Use these links to rapidly review the documentEXHIBIT 13



EXHIBIT 13

GENZYME CORPORATION AND SUBSIDIARIES  FINANCIAL STATEMENTS



|                                                                                                                            |  | Page No.
|--------------------------------------------------------------------------------------------------------------------------- |  | --------
|Consolidated Selected Financial Data                                                                                        |  | F-2     
|Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations |  | F-6     
|Report of Independent Registered Public Accounting Firm                                                                     |  | F-65    
|Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2007, 2006 and 2005         |  | F-67    
|Consolidated Balance Sheets as of December 31, 2007 and 2006                                                                |  | F-68    
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006
and 2005                                  |  | F-69    
|Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2007, 2006 and 2005                        |  | F-71    
|Notes to Consolidated Financial Statements                                                                                  |  | F-73    

F-1

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GENZYME CORPORATION AND SUBSIDIARIES        Consolidated Selected Financial Data

The following financial data should be read in conjunction with our audited, consolidated financial statements and related notes contained elsewhere in this
Annual Report on Form 10-K. These selected financial data may not be indicative of our future financial condition due to the risks and uncertainties associated with operating our
business, including those described under the caption "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of OperationsRisk
Factors" included in this Annual Report on Form 10-K.

CONSOLIDATED STATEMENTS OF OPERATIONS DATA

|                                               |                                                            | For the Years Ended December 31,   |         
|---------------------------------------------- | ---------------------------------------------------------- | ---------------------------------- | --------
|
|
|Revenues:                                      |                                                            |                                    |         
|                                               | Net product sales                                          |                                    | $       
|                                               | Net service sales                                          |                                    |         
|                                               | Research and development revenue                           |                                    |         
|                                               |                                                            |                                    |         
|                                               |                                                            | Total revenues                     |         
|                                               |                                                            |                                    |         
|Operating costs and expenses:                  |                                                            |                                    |         
|                                               | Cost of products sold(1,2)                                 |                                    |         
|                                               | Cost of services sold(1)                                   |                                    |         
|                                               | Selling, general and administrative(1,3)                   |                                    |         
|                                               | Research and development(1,4)                              |                                    |         
|                                               | Amortization of intangibles                                |                                    |         
|                                               | Purchase of in-process research and development(5)         |                                    |         
|                                               | Charges for impaired goodwill(6)                           |                                    |         
|                                               | Charges for impaired assets                                |                                    |         
|                                               |                                                            |                                    |         
|                                               |                                                            | Total operating costs and expenses |         
|                                               |                                                            |                                    |         
|Operating income (loss)                        |                                                            |                                    | 653,865 
|                                               |                                                            |                                    |         
|Other income (expenses):                       |                                                            |                                    |         
|                                               | Equity in income (loss) of equity method investments(7)    |                                    |         
|                                               | Minority interest                                          |                                    |         
|                                               | Gains (losses) on investments in equity securities, net(8) |                                    |         
|                                               | Loss on sale of product line(9)                            |                                    |         
|                                               | Other                                                      |                                    |         
|                                               | Investment income                                          |                                    |         
|                                               | Interest expense                                           |                                    |         
|                                               |                                                            |                                    |         
|                                               |                                                            | Total other income (expenses)      |         
|                                               |                                                            |                                    |         
|Income (loss) before income taxes(1)           |                                                            |                                    | 735,674 
|(Provision for) benefit from income taxes(1,6) |                                                            |                                    | (255,481
|                                               |                                                            |                                    |         
|Net income (loss)(1)                           |                                                            | $                                  | 480,193 
|                                               |                                                            |                                    |         

F-2

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GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Selected Financial Data (Continued)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA (Continued)

|                                                                 |            | For the Years Ended December 31, |        
|---------------------------------------------------------------- | ---------- | -------------------------------- | -------
|
|
|Net income (loss) per share:                                     |            |                                  |        
|Allocated to Genzyme Stock(10):                                  |            |                                  |        
|Net income (loss) allocated to Genzyme Stock                     |            | $                                | 480,193
|                                                                 |            |                                  |        
|Net income (loss) per share of Genzyme Stock:                    |            |                                  |        
|                                                                 | Basic(1)   |                                  | $      
|                                                                 |            |                                  |        
|                                                                 | Diluted(1) |                                  | $      
|                                                                 |            |                                  |        
|Allocated to Biosurgery Stock(10):                               |            |                                  |        
|Net loss allocated to Biosurgery Stock                           |            |                                  |        
|                                                                 |            |                                  |        
|Net loss per share of Biosurgery Stockbasic and diluted         |            |                                  |        
|                                                                 |            |                                  |        
|Weighted average shares outstanding                              |            |                                  |        
|                                                                 |            |                                  |        
|Allocated to Molecular Oncology Stock(10):                       |            |                                  |        
|Net loss allocated to Molecular Oncology Stock                   |            |                                  |        
|                                                                 |            |                                  |        
|Net loss per share of Molecular Oncology Stockbasic and diluted |            |                                  |        
|                                                                 |            |                                  |        
|Weighted average shares outstanding                              |            |                                  |        
|                                                                 |            |                                  |        

F-3

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GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Selected Financial Data (Continued)

CONSOLIDATED BALANCE SHEET DATA

|                                                                                          |  | December 31,
|----------------------------------------------------------------------------------------- |  | ------------
|
|
|Cash and investments(11)                                                                  |  | $           
|Working capital                                                                           |  |             
|Total assets                                                                              |  |             
|Long-term debt, capital lease obligations and convertible debt, including current portion |  |             
|Stockholders' equity                                                                      |  |             
|There were no cash dividends paid.                                                        |  |             

---

For the Years Ended December 31,2007

2006Cost of products and services sold

$
(25,677
)
$
(21,430
)Selling, general and administrative


(106,172
)

(121,822
)Research and development


(58,101
)

(65,248
)Total


(189,950
)

(208,500
)Less: tax benefit of stock options


58,148


66,331Stock-based compensation expense, net of tax

$
(131,802
)
$
(142,169
)Net loss per sharebasic and diluted

$
(0.50
)
$
(0.54
)


F-4

---



GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Selected Financial Data (Continued)



F-5

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

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

INTRODUCTION

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



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

F-6

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MERGERS AND ACQUISITIONS

2007 Acquisitions:

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

Diagnostic Assets of Diagnostic Chemicals Limited

On December 3, 2007, we acquired certain diagnostic assets from Diagnostic Chemicals Limited, or DCL, a privately-held diagnostics and
biopharmaceutical company based in Charlottetown, Prince Edward Island, Canada, including DCL's line of over 50 formulated clinical chemistry reagents and its diagnostics operations in
Prince Edward Island, Canada and Connecticut. We paid gross consideration of $53.3 million Canadian dollars, or $53.8 million U.S. dollars (based on the December 3, 2007 spot rate
for the Canadian dollar), in cash. We closed the transaction on December 3, 2007.

Bioenvision

On May 29, 2007, we entered into an agreement and plan of merger with Bioenvision, a publicly-traded biopharmaceutical company based in New York City and
Edinburgh, Scotland, and Wichita Bio Corporation, one of our wholly-owned subsidiaries, to acquire Bioenvision in an all-cash transaction valued at $11.20 per outstanding share of
Bioenvision Series A Preferred Stock (plus accrued but unpaid dividends) and $5.60 per outstanding share of Bioenvision Common Stock. We paid gross consideration of $349.9 million in
cash, including $345.4 million for the outstanding shares of Bioenvision Common and Series A Preferred Stock and options to purchase shares of Bioenvision Common Stock, and approximately
$5 million for acquisition costs. Net consideration was $304.7 million as we acquired Bioenvision's cash and cash equivalents totaling $45.2 million. Effective October 23,
2007, we completed the acquisition of Bioenvision through the culmination of a two step process consisting of a tender offer completed in July 2007, and a merger approved in October 2007.

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



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

We
accounted for our investment in Bioenvision Common Stock under the equity method of accounting from July 10, 2007 through October 22, 2007. We recorded our initial
$47.0 million investment in Bioenvision Common Stock as a single amount in other noncurrent assets in our consolidated balance sheet. The purchase price of our initial investment in Bioenvision
Common Stock

F-7

---



was
attributed to the fair value of our 15% proportional share of the tangible assets and liabilities of Bioenvision as of July 10, 2007. The excess of the purchase price over our proportional
share of the net assets of Bioenvision as of that date was attributed to the underlying intangible assets and IPR&D, net of tax, and goodwill. The following table sets forth the purchase price
allocation for our initial investment in Bioenvision Common Stock and the components of the $21.1 million of charges we recorded to equity in income of equity method investments for the period
from July 10, 2007 through October 22, 2007 related to our initial investment in Bioenvision Common Stock (amounts in thousands):

Investment in
Bioenvision
Common
Stock

Equity in
Income (Loss) of
Equity Method
InvestmentsOur 15% proportional share of the tangible assets and liabilities of Bioenvision

$
7,062

$
Goodwill


4,008


Other intangible assets


26,531


IPR&D


19,150


Deferred tax liabilities


(9,722
)

Initial investment in Bioenvision Common Stock


47,029


Effect of equity method of accounting:IPR&D


(19,150
)

(19,150
)Our 15% proportional share of the losses of Bioenvision(1)


(1,424
)

(1,424
)Amortization expense(1)


(829
)

(829
)Deferred tax benefits(1)


302


302Total

$
25,928

$
(21,101
)


---



On October 22, 2007, holders of a majority of the issued and outstanding shares of Bioenvision Common Stock and Bioenvision Series A Preferred
Stock, voting together as a single class on an as-converted basis, approved the merger. On October 23, 2007, we paid approximately $245 million in
cash consideration to the former Bioenvision stockholders and Bioenvision Common Stock ceased trading and was delisted from The Nasdaq Stock Market, Inc., or NASDAQ. In December 2007, we paid
approximately $12 million in cash for the outstanding options to purchase shares of Bioenvision Common Stock. We accounted for the acquisition as a business combination and, accordingly,
included its results of operations in our consolidated statements of operations from October 23, 2007, the date of acquisition.

2006 Acquisition:



In November 2006, we acquired AnorMED, a publicly-traded chemical-based biopharmaceutical company based in Langley, British Columbia, Canada with a focus on the
discovery, development and commercialization of new therapeutic products in the area of hematology, oncology and human immunodeficiency virus, or HIV. We paid gross consideration of
$589.2 million in cash, including $584.2 million for the shares of AnorMED's common stock outstanding on the date of acquisition and approximately $5 million for acquisition
costs. Net consideration was $569.0 million as we acquired AnorMED's cash and short-term investments totaling $20.2 million. As part of the transaction, we acquired Mozobil,
a late-stage product candidate in development for hematopoietic stem cell

F-8

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transplantation,
which we have added to our Transplant business. Multiple earlier studies showed that Mozobil rapidly increases the number of stem cells that move out of the bone marrow and into a
patient's blood, which is an important step in preparing a patient for a stem cell transplant.

2005 Acquisitions:



CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

The significant accounting policies and methods used in the preparation of our consolidated financial statements are described in Note A., "Summary of
Significant Accounting Policies." The preparation of consolidated financial statements under accounting principles generally accepted in the United States of America requires us to make certain
estimates and judgments that affect reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingent assets and liabilities in our financial statements. Our actual results
could differ from these estimates under different assumptions and conditions. We believe that the following critical accounting policies affect the more significant judgments and estimates used in the
preparation of our consolidated financial statements:



Revenue Recognition

Product Sales

The timing of product shipments and receipts by the customer can have a significant impact on the amount of revenue recognized in a particular period. A
significant portion of our products are sold at least in part through wholesalers and specialty distributors, along with direct sales to hospitals, homecare providers, government agencies and
physicians. Consequently, our net sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of our major distributors and other trade buyers, which may result from
seasonality, pricing, wholesaler buying decisions or other factors. Inventory in the distribution channel consists of inventory held by wholesalers and specialty

F-9

---



distributors,
who are our customers, and inventory held by their retail customers, such as pharmacies and hospitals. Our revenue in a particular period can be impacted by increases or decreases in
channel inventories. Significant increases in wholesaler or retail inventories could result in reduced purchases in subsequent periods, or product returns from the distribution channel due to
overstocking, low end-user demand or product expiration.

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

Product Sales Allowances

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

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



F-10

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

|                                                                         |                         | 2007                           |           | 2006    |         | 2005      |         | 07/06 Increase/ (Decrease) % Change |           | 06/05 Increase/ (Decrease) % Change |        
|------------------------------------------------------------------------ | ----------------------- | ------------------------------ | --------- | ------- | ------- | --------- | ------- | ----------------------------------- | --------- | ----------------------------------- | -------
|
|Product sales allowances:                                                |                         |                                |           |         |         |           |         |                                     |           |                                     |        
|                                                                         | Contractual adjustments |                                | $         | 377,418 |         | $         | 298,274 |                                     | $         | 169,181                             |        
|                                                                         | Discounts               |                                |           | 20,037  |         |           | 17,541  |                                     |           | 14,098                              |        
|                                                                         | Sales returns           |                                |           | 15,342  |         |           | 13,853  |                                     |           | 7,227                               |        
|                                                                         |                         |                                |           |         |         |           |         |                                     |           |                                     |        
|                                                                         |                         | Total product sales allowances |           | $       | 412,797 |           | $       | 329,668                             |           | $                                   | 190,506
|                                                                         |                         |                                |           |         |         |           |         |                                     |           |                                     |        
|Total gross product sales                                                |                         | $                              | 3,870,575 |         | $       | 3,217,077 |         | $                                   | 2,643,809 |                                     | 20     
|                                                                         |                         |                                |           |         |         |           |         |                                     |           |                                     |        
|Total product sales allowances as a percent of total gross product sales |                         |                                | 11        | %       |         | 10        | %       |                                     | 7         | %                                   |        

Product
sales allowances for contractual adjustments and discounts increased for the year ended December 31, 2007, as compared to the same period of 2006,
primarily due to an increase in overall gross product sales, and to a lesser extent, changes in rebate rates or product mix. Product sales allowances for contractual adjustments and discounts
increased for the year ended December 31, 2006, as compared to the same period of 2005, primarily due to growth in overall gross product sales and a
full year of discounts related to sales of Hectorol, which we acquired as a result of our acquisition of Bone Care in July 2005. In addition, Hectorol chargebacks in 2006 were significantly higher
than chargebacks for the product in 2005, and were offset, in part, by contracts executed with major customers.

Total
estimated product sales allowance reserves and accruals in our consolidated balance sheets increased 31% to approximately $171 million as of December 31, 2007, as
compared to approximately $129 million as of December 31, 2006, primarily due to increased product sales. Our actual results have not differed materially from amounts recorded. The
annual variation has been less than 0.5% of total product sales for each of the last three years.

Distributor Fees

EITF Issue No. 01-9, "Accounting for Consideration given by a Vendor to a Customer (including a Reseller of a Vendor's Products)" specifies
that cash consideration (including a sales incentive) given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor's products or services and, therefore, should be
characterized as a reduction of revenue. We include such fees in contractual adjustments, which are recorded as a reduction to product sales. That presumption is overcome and the consideration should
be characterized as a cost incurred if, and to the extent that, both of the following conditions are met:



F-11

---





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

|                  |                                                                                  | Year Ended December 31,
|----------------- | -------------------------------------------------------------------------------- | -----------------------
|
|
|Distributor fees: |                                                                                  |                        
|                  | Included in contractual adjustments and recorded as a reduction to product sales |                        
|                  | Charged to SG&A                                                                  |                        
|                  |                                                                                  |                        
|                  |                                                                                  | Total distributor fees 
|                  |                                                                                  |                        

Collaborations

We evaluate revenue from agreements that have multiple elements to determine whether the components of the arrangement represent separate units of accounting as
defined in EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." To recognize revenue for a delivered item in a multiple element arrangement, EITF Issue
No. 00-21 requires that:



The
determination that multiple elements in an arrangement meet the criteria for separate units of accounting requires us to exercise our judgment.

We
consider the factors or indicators set forth in EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent," in deciding whether to record
revenue on a gross or net basis. The determination of whether we should recognize revenue on a gross or net basis involves judgment based on the relevant facts and circumstances which relate primarily
to whether we act as a principal or agent in the process of generating revenues for the revenue transactions.

Stock-Based Compensation

Effective January 1, 2006, we adopted the provisions of FAS 123R, "Share-Based Payment, an amendment of FASB Statement Nos. 123 and 95,"
which requires us to recognize stock-based compensation expense in our financial statements for all share-based payment awards, including stock options and restricted stock units, or RSUs, made to
employees and directors based upon the grant date fair value of those awards.

We
adopted FAS 123R using the modified prospective transition method, which requires us to apply the standard to new equity awards and to equity awards modified, repurchased or
canceled after January 1, 2006, our adoption date. The modified prospective transition method does not allow for the restatement of prior periods. Accordingly, our results of operations for the
year ended December 31, 2006 and future periods will not be comparable to our results of operations prior to January 1, 2006 because our historical results prior to that date do not
reflect the impact of expensing the fair value of share-based payment awards.

We
estimate the fair value of each stock option grant using the Black-Scholes option pricing model. Use of a valuation model requires management to make certain assumptions with respect
to selected model inputs. The key assumptions in the Black-Scholes model are the risk-free interest rate, the dividend yield, the expected option life (in years) and the expected
volatility of the price of

F-12

---



Genzyme
Stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant. The dividend yield percentage is zero because we do not currently pay
dividends nor intend to do so during the expected option life. We use historical data on exercises of our stock options and other factors to estimate the expected option life (in years), or term, of
the share-based payments granted. We estimate the expected volatility rate for our stock options based on historical volatility of our stock over the expected term of the equity award granted. We
determine separate volatility rates for each enrollment under our ESPP based on the period from the commencement date of each enrollment to each applicable purchase date. Changes in these input
variables would affect the amount of expense associated with stock-based compensation. The compensation expense recognized for all share-based awards is net of estimated forfeitures. We estimate
forfeiture rates based on historical analysis of option forfeitures. If actual forfeitures should vary from estimated forfeitures, adjustments to stock-based compensation expense may be required in
future periods.

