrease) in cash and cash equivalents |                                                                 |                                                                                                                         | (154,272                                               
|Cash and cash equivalents at beginning of period |                                                                 |                                                                                                                         | 480,198                                                
|                                                 |                                                                 |                                                                                                                         |                                                        
|Cash and cash equivalents at end of period       |                                                                 | $                                                                                                                       | 325,926                                                
|                                                 |                                                                 |                                                                                                                         |                                                        

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

8

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GENZYME CORPORATION AND SUBSIDIARIES        Notes To Unaudited, Consolidated Financial Statements

1. Description of Business

We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad product and service portfolio is
focused on rare genetic disorders, renal disease, 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 oncology, bulk pharmaceuticals and cardiovascular business units under the caption "Other." We report our corporate, general and administrative operations
and corporate science activities that we do not allocate to our financial reporting units, under the caption "Corporate." Effective January 1, 2005, as a result of changes in how we review our
business, we re-allocated the programs of our former drug discovery and development business unit, formerly reported under the caption "Other," amongst several of our existing reporting
segments and business units as follows:



We
have reclassified our 2004 segment disclosures to conform to our 2005 presentation.

9

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2. Basis of Presentation and Significant Accounting Policies



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 corporate operations taken as a whole. We have eliminated all significant intercompany items and transactions in consolidation. We prepare our unaudited, consolidated financial
statements following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required
by accounting principles generally accepted in the United States. In addition to the revisions to our segment disclosures described above, we have reclassified certain other 2004 data to conform to
our 2005 presentation.

These
financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results. Since these
are interim financial statements, you should also read our audited, consolidated financial statements and notes included in our 2004 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.



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

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

|            |                                                                            | Three Months Ended
September 30, |   | Nine Months Ended
September 30, |  
|----------- | -------------------------------------------------------------------------- | -------------------------------- | - | ------------------------------- | -
|
|Net income: |                                                                            |                                  |   |                                 |  
|            | As reported                                                                |                                  | $ | 115,654                         |  
|            | Add: employee stock-based compensation included in as reported, net of tax |                                  |   | 28                              |  
|            | Deduct: pro forma employee stock-based compensation expense, net of tax    |                                  |   | (23,704                         | )
|            |                                                                            |                                  |   |                                 |  
|            | Pro forma                                                                  |                                  | $ | 91,978                          |  
|            |                                                                            |                                  |   |                                 |  

10

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

|                      |          | Three Months Ended
September 30, |  | Nine Months Ended
September 30,
|--------------------- | -------- | -------------------------------- |  | -------------------------------
|
|Net income per share: |          |                                  |  |                                
|                      | Basic:   |                                  |  |                                
|                      |          | As reported                      |  | $                              
|                      |          |                                  |  |                                
|                      |          | Pro forma                        |  | $                              
|                      |          |                                  |  |                                
|                      | Diluted: |                                  |  |                                
|                      |          | As reported                      |  | $                              
|                      |          |                                  |  |                                
|                      |          | Pro forma                        |  | $                              
|                      |          |                                  |  |                                

The
effects of applying SFAS No. 123, as amended, are not necessarily representative of the effects on reported net income (loss) in future years. We anticipate making additional
awards of stock-based compensation in future years.

Recent Accounting Pronouncements

SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4."In November 2004, the Financial
Accounting Standards Board, or FASB, issued SFAS No. 151, "Inventory Costs, an amendment of Accounting Research Bulletin, or ARB, No. 43, Chapter 4." SFAS No. 151 clarifies that
abnormal amounts of idle facility expense, freight, handling costs and wasted materials spoilage should be recognized as current period charges in all circumstances. SFAS No. 151 will be
effective for us beginning January 1, 2006. We have not yet determined the impact, if any, SFAS No. 151 will have on our consolidated financial statements.

SFAS No. 123R, "Share-Based Payment, an amendment of FASB Statement Nos. 123 and 95."In December 2004, the
FASB issued a revision to SFAS No. 123, also known as SFAS 123R, "Share-Based Payments," which replaces SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes
Accounting Principles Board, or APB, Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R will require all share-based payments to employees, including grants of
employee stock options, to be recognized in the statements of operations based on their fair values. SFAS 123R allows alternative methods for determining the fair value of share based payments
to employees and alternative methods of implementation. In April 2005, the SEC issued a rule that allows companies to implement SFAS 123R at the beginning of the next fiscal year,
instead of the next reporting period, that begins after June 15, 2005. As a result, we plan to implement SFAS 123R in the reporting period starting January 1, 2006. We expect that
SFAS 123R will have a significant impact on our financial statements. The adoption of SFAS 123R will cause us to record, as expense each quarter, a non-cash accounting charge
based on the fair value of all stock-based compensation meeting the criteria outlined in the provisions of SFAS 123R. We have not yet determined which valuation method we will use or the method
of implementation.

11

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3. 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                                                    |                                                                                              | $                                | 115,654 |                                
|Effect of dilutive securities:                                      |                                                                                              |                                  |         |                                
|                                                                    | Interest expense and debt fees, net of tax, related to our 1.25% convertible senior notes(1) |                                  |         | 1,874                          
|                                                                    |                                                                                              |                                  |         |                                
|Net incomediluted                                                  |                                                                                              | $                                | 117,528 |                                
|                                                                    |                                                                                              |                                  |         |                                
|Shares used in computing net income per common sharebasic          |                                                                                              |                                  | 256,490 |                                
|Effect of dilutive securities:                                      |                                                                                              |                                  |         |                                
|                                                                    | Shares issuable upon the assumed conversion of our 1.25% convertible senior notes(1)         |                                  |         | 9,686                          
|                                                                    | Stock options(2)                                                                             |                                  |         | 8,304                          
|                                                                    | Warrants and stock purchase rights                                                           |                                  |         | 12                             
|                                                                    |                                                                                              |                                  |         |                                
|                                                                    |                                                                                              | Dilutive potential common shares |         |                                
|                                                                    |                                                                                              |                                  |         |                                
|Shares used in computing net income per common sharediluted(1,2,3) |                                                                                              |                                  | 274,492 |                                
|                                                                    |                                                                                              |                                  |         |                                
|Net income per share:                                               |                                                                                              |                                  |         |                                
|                                                                    | Basic                                                                                        |                                  | $       | 0.45                           
|                                                                    |                                                                                              |                                  |         |                                
|                                                                    | Diluted                                                                                      |                                  | $       | 0.43                           
|                                                                    |                                                                                              |                                  |         |                                

---

|                                                     |  | Three Months Ended
September 30, |  | Nine Months Ended
September 30,
|---------------------------------------------------- |  | -------------------------------- |  | -------------------------------
|
|Shares issuable upon exercise of outstanding options |  | 481                              |  | 5,159                          
|                                                     |  |                                  |  |                                

12

---



4. Mergers and Acquisitions

Acquisition of Equal Diagnostics

In July 2005, we acquired Equal Diagnostics, a privately-held diagnostics company in Exton, Pennsylvania, that formerly served as a distributor for our clinical
chemistry reagents. We paid $5.0 million in initial cash payments and issued promissory notes to the three former shareholders of Equal Diagnostics totaling $10.0 million in principal and
interest. These notes bear interest at 3.86% and are payable over eight years in equal annual installments commencing on March 31, 2007. In addition to these guaranteed payments, we may be obligated
to make additional cash payments of up to an aggregate of approximately $8 million during the period commencing March 31, 2007 and ending March 31, 2014 based upon the gross margin of the acquired
business, as defined in the purchase agreement. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from
July 15, 2005, 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):

Initial cash payments

$
5,000Present value of notes payable


8,586Acquisition costs


250Total purchase price

$
13,836Cash and cash equivalents

$
500Other current assets


3,119Other noncurrent assets


14Property, plant and equipment


58Goodwill


5,344Other intangible assets (to be amortized over 7 years)


4,850Assumed liabilities


(49
)Allocated purchase price

$
13,836


The
purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase
price over the estimated fair value of the assets acquired and liabilities assumed amounted to $5.3 million, which was allocated to goodwill. We expect that substantially all of the amount
allocated to goodwill will be deductible for tax purposes. Pro forma results are not presented for the acquisition of Equal Diagnostics because the acquisition did not have a significant effect on our
results of operations.

Acquisition of Bone Care

In July 2005, we acquired Bone Care, a publicly-held specialty pharmaceutical company based in Middleton, Wisconsin with a focus on nephrology.
We paid gross consideration of $712.3 million in cash, including $668.4 million for the outstanding shares of Bone Care's common stock, $39.9 million to buyout options to purchase
shares of Bone Care's common stock and restricted stock outstanding on the date of acquisition and approximately $4 million for acquisition costs. Net consideration was $604.3 million as
we acquired Bone Care's cash and short-term investments totaling $108.0 million. As part of the transaction, we acquired Hectorol, a line of vitamin D2
pro-hormone products used to treat

13

---



secondary
hyperparathyroidism in patients on dialysis and those with earlier stage chronic kidney disease, or CKD, which we have added to our renal business. We accounted for the acquisition as a
purchase and accordingly, included its results of operations in our consolidated statements of operations from July 1, 2005, the date of acquisition.

In
October 2004, Bone Care was one of seven companies, all of which market treatments, therapies or diagnostics for kidney patients, that received a subpoena from the office of
the United States Attorney for the Eastern District of New York. The subpoena required Bone Care to provide a wide range of documents related to numerous aspects of its business and operations. The
subpoena included specific requests for documents related to testing for parathyroid hormone levels and vitamin D therapies. Bone Care has cooperated, and we continue to cooperate, with the
government's investigation. To our knowledge, no civil or criminal proceedings have been initiated against Bone Care or Genzyme at this time, although we cannot predict when or if any proceedings
might be initiated. As a result, we have not recorded any contingent liabilities related to this investigation as of the acquisition date. Any such liabilities that may arise out of this investigation
will be recorded in our financial statements, if they
become probable and estimable within the next year, as an increase to both the goodwill resulting from, and the liabilities assumed in connection with, our acquisition of Bone Care.

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):

Purchase of 20,254,600 shares of Bone Care common stock

$
668,402Buyout of options to purchase shares of Bone Care common stock and restricted stock


39,943Acquisition costs


4,000Total purchase price

$
712,345Cash and cash equivalents

$
41,012Short-term investments


67,015Accounts receivable


10,499Inventories


17,500Deferred tax assetscurrent


27,631Other current assets


2,847Property, plant and equipment


2,895Goodwill


225,652Other intangible assets (to be amortized straight-line over 16 years)


504,200In-process research and development


12,700Deferred tax assetsnoncurrent


13,454Assumed liabilities:Deferred tax liabilities


(185,546
)Liabilities for exit activities


(11,141
)Other


(16,373
)Allocated purchase price

$
712,345


14

---



The
purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase
price over the estimated fair value of the assets acquired and liabilities assumed amounted to $225.7 million, which was allocated to goodwill. We expect that substantially all of the amount
allocated to goodwill will not 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, tax restructuring activities
and liabilities that may arise from the government's investigation of Bone Care. Pro forma results are not presented for the acquisition of Bone Care because the acquisition did not have a significant
effect on our results of operations.

In
connection with our acquisition of Bone Care, we initiated an integration plan to consolidate and restructure certain functions and operations, including the relocation or termination
of certain Bone Care personnel. These costs have been recognized as liabilities assumed in connection with our acquisition of Bone Care in accordance with EITF 95-3, "Recognition of
Liabilities in Connection with a Purchase 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 the acquisition of Bone Care (amounts in thousands):

Employee Related Benefits

Other Exit Activities

Total Exit ActivitiesRecorded at acquisition date

$
10,759

$
382

$
11,141Payments in 2005


(6,960
)




(6,960
)Balance at September 30, 2005

$
3,799

$
382

$
4,181


We
expect to pay employee related benefits to the former employees of Bone Care through the second half of 2006.

Acquisition of Verigen AG

In February 2005, we acquired Verigen, a private company based in Leverkusen, Germany with a proprietary cell therapy product for cartilage repair
(referred to as MACI) that is currently sold in Europe and Australia. We paid $11.8 million in initial cash payments and may be obligated to make additional cash payments of up to an aggregate
of $38.0 million over the next six years, based upon the achievement of development and commercial milestones relating to regulatory approval and commercialization of MACI in the United States,
as well as contingent payments on worldwide sales of that product. We acquired approximately 96% of Verigen's outstanding shares in February 2005 and acquired the remaining outstanding shares in
August 2005. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from February 8, 2005, the date of
acquisition.