Income Taxes

We use the asset and liability method of accounting for deferred income taxes. We are subject to income taxes in both the United States and numerous foreign
jurisdictions; however, our most significant tax jurisdictions are the U.S. federal and states. Significant judgments, estimates and assumptions regarding future events, such as the amount, timing and
character of income, deductions and tax credits, are required in the determination of our provision for income taxes and whether valuation allowances are required against deferred tax assets. These
judgments, estimates and assumptions involve:



We
operate in many jurisdictions where the tax laws relating to the pricing of transactions between related parties are open to interpretation, which could potentially result in tax
authorities asserting additional tax liabilities with no offsetting tax recovery in other countries.

Uncertainties
exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of international business
relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such
assumptions, could necessitate adjustments to tax income and expense in future periods. We establish what we believe to be reasonable provisions for possible consequences of audits by the tax
authorities of the respective countries. The amount of such provisions is based on various factors, such as experience with previous tax audits and differing interpretations of tax regulations by the
taxable entity and the responsible tax authority. Such differences in interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective domicile. We develop
our cumulative probability assessment of the measurement of uncertain tax positions under FASB Interpretation No., or FIN, 48 "Accounting for Uncertainty in Income Taxesan
Interpretation of FASB Statement No. 109," using internal expertise, experience and judgment. Estimates are refined as additional information becomes known. Any outcome upon settlement that
differs from our initial estimate may result in additional or lower tax expense in future periods. However, we do not believe it is possible to reasonably estimate the potential impact of changes to
the assumptions, estimates and judgments identified because the resulting change to our tax liability, if any, is dependent on numerous factors, including among others: changes in tax law, the amount
and nature of additional taxes potentially asserted by local tax authorities; the willingness of local tax authorities to negotiate a fair settlement through an

F-13

---



administrative
process; the impartiality of the local courts; and the potential for changes in the tax paid to one country to either produce, or fail to produce, an offsetting tax change in other
countries.

In
accordance with FIN 48, adopted on January 1, 2007, we apply a two-step approach to recognize and measure uncertain tax positions (tax contingencies)
accounted for under FAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not
that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more
than 50% likely to be realized upon ultimate settlement. We consider many factors, including the factors described above, when evaluating and estimating our tax positions and tax benefits, which
requires periodic adjustments and may not accurately forecast actual outcomes.

Inventories

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

We
capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval of a product. In no event is inventory capitalized
prior to the completion of a phase 3 clinical trial. If a product is not approved for sale, it would result in the write off of the inventory and a charge to earnings. Our inventories as of
December 31, 2007 and 2006 do not include any inventory for products that have not yet been approved for sale.

We
periodically review our inventories for excess or obsolete inventory and write down obsolete or otherwise unmarketable inventory to its estimated net realizable value. If the actual
net realizable value is less than the value we estimate, or if there are any further determinations that inventory will not be marketable based on estimates of demand, additional inventory write downs
will be required. Additionally, our products are subject to strict quality control and monitoring throughout the manufacturing process. Periodically, certain lots of inventory may fail to meet our
quality specifications during the manufacturing process or prior to sale, or may expire. For such lots, we consider the factors affecting the decline in quality of the lot and assess the likelihood
that the lot can be reworked into saleable product, or whether the lot is unmarketable. We record a charge to cost of products sold in our consolidated statement of operations to write off the value
of any unmarketable inventory in the period in which we determine that the product no longer meets our criteria for saleable product. The determination of what factors may cause a lot to fail to meet
our quality standards, the assessment of whether we can rework the lot within the scope of the approved manufacturing process for the product and the likelihood that we can complete such rework in a
timely fashion involve judgments that can affect the amount and timing of the charges we record to write off the value of unmarketable inventory.

Long-Lived and Intangible Assets

Property, Plant and Equipment

As of December 31, 2007, there was $2.0 billion of net property, plant and equipment on our consolidated balance sheet. We generally depreciate
property, plant and equipment using the straight-line method over its estimated economic life, which ranges from 3 to 40 years. Determining the economic lives of property, plant and
equipment requires us to make significant judgments that can

F-14

---



materially
impact our operating results. There can be no assurance that our estimates are accurate. If our estimates require adjustment, it could have a material impact on our reported results.

In
the ordinary course of our business, we incur substantial costs to purchase and construct property, plant and equipment. The treatment of costs to purchase or construct these assets
depends on the nature of the costs and the stage of construction. Costs incurred in the initial design and evaluation phase, such as the cost of performing feasibility studies and evaluating
alternatives, are charged to expense. Qualifying costs incurred in the committed project planning and design phase, and in the construction and installation phase, are capitalized as part of the cost
of the asset. We stop capitalizing costs when an asset is substantially complete and ready for its intended use. Determining the appropriate period during which to capitalize costs, and assessing
whether particular costs qualify for capitalization, requires us to make significant judgments. These judgments can have a material impact on our reported results.

Equipment
and facilities used to manufacture products subject to FDA or other governmental regulation are required to comply with standards of those regulatory agencies. The activities
necessary to obtain approval from these regulatory agencies are referred to as validation costs. We capitalize the cost of validating new equipment and facilities for the underlying manufacturing
process. We begin capitalization when we consider the product and manufacturing process to have demonstrated technological feasibility, and end capitalization when the asset is substantially complete
and ready for its intended use. Costs capitalized include incremental labor and direct material, and incremental fixed overhead. Determining whether to capitalize validation costs requires judgment,
and can have a significant impact on our reported results. Also, if we were unable to successfully validate the manufacturing process for any future product, we would have to write off to current
operating expense any validation costs that had been capitalized during the unsuccessful validation process. Costs to initiate new projects in an existing facility are treated as start-up
costs and expensed as incurred. To date, all of our manufacturing process validation efforts have been successful. As of December 31, 2007, capitalized validation costs, net of accumulated
depreciation, were $15.5 million.

Goodwill and Other Intangible Assets

As of December 31, 2007, there was approximately $1.4 billion of goodwill and $1.6 billion of net other intangible assets on our consolidated
balance sheet. We amortize intangible assets using the straight-line method over their estimated economic lives, which range from 1 and 15 years, or using the economic use method if
that method results in significantly greater amortization than the straight-line method. Determining the economic lives of acquired intangible assets requires us to make significant
judgment and estimates, and can materially impact our operating results. For certain acquired intangible assets, we may be required to make additional payments contingent upon meeting certain sales
targets. We record amortization expense for these intangibles based on estimated future sales of the related products and include in the determination of amortization all contingent payments that we
believe are probable of being made. We apply this amortization model to our Synvisc distribution rights (acquired from Wyeth) and our license agreement with Synpac related to Myozyme patents. We
review the sales forecasts of these products on a quarterly basis and assess the impact changes in the forecasts have on the rate of amortization and the likelihood that contingent payments will be
made. Adjustments to amortization expense resulting from changes in estimated sales are reflected prospectively.

Asset Impairments

Impairment of Goodwill

FAS 142 requires periodic tests of goodwill for impairment and that other intangible assets be amortized over their useful lives unless these lives are
determined to be indefinite. FAS 142 requires goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit

F-15

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with
the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed
to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's
goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. We determine the implied fair value by
discounting, to present value, the estimated future cash flow of the reporting unit, which includes various analyses, assumptions and estimates including discount rates, projected results and
estimated cash flows.

We
are required to perform impairment tests under FAS 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be
recoverable. For all of our acquisitions, various analyses, assumptions and estimates were made at the time of each acquisition specifically regarding product development, market conditions and cash
flows that were used to determine the valuation of goodwill and intangibles. We perform our required annual impairment tests for our goodwill in the third quarter of each year. When we perform
impairment tests in future years, the possibility exists that changes in forecasts and estimates from those used at the acquisition date could result in impairment charges.

Impairment of Tangible and Intangible Assets, Other Than Goodwill

We periodically evaluate long-lived assets for potential impairment under FAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." We perform these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. If we
believe an indicator of potential impairment exists, we test to determine whether the impairment recognition criteria in FAS 144 have been met. In evaluating long-lived assets for
potential impairment, we make several significant estimates and judgments, including:



Use
of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

In-Process Research and Development

In accounting for acquisitions, we allocate the purchase price to the fair value of the acquired tangible and intangible assets, including acquired IPR&D. This
allocation requires us to make several significant judgments and estimates. For example, we generally estimate the value of acquired intangible assets and IPR&D using a discounted cash flow model,
which requires us to make assumptions and estimates about, among other things:



Use
of different estimates and judgments could yield materially different results in our analysis, and could result in materially different asset values and IPR&D charges.

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Investments in Debt and Equity Securities

We invest a portion of our excess cash balances in short-term and long-term marketable debt securities. The earnings on our investment
portfolios may be adversely affected by changes in interest rates, credit ratings, collateral value, the overall strength of credit markets, and other factors that may result in other than temporary
declines in the value of the securities.

We
also invest in equity securities as part of our strategy to align ourselves with technologies and companies that fit with our strategic direction. Most often we will collaborate on
scientific programs and research with the issuers of the securities.

On
a quarterly basis, we review the fair market value of our debt and equity investments in comparison to historical cost. If the fair market value of a security is significantly less
than our carrying value, we consider all available evidence in assessing when and if the value of the investment can be expected to recover to at least its historical cost. This evidence would
include:



For
equity investments, this evidence would additionally include:



If
our review indicates that the decline in value is "other than temporary" we write down our investment to the then current market value and record an impairment charge to our
consolidated statements of operations. The determination of whether an unrealized loss is "other than temporary" requires significant judgment, and can have a material impact on our reported earnings.

RESULTS OF OPERATIONS

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

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REVENUES

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

|                                 |                                   | 2007 |           | 2006      |   | 2005      |           | 07/06
Increase/
(Decrease)
% Change |           | 06/05
Increase/
(Decrease)
% Change |   
|-------------------------------- | --------------------------------- | ---- | --------- | --------- | - | --------- | --------- | ----------------------------------- | --------- | ----------------------------------- | --
|
|Product revenue                  |                                   | $    | 3,457,778 |           | $ | 2,887,409 |           | $                                   | 2,453,303 |                                     | 20
|Service revenue                  |                                   |      | 326,326   |           |   | 282,118   |           |                                     | 261,379   |                                     | 16
|                                 |                                   |      |           |           |   |           |           |                                     |           |                                     |   
|                                 | Total product and service revenue |      |           | 3,784,104 |   |           | 3,169,527 |                                     |           | 2,714,682                           |   
|Research and development revenue |                                   |      | 29,415    |           |   | 17,486    |           |                                     | 20,160    |                                     | 68
|                                 |                                   |      |           |           |   |           |           |                                     |           |                                     |   
|                                 | Total revenues                    |      | $         | 3,813,519 |   | $         | 3,187,013 |                                     | $         | 2,734,842                           |   
|                                 |                                   |      |           |           |   |           |           |                                     |           |                                     |   

Product Revenue

We derive product revenue from sales of:



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

|                      |                                             | 2007                  |         | 2006      |           | 2005    |           | 07/06
Increase/
(Decrease)
% Change |         | 06/05
Increase/
(Decrease)
% Change |          
|--------------------- | ------------------------------------------- | --------------------- | ------- | --------- | --------- | ------- | --------- | ----------------------------------- | ------- | ----------------------------------- | ---------
|
|Renal:                |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|                      | Renagel (including sales of bulk sevelamer) |                       | $       | 602,670   |           | $       | 515,119   |                                     | $       | 417,485                             |          
|                      | Hectorol                                    |                       |         | 115,708   |           |         | 93,360    |                                     |         | 34,515                              |          
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|                      |                                             | Total Renal           |         |           | 718,378   |         |           | 608,479                             |         |                                     | 452,000  
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|Therapeutics:         |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|                      | Cerezyme                                    |                       |         | 1,133,153 |           |         | 1,007,036 |                                     |         | 932,322                             |          
|                      | Fabrazyme                                   |                       |         | 424,284   |           |         | 359,274   |                                     |         | 305,064                             |          
|                      | Thyrogen                                    |                       |         | 113,587   |           |         | 93,687    |                                     |         | 77,740                              |          
|                      | Myozyme                                     |                       |         | 200,728   |           |         | 59,238    |                                     |         | 3,827                               |          
|                      | Other Therapeutics                          |                       |         | 8,314     |           |         | 410       |                                     |         | 2,292                               |          
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|                      |                                             | Total Therapeutics    |         |           | 1,880,066 |         |           | 1,519,645                           |         |                                     | 1,321,245
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|Transplant:           |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|                      | Thymoglobulin/Lymphoglobuline               |                       |         | 165,886   |           |         | 149,541   |                                     |         | 127,739                             |          
|                      | Other Transplant                            |                       |         | 8,940     |           |         | 6,425     |                                     |         | 18,143                              |          
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|                      |                                             | Total Transplant      |         |           | 174,826   |         |           | 155,966                             |         |                                     | 145,882  
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|Biosurgery:           |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|                      | Synvisc                                     |                       |         | 242,319   |           |         | 233,860   |                                     |         | 218,906                             |          
|                      | Sepra products                              |                       |         | 104,318   |           |         | 85,338    |                                     |         | 68,171                              |          
|                      | Other Biosurgery                            |                       |         | 34,793    |           |         | 28,020    |                                     |         | 27,402                              |          
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|                      |                                             | Total Biosurgery      |         |           | 381,430   |         |           | 347,218                             |         |                                     | 314,479  
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|Oncology              |                                             |                       | 68,947  |           |           | 48,077  |           |                                     | 34,098  |                                     | 43       
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|Other product revenue |                                             |                       | 234,131 |           |           | 208,024 |           |                                     | 185,599 |                                     | 13       
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          
|                      |                                             | Total product revenue |         | $         | 3,457,778 |         | $         | 2,887,409                           |         | $                                   | 2,453,303
|                      |                                             |                       |         |           |           |         |           |                                     |         |                                     |          

2007 As Compared to 2006

Renal

Sales of Renagel, including sales of bulk sevelamer, increased 17% to $602.7 million for 2007, as compared to 2006. Renagel price increases in the United
States in December 2006 and April 2007 accounted for $36.4 million of the additional revenue, while increased end-user demand worldwide accounted for $51.2 million of
additional revenue. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar in 2007, as compared to 2006, positively impacted Renagel revenue by
$16.7 million. Sales of Renagel, including sales of bulk sevelamer, were 16% of our total revenue for 2007 and 2006.

Sales
of Hectorol increased 24% to $115.7 million for 2007, as compared to $93.4 million for 2006, primarily due to price increases for the 0.5 and 2.5 microgram tablets in
July and December 2006 and a price increase for Hectorol IV in April 2006, as well as higher end-user demand.

We
expect sales of Renagel and Hectorol to continue to increase, driven primarily by growing patient access to these products, including through the Medicare Part D program in the
United States,

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and
the continued adoption of the products by nephrologists worldwide. We expect adoption rates for Renagel to trend favorably as a result of our DCOR trial and the growing acceptance of the National
Kidney Foundation's 2003 Kidney Disease Outcome Quality Initiative, or KDOQI, Guidelines for Bone Metabolism and Disease in CKD and the RIND study. Renagel and Hectorol compete with several other
products and our future sales may be impacted negatively by these products. In addition, a generic manufacturer has filed an Abbreviated New Drug Application (ANDA) seeking to market a generic version
of Hectorol prior to the expiration dates of our patents covering the product. If this or any other generic manufacturer were to receive approval to sell a generic version of Hectorol, our revenues
from this product would be adversely affected. In addition, our ability to continue to increase sales of Renagel and Hectorol will depend on many other factors, including our ability to optimize
dosing and improve patient compliance with Renagel dosing, the availability of reimbursement from third-party payors and the extent of coverage, including under the Medicare Part D program.
Also, the accuracy of our estimates of fluctuations in the payor mix and our ability to effectively manage wholesaler inventories and the levels of compliance with the inventory management programs we
implemented for Renagel and Hectorol with our wholesalers could impact the revenue from our Renal reporting segment that we record from period to period.

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

In
October 2007, an FDA advisory committee voted to recommend that the agency extend the indications for phosphate binders to include pre-dialysis patients with
hyperphosphatemia. We are engaged in discussions with the FDA regarding the expansion of the product's labeling to include CKD patients with hyperphosphatemia who have not progressed to dialysis. In
addition, we expect to file for approval of a powder form of Renvela that may make it easier for patients to comply with their prescribed treatment program. While Renagel will remain available for a
period of time, our long-term goal is to transition patients to Renvela.

Therapeutics

Therapeutics product revenue increased 24% to $1.9 billion for 2007, as compared to 2006, due to continued growth in sales of Cerezyme, Fabrazyme and
Thyrogen and to the launch of Myozyme in the European Union, the United States and Canada in 2006.

The
13% growth in sales of Cerezyme to $1.1 billion for 2007, as compared to 2006, is attributable to our continued identification of new Gaucher disease patients, particularly in
international markets. Through October 2007, our price for Cerezyme remained consistent from period to period. Effective November 1, 2007, we implemented a 3% price increase in the United
States for Cerezyme. Although we expect Cerezyme to continue to be a substantial contributor to revenues in the future, it is a mature product, and as a result, we do not expect that the current new
patient growth trend will continue. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar positively impacted Cerezyme revenue by
$38.5 million in 2007, as compared to 2006.

Our
results of operations are highly dependent on sales of Cerezyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Sales of
Cerezyme were approximately 30% of our total revenue in 2007, as compared to 32% in 2006. Revenue from Cerezyme would be impacted negatively if competitors developed alternative treatments for Gaucher
disease which gained commercial acceptance, if our marketing activities are restricted, or if coverage, pricing or reimbursement is limited.

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The
18% increase to $424.3 million for 2007 in sales of Fabrazyme, as compared to 2006, is primarily attributable to increased patient identification worldwide as Fabrazyme is
introduced into new markets. We established a 3% price increase in the United States for Fabrazyme in November 2007 which did not have a significant impact on Fabrazyme revenue in 2007 as compared to
2006. The strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar positively impacted Fabrazyme revenue by $13.0 million in 2007, as compared
to 2006.

Sales
of Thyrogen increased 21% to $113.6 million for 2007, as compared to 2006. A Thyrogen price increase of approximately 10% in the United States in April 2007 accounted for
$4.3 million of the additional revenue while worldwide volume growth impacted sales by $15.6 million. The strengthening of foreign currencies, primarily the Euro and British pound
sterling, against the U.S. dollar positively impacted Thyrogen revenue by $3.2 million in 2007, as compared to 2006. In December 2007 we received FDA approval for the use on Thyrogen in
thyroid cancer remnant ablation procedures.

Sales
of Myozyme were $200.7 million in 2007, as compared to $59.2 million in 2006. We launched Myozyme in the United States in May 2006, in Europe a month later and in
Canada in September 2006. We are introducing Myozyme on a country-by-country basis in the European Union, as pricing and reimbursement approvals are obtained. Myozyme has
received orphan drug designation in the United States, which provides seven years of market exclusivity, and in the European Union, which provides ten years of market exclusivity. In April 2007,
Myozyme was approved for commercial sale in Japan and in June 2007 we launched the product after we received reimbursement approval. We expect to file for approval in several additional countries in
2008. The 9%
increase in the Euro against the U.S. dollar in 2007, as compared to 2006, positively impacted Myozyme revenue by $4.3 million.

We
currently manufacture Myozyme in the United States and have begun Myozyme fill-finish at our facility in Waterford, Ireland. In addition, in October 2007, we submitted an
application to the FDA seeking approval of a larger-scale (2000 liters) manufacturing process, based in Allston, Massachusetts, to enable us to meet the expected demand for Myozyme in the U.S. market
going forward. We currently anticipate a decision from the FDA on the application for our larger-scale manufacturing process in the first half of 2008. In the meantime, we are continuing our efforts
to optimize supply for the U.S. market, including temporarily transitioning some patients to a clinical access program. This has had an adverse effect on our Myozyme revenue and will continue to have
an adverse effect until we receive FDA approval. In 2008, we are planning to produce validation lots of Myozyme at the 4000 liters scale in our protein manufacturing facility in Geel, Belgium, with
approval anticipated in 2009.

Effective
January 1, 2008, we, BioMarin and BioMarin/Genzyme LLC restructured our relationship regarding the manufacturing, marketing and sale of Aldurazyme and entered into
several restructuring agreements. BioMarin will continue to manufacture Aldurazyme. We will continue to purchase Aldurazyme exclusively from BioMarin and globally market and sell the product.
Effective January 1, 2008, instead of sharing all costs and profits of Aldurazyme equally, we will record all sales of Aldurazyme and will pay BioMarin a tiered payment ranging from
approximately 39.5% to 50% of worldwide net product sales of Aldurazyme.

Transplant

Transplant product revenue increased 12% to $174.8 million for 2007, as compared to 2006. The increase is primarily due to a $18.0 million increase
in sales of Thymoglobulin as a result of its increased utilization in transplant procedures worldwide.

In
the second quarter of 2007, we began experiencing certain manufacturing challenges with respect to the production of Thymoglobulin resulting in stability issues. We have worked
closely with the FDA in addressing these challenges, and have implemented certain process changes at our

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Thymoglobulin
manufacturing plant in Lyon, France to resolve these production issues. The FDA has accepted our responses to a warning letter issued last year regarding the production processes at our
plant in Lyon, France. We will continue to closely monitor our Thymoglobulin inventory levels and intend to manage production in order to maintain adequate supply levels in 2008.

Biosurgery

Biosurgery product revenue increased 10% to $381.4 million in 2007, as compared to 2006. Seprafilm revenue increased $20.2 million in 2007, as
compared to 2006, primarily due to greater penetration into the United States, Japanese and European markets.

Synvisc
sales increased $8.5 million in 2007, as compared to 2006, primarily due to a $5.4 million increase in U.S. volume.

We
received approval to market Synvisc-One, a single injection regimen, in the European Union in December 2007. We expect regulatory action on a marketing application in the
United States in the second half of 2008. We also plan on pursuing marketing approvals for Synvisc-One in Canada, Asia and Latin America.

Oncology

Oncology product revenue increased 43% to $68.9 million in 2007, as compared to 2006, primarily due to a 39% increase to $64.9 million in the
combined sales of Campath and Clolar.

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

We
are developing the intravenous formulation of Clolar for significantly larger indications, including first-line and relapsed or refractory AML in adults. We are also developing an
oral formulation of Clolar and have initiated clinical trials for the treatment of MDS. Clolar has been granted orphan drug status for ALL and AML in both the United States and European Union.

Other Product Revenue

Other product revenue increased 13% to $234.1 million in 2007, as compared to 2006, primarily due to:



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

2006 As Compared to 2005

Renal

Sales of Renagel, including sales of bulk sevelamer, increased 23% to $515.1 million for 2006, as compared to 2005, primarily due to an
$89.9 million increase in 2006 in sales related to increased customer volume, of which $68.0 million is primarily attributable to increased end-user demand worldwide, and
$21.9 million is attributable to a 9.5% price increase for Renagel in the United States, which became effective in December 2005. The 1% increase in the Euro against the U.S. dollar for

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2006,
as compared to 2005, positively impacted Renagel revenue by $1.5 million in 2006. Sales of Renagel, including sales of bulk sevelamer, were 18% of our total product revenue for 2006, as
compared to 17% for 2005.

Sales
of Hectorol increased more than 100% to $93.4 million for 2006, as compared to $34.5 million for 2005 because we did not own Hectorol until July 1, 2005 and
due to higher wholesaler inventories on the date of acquisition.

Therapeutics

Therapeutics product revenue increased 15% to $1.5 billion for 2006, as compared to 2005, primarily due to continued growth in sales of Cerezyme, Fabrazyme
and Thyrogen and the launch of Myozyme in the European Union, United States and Canada in 2006.

The
8% growth in sales of Cerezyme to $1.0 billion for 2006, as compared to 2005, 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. The 1% increase in the Euro against the U.S. dollar in 2006, as compared to 2005, positively impacted
Cerezyme revenue by $3.2 million in 2006.

The
18% increase to $359.3 million for 2006 in sales of Fabrazyme, as compared to 2005, was primarily attributable to increased patient identification worldwide as Fabrazyme is
introduced into new markets. In addition, we recognized $3.4 million in September 2006 upon receiving reimbursement approval for past shipments of Fabrazyme in Canada. The 1% increase in the
Euro against the U.S. dollar in 2006, as compared to 2005, positively impacted Fabrazyme revenue by $1.0 million in 2006.

Sales
of Thyrogen increased 21% to $93.7 million for 2006, as compared to 2005, due to worldwide volume growth which positively impacted sales by $15.4 million.
Additionally, a 10% increase in price impacted sales by $3.6 million in 2006, as compared to 2005. The 1% increase in the Euro against the U.S. dollar during 2006, as compared to 2005, did not
have a material impact on Thyrogen revenue in 2006.

Sales
of Myozyme were $59.2 million for 2006 as compared to $3.8 million in 2005. In March 2006, we received marketing authorization for Myozyme in the European Union. The
1% increase in the Euro against the U.S. dollar during 2006, as compared to 2005, positively impacted Myozyme revenue by $2.0 million in 2006.

Transplant

Transplant product revenue increased 7% to $156.0 million for 2006, as compared to 2005. The increase is primarily due to a $22.7 million increase
in sales of Thymoglobulin as a result of increased utilization of Thymoglobulin in transplant procedures worldwide. The increase was partially offset by a $9.0 million decrease in revenue from
an upfront license fee we had received from Procter & Gamble Pharmaceuticals, Inc., or PGP, a subsidiary of The Procter and Gamble Company in 2005, for which
there was no comparable amount in 2006. In December 2005, PGP exercised its option to terminate an agreement under which we had granted PGP an exclusive, worldwide license to develop and market RDP58
for the treatment of gastrointestinal and other disorders.

Biosurgery

Biosurgery product revenue increased 10% to $347.2 million for 2006, as compared to 2005. The increase was largely attributable to a $17.2 million
increase in sales of our Sepra products and a $15.0 million increase in sales of Synvisc. Sales of Seprafilm increased $15.1 million primarily due to greater penetration into the U.S.
and Japanese market. Synvisc sales increased primarily due to an expanded sales and marketing investment.

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Oncology

Oncology product revenue increased 41% to $48.1 million for 2006, as compared to 2005, primarily due to increased demand for Campath and Clolar.

Other Product Revenue

Other product revenue increased 12% to $208.0 million for 2006, as compared to 2005, primarily due to a 10%, or $10.8 million, increase in sales of
our diagnostics products and a 14%, or $11.7 million, increase in sales of bulk pharmaceuticals, including WelChol. The increase in sales of diagnostics products was attributable to a 17%, or
$10.2 million, increase in clinical chemistry revenue resulting from our acquisition of Equal Diagnostics in July 2005. The increase in sales of bulk pharmaceuticals was primarily due to a 22%,
or $7.2 million, increase in 2006, of bulk sales of and royalties earned on WelChol due to an increased demand from our U.S. marketing partner, Sankyo Pharma, Inc.

Service Revenue

We derive service revenues primarily from the following sources:



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

|           |                       | 2007 |         | 2006    |   | 2005    |         | 07/06
Increase/ (Decrease) % Change |         | 06/05
Increase/ (Decrease) % Change |    
|---------- | --------------------- | ---- | ------- | ------- | - | ------- | ------- | ----------------------------------- | ------- | ----------------------------------- | ---
|
|Biosurgery |                       | $    | 39,880  |         | $ | 39,458  |         | $                                   | 38,553  |                                     | 1  
|Genetics   |                       |      | 285,114 |         |   | 240,857 |         |                                     | 222,328 |                                     | 18 
|Oncology   |                       |      | 980     |         |   | 1,102   |         |                                     |        |                                     | (11
|Other      |                       |      | 352     |         |   | 701     |         |                                     | 498     |                                     | (50
|           |                       |      |         |         |   |         |         |                                     |         |                                     |    
|           | Total service revenue |      | $       | 326,326 |   | $       | 282,118 |                                     | $       | 261,379                             |    
|           |                       |      |         |         |   |         |         |                                     |         |                                     |    

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2007 As Compared to 2006

Service revenue attributable to our Biosurgery reporting segment increased 1% to $39.9 million for 2007, as compared to 2006. The increase is primarily due
to higher demand for Carticel, offset, in part, by a decline in sales of MACI.

Service
revenue attributable to our Genetics reporting segment increased 18% to $285.1 million for 2007, as compared to 2006. The increase was primarily attributable to continued
growth in sales of genetic testing services as well as growth in the prenatal screening and diagnosis market.

2006 As Compared to 2005

Service revenue attributable to our Biosurgery reporting segment increased 2% to $39.5 million for 2006, as compared to 2005. The increase is primarily due
to a full year of MACI sales during 2006. We acquired MACI from Verigen in February 2005. In addition, sales of Epicel increased due to an increase in patient demand in 2006.

Service
revenue attributable to our Genetics reporting segment increased 8% to $240.9 million for 2006, as compared to 2005. The increase was primarily attributable to continued
growth in sales of genetic testing services as well as the prenatal screening and diagnosis market.

International Product and Service Revenue

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

|                                          |  | 2007      |   | 2006      |   | 2005 |           | 07/06
Increase/ (Decrease) % Change |    | 06/05
Increase/ (Decrease) % Change |   
|----------------------------------------- |  | --------- | - | --------- | - | ---- | --------- | ----------------------------------- | -- | ----------------------------------- | --
|
|International product and service revenue |  | 1,815,160 |   | 1,455,795 |   | $    | 1,215,621 |                                     | 25 | %                                   | 20
|% of total product and service revenue    |  | 48        | % | 46        | % |      | 45        | %                                   |    |                                     |   

2007 As Compared to 2006

The 25% increase to $1.8 billion for 2007 in international product and service revenue, as compared to 2006, is primarily due to a $311.4 million
increase in the combined international sales of Renagel, Cerezyme, Fabrazyme and Myozyme primarily due to an increase in the number of patients using these products in the European Union, South
America and the Asia-Pacific rim.

The
strengthening of foreign currencies, primarily the Euro and British pound sterling, against the U.S. dollar positively impacted total product and service revenue by
$90.8 million in 2007, as compared to 2006.

2006 As Compared to 2005

The 20% increase to $1.5 billion for 2006 in international product and service revenue, as compared to 2005, is primarily due to a $221.8 million
increase in the combined international sales of Renagel, Cerezyme, Fabrazyme, Thyrogen, Myozyme, Thymoglobulin, Synvisc and Campath, primarily due to an increase in the number of patients using these
products in countries outside of the United States.

The
Euro increased 1% against the U.S. dollar for 2006, as compared to 2005. Therefore, total product and service revenue was positively impacted by $8.8 million.

F-25

---



International
product and service revenue as a percentage of total product and service revenue increased 1% for 2006, as compared to 2005. This was primarily due to the increase in total
revenue outside the United States, as we continue to identify new patients in the international market for our products and services.

Research and Development Revenue

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

|             |                                        | 2007 |        | 2006   |   | 2005   |        | 07/06
Increase/
(Decrease)
% Change |        | 06/05
Increase/
(Decrease)
% Change |     
|------------ | -------------------------------------- | ---- | ------ | ------ | - | ------ | ------ | ----------------------------------- | ------ | ----------------------------------- | ----
|
|Therapeutics |                                        | $    | 1,202  |        | $ | 1,068  |        | $                                   | 789    |                                     | 13  
|Transplant   |                                        |      | 180    |        |   |       |        |                                     | 30     |                                     | NA  
|Biosurgery   |                                        |      | 5,337  |        |   | 893    |        |                                     | 144    |                                     | >100
|Oncology     |                                        |      | 18,421 |        |   | 10,208 |        |                                     | 10,978 |                                     | 80  
|Other        |                                        |      | 2,661  |        |   | 4,945  |        |                                     | 6,500  |                                     | (46 
|Corporate    |                                        |      | 1,614  |        |   | 372    |        |                                     | 1,719  |                                     | >100
|             |                                        |      |        |        |   |        |        |                                     |        |                                     |     
|             | Total research and development revenue |      | $      | 29,415 |   | $      | 17,486 |                                     | $      | 20,160                              |     
|             |                                        |      |        |        |   |        |        |                                     |        |                                     |     

2007 As Compared to 2006

Total research and development revenue increased $11.9 million in 2007, as compared to 2006, primarily due to increases in revenue recognized by our
Biosurgery and Oncology reporting segments. Biosurgery research and development revenue primarily represents work related to dermal filler products as a result of new contracts entered into with
Mentor Corporation in September 2006 and February 2007. Oncology research and development revenue in 2007 includes the reimbursement of research and development work related to alemtuzumab for the
treatment of multiple sclerosis, for which there are no similar amounts in 2006. Other research and development revenue includes revenue related to our pharmaceuticals and cardiovascular businesses.

2006 As Compared to 2005

Total research and development revenue decreased $2.7 million for 2006, as compared to 2005, primarily due to lower reimbursement revenue recognized by our
cardiovascular business as a result of lower spending on MG Biotherapeutics, Inc., our joint venture with Medtronic, Inc., or Medtronic, due to the change in our scope of the joint
venture. Oncology research and development revenue for the year ended December 31, 2006, includes research and development work related to alemtuzumab, for the treatment of multiple sclerosis,
and Campath. Other research and development revenue includes revenue related to our pharmaceuticals and cardiovascular businesses.

F-26

---



MARGINS

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

|                                       |  | 2007 |           | 2006 |   | 2005      |   | 07/06
Increase/
(Decrease)
% Change |           | 06/05
Increase/
(Decrease)
% Change |   
|-------------------------------------- |  | ---- | --------- | ---- | - | --------- | - | ----------------------------------- | --------- | ----------------------------------- | --
|
|Product margin                         |  | $    | 2,742,274 |      | $ | 2,351,021 |   | $                                   | 1,991,126 |                                     | 17
|% of total product revenue             |  |      | 79        | %    |   | 81        | % |                                     | 81        | %                                   |   
|Service margin                         |  | $    | 114,500   |      | $ | 82,835    |   | $                                   | 90,904    |                                     | 38
|% of total service revenue             |  |      | 35        | %    |   | 29        | % |                                     | 35        | %                                   |   
|Total product and service gross margin |  | $    | 2,856,774 |      | $ | 2,433,856 |   | $                                   | 2,082,030 |                                     | 17
|% of total product and service revenue |  |      | 75        | %    |   | 77        | % |                                     | 77        | %                                   |   

Product Margin

2007 As Compared to 2006

Our overall product margin increased $391.3 million, or 17%, in 2007, as compared to 2006. This is primarily due to:



These
increases in product margin were partially offset by a $5.3 million increase in stock-based compensation expenses charged to cost of goods sold in 2007, as compared to 2006. In 2006, we
began amortizing stock-based compensation expense capitalized to inventory based on margin turns.

Total
product margin as a percentage of total product revenue in 2007 decreased as compared to 2006 due to the change in product mix, principally the increase of sales of the lower
margin Myozyme, and $20.9 million of manufacturing-related charges recorded in 2007 to write off and reserve for certain lots of our Thymoglobulin inventory which did not meet product
specifications for saleable product.

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

2006 As Compared to 2005

Our overall product margin increased $359.9 million, or 18%, for 2006, as compared to 2005. This is primarily due to:



F-27

---





These
increases in product margin were partially offset by stock-based compensation expenses of $12.0 million associated with our adoption of FAS 123R in 2006 for which there was no
comparable amount in 2005.

Total
product margin as a percentage of product revenue for 2006 was consistent with 2005.

Service Margin

2007 As Compared to 2006

Our overall service margin increased $31.7 million, or 38%, in 2007 as compared to 2006. This is primarily due to the increases in revenue recorded from
our DNA and cancer testing services as well as the prenatal screening and diagnosis market.

Total
service margin as a percent of total service revenue increased in 2007, as compared to 2006, primarily due to increased productivity and efficiencies in lab operations for our
Genetics reporting segment.

2006 As Compared to 2005

Our overall service margin decreased $8.1 million, or 9%, for 2006, as compared to 2005. This is primarily due to additional costs in Corporate of
$9.5 million related to the adoption of FAS 123R in 2006 for which there was no comparable amount in 2005. This was partially offset by an increase in service margin related to our
Biosurgery reporting segment due to an increased demand for Epicel in 2006.

Total
service margin as a percent of total service revenue decreased in 2006, as compared to 2005, primarily due to additional costs in Corporate related to the adoption of
FAS 123R in 2006. Genetics service margin as a percentage of total service revenue decreased for 2006, as compared to 2005 due to higher costs for payroll, chemicals and supplies.