15

---



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):

Initial cash payments

$
11,804Contingent purchase price liabilities


6,350Acquisition costs


912Total purchase price

$
19,066Cash and cash equivalents

$
924Other current assets


4,478Other noncurrent assets


1,023Property, plant and equipment


2,673Other intangible assets (to be amortized over 10 years)


11,965In-process research and development


9,500Assumed liabilities:Deferred tax liability


(4,641
)Liabilities for exit activities


(2,428
)Other


(4,428
)Allocated purchase price

$
19,066


The
purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The estimated fair value of the
assets acquired and liabilities assumed exceeded the initial payments by $6.4 million resulting in negative goodwill. Pursuant to SFAS No. 142, "Goodwill and Other Intangible Assets," we
recorded as a liability, contingent consideration up to the amount of the negative goodwill. If and when contingent payments come due, we will apply the payments against the $6.4 million
contingent liability. Contingent payments in excess of $6.4 million, if any, will be recorded as goodwill. During 2005, we paid $0.4 million of contingent payments. As of
September 30, 2005, the remaining contingent liability is $6.0 million.

The
allocation of the purchase price remains subject to potential adjustments, including the valuation of acquired tax assets and restructuring liabilities. Pro forma results are not
presented for the
acquisition of Verigen because the acquisition did not have a significant effect on our results of operations.

In
connection with our acquisition of Verigen, we initiated an integration plan to consolidate and restructure certain functions and operations, including the relocation or termination
of certain Verigen personnel and the closure of certain of Verigen's leased facilities. These costs have been recognized as liabilities assumed in connection with the acquisition of Verigen in
accordance with EITF 95-3 and are subject to potential adjustments as certain exit activities are confirmed or refined. The following table

16

---



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

Employee Related Benefits

Closure of Leased Facilities

Other Exit Activities

Total Exit ActivitiesRecorded at acquisition date

$
975

$
1,327

$
126

$
2,428Payments in 2005


(328
)

(87
)

(49
)

(464
)Adjustments(1)


(57
)

(85
)

(7
)

(149
)Balance at September 30, 2005

$
590

$
1,155

$
70

$
1,815


---

We
expect to pay employee related benefits to the former employees of Verigen and make payments related to leased facilities of Verigen through the first half of 2006.

Acquisition of Synvisc Sales and Marketing Rights from Wyeth

In January 2005, we consummated an arrangement with Wyeth under which we reacquired the sales and marketing rights to Synvisc in the United States, as well
as Germany, Poland, Greece, Portugal and the Czech Republic. Upon closing this transaction, we began to record revenue from sales of Synvisc to end-users in all of these territories except
Greece. We began selling Synvisc directly to end-users in Greece effective July 1, 2005. In exchange for the sales and marketing rights, we paid a total of $121.0 million in
cash to Wyeth in 2005 and $0.3 million of acquisition costs, of which $0.2 million were paid in 2005. We also accrued contingent payments to Wyeth totaling $45.1 million during
2005, of which $30.0 million had been paid as of September 30, 2005. Distribution agreements (a component of other intangible assets, net) in our consolidated balance sheet as of
September 30, 2005 include a total of $166.4 million for the initial and contingent payments (made or accrued) as of that date. We will make a series of additional contingent payments to
Wyeth based on the volume of Synvisc sales in the covered territories. These contingent payments could extend out to June 2012, or could total a maximum of $293.7 million, whichever
comes first.

We
determined that the contingent payments to Wyeth represent contingent purchase price. Accordingly, as contingent payments are made in the future, the amounts will be recorded as
additional purchase price for the underlying intangible asset. We calculate amortization expense for this intangible asset based on an economic use model, taking into account our forecasted future
sales of Synvisc and the resulting estimated future contingent payments we will be required to make. We periodically update the estimates used in this amortization calculation based on changes in
forecasted sales and resulting estimated contingent payments.

We
are now recording selling, general and administrative, or SG&A, expenses related to the additional Synvisc sales force we assumed from Wyeth, and we continue to record all of the
research and development expenses related to Synvisc.

The
reacquired Synvisc distribution rights qualify as an asset rather than an acquired business. As a result, we do not provide pro forma results for our reacquisition of the Synvisc
distribution rights.

17

---



Acquisition of ILEX Oncology

In December 2004, we completed our acquisition of ILEX, an oncology drug development company. The transaction had a total value of approximately
$1.1 billion, based on the $55.88 per share value of the 18.5 million shares of our common stock exchanged in the acquisition. We accounted for the acquisition as a purchase and,
accordingly, included its results of operations in our consolidated statements of operations from December 20, 2004, the date of acquisition.

The
purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. We also recorded
an estimated tax liability of $47.5 million related to the integration of ILEX. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed
amounted to $464.0 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will not 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
connection with our acquisition of ILEX, we initiated an integration plan to consolidate and restructure certain functions and operations, including the relocation or termination of
certain ILEX personnel and the closure of certain of ILEX's leased facilities. These costs have been recognized as liabilities assumed in connection with the acquisition of ILEX in accordance with
EITF 95-3 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 our acquisition of ILEX (amounts in thousands):

Employee Related Benefits

Closure of Leased Facilities

Other Exit Activities

Total Exit ActivitiesRecorded at acquisition date

$
4,900

$
216

$
214

$
5,330Payments in 2004





(140
)

(5
)

(145
)Balance at December 31, 2004


4,900


76


209


5,185Revision of estimate


828





9,808


10,636Payments in 2005


(4,327
)

(52
)

(162
)

(4,541
)Balance at September 30, 2005

$
1,401

$
24

$
9,855

$
11,280


In
June 2005, we accrued a $9.8 million liability related to the termination of a development contract we assumed in connection with our acquisition of ILEX. The payment
was recorded as a $6.9 million increase to goodwill, net of tax, and a $9.8 million increase to accrued expenses.

We
expect to pay employee related benefits to the former employees of ILEX through the second quarter of 2006.

Acquisition of Physician Services and Analytical Services Business Units of IMPATH

In May 2004, we acquired substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business
units of IMPATH, a national medical testing provider, for total cash consideration of $215.3 million, including acquisition costs. We accounted for

18

---



the
acquisition as a purchase and, accordingly, included the results of operations related to these business units in our consolidated statements of operations from May 1, 2004, the date of
acquisition. The purchase price is subject to adjustment based upon the completion of a post-closing assessment of the working capital of the acquired business units as of April 30,
2004.

The
purchase price was allocated to the 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 $157.5 million, which was allocated to goodwill. Pro forma results are not presented for
our acquisition of the pathology/oncology testing assets of IMPATH because the acquisition did not have a significant effect on our results of operations.

In
connection with the acquisition of these assets, we initiated an integration plan to consolidate and restructure certain functions and operations, including the relocation or
termination of certain personnel and the closure of certain of the facilities leased by these business units of IMPATH. These costs have been recognized as liabilities assumed in connection with the
purchase of the IMPATH assets in accordance with EITF 95-3. The following table summarizes the liabilities established for exit activities related to this acquisition (amounts in
thousands):

Employee Related Benefits

Closure of Leased Facilities

Total Exit ActivitiesRecorded at acquisition date

$
1,434

$
36

$
1,470Payments in 2004


(447
)

(4
)

(451
)Balance at December 31, 2004


987


32


1,019Payments in 2005


(614
)

(27
)

(641
)Balance at September 30, 2005

$
373

$
5

$
378


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

Acquisition of SangStat

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

In
connection with the acquisition of SangStat, we initiated an integration plan to consolidate and restructure certain functions and operations of SangStat, including the relocation or
termination of certain SangStat personnel and the closure of certain of SangStat's leased facilities. These costs have been recognized as liabilities assumed in connection with the purchase of
SangStat in accordance with

19

---



EITF
95-3. The following table summarizes the liabilities established for exit activities related to the acquisition of SangStat (amounts in thousands):

Employee Related Benefits

Closure of Leased Facilities(1)

Other Exit Activities

Total Exit ActivitiesRecorded at acquisition date

$
7,118

$
2,561

$
49

$
9,728Revision of estimate


1,315


(233
)

257


1,339Payments in 2003


(831
)







(831
)Balance at December 31, 2003


7,602


2,328


306


10,236Revision of estimate


(455
)

(320
)

(184
)

(959
)Payments in 2004


(5,454
)

(1,408
)

(122
)

(6,984
)Balance at December 31, 2004


1,693


600





2,293Payments in 2005


(684
)

(192
)




(876
)Balance at September 30, 2005

$
1,009

$
408

$


$
1,417


---

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



The following pro forma financial summary is presented as if the acquisition of ILEX was completed as of January 1, 2004. The pro forma combined results
are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated on that date, or of the future operations of the combined entities. Material
nonrecurring charges related to this acquisition, such as an IPR&D charge of $254.5 million, are included in the following pro forma financial summary (amounts in thousands, except per share
amounts):

Three Months Ended
September 30, 2004

Nine Months Ended
September 30, 2004Total revenues

$
576,500

$
1,635,451Net income (loss)

$
87,936

$
(43,881
)Net income (loss) per share:Basic

$
0.36

$
(0.18
)Diluted

$
0.34

$
(0.18
)Weighted average shares outstanding:Basic


246,614


245,273Diluted


263,191


245,273


20

---





5. Inventories

September 30,
2005

December 31,
2004(Amounts in thousands)Raw materials

$
70,394

$
65,000Work-in-process


84,013


79,747Finished products


155,362


148,911Total

$
309,769

$
293,658


We
capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval. If a product is not approved for sale, it would
likely result in the write-off of the inventory and a charge to earnings. Our total inventories included $15.0 million at September 30, 2005 and $5.6 million at
December 31, 2004, of Myozyme inventory, primarily consisting of finished goods, which has not yet been approved for sale. We submitted marketing applications for Myozyme in the European Union
in December 2004 and in the United States in July 2005.

6. Goodwill and Other Intangible Assets



The following table contains the changes in our net goodwill during the nine months ended September 30, 2005 (amounts in thousands):

|                          |  | As of
December 31,
2004 |           | Acquisitions |   | Adjustments |  | As of
September 30,
2005
|------------------------- |  | ----------------------- | --------- | ------------ | - | ----------- |  | ------------------------
|Renal(1)                  |  | $                       | 76,753    |              | $ | 225,652     |  | $                       
|Therapeutics              |  |                         | 354,709   |              |   |            |  |                         
|Transplant(2)             |  |                         | 132,111   |              |   |            |  |                         
|Biosurgery                |  |                         | 7,585     |              |   |            |  |                         
|Diagnostics/Genetics(3,4) |  |                         | 240,005   |              |   | 5,344       |  |                         
|Other(4,5)                |  |                         | 479,753   |              |   |            |  |                         
|                          |  |                         |           |              |   |             |  |                         
|Goodwill, net             |  | $                       | 1,290,916 |              | $ | 230,996     |  | $                       
|                          |  |                         |           |              |   |             |  |                         

---

21

---





We
completed the annual impairment tests for our $1.5 billion of net goodwill in the third quarter of 2005, as provided by SFAS No. 142, "Goodwill and Other Intangible
Assets," and determined that none of the goodwill allocated to our reporting units was impaired and, therefore, no impairment charges were required. We are required to perform impairment tests related
to our goodwill under SFAS No. 142 annually, which we perform in the third quarter, and whenever events or changes in circumstances suggest that the carrying value of an asset may not be
recoverable.



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

|                            |       | As of September 30, 2005 |           | As of December 31, 2004
|--------------------------- | ----- | ------------------------ | --------- | -----------------------
|
|Technology(1)               |       | $                        | 1,499,265 |                        
|Patents                     |       |                          | 183,360   |                        
|Trademarks                  |       |                          | 60,227    |                        
|License fees                |       |                          | 44,704    |                        
|Distribution agreements (2) |       |                          | 180,342   |                        
|Customer lists(3)           |       |                          | 108,082   |                        
|Other                       |       |                          | 2,081     |                        
|                            |       |                          |           |                        
|                            | Total |                          | $         | 2,078,061              
|                            |       |                          |           |                        

---

22

---





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



The
estimated future amortization expense for other intangible assets as of September 30, 2005, for the remainder of fiscal year 2005, and the five succeeding fiscal years is as
follows (amounts in thousands):

Year Ended December 31,

Estimated
Amortization
Expense(1)2005 (remaining three months)

$
49,6462006


187,5022007


174,5652008


178,2632009


189,4172010


203,325


---

7. Investments in Equity Securities

In April 2005, we sold our entire investment in the common stock of Theravance, Inc., or Theravance, for $4.5 million in cash. Our investment
in Theravance had a zero cost basis and, as a result, we recorded a gain of $4.5 million in gains (losses) on investments in equity securities in our consolidated statements of operations in
April 2005 related to this sale.

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

At
September 30, 2005, our stockholders' equity includes $33.9 million of unrealized gains and $1.4 million of unrealized losses related to our investments in
strategic equity securities. None of these unrealized losses have been below our cost basis for more than one year.