OPERATING EXPENSES

Selling, General and Administrative Expenses

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

|                                             |  | 2007 |           | 2006 |   | 2005      |   | 07/06
Increase/
(Decrease)
% Change |         | 06/05
Increase/
(Decrease)
% Change |   
|-------------------------------------------- |  | ---- | --------- | ---- | - | --------- | - | ----------------------------------- | ------- | ----------------------------------- | --
|
|Selling, general and administrative expenses |  | $    | 1,187,184 |      | $ | 1,010,400 |   | $                                   | 787,839 |                                     | 17
|% of total revenue                           |  |      | 31        | %    |   | 32        | % |                                     | 29      | %                                   |   

2007 As Compared to 2006

SG&A increased $176.8 million in 2007, as compared to 2006, primarily due to spending increases of:



F-28

---





These
increases were partially offset in 2007 by decreases of:



2006 As Compared to 2005

SG&A increased $222.6 million for 2006, as compared to 2005, primarily due to increases of:



F-29

---





Research and Development Expenses

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

|                                  |  | 2007 |         | 2006 |   | 2005    |   | 07/06
Increase/
(Decrease)
% Change |         | 06/05
Increase/
(Decrease)
% Change |   
|--------------------------------- |  | ---- | ------- | ---- | - | ------- | - | ----------------------------------- | ------- | ----------------------------------- | --
|
|Research and development expenses |  | $    | 737,685 |      | $ | 649,951 |   | $                                   | 502,657 |                                     | 13
|% of total revenue                |  |      | 19      | %    |   | 20      | % |                                     | 18      | %                                   |   

2007 As Compared to 2006

Research and development expenses increased $87.7 million in 2007, as compared to 2006, primarily due to:



These
increases were partially offset by decreases of:



2006 As Compared to 2005

Research and development expenses increased $147.3 million for 2006, as compared to 2005, primarily due to:



F-30

---





These
increases were partially offset by decreases in research and development expenses of $24.3 million in spending on certain Therapeutics research and development programs, including:



Amortization of Intangibles

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

|                            |  | 2007 |         | 2006 |   | 2005    |   | 07/06 Increase/ (Decrease) % Change |         | 06/05 Increase/ (Decrease) % Change |   
|--------------------------- |  | ---- | ------- | ---- | - | ------- | - | ----------------------------------- | ------- | ----------------------------------- | --
|
|Amortization of intangibles |  | $    | 201,105 |      | $ | 209,355 |   | $                                   | 181,632 |                                     | (4
|% of total revenue          |  |      | 5       | %    |   | 7       | % |                                     | 7       | %                                   |   

2007 As Compared to 2006

Amortization of intangibles expense decreased $8.3 million for 2007, as compared to 2006, primarily due to customer lists related to our acquisition of
Bone Care in July 2005, which became fully amortized in the first quarter of 2007.

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

2006 As Compared to 2005

Amortization of intangibles expense increased $27.7 million for 2006, as compared to 2005, primarily due to additional amortization expense attributable to
the intangible assets acquired in

F-31

---



connection
with our acquisitions of Surgi.B in March 2006 and Bone Care in July 2005, as well as the reacquisition of Synvisc sales and marketing rights in several countries from Wyeth in January
2005.

Purchase of In-Process Research and Development

In connection with six of our acquisitions we completed between January 1, 2004 and December 31, 2007, 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 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 technological feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our
competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of
operations could be materially adversely affected.

The
following table sets forth IPR&D projects for companies and certain assets acquired since 2004 (amounts in millions, except percent data):

|Company/Assets Acquired |  | Purchase Price |         | IPR&D(1) |   | Programs Acquired |  | Discount Rate Used in Estimating Cash Flows(1) |  | Year of Expected Launch |   | Estimated Cost to Complete
|----------------------- |  | -------------- | ------- | -------- | - | ----------------- |  | ---------------------------------------------- |  | ----------------------- | - | --------------------------
|Bioenvision (2007)      |  | $              | 349.9   |          | $ | 125.5             |  | Evoltra (clofarabine)(2,5)                     |  | 17                      | % | 2008-2010                 
|                        |  |                |         |          |   |                   |  |                                                |  |                         |   |                           
|AnorMED (2006)          |  | $              | 589.2   |          | $ | 526.8             |  | Mozobil (stem cell transplant)                 |  | 15                      | % | 2009-2014                 
|                        |  |                |         |          |   | 26.1              |  | AMD070 (HIV)(3)                                |  | 15                      | % |                          
|                        |  |                |         |          |   |                   |  |                                                |  |                         |   |                           
|                        |  |                |         |          | $ | 552.9             |  |                                                |  |                         |   |                           
|                        |  |                |         |          |   |                   |  |                                                |  |                         |   |                           
|Avigen (2005)           |  | $              | 12.0    |          | $ | 7.0               |  | AV201 (Parkinson's disease)                    |  | N/A                     |   | 2016                      
|                        |  |                |         |          |   |                   |  |                                                |  |                         |   |                           
|Bone Care (2005)        |  | $              | 712.3   |          | $ | 12.7              |  | LR-103 (secondary hyperparathyroidism)(4)      |  | 25                      | % |                          
|                        |  |                |         |          |   |                   |  |                                                |  |                         |   |                           
|Verigen (2005)          |  | $              | 12.7    |          | $ | 9.5               |  | MACI (cartilage repair)                        |  | 24                      | % | 2012-2014                 
|                        |  |                |         |          |   |                   |  |                                                |  |                         |   |                           
|ILEX Oncology (2004)    |  | $              | 1,080.3 |          | $ | 96.9              |  | Campath (alemtuzumab)(5)                       |  | 11                      | % | 2011-2012                 
|                        |  |                |         |          |   | 113.4             |  | Clolar (clofarabine)(5)                        |  | 12                      | % | 2008-2011                 
|                        |  |                |         |          |   | 44.2              |  | Tasidotin(6)                                   |  | 16                      | % |                          
|                        |  |                |         |          |   |                   |  |                                                |  |                         |   |                           
|                        |  |                |         |          | $ | 254.5             |  |                                                |  |                         |   |                           
|                        |  |                |         |          |   |                   |  |                                                |  |                         |   |                           

---

F-32

---



Charge for Impaired Goodwill

We are required to perform impairment tests related to our goodwill under FAS 142 annually and whenever events or changes in circumstances suggest that the
carrying value of an asset may not be recoverable. For 2007, we completed the required annual impairment tests for our $1.3 billion of goodwill that had been recorded as of September 30,
2007 and determined that no impairment charge was required. For 2006, we completed the required annual impairment tests for our $1.5 billion of goodwill that had been recorded as of
September 30, 2006 and determined that the $219.2 million of goodwill assigned to our Genetics reporting unit was fully impaired. We discuss our assessment of goodwill for potential
impairment under the heading "Critical Accounting PoliciesAsset ImpairmentsImpairment of Goodwill" included in this report.

OTHER INCOME AND EXPENSES

|                                               |  | 2007 |         | 2006 |   | 2005    |   | 07/06
Increase/
(Decrease)
% Change |         | 06/05
Increase/
(Decrease)
% Change |    
|---------------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | ----------------------------------- | ------- | ----------------------------------- | ---
|
|Equity in income of equity method investments  |  | $    | 7,398   |      | $ | 15,705  |   | $                                   | 151     |                                     | (53
|Minority interest                              |  |      | 3,932   |      |   | 10,418  |   |                                     | 11,952  |                                     | (62
|Gains on investments in equity securities, net |  |      | 13,067  |      |   | 73,230  |   |                                     | 5,698   |                                     | (82
|Other                                          |  |      | (637    | )    |   | (2,045  | ) |                                     | (1,535  | )                                   | (69
|Investment income                              |  |      | 70,196  |      |   | 56,001  |   |                                     | 31,429  |                                     | 25 
|Interest expense                               |  |      | (12,147 | )    |   | (15,478 | ) |                                     | (19,638 | )                                   | (22
|                                               |  |      |         |      |   |         |   |                                     |         |                                     |    
|Total other income                             |  | $    | 81,809  |      | $ | 137,831 |   | $                                   | 28,057  |                                     | (41
|                                               |  |      |         |      |   |         |   |                                     |         |                                     |    

2007 As Compared to 2006

Equity in Income of Equity Method Investments

Under this caption, in 2007 and 2006 we recorded our portion of the results of our joint ventures with BioMarin and Medtronic, and our investments in
Peptimmune, Inc., or Peptimmune, and in 2007, our initial investment in the common stock of Bioenvision.

Equity
in income of equity method investments decreased by 53% to $7.4 million in 2007, as compared to 2006, primarily due to charges totaling $21.1 million in 2007 related
to our initial investment in the common stock of Bioenvision, which was accounted for under the equity method of accounting for the period from July 1, 2007 through October 22, 2007.
These charges were offset, in part, by an $11.6 million increase in our portion of the net income of BioMarin/Genzyme LLC.

Beginning
January 1, 2008, as a result of our restructured relationship with BioMarin, we will no longer account for BioMarin/Genzyme LLC using the equity method of accounting.

F-33

---



Minority Interest

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

Gains on Investments in Equity Securities, net

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

2007

2006Gross gains on investments in equity securities:THP

$
10,848

$
CAT





69,359BioMarin





6,416Other


2,219


2,848Total gains on investments in equity securities


13,067


78,623Less: charges for impaired investments





(5,393
)Gains on investments in equity securities, net

$
13,067

$
73,230


In
March 2007, we recorded a $10.8 million gain on the sale of our entire investment in the common stock of THP, which had a zero cost basis.

Investment Income

Our investment income increased 25% to $70.2 million for 2007, as compared to $56.0 million for 2006, primarily due to an increase in the average
portfolio yield and higher average cash balances.

Interest Expense

Our interest expense decreased 22% to $12.1 million for 2007, as compared to $15.5 million for 2006, primarily due to a $5.3 million increase
in capitalized interest, which resulted in a decrease in interest expense. This decrease was offset in part by a $3.1 million increase in interest expense in 2007 related to asset retirement
obligations, for which there was no similar amount in 2006.

2006 As Compared to 2005

Equity in Income of Equity Method Investments

Under this caption, in 2006 and 2005, we recorded our portion of the results of our joint ventures with BioMarin and Medtronic, and our investments in Peptimmune
and THP.

Equity
in income of equity method investments increased more than 100% to $15.7 million in 2006, as compared to 2005, primarily due to an increase of $11.4 million in our
portion of the net income of BioMarin/Genzyme LLC attributable to increased sales of Aldurazyme.

F-34

---



Minority Interest

As a result of our application of FIN 46R, "Consolidation of Variable Interest Entities," we have consolidated the results of
Dyax-Genzyme LLC and Excigen Inc. Our consolidated balance sheet as of December 31, 2006, includes assets related to Dyax-Genzyme LLC, which are not
significant, and substantially all of which are lab equipment net of their 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.

Gross Gains on Investments in Equity Securities

Gross gains on investments in equity securities increased $72.9 million in 2006, as compared to 2005, primarily due to $69.4 million of gains
recorded in connection with the sale of our entire investment in CAT and a $6.4 million gain on the sale of our entire investment in BioMarin, for which there are no similar amounts in 2005.

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 April 2005 related to this sale.

Charges for Impaired Investments

We review the carrying value of each of our strategic investments in equity securities on a quarterly basis for potential impairment. Gains on investments in
equity securities, net, includes charges for impaired investments of $5.4 million for 2006, including $2.5 million to write-off our investment in RenaMed and
$2.2 million to write down our investment in ViaCell for which there were no comparable amounts in 2005. We concluded that it was unclear over what period the recovery of the stock prices for
these investments would take place and that any evidence suggesting that the investment would recover to at least our historical cost was not sufficient to overcome the presumption that the current
market price was the best indicator of the value of these investments.

Investment Income

Our investment income increased 78% to $56.0 million for 2006, as compared to $31.4 million for 2005, primarily due to higher average cash balances
and an increase in our average portfolio yield.

Interest Expense

Our interest expense decreased 21% to $15.5 million for 2006, as compared to $19.6 million for 2005, primarily due to reduced interest expense of
$2.2 million on our 2003 revolving credit facility, which we replaced with the 2006 credit facility in July 2006, and a $1.5 million decrease due to the payoff of a capital lease
obligation related to our facilities in Waltham, Massachusetts in October 2005.

F-35

---



(Provision for) Benefit from Income Taxes

|                                          |  | 2007 |          | 2006 |   | 2005   |    | 07/06
Increase/
(Decrease)
% Change |          | 06/05
Increase/
(Decrease)
% Change |      
|----------------------------------------- |  | ---- | -------- | ---- | - | ------ | -- | ----------------------------------- | -------- | ----------------------------------- | -----
|
|(Provision for) benefit from income taxes |  | $    | (255,481 | )    | $ | 35,881 |    | $                                   | (187,430 | )                                   | >100%
|Effective tax rate                        |  |      | 35       | %    |   | (68    | )% |                                     | 30       | %                                   |      

Our
provisions for income taxes were at rates other than the U.S. federal statutory tax rate for the following reasons:

For the Years Ended December 31,2007

2006

2005Tax provision at U.S. statutory rate

35.0
%
(35.0
)%
35.0
%State taxes, net

0.7

(1.7
)
1.6Export sales benefits



(37.2
)
(2.8
)Domestic manufacturing deduction

(0.5
)
(15.5
)
(1.2
)Goodwill impairment



19.6

Legal settlements

3.0



Audit settlements

0.5

(62.9
)
Stock compensation

1.3

15.8

Tax credits

(3.5
)
(30.5
)
(4.1
)Foreign rate differential

(2.1
)
76.0

0.1Other

0.3

3.3

1.2Effective tax rate

34.7
%
(68.1
)%
29.8
%


Our
effective tax rate for 2007 was impacted by:



Our
effective tax rates for 2006 and 2005 were impacted by:



F-36

---





In
addition, our overall tax rate has changed significantly due to fluctuations in our income (loss) before taxes, which was $735.7 million in 2007, $(52.7) million in 2006, and
$628.9 million in 2005.

The
impact of the adoption of FIN 48 effective January 1, 2007 is included in Note A., "Significant Accounting Policies-Income Taxes," included in this report.

We
are currently under IRS audit for tax years 2004 to 2005. 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.

Research and Development Programs

Our research and development programs are focused on the areas of medicine where we market commercial products, namely rare inherited disorders, kidney disease,
transplant and immune diseases, orthopaedics and oncology. We also conduct research in cardiovascular disease, diagnostic testing and
other areas of unmet medical needs. Before we can commercialize our development-stage products, we will need to:



This
process is risky, expensive, and may take several years. We cannot guarantee that we will be able to successfully develop any product, or that we would be able to recover our
development costs upon commercialization of a product that we successfully develop.

F-37

---



Below
is a brief description of our significant research and development programs:

|Program                       |  | Program Description
or Indication                                        |  | Development Status
at December 31, 2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Year of
Expected
Product
Launch
|----------------------------- |  | ------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------
|Renvela (sevelamer carbonate) |  | Control of serum phosphorus in patients with CKD on and off hemodialysis |  | Completed open-label study to compare powder to tablet formulation that showed the two formulations are equivalent in controlling serum phosphorus in hemodialysis patients. Commenced enrollment in trial for powder
formulation to allow once daily dosing in 2006. Filed NDA with the FDA for approval for the control of serum phosphorus in patients with CKD on hemodialysis in December 2006. As of December 31, 2007 all trials to support the regulatory filing
have been completed. We received FDA approval for End-stage renal disease (ESRD) tablet in October 2007 and have filed for approval in Brazil. We are preparing to file for approval in the European Union and other key markets throughout
2008. |  | 2008                           
|Fabrazyme                     |  | Fabry disease                                                            |  | Marketed in the European Union since 2001, the United States since 2003, and Japan since 2004; marketing approval received in 47 countries and commercial sales in 37 countries; several post-marketing commitments in Europe
have been completed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | Product was launched in 2001   

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|Myozyme     |  | Pompe disease                                                                    |  | Received marketing approval in the European Union in March 2006, in the United States in April 2006, in Canada in August 2006 and in Japan in April 2007; marketing approval received in 36 countries and commercial sales in
32 countries; several post-marketing commitments ongoing; regulatory submissions filed and under review in Switzerland, Argentina, Colombia, Australia and Korea with several more planned for submission in 2008. |  | Product was launched in 2006
|----------- |  | -------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------
|GENZ-112638 |  | Gaucher disease                                                                  |  | Enrollment of patients in a phase 2 trial is complete.                                                                                                                                                                                                                                                                                                                                                                                           |  | 2011                        
|Aldurazyme  |  | MPS I                                                                            |  | Marketed in the United States and the European Union since 2003; marketing approval received in 54 countries and commercial sales in 37 countries; several post-marketing commitments ongoing.                                                                                                                                                                                                                                                   |  | Product was launched in 2003
|Mozobil(1)  |  | Improve the efficacy of stem cell transplantation in patients with blood cancers |  | Announced phase 3 trials in multiple myeloma and non-Hodgkin's lymphoma met their respective primary endpoints in August 2007. Plan to file for marketing authorizations in the United States in the first half of 2008
and in the European Union in the second half of 2008 for both indications.                                                                                                                                               |  | 2009 through 2014           

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|Synvisc-One                 |  | Viscosupplementation products to treat osteoarthritis of the knee and other joints |  | We filed for marketing approval of single-injection Synvisc in the United States in the second quarter of 2007 and in the European Union in the third quarter of 2007. We received approval in the European Union in the
fourth quarter of 2007. We expect to receive regulatory action on our application to market Synvisc-One in the United States in the second half of 2008. |  | 2008             
|--------------------------- |  | ---------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------
|Sepra products              |  | Next stage products to prevent surgical adhesions for various indications          |  | Initiated two clinical studies for Sepraspray in the second half of 2007.                                                                                                                                                                                                                                                                                                         |  | 2009 through 2012
|Campath(2)                  |  | B-CLL                                                                              |  | The FDA granted front-line approval of Campath in CLL in the third quarter of 2007; phase 3 combination therapy trial in second-line CLL ongoing;                                                                                                                                                                                                                                 |  | 2009 through 2011
|Alemtuzumab (Campath) MS(2) |  | Multiple Sclerosis                                                                 |  | Data from phase 2 trial (CAMMS23) analyzed at the predefined 1 and 2 year interim analyses; began enrollment of two phase 3 trials in 2007. Expected completion of phase 3 trials in 2011 to
2012.                                                                                                                                                                                |  | 2012             

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|Clolar/Evoltra (clofarabine)(2) |  | Pediatric and adult leukemias, myelodysplastic syndromes (MDS) and solid tumors |  | Phase 1/2 trial in pediatric acute leukemias: Phase 1 enrollment completed in 2007; phase 2 opened in late 2007. Phase 2 study in pediatric acute leukemias completed enrollment in 2007. Phase 2 study
in treatment-naive adult leukemia completed enrollment in 2007; follow-up is ongoing. Phase 3 trial in relapsed refractory adult leukemia commenced in 2006 and enrollment is ongoing. Phase 1 trial in solid tumors completed enrollment and
follow-up in 2007. Phase 2 trial in relapsed refractory MDS commenced enrollment in 2007 and is ongoing. |  | 2008 through 2011; MDS is 2012
|------------------------------- |  | ------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------

---

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The aggregate actual and estimated research and development expense for the programs described above is as follows (amounts in millions):

Costs incurred for the year ended December 31, 2006

$
247.1Costs incurred for the year ended December 31, 2007

$
330.2Cumulative costs incurred as of December 31, 2007

$
1,466.1Estimated costs to complete as of December 31, 2007

$
1,400 to $1,700


Our
current estimates of the time and investment required to develop these products may change depending on the approach we take to pursue them, the results of preclinical and clinical
studies, and the content and timing of decisions made by the FDA and other regulatory authorities. We cannot provide assurance that any of these programs will ever result in 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 indication. If
certain of our development-stage programs do not result in commercially viable products, our results of operations could be materially adversely affected.

Liquidity and Capital Resources

We continue to generate cash from operations. We had cash, cash equivalents and short- and long-term investments of $1.5 billion at
December 31, 2007 and $1.3 billion at December 31, 2006.

The
following is a summary of our statements of cash flows for 2007 and 2006.

Cash Flows from Operating Activities

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

2007

2006Cash flows from operating activities:Net income (loss)

$
480,193

$
(16,797
)Non-cash charges, net


556,341


978,677Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities)


(117,862
)

(73,311
)Cash flows from operating activities

$
918,672

$
888,569


Cash
provided by operating activities increased $30.1 million in 2007, as compared to 2006, primarily driven by a $497.0 million increase in earnings, excluding
non-cash charges, offset, in part, by a decrease of $422.3 million in non-cash charges, net, and a $44.6 million increase in cash used for working capital. The decrease in
non-cash charges, net, in 2007, as compared to 2006, is primarily attributable to:



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Cash Flows from Investing Activities

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

2007

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

$
205,614

$
13,168Net sales (purchases) of investments in equity securities


(1,282
)

132,588Purchases of property, plant and equipment


(412,872
)

(333,675
)Acquisitions, net of acquired cash


(342,456
)

(568,953
)Distributions from equity method investments


17,100


19,800Payment of note receivable from Dyax Corp


7,771


Purchases of other intangible assets


(60,350
)

(105,348
)Other investing activities


(4,581
)

6,008Cash flows from investing activities

$
(591,056
)
$
(836,412
)


In
2007, we used a total of $815.7 million of cash to fund capital expenditures, acquisitions and purchases of intangible assets including:



These
decreases in cash were partially offset by cash provided by:



In
2006, acquisitions, capital expenditures and purchases of intangible assets accounted for significant cash outlays for investing activities. In 2006 we used:



F-43

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These
decreases in cash were partially offset by cash provided by:



Cash Flows from Financing Activities

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

2007

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

$
285,762

$
158,305Repurchases of common stock


(231,576
)

Excess tax benefits from stock-based compensation


13,575


7,114Payments of debt and capital lease obligations


(5,909
)

(4,501
)Decrease in bank overdrafts


(5,910
)

(21,124
)Minority interest contributions


3,979


11,153Other financing activities


4,702


1,210Cash flows from financing activities

$
64,623

$
152,157


In
May 2007, our board of directors authorized a stock repurchase program to repurchase up to an aggregate maximum amount of $1.5 billion or 20,000,000 shares of our outstanding
common stock over the next three years, beginning in June 2007. The repurchases are being made from time to time and can be effectuated through open market purchases, privately negotiated
transactions, transactions structured through investment banking institutions, or by other means, subject to management's discretion and as permitted by securities laws and other legal requirements.
As of December 31, 2007, we had repurchased a total of 3.5 million shares of our common stock at an average price of $66.14 per share for a total of $231.6 million of cash,
including fees.

In
2006, cash flows from financing activities decreased $106.4 million, as compared to 2005, primarily due to a $196.4 million decrease in cash proceeds from the issuance
of common stock and $350.0 million of cash proceeds drawn under our 2003 revolving credit facility in 2005 for which there were no similar amounts in 2006. These decreases were offset, in part,
by a $474.3 million decrease in cash used for the payment of debt and capital lease obligations. Cash used for the payment of debt and capital lease obligations in 2005 includes the repayment
of $450.0 million in principal drawn under our 2003 revolving credit facility for which there are no similar repayments in 2006.

Revolving Credit Facility

In July 2006, we terminated our 2003 revolving credit facility and replaced it with a new five-year $350.0 million senior unsecured revolving
credit facility with JPMorgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, ABN AMRO Bank N.V., Citizens Bank of Massachusetts and Wachovia Bank,
National Association, as co-documentation agents, and a syndicate of lenders, which we refer to as our 2006 revolving credit facility. The proceeds of loans under our 2006 revolving credit
facility can be used to finance working capital needs and for general corporate purposes. Our 2006 revolving credit facility may be increased at any time by up to an

F-44

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additional
$350.0 million in the aggregate, as long as no default or event of default has occurred or is continuing and certain other customary conditions are satisfied. Borrowings under our
2006 revolving credit facility will bear interest (at various rates depending on the nature of the loan).

As
of December 31, 2007, no amounts were outstanding under our 2006 revolving credit facility. The terms of our 2006 revolving credit facility include various covenants, including
financial covenants that require us to meet minimum interest coverage ratios and maximum leverage ratios. As of December 31, 2007, we were in compliance with these covenants.

1.25% Convertible Senior Notes

In December 2003 we issued $690.0 million of 1.25% convertible senior notes. Holders of the notes may require us to repurchase all or any part of the notes
for cash, common stock, or a combination, at our option, on December 1, 2008, 2013 or 2018, at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest
through the date prior to the date of repurchase. Additionally, upon a change of control, each holder may require us to repurchase for cash, at 100% of the principal amount of the notes plus accrued
interest, all or a portion of the holder's notes. On or after December 1, 2008, we may redeem for cash at 100% of the principal amount of the notes plus accrued interest, all or part of the
notes that have not been previously converted or repurchased.

Contractual Obligations

As of December 31, 2007, we had committed to make the following payments under contractual obligations (amounts in millions):

|                                       |  | Payments Due by Period
|-------------------------------------- |  | ----------------------
|
|
|Long-term debt obligations(1)          |  | $                     
|Capital lease obligations(1)           |  |                       
|Operating leases(1)                    |  |                       
|Contingent payments(2)                 |  |                       
|Interest obligations(3)                |  |                       
|Defined pension benefit plans payments |  |                       
|Unconditional purchase obligations     |  |                       
|Capital commitments(4)                 |  |                       
|Research and development agreements(5) |  |                       
|                                       |  |                       
|Total contractual obligations          |  | $                     
|                                       |  |                       

---

F-45

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Location

Cost to
Complete at
December 31, 2007Framingham, Massachusetts, U.S.

$
243.8Westborough, Massachusetts, U.S. (primarily software development)


162.3Lyon, France


134.4Geel, Belgium


23.9Waterford, Ireland


39.7Allston, Massachusetts, U.S.


138.1Ridgefield, New Jersey, U.S.


11.5Haverhill, United Kingdom


7.2Other


106.7Total estimated cost to complete

$
867.6


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Strategic Alliance with Isis

On January 7, 2008, we entered into a strategic alliance with Isis, whereby we obtained an exclusive license to develop and commercialize mipomersen, a
lipid-lowering drug targeting apolipoprotein B-100, for the treatment of familial hypercholesterolemia, or FH, an inherited disorder that causes exceptionally high levels of
LDL-cholesterol. Initially, we will focus on developing mipomersen for patients with FH that are at significant cardiovascular risk as a result of being unable to achieve target
cholesterol levels with statins alone or who are intolerant of statins. In February 2008, we paid Isis $150.0 million to purchase five million shares of Isis common stock for $30 per
share. We are working with Isis to finalize the contracts under which we will develop and commercialize mipomersen.

Financial Position

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



Our
cash reserves may be further reduced to pay principal and interest on the $690.0 million in principal under our 1.25% convertible senior notes due December 1, 2023. The
notes are initially convertible into Genzyme Stock at a conversion price of approximately $71.24 per share. Holders of the notes may require us to repurchase all or any part of the notes for cash,
common stock, or a combination, at our option, on December 1, 2008, 2013 or 2018, at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest through the date
prior to the date of repurchase. Additionally, upon a change of control, each holder may require us to repurchase for cash, at 100% of the principal amount of the notes plus accrued interest, all or a
portion of the holder's notes. On or after December 1, 2008, we may redeem for cash at 100% of the principal amount of the notes plus accrued interest, all or part of the notes that have not
been previously converted or repurchased.

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

F-47

---



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

Off-Balance Sheet Arrangements

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

FAS 157, "Fair Value Measurements."In September 2006, the FASB issued FAS 157, "Fair Value
Measurements," which provides enhanced guidance for using fair value to measure assets and liabilities. FAS 157 establishes a common definition of fair value, provides a framework for measuring
fair value under accounting principles generally accepted in the United States of America and expands disclosure requirements regarding fair value measurements. FAS 157 will be effective for us
as of January 1, 2008. In February 2008, the FASB issued FASB Statement of Position, or FSP, No. 157-2 "Partial Deferral of the Effective Date of
Statements 157," or FSP 157-2, which delays the effective date of FAS 157, for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the financials statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008.
Although we will continue to evaluate the application of FAS 157, we do not believe adoption will have a material impact on our results of operations or financial position.

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

EITF Issue No. 07-1, "Accounting for Collaborative Arrangements."In December 2007, the EITF of the FASB reached a
consensus on Issue No. 07-1, "Accounting for Collaborative Arrangements."The EITF concluded on the definition of a collaborative
arrangement and that revenues and costs incurred with third parties in connection with collaborative arrangements would be presented gross or net based on the criteria in EITF 99-19
and other accounting literature. Based on the nature of the arrangement, payments to or from collaborators would be evaluated and its terms, the nature of the entity's business, and whether those
payments are within the scope of other accounting literature would be presented. Companies are also required to disclose the nature and purpose of collaborative arrangements along with the accounting
policies and the classification and amounts of significant financial-statement amounts related to the arrangements. Activities in the arrangement conducted in a separate legal entity should be
accounted for under other accounting literature; however required disclosure under

F-48

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EITF 07-1
applies to the entire collaborative agreement. EITF 07-1 is effective for us January 1, 2008 and is to be applied retrospectively to all periods
presented for all collaborative arrangements existing as of the effective date. We do not expect the adoption of EITF 07-1 will have a material impact on our consolidated financial
statements.

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

FAS 141 (revised 2007), "Business Combinations."In December 2007, the FASB issued FAS 141 (revised 2007),
"Business Combinations," or FAS 141R, which replaces FAS 141, "Business Combinations."
FAS 141R retains the underlying concepts of FAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but
FAS 141R changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be
valued at fair value at the acquisition
date; IPR&D will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed
subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

FAS 141R
is effective for us on a prospective basis for all business combinations for which the acquisition date is on or after January 1, 2009, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax contingencies. FAS 141R amends FAS 109 such that adjustments made to valuation allowances on deferred taxes and
acquired tax contingencies associated with acquisitions completed prior to the effective date of FAS 141R would also apply the provisions of FAS 141R. Early adoption is not permitted. We
are currently evaluating the effects, if any, that FAS 141R may have on our consolidated financial statements.

FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51."In
December 2007, the FASB issued FAS 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB
No. 51," which establishes new accounting and reporting standards that require the ownership interests in subsidiaries not held by the parent to be clearly identified,
labeled and presented in the consolidated statement of financial position within equity, but separate from the parent's equity. FAS 160 also requires the amount of consolidated net income
attributable to the parent and to the non-controlling interest, commonly referred to as the minority interest, to be clearly identified and presented on the face of the consolidated
statement of income. Changes in a parent's ownership interest while the parent retains its controlling financial interest must be accounted for consistently, and when a subsidiary is deconsolidated,
any retained non-controlling equity investment in the former subsidiary must be initially measured at fair value. The gain or loss on the deconsolidation of the subsidiary is measured
using the fair value of any non-controlling equity investment. FAS 160 also requires entities to provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. FAS 160 is effective for us January 1, 2009 and adoption is prospective only; however, upon adoption,
presentation and disclosure requirements described above must be applied retrospectively for all periods presented in our financial statements. We are currently evaluating the effects, if any, that
FAS 160 may have on our consolidated financial statements.

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Market Risk

We are exposed to potential loss from exposure to market risks represented principally by changes in interest rates and equity prices. At December 31,
2007, we held derivative contracts in the form of foreign exchange forward contracts. We also held a number of other financial instruments, including investments in marketable securities and we had
debt securities outstanding. We do not hold derivatives or other financial instruments for speculative purposes.

Equity Price Risk

We hold investments in a limited number of U.S. and European equity securities. We estimated the potential loss in fair value due to a 10% decrease in the equity
prices of each marketable security held at December 31, 2007 to be $6.5 million, as compared to $4.2 million at December 31, 2006. The primary reason for the increase is
due to the acquisition of 4.4 million shares of Dyax common stock for approximately $17 million in cash. This estimate assumes no change in foreign exchange rates from
quarter-end spot rates and excludes any potential risk associated with securities that do not have readily determinable market value.

Interest Rate Risk

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

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



On
this basis, we estimate the potential loss in fair value that would result from a hypothetical 1% (100 basis points) decrease in interest rates to be $3.3 million as of
December 31, 2007, as compared to $4.2 million as of December 31, 2006.

Foreign Exchange Risk

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

As
of December 31, 2007, we estimate the potential loss in fair value of our foreign currency contracts, foreign cash, and foreign equity holdings that would result from a
hypothetical 10% adverse change in exchange rates to be $36.2 million, as compared to $34.2 million as of December 31, 2006. The change from the prior period is primarily due to
an increase in our net foreign currency exposure.

F-50

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Risk Factors

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

Our financial results are highly dependent on sales of Cerezyme.

We generate a significant portion of our revenue from sales of Cerezyme, our enzyme-replacement product for patients with Gaucher disease. Sales of Cerezyme
totaled $1.1 billion for the year ended December 31, 2007, representing approximately 30% of our total revenue. Because our business is highly dependent on Cerezyme, negative trends in
revenue from this product could have a significant adverse effect on our results of operations and cause the value of our securities to decline substantially. We will lose revenue if alternative
treatments gain commercial acceptance, if our marketing activities are restricted, or if reimbursement is limited. In addition, the patient population with Gaucher disease is not large. Because a
significant percentage of that population already uses Cerezyme, opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating patients with Gaucher disease,
including treatment protocols that combine Cerezyme with other therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a decline, in Cerezyme sales.

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

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



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

F-51

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

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

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

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

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

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

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

Current
competition for Synvisc and Synvisc-One includes Supartz®, a product manufactured by Seikagaku Kogyo that is sold in the United States by Smith & Nephew
Orthopaedics and in Japan by Kaken Pharmaceutical Co. under the name Artz®; Hyalgan®, produced by Fidia Farmaceutici S.p.A. and marketed in the United States by
Sanofi-Aventis; Orthovisc®, produced by Anika Therapeutics, Inc., and marketed in the United States by Johnson & Johnson's Mitek division and marketed outside the United
States through distributors; Euflexxa, a product manufactured and sold by Ferring Pharmaceuticals and marketed in the United States and Europe; and Durolane®, manufactured by
Q-Med AB and distributed outside the United States by Smith & Nephew

F-52

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Orthopedics.
Durolane and Euflexxa are produced by bacterial fermentation, which may provide these products a competitive advantage over avian-sourced Synvisc and Synvisc-One. We are aware of various
viscosupplementation products on the market or in development, but are unaware of any products that have physical properties of viscosity, elasticity or molecular weight comparable to those of Synvisc
and Synvisc-One. Furthermore, several companies market products that are not viscosupplementation products but which are designed to relieve the pain associated with osteoarthritis. Synvisc and
Synvisc-One will have difficulty competing with any of these products to the extent the competitive products are considered more efficacious, less burdensome to administer or more
cost-effective.

Myozyme
has marketing exclusivity in the United States until 2013 and in the European Union until 2016 due to its orphan drug status. Amicus Therapeutics has completed two phase 1
clinical studies for a small molecule treatment for Pompe disease and has announced their plans to initiate a phase 2 clinical trial in early 2008.

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

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

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

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

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



Attempts
by third party payors to reduce costs in any of these ways could decrease demand for our products. In addition, in certain countries, including countries in the European Union
and Canada, the

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coverage
of prescription drugs, the pricing, and the level of reimbursement are subject to governmental control. Therefore, we may be unable to negotiate coverage, pricing and/or reimbursement on
terms that are favorable to us. Government health administration authorities may also rely on analyses of the cost-effectiveness of certain therapeutic products in determining whether to
provide reimbursement for such products. Our ability to obtain satisfactory pricing and reimbursement may depend in part on whether our products, the cost of some of which is high in comparison to
other therapeutic products, are viewed as cost-effective.

Furthermore,
governmental regulatory bodies, such as the Centers for Medicare and Medicaid Services (CMS), may from time-to-time make unilateral changes to
reimbursement rates for our products and services. These changes could reduce our revenues by causing healthcare providers to be less willing to use our products and services. Although we actively
seek to assure that any initiatives that are undertaken by regulatory agencies involving reimbursement for our products and services do not have an adverse impact on us, we may not always be
successful in these efforts.

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

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

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



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



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

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clinical
trials or conducting additional trials, either of which would increase costs of development and delay any revenue from those product candidates.

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

We may encounter substantial difficulties managing our growth.