8. Joint Venture with BioMarin

We formed BioMarin/Genzyme LLC to develop and market Aldurazyme for the treatment of MPS I. We record our portion of the income (loss) of BioMarin/Genzyme LLC in
equity in income (loss) of

23

---



equity
method investments in our consolidated statements of operations. Our portion of BioMarin/Genzyme LLC's net income (loss) was:



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

Three Months Ended September 30,

Nine Months Ended September 30,2005

2004

2005

2004Revenue

$
20,122

$
10,332

$
55,201

$
26,968Gross profit


13,794


6,497


37,165


17,186Operating expenses


(8,912
)

(11,737
)

(29,110
)

(35,861
)Net income (loss)


4,966


(5,195
)

8,270


(18,589
)


9. Long-Term Debt and Capital Lease Obligations

Revolving Credit Facility

In December 2003, we entered into a three year $350.0 million revolving credit facility, maturing in December 2006. As of December 31,
2004, $100.0 million in principal remained outstanding under this facility. In January 2005, we repaid the entire $100.0 million in principal outstanding under the credit
facility. In June 2005, we drew down $350.0 million under this facility, to finance a portion of the cash consideration for the acquisition of Bone Care. In August 2005, we repaid
$290.0 million in principal and in September 2005, we repaid the remaining $60.0 million in principal drawn under our revolving credit facility. As of September 30, 2005, no
amounts remained outstanding under our revolving credit facility. Borrowings under this credit facility bear interest at LIBOR plus an applicable margin, which was 4.22% at September 30, 2005.
The terms of our revolving credit facility include various covenants, including financial covenants that require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage
ratios. We currently are in compliance with these covenants.

Capital Lease

We had a capital lease obligation related to our administrative offices in Waltham, Massachusetts that required us to make interest-only lease
payments of $2.1 million per year through October 31, 2005, the end of the lease term. On October 31, 2005, we exercised our option to purchase the building and improvements for a
purchase price equal to the total amount funded by the lessor of $25.0 million, plus $0.5 million of accrued interest and an insignificant amount of other closing costs.

24

---



10. Other Commitments and Contingencies

Legal Proceedings

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

Four
lawsuits have been 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 is a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in Massachusetts Superior Court 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 Court dismissed the complaint in November 2003, but the plaintiff has appealed this dismissal. This appeal was
argued before the Massachusetts Appeals Court in March 2005 and we are awaiting the Appeals Court's ruling. Two substantially similar cases were filed in Massachusetts Superior Court 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. The complaint initially alleged violations of federal securities laws, common law fraud, and a breach of the merger
agreement with Biomatrix in addition to the state law claims contained in the other cases. The plaintiffs initially sought an adjustment to the exchange ratio, the rescission of the acquisition of
Biomatrix, and unspecified compensatory damages. In November 2005, the plaintiffs in this case dropped all of the claims alleged in the initial complaint relating to the issuance of Biosurgery Stock
and the acquisition of Biomatrix, and narrowed the putative class to include only those individuals who held Biosurgery Stock on May 8,
2003. Discovery in this case is ongoing. We believe each of these cases is without merit and continue to defend against them vigorously.

On
March 27, 2003, the Office of Fair Trading, or OFT, in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited
held a dominant position and abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers from the market for the
supply of home delivery and homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and required modification to
its list price for Cerezyme in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal. On May 6, 2003, the Tribunal issued an order that stayed the OFT's
decision, but required Genzyme Limited to provide a homecare distributor a discount of 3% per unit during the appeal process. The Tribunal issued its judgment on Genzyme Limited's appeal on
March 11, 2004, rejecting portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme should not be reduced, but that Genzyme Limited must negotiate
a price for Cerezyme that will allow homecare distributors an appropriate margin. The Tribunal also reduced the fine imposed by the OFT for violation of U.K. competition laws. In response to the
Tribunal's decision, we recorded an initial liability of approximately $11 million in our 2003 financial statements and additional liabilities totaling approximately $2 million during
2004 and 2005. Genzyme Limited and the OFT were unable to negotiate a price for Cerezyme for homecare distributors and, as a result, on September 29, 2005, the Tribunal issued a ruling
establishing the discount to be provided by Genzyme Limited to homecare distributors at 7.2%, which approximates the figure used to calculate the $11 million initial, and $2 million
additional liabilities we recorded in 2003, 2004 and 2005. Genzyme Limited has decided not to appeal this decision.

25

---



In
June 2003, we filed suit in U.S. District Court for the District of Massachusetts, as co-plaintiff with Biogen IDEC and Abbott Laboratories against Columbia
University seeking a declaration that Columbia's U.S. Patent 6,455,275 is invalid. The patent relates to the manufacture of recombinant proteins in Chinese hamster ovary, or CHO, cells, which are the
cells we use to manufacture Cerezyme, Fabrazyme and Thyrogen, and which our joint venture partner, BioMarin, uses to manufacture Aldurazyme. This new patent was issued by the United States Patent and
Trademark Office, or USPTO, in September 2002 from a family of patents and patent applications originally filed in 1980. We are licensed under the patent family for a royalty of 1.5% of sales
but, because we were confident that the new patent was mistakenly issued by the USPTO and is invalid, we did not pay the royalty pending the outcome of the litigation. We then received notice from
Columbia that we were in breach of our license agreement. A hearing on motions for a summary judgment was scheduled for November 2004; however, Columbia rescinded the breach notification and
filed with the Court a covenant not to enforce its patent 6,455,275 against any plaintiff in this litigation. In view of this covenant, the Court granted Columbia's motion to dismiss the plaintiff's
main claim for lack of subject matter jurisdiction. In August 2005, the parties entered into a settlement agreement, resulting in a dismissal of the entire case.

We
are not able to predict the outcome of our pending legal proceedings or estimate with certainty the amount or range of any possible loss we might incur if we do not prevail in the
final, non-appealable determinations of such matters. Therefore, except for the liabilities recorded in connection with the Tribunal's decision regarding Cerezyme pricing in the United
Kingdom, we have not accrued any amounts in connection with these potential contingencies. We cannot provide you with assurance that the tracking stock litigation, or other legal proceedings, will not
have a material adverse impact on our financial condition or results of operations.

11. Provision for Income Taxes

|                           |  | Three Months Ended
September 30, |         |   |   | Nine Months Ended
September 30, |   |    |  
|-------------------------- |  | -------------------------------- | ------- | - | - | ------------------------------- | - | -- | -
|
|
|
|Provision for income taxes |  | $                                | (51,279 | ) | $ | (42,479                         | ) | 21 | %
|Effective tax rate         |  |                                  | 31      | % |   | 30                              | % |    |  

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



In
addition, our effective tax rate for the three months ended September 30, 2005 varies from the U.S. statutory tax rate due to a $12.7 million non-deductible charge for
IPR&D recorded in the third quarter of 2005 in connection with our acquisition of Bone Care. Our effective tax rate for the nine months ended September 30, 2005 varies from the U.S. statutory
tax rate due to $22.2 million of

26

---



non-deductible
charges for IPR&D, of which $9.5 million was recorded in the first quarter of 2005 in connection with our acquisition of Verigen and $12.7 million was recorded
in the third quarter of 2005 related to our acquisition of Bone Care.

We
are currently under IRS audit for tax years 1996 to 1999 and 2002 to 2003. We believe that we have provided sufficiently for all audit exposures. Favorable 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 a reduction of future tax provisions. Any such benefit would be recorded upon final
resolution of the audit or expiration of the applicable statute of limitations.

In
October 2004, the United States enacted the American Jobs Creation Act of 2004, or the Act, which repeals the FSC Repeal and Extraterritorial Income Exclusion Act of 2000, or
ETI, export subsidy for transactions after 2004 with two years of transition relief (2005-2006). The Act also provides a 9% deduction for income from domestic production activities which
will be phased in over
the years 2005-2010. While we are still evaluating the net impact of this new legislation, we do not expect it to have a material effect on our ongoing effective tax rate.

12. Defined Benefits Pension Plans

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

The
components of net pension expense for the three and nine months ended September 30, 2005 and 2004 are as follows (amounts in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2005

2004

2005

2004Service cost

$
740

$
605

$
2,265

$
1,833Interest cost


684


567


2,096


1,714Expected return on plan assets


(792
)

(670
)

(2,424
)

(2,030
)Amortization and deferral of actuarial loss


208


148


636


449Net pension expense

$
840

$
650

$
2,573

$
1,966


At
December 31, 2004, we recorded net prepaid benefit costs of $5.0 million related to our defined benefit pension plans. For the nine months ended September 30,
2005, we contributed $2.0 million to our pension plan in the United Kingdom. We anticipate making approximately $0.9 million of additional contributions to this plan in 2005 to satisfy
our annual funding obligation.

13. Segment Information

In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner
consistent with the method we use to report this information to our management. Applying SFAS No. 131, we have five reporting segments as described in Note 1., "Description of Business,"
to these financial statements. As described in Note 1. above, effective January 1, 2005, as a result of changes in how we review our business, we re-allocated the programs of
our former drug discovery and development business unit, formerly

27

---



reported
under the caption "Other," amongst several of our existing reporting segments and business units as follows:



We
have reclassified our 2004 segment disclosures to conform to our 2005 presentation.

The
following table provides information concerning the operations in our reporting segments (amounts in thousands):

|                                   |                         | Three Months Ended
September 30, |   | Nine Months Ended
September 30, |        
|---------------------------------- | ----------------------- | -------------------------------- | - | ------------------------------- | -------
|
|Revenues:                          |                         |                                  |   |                                 |        
|                                   | Renal(1)                |                                  | $ | 121,007                         |        
|                                   | Therapeutics            |                                  |   | 337,811                         |        
|                                   | Transplant              |                                  |   | 34,124                          |        
|                                   | Biosurgery(1)           |                                  |   | 92,802                          |        
|                                   | Diagnostics/Genetics(1) |                                  |   | 84,670                          |        
|                                   | Other(1)                |                                  |   | 37,160                          |        
|                                   | Corporate(1)            |                                  |   | 489                             |        
|                                   |                         |                                  |   |                                 |        
|                                   |                         | Total                            |   | $                               | 708,063
|                                   |                         |                                  |   |                                 |        
|Income (loss) before income taxes: |                         |                                  |   |                                 |        
|                                   | Renal(1)                |                                  | $ | 5,573                           |        
|                                   | Therapeutics            |                                  |   | 191,457                         |        
|                                   | Transplant              |                                  |   | 1,533                           |        
|                                   | Biosurgery(1)           |                                  |   | 9,778                           |        
|                                   | Diagnostics/Genetics(1) |                                  |   | (601                            | )      
|                                   | Other(1)                |                                  |   | (21,244                         | )      
|                                   | Corporate(1,2)          |                                  |   | (19,563                         | )      
|                                   |                         |                                  |   |                                 |        
|                                   |                         | Total                            |   | $                               | 166,933
|                                   |                         |                                  |   |                                 |        

---

28

---





Acquisition

Date Acquired

Business Segment(s)

IPR&D ChargeEqual Diagnostics

July 15, 2005

Diagnostics/Genetics

NoneBone Care

July 1, 2005

Renal/Corporate

$12.7 millionVerigen

February 8, 2005

Biosurgery/Corporate

$9.5 millionSynvisc sales and marketing rights from Wyeth

January 6, 2005

Biosurgery

NoneILEX

December 20, 2004

Other

$254.5 millionPathology/oncology testing assets of IMPATH

May 1, 2004

Diagnostics/Genetics

NoneAlfigen

February 21, 2004

Diagnostics/Genetics

None




The following table provides information concerning the assets of our reporting segments (amounts in thousands):

September 30,
2005

December 31,
2004Segment Assets(1):Renal(2)

$
1,346,831

$
616,979Therapeutics


960,227


949,168Transplant


370,802


408,090Biosurgery(3,4)


460,988


294,715Diagnostics/Genetics(5)


478,570


464,870Other


761,497


797,352Corporate(6)


2,403,050


2,538,247Total

$
6,781,965

$
6,069,421


---

29

---





30

---





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

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

INTRODUCTION

We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad product and service portfolio is
focused on rare genetic disorders, renal disease, 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 oncology, bulk pharmaceuticals and cardiovascular business units under the caption "Other." We report our corporate, general and administrative operations
and corporate science activities that we do not allocate to our financial reporting units, under the caption "Corporate." Effective January 1, 2005, as a result of changes in how we will review
our business, we re-allocated the programs of our former drug discovery and development business unit, formerly reported under the caption "Other," amongst several of our existing
reporting segments and business units as follows:



31

---





We
have reclassified our 2004 segment disclosures to conform to our 2005 presentation.

MERGERS AND ACQUISITIONS

Acquisition of Equal Diagnostics

In July 2005, we acquired Equal Diagnostics, a privately-held diagnostics company in Exton, Pennsylvania, that formerly served as a distributor
for our clinical chemistry reagents. We paid $5.0 million in initial cash payments and issued promissory notes to the three former shareholders of Equal Diagnostics totaling
$10.0 million in principal and interest. These notes bear interest at 3.86% and are payable over eight years in equal annual installments commencing on March 31, 2007. In addition to
these guaranteed payments, we may be obligated to make additional cash payments of up to an aggregate of approximately $8 million during the period commencing March 31, 2007 and ending
March 31, 2014 based upon the gross margin of the acquired business, as defined in the purchase agreement. We accounted for the acquisition as a purchase and accordingly, included its results
of operations in our consolidated statements of operations from July 15, 2005, the date of acquisition.