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

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

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

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



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

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

We may encounter problems assimilating operations acquired in business combination transactions. These transactions often entail the assumption of unknown
liabilities, the loss of key employees, and the diversion of management attention. Furthermore, in any business combination, including our acquisitions of AnorMED and Bioenvision, there is a
substantial risk that we will fail to realize the

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benefits
we anticipated when we decided to undertake the transaction. We have in the past taken significant charges for impaired goodwill and for impaired assets acquired in business combination
transactions. We may be required to take similar charges in the future.

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

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

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

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

Manufacturing
is also subject to extensive government regulation. Regulatory authorities must approve the facilities in which human healthcare products are produced and those facilities
are subject to ongoing inspections. In addition, changes in manufacturing processes may require additional regulatory approvals. Obtaining and maintaining these regulatory approvals could cause us to
incur significant additional costs and lose revenue. For example, we have had to transition U.S. Myozyme patients to a clinical access program because we have not yet received FDA approval of our
larger-scale manufacturing process for Myozyme. This has had an adverse effect on our revenues for the product and will continue to have an adverse effect until we receive regulatory approval.
Furthermore, any third party we use to manufacture, fill-finish or package our products to be sold must also be licensed by the applicable regulatory authorities. As a result, alternative
third party providers may not be readily available on a timely basis.

Additionally,
in 2007, we wrote off or reserved for $20.9 million worth of Thymoglobulin finished goods inventory for failure to meet our internal specifications for saleable
product. We will continue to closely monitor our inventory levels and intend to manage production to maintain adequate supply levels in 2008.

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

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

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

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

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

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

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

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clinical
trials. Similar problems could delay or prevent us from obtaining approvals. Furthermore, regulatory authorities, including the FDA, may not agree with our interpretations of our clinical
trial data, which could delay, limit or prevent regulatory approvals.

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



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

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:



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

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

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

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

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



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

Our international operations accounted for approximately 48% of our consolidated product and service revenues for the year ended December 31, 2007. We
expect that international product and service sales will continue to account for a significant percentage of our revenues for the foreseeable future. In addition, we have direct investments in a
number of subsidiaries outside of the United States.

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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 United States Foreign
Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing or making payments to foreign officials for the purpose of obtaining or retaining
business abroad. Failure to comply with domestic or foreign laws could result in various adverse consequences, including possible delay in the approval or refusal to approve a product, recalls,
seizures, withdrawal of an approved product from the market, and/or the imposition of civil or criminal sanctions.

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

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

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

Our long-term success largely depends on our ability to market technologically competitive products. If we fail to obtain or maintain adequate
intellectual property protection in the United States or abroad, we may not be able to prevent third parties from using our proprietary technologies. Our currently pending or future patent
applications may not result in issued patents. Patent applications are confidential for 18 months following their filing, and because third parties may have filed patent applications for
technology covered by our pending patent applications without us being aware of those

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applications,
our patent applications may not have priority over patent applications of others. In addition, our issued patents may not contain claims sufficiently broad to protect us against third
parties with similar technologies or products, or provide us with any competitive advantage. If a third party initiates litigation regarding our patents, our collaborators' patents, or those patents
for which we have license rights, and is successful, a court could declare our patents invalid or unenforceable or limit the scope of coverage of those patents. Governmental patent offices and courts
have not consistently treated the breadth of claims allowed in biotechnology patents. If patent offices or the courts begin to allow or interpret claims more broadly, the incidence and cost of patent
interference proceedings and the risk of infringement litigation will likely increase. On the other hand, if patent offices or the courts begin to allow or interpret claims more narrowly, the value of
our proprietary rights may be reduced. Any changes in, or unexpected interpretations of, the patent laws may adversely affect our ability to enforce our patent position.

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

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

Some of our drug products, for example Renagel, Renvela, Clolar and Hectorol, are approved under provisions of the United States Food, Drug and Cosmetic Act that
render them susceptible to potential competition from generic manufacturers via the Abbreviated New Drug Application (ANDA) procedure. Generic manufacturers pursuing ANDA approval are not required to
conduct costly and time-consuming clinical trials to establish the safety and efficacy of their products; rather, they are permitted to rely on the innovators data regarding safety and
efficacy. Thus, generic manufacturers can sell their products at prices much lower than those charged by the innovative
pharmaceutical companies who have incurred substantial expenses associated with the research and development of the drug product.

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

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

A
generic manufacturer has filed an ANDA seeking to market a generic version of Hectorol prior to the expiration dates of our patents covering that product. If this or any other
manufacturer were to receive approval to sell a generic or follow-on version of one of our products, that product would become subject to increased competition and our revenues for that
product would likely be impacted negatively.

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

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

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

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

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

Legislative or regulatory changes may adversely impact our business.

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



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

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

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

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



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

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

As of December 31, 2007, we had $1.5 billion in cash, cash equivalents and short- and long-term investments, excluding our investments
in equity securities.

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



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.

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

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

As of December 31, 2007, we had $698.0 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 results and financial performance.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting
refers to the process designed by, or under the supervision of, our chief executive officer and chief financial officer, and effected by our board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting
principles, and includes those policies and procedures that:



Under
the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework provided inInternal Control-Integrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.

We
have excluded the acquisition of Bioenvision from our assessment of internal controls over financial reporting as of December 31, 2007, because we acquired Bioenvision in a
purchase business combination during 2007. The Bioenvision business is a component of our Oncology reporting segment and the Bioenvision business represents less than 2% of our consolidated assets as
of December 31, 2007 and has insignificant revenue for the year ended December 31, 2007.

The
effectiveness of our internal controls over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included below.

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Report of Independent Registered Public Accounting Firm

To
the Board of Directors and Shareholders of Genzyme Corporation:

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Genzyme Corporation and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for
these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying "Management's Report on Internal Control over Financial Reporting." Our responsibility is to express opinions on these financial statements and on the Company's internal control over
financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.

As
discussed in Note M. to the consolidated financial statements, in 2006 the Company changed its method of accounting for stock-based compensation in accordance with Statement of
Financial Accounting Standards No. 123R, "Share-Based Payment." As discussed in Note O., "Income Taxes," to
the consolidated financial statements, in 2007 the Company changed its accounting for uncertain tax portions in accordance with Financial Accounting Standards Board Interpretation No. 48,
"Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109."

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject

F-65

---



to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As
described in "Management's Report on Internal Control Over Financial Reporting," management has excluded Bioenvision, Inc. from its assessment of internal control over
financial reporting as of December 31, 2007 because it was acquired by the Company in a purchase business combination during 2007. We have also excluded Bioenvision, Inc. from our audit
of internal control over financial reporting. Bioenvision, Inc. is a component of the Company's Oncology reporting segment and the Bioenvision business represents less than 2% of the Company's
total assets as of December 31, 2007 and less than 1% of revenues for the year ended December 31, 2007.

|/s/ PricewaterhouseCoopers LLPBoston, Massachusetts
February 29, 2008 |  | 
|--------------------------------------------------------------------- |  | 

F-66

---





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

|                                          |                                                      | For the Years Ended December 31,                                                |         
|----------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------------------------------- | --------
|
|Revenues:                                 |                                                      |                                                                                 |         
|                                          | Net product sales                                    |                                                                                 | $       
|                                          | Net service sales                                    |                                                                                 |         
|                                          | Research and development revenue                     |                                                                                 |         
|                                          |                                                      |                                                                                 |         
|                                          |                                                      | Total revenues                                                                  |         
|                                          |                                                      |                                                                                 |         
|Operating costs and expenses:             |                                                      |                                                                                 |         
|                                          | Cost of products sold                                |                                                                                 |         
|                                          | Cost of services sold                                |                                                                                 |         
|                                          | Selling, general and administrative                  |                                                                                 |         
|                                          | Research and development                             |                                                                                 |         
|                                          | Amortization of intangibles                          |                                                                                 |         
|                                          | Purchase of in-process research and development      |                                                                                 |         
|                                          | Charge for impaired goodwill                         |                                                                                 |         
|                                          |                                                      |                                                                                 |         
|                                          |                                                      | Total operating costs and expenses                                              |         
|                                          |                                                      |                                                                                 |         
|Operating income (loss)                   |                                                      |                                                                                 | 653,865 
|                                          |                                                      |                                                                                 |         
|Other income (expenses):                  |                                                      |                                                                                 |         
|                                          | Equity in income of equity method investments        |                                                                                 |         
|                                          | Minority interest                                    |                                                                                 |         
|                                          | Gains on investments in equity securities, net       |                                                                                 |         
|                                          | Other                                                |                                                                                 |         
|                                          | Investment income                                    |                                                                                 |         
|                                          | Interest expense                                     |                                                                                 |         
|                                          |                                                      |                                                                                 |         
|                                          |                                                      | Total other income                                                              |         
|                                          |                                                      |                                                                                 |         
|Income (loss) before income taxes         |                                                      |                                                                                 | 735,674 
|                                          |                                                      |                                                                                 |         
|(Provision for) benefit from income taxes |                                                      |                                                                                 | (255,481
|                                          |                                                      |                                                                                 |         
|Net income (loss)                         |                                                      | $                                                                               | 480,193 
|                                          |                                                      |                                                                                 |         
|Net income (loss) per share:              |                                                      |                                                                                 |         
|                                          | Basic                                                |                                                                                 | $       
|                                          |                                                      |                                                                                 |         
|                                          | Diluted                                              |                                                                                 | $       
|                                          |                                                      |                                                                                 |         
|Weighted average shares outstanding:      |                                                      |                                                                                 |         
|                                          | Basic                                                |                                                                                 |         
|                                          |                                                      |                                                                                 |         
|                                          | Diluted                                              |                                                                                 |         
|                                          |                                                      |                                                                                 |         
|Comprehensive income (loss), net of tax:  |                                                      |                                                                                 |         
|Net income (loss)                         |                                                      | $                                                                               | 480,193 
|                                          |                                                      |                                                                                 |         
|Other comprehensive income (loss):        |                                                      |                                                                                 |         
|                                          | Foreign currency translation adjustments             |                                                                                 |         
|                                          |                                                      |                                                                                 |         
|                                          | Gain (loss) on affiliate sale of stock, net of tax   |                                                                                 |         
|                                          |                                                      |                                                                                 |         
|                                          | Pension liability adjustments, net of tax            |                                                                                 |         
|                                          |                                                      |                                                                                 |         
|                                          | Other, net of tax                                    |                                                                                 |         
|                                          |                                                      |                                                                                 |         
|                                          | Unrealized gains (losses) on securities, net of tax: |                                                                                 |         
|                                          |                                                      | Unrealized gains (losses) arising during the period, net of tax                 |         
|                                          |                                                      | Reclassification adjustment for gains included in net income (loss), net of tax |         
|                                          |                                                      |                                                                                 |         
|                                          |                                                      | Unrealized gains (losses) on securities, net of tax                             |         
|                                          |                                                      |                                                                                 |         
|                                          | Other comprehensive income (loss)                    |                                                                                 |         
|                                          |                                                      |                                                                                 |         
|Comprehensive income                      |                                                      | $                                                                               | 640,066 
|                                          |                                                      |                                                                                 |         

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

F-67

---





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

|                                             |                                                                 | December 31,                               |          
|-------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------ | ---------
|
|ASSETS                                       |                                                                 |                                            |          
|Current assets:                              |                                                                 |                                            |          
|                                             | Cash and cash equivalents                                       |                                            | $        
|                                             | Short-term investments                                          |                                            |          
|                                             | Accounts receivable, net                                        |                                            |          
|                                             | Inventories                                                     |                                            |          
|                                             | Prepaid expenses and other current assets                       |                                            |          
|                                             | Deferred tax assets                                             |                                            |          
|                                             |                                                                 |                                            |          
|                                             |                                                                 | Total current assets                       |          
|Property, plant and equipment, net           |                                                                 |                                            | 1,968,402
|Long-term investments                        |                                                                 |                                            | 512,937  
|Notes receivablerelated party               |                                                                 |                                            |         
|Goodwill                                     |                                                                 |                                            | 1,403,828
|Other intangible assets, net                 |                                                                 |                                            | 1,555,652
|Deferred tax assets                          |                                                                 |                                            | 95,664   
|Investments in equity securities             |                                                                 |                                            | 89,181   
|Other noncurrent assets                      |                                                                 |                                            | 66,880   
|                                             |                                                                 |                                            |          
|                                             |                                                                 | Total assets                               |          
|                                             |                                                                 |                                            |          
|LIABILITIES AND STOCKHOLDERS' EQUITY         |                                                                 |                                            |          
|Current liabilities:                         |                                                                 |                                            |          
|                                             | Accounts payable                                                |                                            | $        
|                                             | Accrued expenses                                                |                                            |          
|                                             | Income taxes payable                                            |                                            |          
|                                             | Deferred revenue and other income                               |                                            |          
|                                             | Current portion of long-term debt and capital lease obligations |                                            |          
|                                             |                                                                 |                                            |          
|                                             |                                                                 | Total current liabilities                  |          
|Long-term debt and capital lease obligations |                                                                 |                                            | 113,748  
|Convertible notes                            |                                                                 |                                            |         
|Deferred revenuenoncurrent                  |                                                                 |                                            | 16,662   
|Deferred tax liabilities                     |                                                                 |                                            |         
|Other noncurrent liabilities                 |                                                                 |                                            | 55,988   
|                                             |                                                                 |                                            |          
|                                             |                                                                 | Total liabilities                          |          
|Commitments and contingencies                |                                                                 |                                            |          
|Stockholders' equity:                        |                                                                 |                                            |          
|                                             | Preferred stock, $0.01 par value                                |                                            |          
|                                             | Common stock, $0.01 par value                                   |                                            |          
|                                             | Additional paid-in capital                                      |                                            |          
|                                             | Notes receivable from stockholders                              |                                            |          
|                                             | Accumulated earnings                                            |                                            |          
|                                             | Accumulated other comprehensive income                          |                                            |          
|                                             |                                                                 |                                            |          
|                                             |                                                                 | Total stockholders' equity                 |          
|                                             |                                                                 |                                            |          
|                                             |                                                                 | Total liabilities and stockholders' equity |          
|                                             |                                                                 |                                            |          

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

F-68

---





GENZYME CORPORATION AND SUBSIDIARIES        Consolidated Statements of Cash Flows        (Amounts in thousands)

|                                      |                                                                              | For the Years Ended December 31,                                                                                        |                                                        
|------------------------------------- | ---------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------
|
|Cash Flows from Operating Activities: |                                                                              |                                                                                                                         |                                                        
|                                      | Net income (loss)                                                            |                                                                                                                         | $                                                      
|                                      | Reconciliation of net income (loss) to cash flows from operating activities: |                                                                                                                         |                                                        
|                                      |                                                                              | Depreciation and amortization                                                                                           |                                                        
|                                      |                                                                              | Stock-based compensation                                                                                                |                                                        
|                                      |                                                                              | Provision for bad debts                                                                                                 |                                                        
|                                      |                                                                              | Purchase of in-process research and development                                                                         |                                                        
|                                      |                                                                              | Charge for impaired goodwill                                                                                            |                                                        
|                                      |                                                                              | Equity in income of equity method investments                                                                           |                                                        
|                                      |                                                                              | Minority interest                                                                                                       |                                                        
|                                      |                                                                              | Gains on investments in equity securities, net                                                                          |                                                        
|                                      |                                                                              | Deferred income tax provision (benefit)                                                                                 |                                                        
|                                      |                                                                              | Tax benefit from employee stock-based compensation                                                                      |                                                        
|                                      |                                                                              | Excess tax benefits from stock-based compensation                                                                       |                                                        
|                                      |                                                                              | Other                                                                                                                   |                                                        
|                                      |                                                                              | Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities): |                                                        
|                                      |                                                                              |                                                                                                                         | Accounts receivable                                    
|                                      |                                                                              |                                                                                                                         | Inventories                                            
|                                      |                                                                              |                                                                                                                         | Prepaid expenses and other current assets              
|                                      |                                                                              |                                                                                                                         | Income taxes payable                                   
|                                      |                                                                              |                                                                                                                         | Accounts payable, accrued expenses and deferred revenue
|                                      |                                                                              |                                                                                                                         |                                                        
|                                      |                                                                              |                                                                                                                         |                                                        
|                                      |                                                                              |                                                                                                                         |                                                        
|Cash Flows from Investing Activities: |                                                                              |                                                                                                                         |                                                        
|                                      |                                                                              | Purchases of investments                                                                                                |                                                        
|                                      |                                                                              | Sales and maturities of investments                                                                                     |                                                        
|                                      |                                                                              | Purchases of equity securities                                                                                          |                                                        
|                                      |                                                                              | Proceeds from sales of investments in equity securities                                                                 |                                                        
|                                      |                                                                              | Purchases of property, plant and equipment                                                                              |                                                        
|                                      |                                                                              | Acquisitions, net of acquired cash                                                                                      |                                                        
|                                      |                                                                              | Distributions from equity method investments                                                                            |                                                        
|                                      |                                                                              | Payment of note receivable from Dyax Corp.                                                                              |                                                        
|                                      |                                                                              | Purchases of other intangible assets                                                                                    |                                                        
|                                      |                                                                              | Other                                                                                                                   |                                                        
|                                      |                                                                              |                                                                                                                         |                                                        
|                                      |                                                                              |                                                                                                                         |                                                        
|                                      |                                                                              |                                                                                                                         |                                                        

F-69

---



GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

(Amounts in thousands)

|                                                   |                                                           | For the Years Ended December 31,      |        
|-------------------------------------------------- | --------------------------------------------------------- | ------------------------------------- | -------
|
|Cash Flows from Financing Activities:              |                                                           |                                       |        
|                                                   | Proceeds from issuance of common stock                    |                                       |        
|                                                   | Repurchases of our common stock                           |                                       |        
|                                                   | Excess tax benefits from stock-based compensation         |                                       |        
|                                                   | Proceeds from draws on our 2003 revolving credit facility |                                       |        
|                                                   | Payments of debt and capital lease obligations            |                                       |        
|                                                   | Increase (decrease) in bank overdrafts                    |                                       |        
|                                                   | Minority interest contributions                           |                                       |        
|                                                   | Other                                                     |                                       |        
|                                                   |                                                           |                                       |        
|                                                   |                                                           | Cash flows from financing activities  |        
|                                                   |                                                           |                                       |        
|Effect of exchange rate changes on cash            |                                                           |                                       | (17,397
|                                                   |                                                           |                                       |        
|Increase (decrease) in cash and cash equivalents   |                                                           |                                       | 374,842
|Cash and cash equivalents at beginning of period   |                                                           |                                       | 492,170
|                                                   |                                                           |                                       |        
|Cash and cash equivalents at end of period         |                                                           | $                                     | 867,012
|                                                   |                                                           |                                       |        
|Supplemental disclosures of cash flows:            |                                                           |                                       |        
|                                                   | Cash paid during the year for:                            |                                       |        
|                                                   |                                                           | Interest, net of capitalized interest |        
|                                                   |                                                           | Income taxes                          |        
|Supplemental disclosures of non-cash transactions: |                                                           |                                       |        
|                                                   | Mergers and AcquisitionsNote C.                          |                                       |        
|                                                   | Property, Plant and EquipmentNote G.                     |                                       |        
|                                                   | Capital lease obligation for Genzyme CenterNote L.       |                                       |        