The
purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the
purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $5.3 million, which was allocated to goodwill. We expect that substantially all of the
amount allocated to goodwill will be deductible for tax purposes.

Acquisition of Bone Care

In July 2005, we acquired Bone Care, a publicly-held specialty pharmaceutical company based in Middleton, Wisconsin with a focus on nephrology.
We paid gross consideration of $712.3 million in cash, including $668.4 million for outstanding shares of Bone Care's common stock, $39.9 million to buyout options to purchase
shares of Bone Care's common stock and restricted stock outstanding on the date of acquisition, and approximately $4 million for acquisition costs. Net consideration was $604.3 million
as we acquired Bone Care's cash and short-term investments totaling $108.0 million. As part of the transaction, we acquired Hectorol, a line of vitamin D2
pro-hormone products used to treat secondary hyperparathyroidism in patients on dialysis and those with earlier stage CKD, which we have added to our renal business. We accounted for the
acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from July 1, 2005, the date of acquisition.

In
October 2004, Bone Care was one of seven companies, all of which market treatments, therapies or diagnostics for kidney patients, that received a subpoena from the office of
the United States Attorney for the Eastern District of New York. The subpoena required Bone Care to provide a wide range of documents related to numerous aspects of its business and operations. The
subpoena included specific requests for documents related to testing for parathyroid hormone levels and vitamin D therapies. Bone Care has cooperated, and we continue to cooperate, with the
government's investigation. To our knowledge, no civil or criminal proceedings have been initiated against Bone Care or Genzyme at this time, although we cannot predict when or if any proceedings
might be initiated. As

32

---



a
result, we have not recorded any contingent liabilities related to this investigation as of the acquisition date. Any such liabilities that may arise out of this investigation will be recorded in
our financial statements, if they become probable and estimable within the next year, as an increase to both the goodwill resulting from, and the liabilities assumed in connection with, our
acquisition of Bone Care.

The
purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the
purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $225.7 million, which was allocated to goodwill. We expect that substantially all of the
amount allocated to goodwill will not be deductible for tax purposes.

The
allocation of purchase price remains subject to potential adjustments, including adjustments for liabilities associated with certain exit activities, tax restructuring activities and
liabilities that may arise from the government's investigation of Bone Care.

Acquisition of Verigen

In February 2005, we acquired Verigen, a private company based in Leverkusen, Germany with a proprietary cell therapy product for cartilage repair
(referred to as MACI) that is currently sold in Europe and Australia. We paid $11.8 million in initial cash payments and may be obligated to make additional cash payments of up to an aggregate
of $38.0 million over the next six years, based upon the achievement of development and commercial milestones relating to regulatory approval and commercialization of MACI in the United States,
as well as contingent payments on worldwide sales of that product. We acquired approximately 96% of Verigen's outstanding shares in February 2005 and acquired the remaining outstanding shares in
August 2005. We accounted for the acquisition as a purchase and accordingly, included its results of operations in our consolidated statements of operations from February 8, 2005, the date of
acquisition.

The
purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The estimated
fair value of the assets acquired and liabilities assumed exceeded the initial payments by $6.4 million resulting in negative goodwill. Pursuant to SFAS No. 142, we recorded as a
liability, contingent consideration up to the amount of the negative goodwill. If and when contingent payments come due, we will apply the payments against the $6.4 million contingent
liability. Contingent payments in excess of $6.4 million, if any, will be recorded as goodwill. During 2005, we paid $0.4 million of contingent payments. As of September 30, 2005,
the remaining contingent liability is $6.0 million.

The
allocation of the purchase price remains subject to potential adjustments, including the valuation of acquired tax assets and restructuring liabilities.

Acquisition of Synvisc Sales and Marketing Rights from Wyeth

In January 2005, we consummated an arrangement with Wyeth under which we reacquired the sales and marketing rights to Synvisc in the United States, as well
as Germany, Poland, Greece, Portugal and the Czech Republic. Upon closing this transaction, we began to record revenue from sales of Synvisc to end-users in all of these territories except
Greece. We began selling Synvisc directly to end-users in Greece effective July 1, 2005. In exchange for the sales and marketing rights, we paid a total of $121.0 million in
cash to Wyeth in 2005 and $0.3 million of acquisition costs, of which $0.2 million were paid in 2005. We also accrued contingent payments to Wyeth totaling $45.1 million during
2005, of which $30.0 million had been paid as of September 30, 2005. Distribution agreements (a component of other intangible assets, net) in our consolidated balance sheet as of
September 30, 2005 includes a total of $166.4 million for the initial and contingent payments (made and accrued) as of that date. We will make a series of additional contingent payments
to Wyeth based on the volume of

33

---



Synvisc
sales in the covered territories. These contingent payments could extend out to June 2012, or could total a maximum of $293.7 million, whichever comes first.

We
determined that the contingent payments to Wyeth represent contingent purchase price. Accordingly, as contingent payments are made in the future, the amounts will be recorded as
additional purchase price for the underlying intangible asset. We calculate amortization expense for this intangible asset based on an economic use model, taking into account our forecasted future
sales of Synvisc and the resulting estimated future contingent payments we will be required to make. We periodically update the estimates used in this amortization calculation based on changes in
forecasted sales and resulting estimated contingent payments.

We
are now recording SG&A expenses related to the additional Synvisc sales force we assumed from Wyeth, and we continue to record all of the research and development expenses related to
Synvisc.

Acquisition of ILEX

In December 2004, we completed our acquisition of ILEX, an oncology drug development company. The transaction had a total value of approximately
$1.1 billion, based on the $55.88 per share value of the 18.5 million shares of our common stock exchanged in the acquisition. We accounted for the acquisition as a purchase and
accordingly, included its results of operations in our consolidated statements of operations from December 20, 2004, the date of acquisition.

The
purchase price was allocated to the intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. We also recorded an estimated
tax liability of $47.5 million related to the integration of ILEX. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to
$464.0 million, which was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill will not 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.

Acquisition of Physician Services and Analytical Services Business Units of IMPATH

In May 2004, we acquired substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business
units of IMPATH, a national medical testing provider, for total cash consideration of $215.3 million, including acquisition costs. We accounted for the acquisition as a purchase and
accordingly, included the results of operations related to these business units in our consolidated statements of operations from May 1, 2004, the date of acquisition. The purchase price is
subject to adjustment based upon the completion of a post-closing assessment of the working capital of the acquired business units as of April 30, 2004.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

Our critical accounting policies and significant estimates are set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and
Subsidiaries' Financial Condition and Results of OperationsCritical Accounting Policies and Significant Estimates" in Exhibit 13.1 to our 2004 Form 10-K. There
have been no changes to these policies and no significant changes to these estimates since December 31, 2004.

34

---



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,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2005

2004

2005

2004(Amounts in thousands, except percentage data)Product revenue

$
633,605

$
505,415

25
%
$
1,796,165

$
1,451,044

24
%Service revenue


69,845


61,327

14
%

194,494


150,885

29
%Total product and service revenue


703,450


566,742

24
%

1,990,659


1,601,929

24
%Research and development revenue


4,613


2,487

85
%

15,492


8,139

90
%Total revenues

$
708,063

$
569,229

24
%
$
2,006,151

$
1,610,068

25
%


Product Revenue

We derive product revenue from sales of:



35

---





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) |                                  | $      | 106,869 |         | $                               | 93,308  |         | 15  
|                      | Hectorol                                    |                                  |        | 14,138  |         |                                 |        |         | N/A 
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total Renal                      |        |         | 121,007 |                                 |         | 93,308  |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|Therapeutics:         |                                             |                                  |        |         |         |                                 |         |         |     
|                      | Cerezyme                                    |                                  |        | 238,329 |         |                                 | 208,378 |         | 14  
|                      | Fabrazyme                                   |                                  |        | 79,076  |         |                                 | 57,996  |         | 36  
|                      | Thyrogen                                    |                                  |        | 18,503  |         |                                 | 15,428  |         | 20  
|                      | Other Therapeutics                          |                                  |        | 1,903   |         |                                 | 575     |         | 231 
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total Therapeutics               |        |         | 337,811 |                                 |         | 282,377 |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|Transplant:           |                                             |                                  |        |         |         |                                 |         |         |     
|                      | Thymoglobulin/Lymphoglobuline               |                                  |        | 32,434  |         |                                 | 28,342  |         | 14  
|                      | Other Transplant                            |                                  |        | 1,677   |         |                                 | 12,669  |         | (87 
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total Transplant                 |        |         | 34,111  |                                 |         | 41,011  |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|Biosurgery:           |                                             |                                  |        |         |         |                                 |         |         |     
|                      | Synvisc                                     |                                  |        | 57,747  |         |                                 | 24,630  |         | 134 
|                      | Sepra products                              |                                  |        | 17,025  |         |                                 | 15,085  |         | 13  
|                      | Other Biosurgery                            |                                  |        | 7,647   |         |                                 | 11,138  |         | (31 
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total Biosurgery                 |        |         | 82,419  |                                 |         | 50,853  |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|Diagnostics/Genetics: |                                             |                                  |        |         |         |                                 |         |         |     
|                      | Diagnostic Products                         |                                  |        | 25,302  |         |                                 | 21,667  |         | 17  
|                      | Other Diagnostics/Genetics                  |                                  |        |        |         |                                 | 288     |         | (100
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total Diagnostics/Genetics       |        |         | 25,302  |                                 |         | 21,955  |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|Other product revenue |                                             |                                  | 32,955 |         |         | 15,911                          |         | 107     | %   
|                      |                                             |                                  |        |         |         |                                 |         |         |     
|                      |                                             | Total product revenue            |        | $       | 633,605 |                                 | $       | 505,415 |     
|                      |                                             |                                  |        |         |         |                                 |         |         |     

Renal

Sales of Renagel, including sales of bulk sevelamer, the raw material used to formulate Renagel, increased 15% to $106.9 million for the three months ended
September 30, 2005, as compared to the same periods of 2004, primarily due to a $9.1 million increase in net sales related to increased customer volume, driven primarily by increased
end-user demand in the United States and Europe.

Sales
of Renagel, including sales of bulk sevelamer, increased 16% to $307.1 million for the nine months ended September 30, 2005, as compared to the same periods of 2004,
primarily due to a $34.2 million increase in the nine month period in net sales related to increased customer volume, driven primarily by increased end-user demand in the United
States and Europe and a 3% increase in the average exchange rate for the Euro against the U.S. dollar for the nine months ended

36

---



September 30,
2005, as compared to the same periods of 2004, which positively impacted Renagel revenue by $2.4 million for the nine month period.

Sales
of Renagel, including sales of bulk sevelamer, were 17% of our total product revenue for both the three and nine months ended September 30, 2005 as compared to 18% for both
the three and nine months ended September 30, 2004.

Our
acquisition of Bone Care on July 1, 2005 expanded our Renal product offerings with the addition of Hectorol, a complimentary product to Renagel used to treat secondary
hyperparathyroidism in patients on dialysis and those with earlier stage CKD. Bone Care's operations are being integrated into our Renal business, and our sales representatives have begun selling
Hectorol to nephrologists in the United States. Sales of Hectorol were $14.1 million for both the three and nine months ended September 30, 2005, reflecting sales beginning on
July 1, 2005.

In
addition, we recently announced results from the Dialysis Clinical Outcomes Revisited, or DCOR, trial. The three-year trial compared the difference in mortality and
morbidity outcomes for patients receiving Renagel with those using calcium-based phosphate binders. The study found that Renagel use resulted in clinical benefit to patients who were treated for two
years or more and patients who were 65 years of age or older.

We
expect sales of Renagel and Hectorol to increase, driven primarily by growing patient access to our products and the continued adoption of the products by nephrologists worldwide. We
expect adoption rates for Renagel to trend favorably as a result of the DCOR trial and the growing acceptance of the Kidney Disease Outcome Quality Initiative, or K/DOQI, guidelines. Renagel and
Hectorol compete with several other products and our future sales may be impacted negatively by these products. We discuss these competitors under the heading "Factors Affecting Future Operating
ResultsOur future success will depend upon our ability to effectively develop and market our products against those of our competitors" 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 dosing of Renagel, the availability
of reimbursement from third-party payors and the extent of coverage, including under the Medicare Prescription Drug Improvement and Modernization Act, and the accuracy of our estimates of the payor
mix.

In
addition, our ability to effectively manage wholesaler inventories and the levels of compliance with the inventory management programs we implemented for Renagel with our wholesalers
in 2002 which will expire this year, and our ability to enter into similar arrangements with our Hectorol wholesalers, could impact the revenue from our Renal reporting segment that we record from
period to period.

Therapeutics

Therapeutics product revenue increased 20% to $337.8 million for the three months ended and 21% to $984.7 million for the nine months ended
September 30, 2005, as compared to the same periods of 2004, primarily due to continued growth in sales of Cerezyme, Fabrazyme and Thyrogen.

The
14% growth in sales of Cerezyme to $238.3 million for the three months ended and 13% to $700.2 million for the nine months ended September 30, 2005, as compared
to the same periods of 2004, is attributable to our continued identification of new Gaucher disease patients, particularly in international markets. Our price for Cerezyme has remained consistent from
period to period. Although we expect Cerezyme to continue to be a substantial contributor to revenue 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 average exchange rate for the Euro against the U.S. dollar for the three month period had little effect on the sales of Cerezyme during that period. However,
the 3% increase in the average

37

---



exchange
rate for the Euro against the U.S. dollar for the nine months ended September 30, 2005, as compared to the same period of 2004, positively impacted sales of Cerezyme by
$6.9 million for the nine month period.

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 38% of our total product revenue for the three months ended September 30, 2005, and 39% of our total product revenue for the nine months ended September 30,
2005. Revenue from Cerezyme would be impacted negatively if competitors developed additional 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, expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme until 2010 and the composition of Cerezyme as made by that process until
2013. The expiration of market exclusivity and orphan drug status will likely subject Cerezyme to increased competition, which may decrease the amount of revenue we receive from this product or the
growth of that revenue. We are aware of companies that have initiated efforts to develop competitive products, and other companies may do so in the future. We discuss these competitors under the
heading "Factors Affecting Future Operating ResultsOur future success will depend upon our ability to effectively develop and market our products against those of our competitors" in this
report.

The
36% increase to $79.1 million for the three months ended and the 53% increase to $223.5 million for the nine months ended September 30, 2005 in sales of
Fabrazyme, as compared to the same periods of 2004, were primarily attributable to increased patient identification worldwide as Fabrazyme is introduced into new markets.

The
sales of Thyrogen increased 20% to $18.5 million for the three months ended and 24% to $56.9 million for the nine months ended September 30, 2005, as compared to
the same periods of 2004, primarily due to worldwide volume growth.

Transplant

Transplant product revenue decreased 17% to $34.1 million for the three months ended and 12% to $100.3 million for the nine months ended
September 30, 2005 as compared to the same periods of 2004. The decreases are primarily due to a $9.7 million decrease for the three month period and a $29.2 million decrease for
the nine month period in sales of Gengraf, which we co-promoted with Abbott Laboratories under an agreement that expired on December 31, 2004. The decrease is partially offset by a
$3.6 million increase for the three month period and a $12.1 million increase for the nine month period in sales of Thymoglobulin as a result of increased utilization of Thymoglobulin in
transplant procedures.

We
expect sales of Thymoglobulin to increase, driven primarily by a continued entry into new geographical markets, together with an overall growth in solid organ and living donor renal
transplants. Thymoglobulin competes with several other products and our future sales may be impacted negatively by these products. We discuss these competitors under the heading "Factors Affecting
Future Operating ResultsOur future success will depend on our ability to effectively develop and market our products against those of our competitors" in this report.

Biosurgery

Biosurgery's product revenue increased 62% to $82.4 million for the three months ended and increased 62% to $232.2 million for the nine months ended
September 30, 2005, as compared to the same periods of 2004. The increases were largely attributable to a $33.1 million increase for the three month period and a $86.0 million
increase for the nine month period in sales of Synvisc, primarily due

38

---



to
our reacquisition of the Synvisc sales and marketing rights from Wyeth in January 2005. Upon closing this transaction, we began to record revenue from sales of Synvisc to
end-users in the United States, as well as Germany, Poland, Portugal and the Czech Republic. We began selling Synvisc directly to end-users in Greece effective July 1,
2005. 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. These products could have an adverse effect on future sales of Synvisc. We discuss these competitors under the heading "Factors Affecting Future Operating
ResultsOur future success will depend on our ability to effectively develop and market our products against those of our competitors" included in this report.

Diagnostics/Genetics

Diagnostics/Genetics product revenue increased 15% to $25.3 million for the three months ended September 30, 2005, as compared to the same period of
2004. The increase was attributable to a 25%, or $3.1 million, increase in clinical chemistry revenue due to additional sales resulting from our acquisition of Equal Diagnostics in
July 2005.

Diagnostics/Genetics
product revenue increased 8% to $74.3 million for the nine months ended September 30, 2005, as compared to the same period of 2004. The increase was
attributable to a 13%, or $4.8 million, increase in clinical chemistry revenue due to additional sales resulting from our acquisition of Equal Diagnostics in July 2005 and as a result of
higher order volume by several large customers. Revenue from sales of infectious disease testing products increased 11% to $15.0 million for the nine month period primarily due to revenues
received under a distribution agreement that went into effect during the first quarter of 2004.

Other Product Revenue

Other product revenue increased 107% to $33.0 million for the three months ended and 77% to $83.5 million for the nine months ended
September 30, 2005, as compared to the same periods of 2004, primarily due to a 46% increase to $23.2 million for the three month period and a 24% increase to $58.6 million for
the nine month period in sales of bulk pharmaceuticals. These increases are primarily due to an increased demand for liquid crystals. Additionally, bulk sales of and royalties earned on Welchol
increased 90% to $10.6 million for the three month period and 38% to $23.0 million for the nine month period due to an increased demand from our U.S. marketing partner, Sankyo
Pharma, Inc. Other product revenue includes a $9.7 million increase for the three month period and a $24.8 million increase for the nine month period in oncology revenue due to
the addition of sales from two oncology products, Campath and Clolar, that we acquired in the ILEX transaction in December 2004.

Service Revenue

We derive service revenues primarily from the following principal sources:



39

---





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

Three Months Ended
September 30,



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

Increase/
(Decrease)
% Change2005

2004

2005

2004(Amounts in thousands, except percentage data)Biosurgery

$
10,382

$
5,676

83
%
$
27,814

$
17,962

55
%Diagnostics/Genetics


59,368


55,627

7
%

166,271


132,869

25
%Other service revenue


95


24

296
%

409


54

657
%Total service revenue

$
69,845

$
61,327

14
%
$
194,494

$
150,885

29
%


Service
revenue attributable to our Biosurgery reporting segment increased 83% to $10.4 million for the three months ended and 55% to $27.8 million for the nine months
ended September 30, 2005, as compared to the same periods of 2004. The increase for both periods is primarily due to the addition of sales from MACI, which we acquired in the Verigen
transaction in February 2005.

Service
revenue attributable to our Diagnostics/Genetics reporting segment increased 7% to $59.4 million for the three months ended and 25% to $166.3 million for the nine
months ended September 30, 2005, as compared to the same periods of 2004. The increase in both periods is primarily attributable to:



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,Increase/
(Decrease)
% Change

Increase/
(Decrease)
% Change2005

2004

2005

2004(Amounts in thousands, except percentage data)International product and service revenue

$
303,957

$
245,873

24
%
$
897,810

$
715,648

25
%% of total product and service revenue


43%


43%




45%


45%


The
24% increase to $304.0 million for the three months ended and the 25% increase to $897.8 million for the nine months ended September 30, 2005 in international
product and service revenue as compared to the same periods of 2004, is primarily due to:



40

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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 |                                        | $                                |      |       | $ |                                |       | N/A  |   
|Transplant   |                                        |                                  | 13    |       |   | 261                             |       | (95  | )%
|Biosurgery   |                                        |                                  | 1     |       |   | 227                             |       | (100 | )%
|Other        |                                        |                                  | 4,110 |       |   | 1,344                           |       | 206  | % 
|Corporate    |                                        |                                  | 489   |       |   | 655                             |       | (25  | )%
|             |                                        |                                  |       |       |   |                                 |       |      |   
|             | Total research and development revenue |                                  | $     | 4,613 |   | $                               | 2,487 |      | 85
|             |                                        |                                  |       |       |   |                                 |       |      |   

Other
research and development revenue increased $2.8 million for the three months ended and $10.2 million for the nine months ended September 30, 2005, as compared
to the same periods of 2004, primarily due to $1.6 million for the three month period and $5.3 million for the nine month period of additional revenue resulting from research and
development work related to Campath that we performed on behalf of Schering AG under agreements we assumed in connection with our acquisition of ILEX in December 2004. These increases were
partially offset by a decrease in Biosurgery research and development revenue primarily due to the completion in 2004 of a development program for Hylaform and reimbursements received from Wyeth in
2004 for development projects associated with Synvisc, for which there are no comparable amounts in 2005 due to the reacquisition of the Synvisc sales and marketing rights from Wyeth in
January 2005.

MARGINS

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

Three Months Ended
September 30,



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

Increase/
(Decrease)
% Change2005

2004

2005

2004(Amounts in thousands, except percentage data)Product margin

$
523,252

$
395,414

32
%
$
1,478,510

$
1,127,500

31
%% of total product revenue


83%


78%




82%


78%Service margin

$
27,490

$
16,469

67
%
$
68,098

$
49,740

37
%% of total service revenue


39%


27%




35%


33%Total product and service gross margin

$
550,742

$
411,883

34
%
$
1,546,608

$
1,177,240

31
%% of total product and service revenue


78%


73%




78%


73%


41

---



Product Margin

Our overall product margin increased $127.8 million, or 32%, for the three months ended and $351.0 million, or 31%, for the nine months ended
September 30, 2005, as compared to the same periods in 2004. This is primarily due to:



Service Margin

Our overall service margin increased $11.0 million, or 67%, for the three months ended and $18.4 million, or 37%, for the nine months ended
September 30, 2005, as compared to the same periods in 2004. This is primarily due to a $4.7 million, or 83%, increase for the three month period and a $9.9 million, or 55%,
increase for the nine month period in the sales of Biosurgery services as well as a $3.7 million, or 7%, increase for the three month period and a $33.4 million, or 25%, increase for the
nine month period in sales of Diagnostics/Genetics services. Total service margin as a percent of total service revenue increased for both the three and nine months ended September 30, 2005, as
compared to the same periods of 2004, primarily due to increased sales of higher margin Biosurgery services such as MACI and Carticel, which offset increased sales of lower margin testing services
attributable to our acquisition of substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business units of IMPATH in May 2004.

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 |  | $                                | 202,002 |  | $ | 147,886                         |  | 37 | %

SG&A
increased $54.1 million for the three months ended and $136.3 million for the nine months ended September 30, 2005, as compared to the same periods of 2004,
primarily due to increases in sales and marketing expenses of:



42

---





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 |  | $                                | 128,000 |  | $ | 92,188                          |  | 39 | %

Research
and development expenses increased $35.8 million for the three months ended and $80.1 million for the nine months ended September 30, 2005, as compared to
the same periods of 2004, primarily due to:



As
a result of our increased focus on oncology research and development, costs related to our Other research and development programs are likely to represent an increased percentage of
our overall research and development expenses in the future.

Amortization of Intangibles

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

|                            |  | Three Months Ended
September 30, |        |  |   | Nine Months Ended
September 30, |  |    |  
|--------------------------- |  | -------------------------------- | ------ |  | - | ------------------------------- |  | -- | -
|
|
|
|Amortization of intangibles |  | $                                | 50,847 |  | $ | 27,657                          |  | 84 | %

Amortization
of intangibles expense increased by $23.2 million for the three months and $51.0 million for the nine months ended September 30, 2005, as compared to
the same periods of 2004,

43

---



primarily
due to additional amortization expense attributable to the intangible assets acquired in connection with our acquisitions of Bone Care and Equal Diagnostics in July 2005, Verigen in
February 2005, as well as the reacquisition of the Synvisc sales and marketing rights from Wyeth in January 2005. In addition, amortization of intangibles expense for the nine months
ended September 30, 2005 includes nine months of amortization expense related to the intangible assets attributable to our acquisition of substantially all of the pathology/oncology testing
assets of IMPATH in May 2004, as compared to five months for the same period of 2004.

As
discussed in Note 4, "Mergers and Acquisitions," to our financial statements in this report, we calculate amortization expense for the Synvisc sales and marketing rights
reacquired from Wyeth by taking into account forecasted future sales of Synvisc and the resulting future contingent payments which will be recorded as intangible assets when the payments are made.

As
a result, we expect amortization of intangibles to increase over the next five years based on these additional payments.

Purchase of In-Process Research and Development

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

Bone Care

In connection with our acquisition of Bone Care, we acquired IPR&D related to LR-103, a vitamin D therapeutic candidate that is an active metabolite
of Hectorol. In biological models, this product candidate is readily absorbed after oral delivery and circulates through the bloodstream to tissues which respond to vitamin D hormones. Bone Care has
conducted early stage research of LR-103 in a variety of indications.