In
conjunction with acquisitions completed since January 1, 2005, as described in Note C., "Mergers and Acquisitions," we assumed the following liabilities (amounts in
thousands):

|                                                     |                         | For the Years Ended December 31, |         
|---------------------------------------------------- | ----------------------- | -------------------------------- | --------
|
|Net cash paid for acquisitions and acquisition costs |                         | $                                | (342,456
|Fair value of assets acquired                        |                         |                                  | 226,579 
|Accrual for dissenting shares                        |                         |                                  | (16,128 
|Acquired in-process research and development         |                         |                                  | 125,500 
|Goodwill                                             |                         |                                  | 100,393 
|Liabilities for exit activities and integration      |                         |                                  | (2,671  
|Income taxes payable                                 |                         |                                  | (72,461 
|Net deferred tax assets (liabilities)                |                         |                                  | (8,210  
|                                                     |                         |                                  |         
|                                                     | Net liabilities assumed |                                  | $       
|                                                     |                         |                                  |         

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

F-70

---





GENZYME CORPORATION AND SUBSIDIARIES        Consolidated Statements of Stockholders' Equity        (Amounts in thousands)

|                                                                       |  | Common Stock |  |   |       |  |   |           |   | Accumulated
Other
Comprehensive
Income |         |   |  
|---------------------------------------------------------------------- |  | ------------ |  | - | ----- |  | - | --------- | - | -------------------------------------- | ------- | - | -
|
|
|Balance, January 1, 2005                                               |  | 249,018      |  | $ | 2,490 |  | $ | 4,217,358 |   | $                                      | (13,865 | ) | $
|Stock issued through stock option and stock purchase plans             |  | 10,133       |  |   | 102   |  |   | 354,606   |   |                                        |        |   |  
|Tax benefit from stock option exercises                                |  |             |  |   |      |  |   | 102,561   |   |                                        |        |   |  
|Stock-based compensation                                               |  |             |  |   |      |  |   | 444       |   |                                        |        |   |  
|Accrued interest receivable on notes receivable from stockholders, net |  |             |  |   |      |  |   |          |   |                                        | (580    | ) |  
|Foreign currency translation adjustments                               |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|Change in unrealized gains and losses on investments, net of tax(1)    |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|Gain on affiliate sale of stock, net of tax(2)                         |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|Pension liability adjustment, net of tax(3)                            |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|Other                                                                  |  |             |  |   |      |  |   | 12,807    |   |                                        |        |   |  
|Net income                                                             |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|                                                                       |  |              |  |   |       |  |   |           |   |                                        |         |   |  
|Balance, December 31, 2005                                             |  | 259,151      |  |   | 2,592 |  |   | 4,687,776 |   |                                        | (14,445 | ) |  
|Stock issued through stock option and stock purchase plans             |  | 3,875        |  |   | 38    |  |   | 158,267   |   |                                        |        |   |  
|Tax benefit from stock option exercises                                |  |             |  |   |      |  |   | 46,174    |   |                                        |        |   |  
|Stock-based compensation                                               |  |             |  |   |      |  |   | 215,419   |   |                                        |        |   |  
|Accrued interest receivable on notes receivable from stockholders, net |  |             |  |   |      |  |   |          |   |                                        | (612    | ) |  
|Foreign currency translation adjustments                               |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|Change in unrealized gains and losses on investments, net of tax(1)    |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|Gain on affiliate sale of stock, net of tax(2)                         |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|Pension liability adjustment, net of tax(3)                            |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|Adoption of FAS 158, net of tax(4)                                     |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|Other                                                                  |  |             |  |   |      |  |   | (1,362    | ) |                                        |        |   |  
|Net loss                                                               |  |             |  |   |      |  |   |          |   |                                        |        |   |  
|                                                                       |  |              |  |   |       |  |   |           |   |                                        |         |   |  
|Balance, December 31, 2006                                             |  | 263,026      |  |   | 2,630 |  |   | 5,106,274 |   |                                        | (15,057 | ) |  

F-71

---



GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Continued)

(Amounts in thousands)

|                                                                    |  | Common Stock |   |   |       |   |   |           |   | Accumulated
Other
Comprehensive
Income |         |   |  
|------------------------------------------------------------------- |  | ------------ | - | - | ----- | - | - | --------- | - | -------------------------------------- | ------- | - | -
|
|
|Stock issued through stock option and stock purchase plans          |  | 6,482        |   |   | 65    |   |   | 285,697   |   |                                        |        |   |  
|Tax benefit from stock option exercises                             |  |             |   |   |      |   |   | 27,654    |   |                                        |        |   |  
|Stock-based compensation                                            |  |             |   |   |      |   |   | 189,661   |   |                                        |        |   |  
|Adoption of FIN 48                                                  |  |             |   |   |      |   |   | 6,933     |   |                                        |        |   |  
|Repurchases of common stock                                         |  | (3,500       | ) |   | (35   | ) |   | (231,541  | ) |                                        |        |   |  
|Accrued interest receivable on notes receivable from stockholders   |  |             |   |   |      |   |   |          |   |                                        | (613    | ) |  
|Foreign currency translation adjustments                            |  |             |   |   |      |   |   |          |   |                                        |        |   |  
|Change in unrealized gains and losses on investments, net of tax(1) |  |             |   |   |      |   |   |          |   |                                        |        |   |  
|Gain on affiliate sale of stock, net of tax(2)                      |  |             |   |   |      |   |   |          |   |                                        |        |   |  
|Pension liability adjustment, net of tax(3)                         |  |             |   |   |      |   |   |          |   |                                        |        |   |  
|Other                                                               |  |             |   |   |      |   |   | 476       |   |                                        |        |   |  
|Net income                                                          |  |             |   |   |      |   |   |          |   |                                        |        |   |  
|                                                                    |  |              |   |   |       |   |   |           |   |                                        |         |   |  
|Balance, December 31, 2007                                          |  | 266,008      |   | $ | 2,660 |   | $ | 5,385,154 |   | $                                      | (15,670 | ) | $
|                                                                    |  |              |   |   |       |   |   |           |   |                                        |         |   |  

---

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

F-72

---





GENZYME CORPORATION AND SUBSIDIARIES        Notes To Consolidated Financial Statements

NOTE A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

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



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

As
a result of the acquisition of Bioenvision in 2007, our Oncology business unit, which was formerly reported combined with "Other", now meets the criteria for disclosure as a separate
reporting segment. This change in presentation is retrospectively applied to all periods presented.

We
have reclassified our 2006 and 2005 segment disclosures to conform to our 2007 presentation.

Risks and Uncertainties

We are subject to risks and uncertainties common to companies in the biotechnology industry. These risks and uncertainties may affect our future results, and
include:



F-73

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



F-74

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Basis of Presentation and Principles of Consolidation

Our consolidated financial statements include the accounts of our wholly owned and majority owned subsidiaries. We also consolidate certain variable interest
entities for which we are the primary beneficiary. For consolidated subsidiaries in which we own less than 100% interest, we record minority interest in our statements of operations for the ownership
interest of the minority owner. We use the equity method to account for investments in entities in which we have a substantial ownership interest
(20% to 50%) which do not require consolidation pursuant to FIN 46, or over which we exercise significant influence. Our consolidated net income includes our share of the earnings and losses of
these entities. All intercompany accounts and transactions have been eliminated in consolidation.

Dividend Policy

We have never paid a cash dividend on shares of our stock. We currently intend to retain our earnings to finance future growth and do not anticipate paying any
cash dividends on our stock in the foreseeable future.

Use of Estimates

Under accounting principles generally accepted in the United States of America, we are required to make certain estimates and assumptions that affect reported
amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in our consolidated financial statements. Our actual results could differ from these
estimates.

F-75

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash and Cash Equivalents

We value our cash and cash equivalents at cost plus accrued interest, which we believe approximates their market value. Our cash equivalents consist principally
of money market funds at December 31, 2007 but on a global basis can consist of corporate, government, agency, and municipal notes with original maturities of three months or less at any time.
We generally invest our cash in investment-grade securities to mitigate risk.

Investments

We can invest our excess cash balances on a global basis in short-term and long-term marketable debt securities, which can consist of
corporate, government, agency and municipal notes. As part of our strategic relationships, we may also invest in equity securities of other biotechnology companies, some of which are currently, or
have been in the past, considered related parties. Other investments are accounted for as described below.

We
classify all of our marketable equity investments as available-for-sale. We classify our investments in marketable debt securities as either
held-to-maturity or available-for-sale based on facts and circumstances present at the time we purchase the securities. As of each balance sheet date
presented, we classified all of our investments in debt securities as available-for-sale. We report available-for-sale investments at fair value as of
each balance sheet date and include any unrealized holding gains and losses (the adjustment to fair value) in stockholders' equity. Realized gains and losses are determined on the specific
identification method and are included in investment income. If any adjustment to fair value reflects a decline in the value of the investment, we consider all available evidence to evaluate the
extent to which the decline is "other than temporary" and mark the investment to market through a charge to our statement of operations. Investments in equity securities for which fair value is not
readily determinable are carried at cost, subject to review for impairment. We classify our investments with remaining maturities of twelve months or less as short-term investments
exclusive of those categorized as cash equivalents. We classify our investments with remaining maturities of greater than twelve months as long-term investments, unless we expect to sell
the investment in less than 1 year.

For
additional information on our investments, please read Note I., "Investments in Marketable Securities and Strategic Equity Investments," and Note J., "Equity Method
Investments."

Inventories

We value inventories at cost or, if lower, fair value. We determine cost using the first-in, first-out method.

We
analyze our inventory levels quarterly and write down to its net realizable value:



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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



We
capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval or prior to approval of a manufacturing facility.
In no event is inventory capitalized prior to completion of a phase 3 clinical trial. If a product is not approved for sale or a manufacturing facility does not receive approval, it would
likely result in the write-off of the inventory and a charge to earnings. At December 31, 2007, we did not have any inventory related to unapproved products.

Property, Plant and Equipment

We record property, plant and equipment at cost. When we dispose of these assets, we remove the related cost and accumulated depreciation and amortization from
the related accounts on our balance sheet and include any resulting gain or loss in our statement of operations.

We
generally compute depreciation using the straight-line method over the estimated useful lives of the assets. We compute economic lives as follows:



We
evaluate the remaining life and recoverability of this equipment periodically based on the appropriate facts and circumstances.

We
amortize leasehold improvements and assets under capital leases over their useful life or, if shorter, the term of the applicable lease.

We
capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs
are included in property, plant and equipment, net on our consolidated balance sheet and amortized on a straight-line basis over the estimated useful lives of the software, which generally
do not exceed 5 years.

For
products we expect to commercialize, we capitalize, to construction-in-progress, the costs we incur in validating facilities and equipment. We begin this
capitalization when the validation process begins, provided that the product to be manufactured has demonstrated technological feasibility, and end this capitalization when the asset is substantially
complete and ready for its intended use. These capitalized costs include incremental labor and direct material, and incremental fixed overhead and interest. We depreciate these costs using the
straight-line method.

Costs
of idle production facilities, including related depreciation, are charged directly to cost of products sold.

Goodwill and Other Intangible Assets

Our intangible assets consist of:



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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



We
are required to perform impairment tests related to our goodwill under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of
an asset may not be recoverable.

We
amortize intangible assets using the straight-line method over their estimated useful lives, which range between 1 and 15 years or, using the economic use method if
that method results in significantly greater amortization than the straight-line method.

For
certain acquired intangible assets, we may be required to make additional payments contingent upon meeting certain sales targets. We record amortization expense for these intangibles
based on estimated future sales of the related products and include in the determination of amortization all contingent payments that we believe are probable of being made. We apply this amortization
model to our Synvisc distribution rights (acquired from Wyeth), our license agreement with Synpac related to Myozyme patent and technology rights and our license to two products acquired from Surgi.B.
We
review the sales forecasts of these products on a quarterly basis and assess the impact changes in the forecasts have on the rate of amortization and the likelihood that contingent payments will be
made. Adjustments to amortization expense resulting from changes in estimated sales are reflected prospectively.

Accounting for the Impairment of Long-Lived Assets

We periodically evaluate our long-lived assets for potential impairment under FAS 144. We perform these evaluations whenever events or changes
in circumstances suggest that the carrying amount of an asset or group of assets is not recoverable. Indicators of potential impairment include:



If
we believe an indicator of potential impairment exists, we test to determine whether impairment recognition criteria in FAS 144 have been met. We charge impairments of the
long-lived assets to operations if our evaluations indicate that the carrying value of these assets is not recoverable.

Translation of Foreign Currencies

We translate the financial statements of our foreign subsidiaries from local currency into U.S. dollars using:



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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



We
consider the local currency for all of our foreign subsidiaries to be the functional currency for that subsidiary. As a result, we include translation adjustments for these
subsidiaries in stockholders' equity. We also record in stockholders' equity, exchange gains and losses on intercompany balances that are of a long-term investment nature. Our
stockholders' equity includes net cumulative foreign currency translation gains of $411.0 million at December 31, 2007 and $261.5 million at December 31, 2006. Gains and
losses on all other foreign currency transactions, including gains and losses attributable to foreign currency forward contracts, are included in SG&A in our results of operations and were a net gain
of $5.8 million for fiscal year 2007, a net gain of $7.8 million for fiscal year 2006 and a net loss of $3.8 million for fiscal year 2005.

Derivative Instruments

FAS 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our
consolidated balance sheets and measures those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income (loss), depending on whether
a derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

Defined Benefit Plan Accounting

FAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88,
106 and 132(R)," requires us to recognize the overfunded or underfunded status of any pension or other postretirement plans we may have as a net asset or a net liability on our statement of financial
position and to recognize changes in that funded status in the year in which the changes occur as an adjustment to accumulated other comprehensive income in stockholders' equity. Currently, we have
defined benefit pension plans for certain of our foreign subsidiaries and a defined benefit postretirement plan for one of our U.S. subsidiaries, which has been frozen since 1995 and is not
significant. Under FAS 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized for our defined benefit
pension plans under previous accounting standards must be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic benefit
cost. In addition, FAS 158 requires that the measurement date, which is the date at which the benefit obligation and plan assets are measured, be as of our fiscal year end, which is
December 31. We adopted FAS 158 in our fiscal year ending December 31, 2006.

Accounting
for our defined benefit plans requires management make certain assumptions relating to the following:



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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



We
obtained actuarial reports to compute the amounts of liabilities and expenses relating to the majority of our plans subject to the assumptions that management selects as of the
beginning of the plan year. Management reviews the long-term rate of return, discount, and salary scale inflation on an annual basis and makes modifications to the assumptions based on
current rates and trends as appropriate.

Revenue Recognition

We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, title and risk of loss have passed to the
customer and collection from the customer is reasonably assured. We recognize revenue from service sales, such as Carticel services and genetic testing services, when we have finished providing the
service. We recognize the revenue from the contracts to perform research and development services and selling and marketing services over the term of the applicable contract and as we complete our
obligations under that contract. We recognize non-refundable, up-front license fees over the related performance period or when we have no remaining performance obligations.

Revenue
from milestone payments for which we have no continuing performance obligations is recognized upon achievement of the related milestone. When we have continuing performance
obligations, the milestone payments are deferred and recognized as revenue over the term of the arrangement as we complete our performance obligations.

We
evaluate revenue from agreements that have multiple elements to determine whether the components of the arrangement represent separate units of accounting as defined in EITF Issue
No. 00-21, "Revenue Arrangements with Multiple Deliverables." To recognize a delivered item in a multiple element arrangement, EITF Issue No. 00-21 requires that the delivered items have value
to the customer on a stand alone basis, that there is objective and reliable evidence of fair value of the undelivered items and that delivery or performance is probable and within our control for any
delivered items that have a right of return.

We
follow the guidance of EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent" in the presentation of revenues and direct costs of revenues. This
guidance requires us to assess whether we act as a principal in the transaction or as an agent acting on behalf of others. We record revenue transactions gross in our statements of operations if we
are deemed the principal in the transaction, which includes being the primary obligor and having the risks and rewards of ownership.

We
receive royalties related to the manufacture, sale or use of our products or technologies under license arrangements with third parties. For those arrangements where royalties are
reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following
quarter.
Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize revenue upon receipt of royalty statements from the licensee.

F-80

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

We record allowances for product returns, rebates payable to Medicaid, managed care organizations or customers, chargebacks and sales discounts. These allowances
are recorded as a reduction to revenue at the time product sales are recorded. These amounts are based on our historical activity, estimates of the amount of product in the distribution channel and
the percent of end-users covered by Medicaid or managed care organizations. We record consideration paid to a customer or reseller of our products as a reduction of revenue unless we receive an
identifiable and separable benefit for the consideration, and we can reasonably estimate the fair value of the benefit received. If both conditions are met, we record the consideration paid to the
customer as an expense.

We
maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers was
to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.

Stock-Based Compensation

All stock-based awards to non-employees are accounted for at their fair value in accordance with FAS 123R and 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."

Prior
to January 1, 2006, we elected to:



Effective
January 1, 2006, we adopted the provisions of:



FAS 123R
applies to stock options granted under our employee and director stock option plans, purchases made under our ESPP, and to any restricted stock or RSUs.

We
adopted FAS 123R using the modified prospective transition method, which requires us to apply the standard to new equity awards and to equity awards modified, repurchased or
canceled after January 1, 2006, our adoption date. Compensation expense for the unvested portion of awards granted prior to our adoption date is:



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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



The
modified prospective transition method does not allow for the restatement of prior periods. Accordingly, our results of operations for 2007 and 2006 and future periods will not be
comparable to our results of operations prior to January 1, 2006 because our historical results prior to 2006 do not reflect the impact of expensing the fair value of share-based payment
awards.