As
of the date this transaction closed, this project had not reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D and charged to
expense in our consolidated statements of operations in September 2005, $12.7 million, representing the portion of the purchase price attributable to this project.

Management
assumes responsibility for determining the IPR&D valuation. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected
to result from the project once it has reached technological feasibility. We used a discount rate of 24.5% and cash flows that have been probability-adjusted to reflect the risks of advancement
through the product approval process. In estimating future cash flows, we also considered other tangible and intangible assets required for successful exploitation of the technology resulting from the
purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets.

44

---



As
of September 30, 2005, we estimated that it will take approximately 6 years and an investment of approximately $15 million to complete the development of, obtain
approval for and commercialize LR-103.

Verigen

In connection with our February 2005 acquisition of Verigen, we have acquired IPR&D related to MACI, a proprietary approach to cartilage repair.

As
of the date of our acquisition of Verigen, MACI had not reached technological feasibility in the United States due to lack of regulatory approval and did not have an alternative use.
Accordingly, we
allocated to IPR&D, and charged to expense in our consolidated statements of operations in March 2005, $9.5 million, representing the portion of the purchase price attributable to this
project in the United States.

Management
assumes responsibility for determining the IPR&D valuation. The fair value assigned to purchased IPR&D was estimated by discounting, to present value, the cash flows expected
to result from the project once it has reached technological feasibility in the United States. We used a discount rate of 24% and cash flows that have been probability-adjusted to reflect the risks of
advancement through the product approval process. In estimating future cash flows, we also considered other tangible and intangible assets required for successful exploitation of the technology
resulting from the purchased IPR&D project and adjusted future cash flows for a charge reflecting the contribution to value of these assets.

As
of September 30, 2005, we estimated that it will take approximately six years and an investment of approximately $33 million to complete the development of, obtain
approval for and commercialize MACI in the United States.

ILEX

In connection with our December 2004 acquisition of ILEX, we have acquired IPR&D related to three development projects, Campath (for indications other than
B-cell chronic lymphocytic leukemia), Clolar and tasidotin hydrochloride.

As
of the date of our acquisition of ILEX, none of these projects had reached technological feasibility nor had an alternative future use. Accordingly, we allocated to IPR&D, and charged
to expense in our consolidated statements of operations in December 2004, $254.5 million, representing the portion of the purchase price attributable to these projects, of which
$96.9 million is attributable to the Campath development projects, $113.4 million is attributable to the Clolar development projects and $44.2 million is related to the tasidotin
development projects. In December 2004, after the date of our acquisition of ILEX, the FDA granted marketing approval for Clolar for the treatment of children with refractory or relapsed acute
lymphoblastic leukemia.

As
of September 30, 2005, we estimated that it will take approximately three to six years and an investment of approximately $121 million to complete the development of,
obtain approval for and commercialize Campath for non-Hodgkin's lymphoma, multiple sclerosis and other cancer and noncancer indications. We estimated that it will take approximately three
to six years and an investment of approximately $67 million to complete the development of, obtain approval for and commercialize Clolar for hematologic cancer, solid tumor and additional
pediatric acute leukemia indications. We estimated that it will take approximately five years and an investment of approximately $25 million to complete the development of, obtain approval for
and commercialize tasidotin.

45

---



SangStat

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

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

We
are not currently pursuing any internal development of RDP58, and no further internal development is planned for this program.

Although
we received marketing authorization for both the 25mg and 100mg cyclosporine capsules in a European country in March 2004, we terminated our license for cyclosporine
capsules effective April 2005.

OTHER INCOME AND EXPENSES

|                                                     |                               | Three Months Ended
September 30, |        |       |   | Nine Months Ended
September 30, |        |       |     
|---------------------------------------------------- | ----------------------------- | -------------------------------- | ------ | ----- | - | ------------------------------- | ------ | ----- | ----
|
|
|
|Equity in income (loss) of equity method investments |                               | $                                | 940    |       | $ | (4,362                          | )      | (122  | )%  
|Minority interest                                    |                               |                                  | 3,670  |       |   | 1,589                           |        | 131   | %   
|Gains (losses) on investment in equity securities    |                               |                                  | 214    |       |   | (2,706                          | )      | (108  | )%  
|Other                                                |                               |                                  | (1,021 | )     |   | (19                             | )      | 5,274 | %   
|Investment income                                    |                               |                                  | 8,073  |       |   | 4,566                           |        | 77    | %   
|Interest expense                                     |                               |                                  | (6,749 | )     |   | (5,429                          | )      | 24    | %   
|                                                     |                               |                                  |        |       |   |                                 |        |       |     
|                                                     | Total other income (expenses) |                                  | $      | 5,127 |   | $                               | (6,361 | )     | (181
|                                                     |                               |                                  |        |       |   |                                 |        |       |     

Equity in Income (Loss) of Equity Method Investments

Under this caption, we record our portion of the results of our joint ventures with BioMarin, Diacrin, Inc. and Medtronic, Inc., and our investments
in Peptimmune, Inc. and Therapeutic Human Polyclonals, Inc.

Previously,
our equity in income (loss) of equity method investments was a net loss, of which the largest component was our portion of the net losses from our joint venture with
BioMarin. However, this joint venture became profitable in the first quarter of 2005 due to increased sales of Aldurazyme. As a result, we recorded income of $2.5 million for the three months
ended September 30, 2005 and

46

---



$4.2 million
for the nine months ended September 30, 2005, representing our portion of the net income of the joint venture for those periods, as compared to charges of
$2.6 million for the three months ended September 30, 2004 and $9.2 million for the nine months ended September 30, 2004, representing our portion of the net losses of the
joint venture for the same periods of 2004.

Minority Interest

As a result of our adoption of FASB Interpretation No., or FIN, 46, "Consolidation of Variable Interest Entities," we have consolidated the results of
Dyax-Genzyme LLC, and Excigen Inc. Our consolidated balance sheet as of September 30, 2005 includes assets of $0.6 million related to Dyax-Genzyme LLC,
substantially all of which is lab equipment net of its associated accumulated depreciation. We have recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated
statements of operations. The results of Excigen were not significant.

Gains (Losses) on Investments in Equity Securities

Gains (losses) on investments in equity securities for the nine months ended September 30, 2005 includes a $4.5 million gain on the sale of our
investment in the common stock of Theravance, which we recorded in our consolidated statement of operations in April 2005 for which there was no comparable amount in 2004. A $2.9 million
impairment charge was recorded in the three and nine months ended September 30, 2004 in connection with our investment in MacroGenics, Inc., or MacroGenics, for which there is no comparable
amount in the same periods of 2005.

Investment Income

Our investment income increased 77% to $8.1 million for the three months ended September 30, 2005, as compared to the same period of 2004, primarily
due to an increase in the average portfolio yield and higher average cash balances. Our investment income increased 25% to $22.2 million for the nine months ended September 30, 2005, as
compared to the same period of 2004, primarily due to an increase in the average portfolio yield. This increase was offset, in part, by lower average cash balances and an increase in the realized
losses on our U.S. investment portfolio.

Interest Expense

Our interest expense increased 24% to $6.7 million for the three months ended September 30, 2005, as compared to the same period of 2004, primarily
due to additional interest expense resulting from the $350.0 million in principal drawn under our revolving credit facility in 2005 to fund a portion of the cash consideration for the
acquisition of Bone Care, of which $290.0 million was repaid in August 2005 and $60.0 million was repaid in September 2005. Our interest expense decreased 55% to
$15.0 million for the nine months ended September 30, 2005, as compared to the same periods of 2004, primarily due to $17.9 million of interest expense and charges related to the
redemption of our $575.0 million in principal of 3% convertible subordinated debentures for cash in June 2004 for which there are no similar amounts in the same period of 2005, including
$8.3 million of interest expense, a charge of $4.3 million for the premium paid upon redemption and a charge of $5.3 million to write off the unamortized debt fees associated with
these debentures. This decrease was offset, in part, by $1.2 million of additional interest expense for the nine months ended September 30, 2005 related to the $350.0 million in
principal drawn under our revolving credit facility to fund the acquisition of Bone Care.

47

---



Provision for Income Taxes

|                           |  | Three Months Ended
September 30, |         |   |   | Nine Months Ended
September 30, |   |    |  
|-------------------------- |  | -------------------------------- | ------- | - | - | ------------------------------- | - | -- | -
|
|
|
|Provision for income taxes |  | $                                | (51,279 | ) | $ | (42,479                         | ) | 21 | %
|Effective tax rate         |  |                                  | 31      | % |   | 30                              | % |    |  

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



In
addition, our effective tax rate for the three months ended September 30, 2005 varies from the U.S. statutory tax rate due to a $12.7 million non-deductible charge for
IPR&D recorded in the third quarter of 2005 in connection with our acquisition of Bone Care. Our effective tax rate for the nine months ended September 30, 2005 varies from the U.S. statutory
tax rate due to $22.2 million of non-deductible charges for IPR&D, of which $9.5 million was recorded in the first quarter of 2005 in connection with our acquisition of
Verigen and $12.7 million was recorded in the third quarter of 2005 related to our acquisition of Bone Care.

We
are currently under IRS audit for tax years 1996 to 1999 and 2002 to 2003. We believe that we have provided sufficiently for all audit exposures. Favorable 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 a reduction of future tax provisions. Any such benefit would be recorded upon final
resolution of the audit or expiration of the applicable statute of limitations.

In
October 2004, the United States enacted the American Jobs Creation Act of 2004, or the Act, which repeals the FSC Repeal and Extraterritorial Income Exclusion Act of 2000, or
ETI, export subsidy for transactions after 2004 with two years of transition relief (2005-2006). The Act also provides a 9% deduction for income from domestic production activities which
will be phased in over the years 2005-2010. While we are still evaluating the net impact of this new legislation, we do not expect it to have a material effect on our ongoing effective tax
rate.

B. LIQUIDITY AND CAPITAL RESOURCES

We continue to generate cash from operations. At September 30, 2005, we had cash, cash equivalents and short- and long-term investments of
$950.3 million, as compared to cash, cash equivalents and short- and long-term investments of $1.1 billion at December 31, 2004. The decrease is primarily due to
$971.1 million of cash used to fund acquisitions and capital expenditures, which exceeded $855.5 million of cash generated by operations and proceeds from exercises under our employee
stock plans.

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The following is a summary of our statements of cash flows for the nine months ended September 30, 2005 and 2004.

Cash Flows from Operating Activities

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

Nine Months Ended
September 30,2005

2004Cash flows from operating activities:Net cash provided by operating activities before tax benefit from employee stock options and working capital changes

$
530,775

$
398,490Tax benefit from employee stock options


76,180


32,258Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities)


(47,745
)

(45,488
)Cash flows from operating activities

$
559,210

$
385,260


Cash
provided by operating activities increased $174.0 million, or 45%, for the nine months ended September 30, 2005, as compared to the same period of
2004, primarily due to strong earnings and
higher non-cash charges. In addition, the tax benefit from employee stock options increased $43.9 million, or 136%, for the first nine months of 2005, as compared to the same period of 2004.

Cash Flows from Investing Activities

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

Nine Months Ended
September 30,2005

2004Cash flows from investing activities:Net sales of investments, including investments in equity securities

$
39,414

$
428,608Purchases of property, plant and equipment


(131,940
)

(129,255
)Distributions from (investments in) equity investees


1,500


(22,736
)Acquisitions, net of acquired cash


(687,875
)

(265,246
)Acquisition of sales and marketing rights


(151,161
)

Other investing activities


2,630


(2,965
)Cash flows from investing activities

$
(927,432
)
$
8,406


For
the nine months ended September 30, 2005, net sales of investments, including investments in equity securities, provided $39.4 million in cash and we
received a $1.5 million cash distribution from our joint
venture with BioMarin. For the same period, acquisitions and capital expenditures accounted for significant cash outlays for investing activities. For the nine months ended September 30, 2005,
we used:



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For
the nine months ended September 30, 2004, net sales of investments, including investments in equity securities, provided $428.6 million in cash. For the same period,
acquisitions and capital expenditures accounted for significant cash outlays for investing activities. For the nine months ended September 30, 2004, we used:



Cash Flows from Financing Activities

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

Nine Months Ended
September 30,2005

2004Cash flows from financing activities:Proceeds from issuance of common stock

$
296,210

$
104,549Proceeds from draw on credit facility


350,000


135,000Payments of debt and capital lease obligations


(452,722
)

(614,547
)Bank overdraft


12,689


12,521Minority interest payable


9,154


4,622Other financing activities


584


962Cash flows from financing activities

$
215,915

$
(356,893
)


For
the nine months ended September 30, 2005, financing activities generated $668.6 million of cash, primarily due to $350.0 million of proceeds
drawn under our revolving credit facility that matures in 2006 and $296.2 million of proceeds from the issuance of common stock under our stock plans, offset partially by $452.7 million
in cash utilized to repay debt and capital lease obligations.

For
the nine months ended September 30, 2004, financing activities generated $257.7 million of cash primarily due to $104.5 million of proceeds from the issuance of
common stock under our stock plans and $135.0 million drawn under our revolving credit facility that matures in 2006. This was offset by $614.5 million in cash utilized to repay debt and
capital lease obligations, including $575.0 million of cash used to redeem our 3% convertible subordinated debentures and $11.3 million to repay a 6.5% convertible note due
March 29, 2004 in favor of UBS AG London, which we assumed in September 2003 in connection with the acquisition of SangStat.

Revolving Credit Facility

In December 2003, we entered into a three year $350.0 million revolving credit facility, maturing in December 2006. As of December 31,
2004, $100.0 million in principal remained outstanding under this facility. In January 2005, we repaid the entire $100.0 million in principal outstanding under the credit
facility. In June 2005, we drew down $350.0 million under this facility, to finance a portion of the cash consideration for the acquisition of Bone Care. In August 2005, we repaid
$290.0 million in principal and in September 2005, we repaid the remaining $60.0 million in principal drawn under our revolving credit facility. As of September 30, 2005, no
amounts remained outstanding under our revolving credit facility. Borrowings under this credit facility bear interest at LIBOR plus an applicable margin, which

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was
4.22% at September 30, 2005. The terms of our revolving credit facility include various covenants, including financial covenants that require us to meet minimum liquidity and interest
coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants.

Capital Lease

We had a capital lease obligation related to our administrative offices in Waltham, Massachusetts that required us to make interest-only lease
payments of $2.1 million per year through October 31, 2005, the end of the lease term. On October 31, 2005, we exercised our option to purchase the building and improvements for a
purchase price equal to the total amount funded by the lessor of $25.0 million, plus $0.5 million of accrued interest and an insignificant amount of other closing costs.

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 13.1 to our 2004 Form 10-K. Excluding the following changes in our
contractual obligations, all described above, there have been no material changes to our contractual obligations since December 31, 2004:



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 under our revolving credit facility 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 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 day prior to the date of repurchase. Additionally,
upon a change of control, each holder

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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 litigations can be expensive and a court or administrator 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 detail on
certain pending legal proceedings in the notes to our financial statements and under the heading "Legal Proceedings" in Item 1. to Part II of this report.

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 46 are included in our consolidated statements of operations if we qualify as the primary beneficiary. Entities not
subject to consolidation under FIN 46 are accounted for under the equity method of accounting if our ownership percent exceeds 20% or if we exercise significant influence over the entity. We account
for our portion of the losses of these entities in the line item "Equity in loss of equity method investments" in our statements of operations. We also acquire companies in which we agree to pay
contingent consideration based on attaining certain thresholds.

Recent Accounting Pronouncements

SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4."In
November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies that abnormal amounts of idle facility
expense, freight, handling costs and wasted materials spoilage should be recognized as current period charges in all circumstances. SFAS No. 151 will be effective for us beginning
January 1, 2006. We have not yet determined the impact, if any, SFAS No. 151 will have on our consolidated financial statements.

SFAS No. 123R, "Share-Based Payment, an amendment of FASB Statement Nos. 123 and 95."In December 2004, the
FASB issued SFAS 123R, "Share-Based Payments," which replaces SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees," SFAS 123R will require all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their
fair values. SFAS 123R allows alternative methods for determining the fair value of share based payments to employees and alternative methods of implementation. In April 2005, the SEC
issued a rule that allows companies to implement SFAS 123R at the beginning of the next fiscal year, instead of the next reporting period, that begins after June 15, 2005. As a result,
we plan to implement SFAS 123R in the reporting period starting January 1, 2006. We expect that SFAS 123R will have a significant impact on our financial statements. The adoption
of SFAS 123R will cause us to record, as expense each quarter, a non-cash accounting charge based on the fair value of such share based compensation meeting the criteria outlined in
the provisions of SFAS 123R. We have not yet determined which valuation method we will use or the method of implementation.

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FACTORS AFFECTING FUTURE OPERATING RESULTS

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

Our financial results are highly dependent on sales of Cerezyme.

We generate a significant portion of our revenue from sales of Cerezyme, our enzyme-replacement product for patients with Gaucher disease. Sales of Cerezyme
totaled $700.2 million for the nine months ended September 30, 2005, representing approximately 39% of our consolidated product revenue for the first nine months of 2005. Because our
business is highly dependent on Cerezyme, negative trends in revenue from this product could have a significant adverse effect on our operations and cause the value of our securities to decline
substantially. We will lose revenue if alternative treatments gain commercial acceptance, if our marketing activities are restricted, or if reimbursement is limited. In addition, the patient
population with Gaucher disease is not large. Because a significant percentage of that population already uses Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in
the methods for treating patients with Gaucher disease, including treatment protocols that combine Cerezyme with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit
growth, or result in a decline, in Cerezyme sales.

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

Over the next few years, our success will depend substantially on our ability to increase revenue from many different products and services. The products and
services include Cerezyme, Fabrazyme, Aldurazyme, Renagel, Hectorol, Synvisc, 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 and pursuing marketing approval for our products
in new jurisdictions. With Synvisc, for example, we are pursuing marketing approval in Japan and are seeking to expand approval in the United States to cover use as a treatment of pain from
osteoarthritis in the hip. The success of this component of our growth strategy will depend on the content and timing of our submissions to regulatory authorities and whether and when those
authorities determine to grant approvals.

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Because
the healthcare industry is extremely competitive and regulatory requirements 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 doctors, 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.

Celltech
Group plc and Actelion Ltd. have developed Zavesca®, a small molecule drug candidate for the treatment of Gaucher disease, the disease addressed by Cerezyme.
Zavesca has been approved by both the FDA and the EMEA as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement is unsuitable. Teva
Pharmaceuticals Industries Ltd., a licensee of Celltech, has received marketing approval of Zavesca in Israel. In addition, Shire Pharmaceuticals Group plc, or Shire, which recently acquired
Transkaryotic Therapies Inc., is conducting a phase 1/2 clinical trial for its gene-activated glucocerebrosidase program, also to treat Gaucher disease.

Nabi
Biopharmaceuticals is currently marketing PhosLo®, a calcium-based phosphate binder. Like Renagel, PhosLo is approved for the control of elevated phosphate levels in
patients with end-stage kidney failure. In addition, in October 2004, Shire received FDA approval for Fosrenol®, a non-calcium based phosphate binder for the
reduction of high phosphorus levels in end-stage renal disease patients. Shire received marketing approval in Sweden in March 2004 and has filed for marketing approval of Fosrenol
in the European Union and Canada. Renagel also competes with over-the-counter calcium carbonate products such as TUMS®.

Zemplar®,
a product of Abbott Laboratories, is a vitamin D receptor activator which is used to treat hyperparathyroidism associated with chronic kidney disease. Hectorol
faces competition from Zemplar as well as from several other vitamin D hormone therapies used to treat hyperthyroidism and hyperproliferative diseases.

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.

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®, Pfizer Inc.'s ATGAM®, Ortho Biotech's Orthoclone OKT®3, Fresenius Biotech GmbH's ATG-Fresenius S® and the Roche
Group's Zenapax®. Competition in the acute transplant rejection market largely is driven by product efficacy due to the potential loss of transplanted organs as the result of an acute
organ rejection episode.

Current
competition for Synvisc includes Hyalgan®, produced by Fidia Farmaceutici S.p.A. and marketed in the United States by Sanofi-Synthelabo Inc.;
Orthovisc®, produced and marketed outside of the United States by Anika Therapeutics, Inc. (in some cases through local distributors) and marketed in the United States by Ortho
Biotech and DePuy Mitek, Inc. (both of which are wholly-

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owned
subsidiaries of Johnson & Johnson); Artz®, a product manufactured by Seikagaku Kogyo that is sold in Japan by Kaken Pharmaceutical Co. and in the United States by
Smith & Nephew Orthopaedics under the name Supartz®; a product owned and manufactured by Savient Pharmaceuticals, Inc., which is marketed under the name Euflexxa
in Europe and has been approved for marketing in the United States; and Durolane®, manufactured by Q-Med AB. We are also aware of other directly competitive products under
development. Furthermore, several companies market products designed to relieve the pain associated with osteoarthritis. Synvisc will have difficulty competing with any of these products to the extent
the competitive products are considered more efficacious, less burdensome to administer or more cost-effective.

The
examples above are illustrative. Almost all of our products 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 lysosomal storage disorders (LSDs) that are more
effective or less expensive than our products and product candidates. Because a significant portion of our revenue is derived from products that address this class of diseases and a substantial
portion of our expenditures is devoted to developing new therapies for this class of diseases, such a development would have a material negative impact on our operations. Furthermore, our recent
acquisitions of ILEX and certain of the pathology/oncology testing assets of IMPATH, reflect our commitment to the oncology area. Many pharmaceutical and biotechnology companies are pursuing programs
in this area, and these organizations may develop approaches that are superior to ours.

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

A substantial portion of our 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, and we may therefore 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 are
high in comparison to other therapeutic products, are viewed as cost-effective.

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Furthermore,
legislatures, including the U.S. Congress, occasionally discuss implementing broad-based measures to contain healthcare costs. If third party reimbursement is further
constrained, or if legislation is passed to contain healthcare costs, our profitability and financial condition could suffer. For example, the Medicare Prescription Drug, Improvement and Modernization
Act (or the Medicare Modernization Act (MMA)) was enacted into law in December 2003. Reimbursement changes resulting from the MMA may negatively affect product sales of some of our marketed
products. Previously, the "average wholesale price" (AWP) mechanism was the basis of Medicare Part B payment for physician-administered drugs and biologics. Effective January 1, 2005,
this changed to an "average sales price" (ASP) methodology under the MMA. Under the new ASP methodology, Thyrogen, Synvisc and our LSD products are being reimbursed under a new Medicare Part B
system that reimburses each product at 106% of its ASP (sometimes referred to as "ASP + 6%"). As a result, reimbursement rates for these products may be lower than 2004 reimbursement
rates, in particular, because the ASP methodology deducts sales incentives offered to healthcare providers from the sale prices used to calculate ASP, a deduction that was not made to AWP. For 2005,
Hectorol for injection is reimbursed based on an "average acquisition price" determined by the Centers for Medicare and Medicaid Services (CMS). However, CMS recently announced its intention,
beginning in January 2006, to reimburse Hectorol for injection under an ASP-based methodology pursuant to the Part B reimbursement rule for 2006. Due to this expected change
in reimbursement methodology for injectable Hectorol, reimbursement rates for this product will no longer be fixed for the entire year, but will be determined quarterly (as is the case with all drugs
and biologics reimbursed under the ASP-based methodology). Accordingly, reimbursement rates will fluctuate quarterly and are currently uncertain.

Under
the MMA, Medicare coverage for Renagel and Hectorol capsules will be available for the first time beginning in 2006. Medicare Part D, which applies to Renagel and Hectorol
capsules, will be administered by private vendors under contract with the U.S. government. Each vendor will establish its own Part D formulary for prescription drug coverage and pricing, which
the vendor may modify from time-to-time. We are therefore unable to predict how many vendors will cover Renagel and Hectorol capsules and on what terms.

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

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

Before
we can commercialize our development-stage 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:



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Few
research and development projects result in commercial products, and success in preclinical studies or early clinical trials often is not replicated in later studies. We may decide
to abandon development of a product or service candidate at any time or we may be required to expend considerable resources repeating clinical trials or conducting additional trials, either of which
would 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 also may fail. These expansion efforts are subject to many of the
risks associated with completely new products, and, accordingly, we may fail to recoup the investments we make pursuing these expansions.

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 health care 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, 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 health care providers could result in decreased use of our products. In addition, 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. 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 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 out 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

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Renagel,
for example, we have encountered problems in the past managing inventory levels at wholesalers. Comparable problems may arise with our other 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.

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

Manufacturing problems may cause product launch delays, inventory shortages, 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, or product liability.

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.

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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 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. 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. In addition, facilities are subject to ongoing inspections and minor changes in manufacturing processes may require additional regulatory approvals, either of
which could cause us to incur significant additional costs and lose revenue.

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 drug application with regulatory authorities so
that they must be obtained from that specific source and could not be obtained from another supplier unless and until the applicable authority approved that other 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 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 may also be subject to FDA regulations 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.

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 this 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:



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Furthermore,
payments we make under these arrangements may exacerbate fluctuations in our financial results. In addition, under some of our strategic alliances, we make 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
Cambridge Antibody Technology Group plc and MacroGenics in 2003 and 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. As a result, if any of our strategic equity
investments decline in value and remain below cost for an extended duration, we may incur financial statement charges related to the decline in value of that investment.

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

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

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



Furthermore,
the FDA and comparable foreign regulatory agencies may require post-marketing clinical trials or patient outcome studies. We have agreed with the FDA, for
example, to a number of post-marketing commitments as a condition to U.S. marketing approval for Fabrazyme and Aldurazyme. In addition, regulatory agencies subject a marketed therapy, its
manufacturer and the manufacturer's facilities to continual review and periodic inspections. The discovery of previously unknown problems with a therapy or the facility used to produce the therapy
could prompt a regulatory authority to impose restrictions on us, or could cause us to voluntarily adopt such restrictions, including withdrawal of one or more of our products or services from the
market.

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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 U.S. Although physicians may lawfully
prescribe pharmaceutical products for such off-label uses, promotion of off-label uses is 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.

Legislative or regulatory changes may adversely impact our business.

The FDA has designated some of our products and product candidates, including Fabrazyme and Myozyme, as orphan drugs under the Orphan Drug Act. The Orphan Drug
Act provides incentives to manufacturers to develop and market drugs for rare diseases, generally by entitling the first developer that receives FDA marketing approval for an orphan drug to a
seven-year exclusive marketing period in the United States for that product. In the past Congress has considered legislation to change the Orphan Drug Act to shorten the period of
automatic market exclusivity and to grant marketing rights to simultaneous developers of a drug. Legislation similar to the Orphan Drug Act has been enacted in jurisdictions other than the United
States, including the European Union. The orphan legislation in the European Union is available for therapies addressing conditions that affect fewer than five out of 10,000 persons. The market
exclusivity period is for ten years, although that period can be reduced to six years if, at the end of the fifth year, available evidence establishes that the product is sufficiently profitable not
to justify maintenance of market exclusivity. If the Orphan Drug Act or other similar legislation is amended to reduce the protections afforded orphan drugs, any approved drugs for which we have been
granted exclusive marketing rights may face increased competition, which may decrease the amount of revenue we receive from these products.

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



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

Importation of products from Canada and other countries into the United States may lower the prices we receive for our products.

In the United States and abroad, almost all 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 U.S.
law. However, the volume of imports continues to rise due to the limited enforcement resources of the FDA and the U.S. Customs Service,

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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.

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

As of September 30, 2005, we had $950.3 million in cash, cash equivalents and short- and long-term investments, excluding investments in
equity securities.

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



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.

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

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

We
also rely upon trade secrets, proprietary know-how, and continuing technological innovation to remain competitive. We attempt to protect this information with security
measures, including the use of confidentiality agreements with employees, consultants, and corporate collaborators. These individuals may breach these agreements and any remedies available to us may
be insufficient to compensate for

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

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

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



We
are also currently involved in litigation matters and investigations that do not involve intellectual property claims and may be subject to additional actions in the future. For
example, we are currently defending several lawsuits brought in connection with the elimination of our tracking stock in June 2003, some of which claim considerable damages. Also, 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 health care "fraud and abuse" laws,
including anti-kickback and false claims statutes. Moreover, individuals who use our products or services, including our diagnostic
products and genetic testing services, 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
have only limited amounts of insurance, which may not provide coverage to offset a negative judgment or a settlement payment. We may be unable to obtain additional insurance in the
future, or we may be unable to do so on acceptable terms. Any additional insurance we do obtain may not provide adequate coverage against any asserted claims.

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



Our international sales and 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 45% of our consolidated product and service revenues for the nine months ended September 30, 2005.
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:



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 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

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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.

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

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

At September 30, 2005, we had $699.6 million of outstanding indebtedness, excluding capital leases. We may incur additional indebtedness in the
future. Our level of indebtedness will have several important effects on our future operations, including:



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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to potential loss from financial market risks that may occur as a result of changes in equity prices, interest rates and foreign currency exchange
rates.

Market Risk

We are exposed to potential loss from exposure to market risks represented principally by changes in equity prices, interest rates and foreign exchange rates. At
September 30, 2005, we held various derivative contracts in the form of foreign exchange forwards and an interest rate swap. The derivatives contain no leverage or option features. We also held
a number of other financial instruments, including investments in marketable securities, and have issued various debt securities.

Equity Price Risk

We hold investments in a limited number of U.S. and European equity securities. Equity price risk is estimated as the potential loss in the fair value that would
result from a hypothetical 10% adverse change in the equity prices of these investments. We estimate that our equity price risk has not materially changed since December 31, 2004.

Interest Rate Risk

We are exposed to potential loss due to changes in interest rates. The principal interest rate exposure is to changes in U.S. interest rates. Instruments with
interest rate risk include short- and long-term investment in fixed income securities. Other exposures to interest rate risk include fixed rate convertible debt, a fixed rate interest rate
swap and fixed rate debt. To estimate the potential loss due to changes in interest rates we performed a sensitivity analysis using an instantaneous adverse change in interest rates of 100 basis
points across the yield curve. We estimate the potential loss in fair value that would result from a hypothetical 1% (100 basis point) increase in interest rates to be $9.3 million as of
September 30, 2005, as compared to $17.6 million as of December 31, 2004. The decrease is primarily

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due
to a decrease in interest rate sensitivity of our $690.0 million in principal 1.25% convertible notes and the capital lease for our corporate headquarters in Cambridge, Massachusetts, which
has a remaining principal balance of $122.3 million at September 30, 2005. These decreases were offset, in part, by an increase in sensitivity on our fixed income investment portfolio.

Foreign Exchange Risk

As a result of the global scope of our business operations, we may face exposure to adverse movements in foreign currency exchange rates, primarily to the Euro,
British pound and Japanese yen. These exposures are reflected in market risk sensitive instruments, including foreign currency receivables and payables, foreign exchange forward contracts and foreign
equity holdings. As of September 30, 2005, we estimate the potential loss in fair value of our foreign currency exposures that would result from a hypothetical 10% adverse change in exchange
rates to be $12.3 million, as compared to $2.6 million as of December 31, 2004. The increase is primarily due to an increase in the notional amount of foreign exchange contracts
outstanding, which increased 133% to $184.0 million at September 30, 2005.

We
incorporate by reference our disclosure related to market risk which is set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries'
Financial Condition and Results of OperationsMarket Risk," "Interest Rate Risk," "Foreign Exchange Risk" and "Equity Price Risk" in
Exhibit 13.1 to our 2004 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

At the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over
financial reporting and concluded that (1) our disclosure controls and procedures were effective as of September 30, 2005, and (2) no change in internal control over financial
reporting occurred during the quarter ended September 30, 2005 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.

Four
lawsuits have been 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 is a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in Massachusetts Superior Court 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 Court dismissed the complaint in November 2003, but the plaintiff has appealed this dismissal. This appeal was argued before the Massachusetts Appeals Court in March 2005
and we are awaiting the Appeals Court's ruling. Two substantially similar cases were filed in Massachusetts Superior Court 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. The complaint initially alleged violations of federal securities laws, common law fraud, and a breach of the merger agreement with Biomatrix in addition to the state law claims
contained in the other cases. The plaintiffs initially sought an adjustment to the exchange ratio, the rescission of the acquisition of Biomatrix, and unspecified compensatory damages. In November
2005, the plaintiff, in this case dropped all of the claims alleged in the initial complaint relating to the initial issuance of Biosurgery Stock and the acquisition of Biomatrix, and narrowed the
putative class to include only those individuals who held Biosurgery Stock on May 8, 2003. Discovery in this case is ongoing. We believe each of these cases is without merit and continue to
defend against them vigorously.

On
March 27, 2003, the OFT in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited held a dominant position and
abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other delivery/homecare service providers from the market for the supply of home delivery and
homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and required modification to its list price for Cerezyme
in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal. On May 6, 2003, the Tribunal issued an order that stayed the OFT's decision, but required
Genzyme Limited to provide a homecare distributor a discount of 3% per unit during the appeal process. The Tribunal issued its judgment on Genzyme Limited's appeal on March 11, 2004, rejecting
portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme should not be reduced, but that Genzyme Limited must negotiate a price for Cerezyme that will
allow homecare distributors an appropriate margin. The Tribunal also reduced the fine imposed by the OFT for violation of U.K. competition laws. In response to the Tribunal's decision, we recorded an
initial liability of approximately $11 million in our 2003 financial statements and additional liabilities totaling approximately $2 million during 2004 and 2005. Genzyme Limited and the
OFT were unable to negotiate a price for Cerezyme for homecare distributors and, as a result, on September 29, 2005, the Tribunal issued a ruling establishing the discount to be provided by
Genzyme Limited to homecare distributors at 7.2%, which approximates the figure used to calculate the $11 million initial, and $2 million additional liabilities, we recorded in 2003,
2004 and 2005. Genzyme Limited has decided not to appeal this decision.

In
June 2003, we filed suit in U.S. District Court for the District of Massachusetts, as co-plaintiff with Biogen IDEC and Abbott Laboratories against Columbia
University seeking a declaration that Columbia's U.S. Patent 6,455,275 is invalid. The patent relates to the manufacture of recombinant

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proteins
in CHO cells which are the cells we use to manufacture Cerezyme, Fabrazyme and Thyrogen, and which our joint venture partner, BioMarin, uses to manufacture Aldurazyme. This new patent was
issued by the USPTO in September 2002 from a family of patents and patent applications originally filed in 1980. We are licensed under the patent family for a royalty of 1.5% of sales but,
because we were confident that the new patent was mistakenly issued by the USPTO and is invalid, we did not pay the royalty pending the outcome of the litigation. We then received notice from Columbia
that we were in breach of our license agreement. A hearing on motions for a summary judgment was scheduled for November 2004; however, Columbia rescinded the breach notification and filed with
the Court a covenant not to enforce its patent 6,455,275 against any plaintiff in this litigation. In view of this covenant, the Court granted Columbia's motion to dismiss the plaintiff's main claim
for lack of subject matter jurisdiction. In August 2005, the parties entered into a settlement agreement, resulting in a dismissal of the entire case.

We
are not able to predict the outcome of our pending legal proceedings or estimate with certainty the amount or range of any possible loss we might incur if we do not prevail in the
final, non-appealable determinations of such matters. Therefore, except for the liabilities recorded in connection with the Tribunal's decision regarding Cerezyme pricing in the United
Kingdom, we have not accrued any amounts in connection with these potential contingencies. We cannot provide you with assurance that the tracking stock litigation, or other legal proceedings, will not
have a material adverse impact on our financial condition or results of operations.

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

The following table provides information with respect to purchases we made of our common stock during the third quarter of our 2005 fiscal year. We purchased
these shares from employees who sold them to us to satisfy payments due for stock option exercises:

|                     |       | Total Number of
Shares (or Units)
Purchased |       | Average Price
Paid per
Share (or Unit) |       | Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced Plans
or Programs |   | Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet be
Purchased Under
the Plans or
Programs
|-------------------- | ----- | ------------------------------------------- | ----- | -------------------------------------- | ----- | ------------------------------------------------------------------------------------------- | - | -----------------------------------------------------------------------------------------------------------------------
|July 1-31, 2005      |       |                                            |       |                                        |      |                                                                                             |  |                                                                                                                        
|August 1-31, 2005    |       | 1,093                                       |       | $                                      | 74.86 |                                                                                             |  |                                                                                                                        
|September 1-30, 2005 |       | 834                                         |       | $                                      | 70.52 |                                                                                             |  |                                                                                                                        
|                     |       |                                             |       |                                        |       |                                                                                             |   |                                                                                                                        
|                     | Total |                                             | 1,927 |                                        | $     | 72.98                                                                                       |   |                                                                                                                       
|                     |       |                                             |       |                                        |       |                                                                                             |   |                                                                                                                        

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, 2005        SIGNATURES

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

|                       |  | GENZYME CORPORATION
|---------------------- |  | -------------------
|                       |  | By:                
|DATE: November 8, 2005 |  |                    

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GENZYME CORPORATION AND SUBSIDIARIES  FORM 10-Q, SEPTEMBER 30, 2005        EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*3.1        |  | Restated Articles of Organization of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Registration Statement on Form 8-A/A filed on May 28, 2004.                                                                                      
|*3.2        |  | By-laws of Genzyme, as amended. Filed as Exhibit 3.1 to Genzyme's Form 8-K filed on July 7, 2004.                                                                                                                                            
|10.1        |  | Underlease of 50 Gibson Drive, Kings Hill Business Park, West Malling, Kent U.K., dated January 19, 2001 by and among Genzyme Limited, Liberty Property Limited Partnership and Kings Hill Estate Management Company Limited. Filed
herewith.
|10.2        |  | Deed of Variation of Underlease dated January 19, 2001, and Agreement for Lease, each dated August 22, 2005 by and between Genzyme Limited and Kent City Council (successors to Liberty Property Limited Partnership). Filed
herewith.       
|10.3        |  | Fifth Amendment to Lease, dated October 28, 2005, to Lease dated as of October 21, 1998, by and between Wells Fargo Bank Northwest N.A. and Genzyme. Filed herewith.                                                                         
|31.1        |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                      
|31.2        |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                      
|32.1        |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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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