Prior
to January 1, 2006, in the pro forma disclosures regarding stock-based compensation included in the notes to our consolidated financial statements, we recognized forfeitures
of stock options only as they occurred. Effective January 1, 2006, in accordance with the provisions of FAS 123R, we are now required to estimate an expected forfeiture rate for stock
options and RSUs, which is factored into the determination of our monthly stock-based compensation expense.

In
connection with the adoption of FAS 123R, we were also required to change the classification, in our consolidated statements of cash flows, of any tax benefits realized upon
the exercise of stock options in excess of that which is associated with the expense recognized for financial reporting purposes. These amounts are presented as a financing cash inflow rather than as
a reduction of income taxes paid in our consolidated statements of cash flows for the years ended December 31, 2007 and 2006.

Research and Development

We expense internal and external research and development costs, including costs of funded research and development arrangements, in the period incurred. We also
expense the cost of purchased technology in the period of purchase if we believe that the technology has not demonstrated technological feasibility and that it does not have an alternative future use.

Income Taxes

We use the asset and liability method of accounting for deferred income taxes. We are subject to income taxes in both the United States and numerous foreign
jurisdictions; however, our most significant tax jurisdictions are the U.S. federal and states. Significant judgments, estimates and assumptions regarding future events, such as the amount, timing and
character of income, deductions and tax credits, are required in the determination of our provision for income taxes and whether valuation allowances are required against deferred tax assets. These
judgments, estimates and assumptions involve:



We
operate in many jurisdictions where the tax laws relating to the pricing of transactions between related parties are open to interpretation, which could potentially result in tax
authorities asserting additional tax liabilities with no offsetting tax recovery in other countries.

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

We
continue to recognize interest relating to unrecognized tax benefits within our provision for income taxes but have not recorded any amounts related to potential penalties. The amount
of accrued interest related to unrecognized tax benefits within our provision for income taxes for the year ended December 31, 2007, and our accrued interest related to unrecognized tax
benefits as of January 1, 2007 and December 31, 2007 were not significant.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income or loss and all changes in equity from non-shareholder sources, including changes in unrealized
gains and losses on investments and on derivative instruments designated as hedges, foreign currency translation adjustments and liabilities for pension obligations, net of taxes.

Net Income (Loss) Per Share

To calculate base earnings per share, we divide our earnings by the weighted average number of outstanding shares during the applicable period. To calculate
diluted earnings per share, we also include in the denominator all potentially dilutive securities outstanding during the applicable period unless inclusion of such securities is
anti-dilutive.

Recent Accounting Pronouncements

FAS 157, "Fair Value Measurements."In September 2006, the FASB issued FAS 157, "Fair Value
Measurements," which provides enhanced guidance for using fair value to measure assets and liabilities. FAS 157 establishes a common definition of fair value, provides a framework for measuring
fair value under accounting principles generally accepted in the United States of America and expands disclosure requirements regarding fair value measurements. FAS 157 will be effective for us
as of January 1, 2008. In February 2008, the FASB issued FSP 157-2 "Partial Deferral of the Effective Date of Statements 157,"
which delays the effective date of FAS 157, for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in
the financials statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. Although we will continue to evaluate the application of FAS 157, we
do not believe adoption will have a material impact on our results of operations or financial position.

FAS 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement
No. 115."In February 2007, the FASB issued FAS 159, "The Fair Value

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Option
for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115," which permits, but does not require, entities to measure certain financial
instruments and other assets and liabilities at fair value on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been
elected should be recognized in earnings at each subsequent reporting date. FAS 159 will be effective for us as of January 1, 2008. We do not expect the adoption of FAS 159 to
have a material impact on our financial position and results of operations.

EITF Issue No. 07-1, "Accounting for Collaborative Arrangements."In December 2007, the EITF of the FASB reached a
consensus on Issue No. 07-1, "Accounting for Collaborative Arrangements."The EITF concluded on the definition of a collaborative
arrangement and that revenues and costs incurred with third parties in connection with collaborative arrangements would be presented gross or net based on the criteria in EITF 99-19
and other accounting literature. Based on the nature of the arrangement, payments to or from collaborators would be evaluated and its terms, the nature of the entity's business, and whether those
payments are within the scope of other accounting literature would be presented. Companies are also required to disclose the nature and purpose of collaborative arrangements along with the accounting
policies and the classification and amounts of significant financial-statement amounts related to the arrangements. Activities in the arrangement conducted in a separate legal entity should be
accounted for under other accounting literature; however required disclosure under EITF 07-1 applies to the entire collaborative agreement. EITF 07-1 is effective
for us January 1, 2008 and is to be applied retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. We do not expect the adoption of
EITF 07-1 to have a material impact on our consolidated financial statements.

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

FAS 141 (revised 2007), "Business Combinations,"In December 2007, the FASB issued FAS 141 (revised 2007),
"Business Combinations," or FAS 141R, which replaces FAS 141, "Business Combinations."
FAS 141R retains the underlying concepts of FAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but
FAS 141R changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be
valued at fair value at the acquisition date; IPR&D will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business
combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will
affect income tax expense.

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FAS 141R
is effective for us on a prospective basis for all business combinations for which the acquisition date is on or after January 1, 2009, with the exception of the
accounting for valuation allowances on deferred taxes and acquired tax contingencies. FAS 141R amends FAS 109 such that adjustments made to valuation allowances on deferred taxes and
acquired tax contingencies associated with acquisitions completed prior to the effective date of FAS 141R would also apply the provisions of FAS 141R. Early adoption is not permitted. We
are currently evaluating the effects, if any, that FAS 141R may have on our consolidated financial statements.

FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51."In
December 2007, the FASB issued FAS 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB
No. 51," which establishes new accounting and reporting standards that require the ownership interests in subsidiaries not held by the parent to be clearly identified,
labeled and presented in the consolidated statement of financial position within equity, but separate from the parent's equity. FAS 160 also requires the amount of consolidated net income
attributable to the parent and to the non-controlling interest, commonly referred to as the minority interest, to be clearly identified and presented on the face of the consolidated
statement of income. Changes in a parent's ownership interest while the parent retains its
controlling financial interest must be accounted for consistently, and when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary must be
initially measured at fair value. The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any non-controlling equity investment. FAS 160 also
requires entities to provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners.
FAS 160 is effective for us January 1, 2009 and adoption is prospective only; however, upon adoption, presentation and disclosure requirements described above must be applied
retrospectively for all periods presented in our financial statements. We are currently evaluating the effects, if any, that FAS 160 may have on our consolidated financial statements.

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE B. NET INCOME (LOSS) PER SHARE

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

|                                                                         |                                                                                                       | For the Years Ended December 31,
|------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------- | --------------------------------
|
|Net income (loss)                                                        |                                                                                                       | $                               
|Effect of dilutive securities:                                           |                                                                                                       |                                 
|                                                                         | Interest expense and debt fee amortization, net of tax, related to our 1.25% convertible senior notes |                                 
|                                                                         |                                                                                                       |                                 
|Net income (loss)diluted                                                |                                                                                                       | $                               
|                                                                         |                                                                                                       |                                 
|Shares used in computing net income (loss) per common sharebasic        |                                                                                                       |                                 
|Effect of dilutive securities(1):                                        |                                                                                                       |                                 
|                                                                         | Shares issuable upon the assumed conversion of our 1.25% convertible senior notes                     |                                 
|                                                                         | Stock options(2)                                                                                      |                                 
|                                                                         | Warrants and stock purchase rights                                                                    |                                 
|                                                                         | Restricted stock units                                                                                |                                 
|                                                                         |                                                                                                       |                                 
|                                                                         |                                                                                                       | Dilutive potential common shares
|                                                                         |                                                                                                       |                                 
|Shares used in computing net income (loss) per common sharediluted(1,2) |                                                                                                       |                                 
|                                                                         |                                                                                                       |                                 
|Net income (loss) per share:(1)                                          |                                                                                                       |                                 
|                                                                         |                                                                                                       | Basic                           
|                                                                         |                                                                                                       |                                 
|                                                                         |                                                                                                       | Diluted                         
|                                                                         |                                                                                                       |                                 

---

For the Year Ended
December 31,
2006Shares issuable upon the assumed conversion of our 1.25% convertible senior notes

9,686Shares issuable for options

6,881Shares issuable for warrants and stock purchase rights

11Total shares excluded from the computation of diluted loss per share

16,578


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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE B. NET INCOME (LOSS) PER SHARE (Continued)

For the Years Ended December 31,2007

2006

2005Shares of Genzyme Stock issuable upon exercise of outstanding options

12,262

11,840

7,269


NOTE C. MERGERS AND ACQUISITIONS

2007 Acquisitions:

Diagnostic Assets of Diagnostic Chemicals Limited

On December 3, 2007, we acquired certain diagnostic assets from DCL, a privately-held diagnostics and biopharmaceutical company based in
Charlottetown, Prince Edward Island, Canada, including DCL's line of over 50 formulated clinical chemistry reagents and its diagnostics operations in Prince Edward Island, Canada and
Connecticut. We paid gross consideration of $53.3 million Canadian dollars, or $53.8 million U.S. dollars (based on the December 3, 2007 spot rate for the Canadian dollar), in
cash. We closed the transaction on December 3, 2007. We accounted for the acquisition as a business combination and accordingly, included its results of operations in our consolidated
statements of operations from December 3, 2007, 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

$
53,261Cash hold back


255Acquisition costs


568Total purchase price

$
54,084Accounts receivable

$
2,618Inventory


5,179Property, plant and equipment


1,843Goodwill


15,124Other intangible assets (to be amortized over 5 to 10 years)


29,827Deferred tax assetsnoncurrent


40Assumed liabilities:Deferred tax liability


(421
)Other


(126
)Allocated purchase price

$
54,084


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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE C. MERGERS AND ACQUISITIONS (Continued)

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 $15.1 million, which was allocated to goodwill. We expect
that substantially all of the amount allocated to goodwill will be deductible for tax purposes.

The
allocation of purchase price remains subject to potential adjustments, including adjustments for tax restructuring activities.

Bioenvision

On May 29, 2007, we entered into an agreement and plan of merger with Bioenvision, a publicly-traded biopharmaceutical company based in New York City and
Edinburgh, Scotland, and Wichita Bio Corporation, one of our wholly-owned subsidiaries, to acquire Bioenvision in an all-cash transaction valued at $11.20 per outstanding share of
Bioenvision Series A Preferred Stock (plus accrued but unpaid dividends) and $5.60 per outstanding share of Bioenvision Common Stock. We paid gross consideration of $349.9 million in
cash, including $345.4 million for the outstanding shares of Bioenvision Common and Series A Preferred Stock and options to purchase shares of Bioenvision Common Stock, and approximately
$5 million for acquisition costs. Net consideration was $304.7 million as we acquired Bioenvision's cash and cash equivalents totaling $45.2 million. Effective October 23,
2007, we completed the acquisition of Bioenvision the culmination of a two step process consisting of a tender offer completed in July 2007, and a merger approved in October 2007.

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



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

Our
initial investments in Bioenvision Common Stock and Bioenvision Series A Preferred Stock gave us significant influence over Bioenvision and, as a result, we accounted for our
investment in Bioenvision Common Stock under the equity method of accounting from July 10, 2007 through October 22, 2007. We recorded our initial $47.0 million investment in
Bioenvision Common Stock as a single amount in other noncurrent assets in our consolidated balance sheet. The purchase price of our initial investment in Bioenvision Common Stock was attributed to the
fair value of our 15%

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE C. MERGERS AND ACQUISITIONS (Continued)

proportional
share of the tangible assets and liabilities of Bioenvision as of July 10, 2007. The excess of the purchase price over our proportional share of the net assets of Bioenvision as of
that date was attributed to the underlying intangible assets and IPR&D, net of tax, and goodwill. The following table sets forth the purchase price allocation for our initial investment in Bioenvision
Common Stock and the components of the $21.1 million of charges we recorded to equity in income of equity method investments for the period from July 10, 2007 through October 22,
2007 related to our initial investment in Bioenvision Common Stock (amounts in thousands):

Investment in
Bioenvision
Common
Stock

Equity in
Income (Loss) of
Equity Method
InvestmentsOur 15% proportional share of the tangible assets and liabilities of Bioenvision

$
7,062

$
Goodwill


4,008


Other intangible assets


26,531


IPR&D


19,150


Deferred tax liabilities


(9,722
)

Initial investment in Bioenvision Common Stock


47,029


Effect of equity method of accounting:IPR&D


(19,150
)

(19,150
)Our 15% proportional share of the losses of Bioenvision(1)


(1,424
)

(1,424
)Amortization expense(1)


(829
)

(829
)Deferred tax benefits(1)


302


302Total

$
25,928

$
(21,101
)






On October 22, 2007, holders of a majority of the issued and outstanding shares of Bioenvision Common Stock and Bioenvision Series A Preferred
Stock, voting together as a single class on an as-converted basis, approved the merger. On October 23, 2007, we paid approximately $245 million in cash consideration to the former
Bioenvision stockholders and Bioenvision Common Stock ceased trading and was delisted from The NASDAQ. In December 2007, we paid approximately $12 million in cash for the outstanding options to
purchase shares of Bioenvision Common Stock. We accounted for the acquisition as a business combination and, accordingly, included its results of operations in our consolidated statements of
operations from October 23, 2007, the date of acquisition.

In
connection with the merger, holders of 2,880,000 shares of Bioenvision Common Stock, representing less than 5% of the outstanding shares of Bioenvision Common Stock on an
as-converted basis immediately before the merger became effective, submitted written demands for appraisal of their shares and have, as a result, elected not to accept the $5.60 per share
merger consideration. We refer to these stockholders as dissenting stockholders. We obtained ownership of the dissenting shares and have accounted for the merger based on 100% ownership of
Bioenvision. We have accrued

F-89

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE C. MERGERS AND ACQUISITIONS (Continued)

$16.1 million,
which represents our estimate of the price to be paid to the dissenting shareholders upon resolution of their appraisal demand.

The
purchase price, including amounts paid for shares of Bioenvision Common Stock and Bioenvision Series A Preferred Stock in July 2007, was allocated to the estimated fair
value of the acquired tangible and intangible assets and assumed liabilities as follows (amounts in thousands, except share data):

Purchase of 52,157,771 shares of Bioenvision common stock

$
292,084Purchase of 2,250,000 shares of Bioenvision preferred stock


25,200Buyout of stock options


11,975Acquisition costs


4,554Subtotal purchase price


333,813Accrual for dissenting shares


16,128Total purchase price

$
349,941Cash and cash equivalents

$
45,186Accounts receivable


5,537Inventory


1,684Other current assets


5,130Goodwill


85,269Other intangible assets (to be amortized over 9 years)


172,441In-process research and development


106,350Equity in net loss of Bioenvision pre-acquisition ownership(1)


21,101Other noncurrent assets


624Assumed liabilities:Income taxes payable


(72,461
)Deferred tax liabilitycurrent


(2,575
)Deferred tax liabilitynoncurrent


(5,254
)Liabilities for exit activities


(2,671
)Other


(10,420
)Allocated purchase price

$
349,941




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

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

F-90

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE C. MERGERS AND ACQUISITIONS (Continued)

2006 and 2005 Acquisitions:

Our 2006 and 2005 acquisitions were accounted for as business combinations and, accordingly, we included the results of operations of each acquisition in our
consolidated statements of operations beginning on the date of each acquisition.



F-91

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE C. MERGERS AND ACQUISITIONS (Continued)



The
purchase price for each of our 2006 and 2005 acquisitions was allocated to the estimated fair value of the acquired tangible and intangible assets and assumed liabilities as of the
date of each acquisition as follows (amounts in thousands):

|                                                            |                                                 | Year Ended December 31, 2006 |         | Year Ended
December 31, 2005 |  
|----------------------------------------------------------- | ----------------------------------------------- | ---------------------------- | ------- | ---------------------------- | -
|
|Net cash paid for acquisitions, including acquisition costs |                                                 | $                            | 589,173 |                              | $
|Present value of notes payable                              |                                                 |                              |        |                              |  
|Contingent purchase price liabilities                       |                                                 |                              |        |                              |  
|                                                            |                                                 |                              |         |                              |  
|Total purchase price                                        |                                                 | $                            | 589,173 |                              | $
|                                                            |                                                 |                              |         |                              |  
|Cash and cash equivalents                                   |                                                 | $                            | 20,220  |                              | $
|Other current assets                                        |                                                 |                              | 6,340   |                              |  
|Property, plant and equipment                               |                                                 |                              | 758     |                              |  
|Deferred assetcurrent                                      |                                                 |                              |        |                              |  
|Goodwill                                                    |                                                 |                              | 32,349  |                              |  
|Other intangible assets                                     |                                                 |                              | 3,500   |                              |  
|Acquired in-process research and development                |                                                 |                              | 552,900 |                              |  
|Deferred tax assetsnoncurrent                              |                                                 |                              | 28,336  |                              |  
|Other noncurrent assets                                     |                                                 |                              | 120     |                              |  
|Assumed liabilities:                                        |                                                 |                              |         |                              |  
|                                                            | Deferred tax liabilities                        |                              |         | (25,288                      | )
|                                                            | Liabilities for exit activities and integration |                              |         | (8,882                       | )
|                                                            | Other liabilities                               |                              |         | (21,180                      | )
|                                                            |                                                 |                              |         |                              |  
|Total purchase price allocation                             |                                                 | $                            | 589,173 |                              | $
|                                                            |                                                 |                              |         |                              |  

F-92

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE C. MERGERS AND ACQUISITIONS (Continued)

For
our acquisitions of AnorMED, Bone Care and Equal Diagnostics, the excess of the purchase price over the estimated fair value of the assets acquired and liabilities
assumed, was allocated to goodwill. We expect that substantially all of the amount allocated to goodwill for these three acquisitions will be deductible for tax purposes.

The
estimated fair value of the assets acquired and liabilities assumed from Verigen exceeded our initial payments for Verigen by $5.7 million resulting in negative goodwill.
Based on the development, approval and commercialization of MACI in the United States, we may be obligated to pay Verigen up to approximately $38 million through 2011. Pursuant to
FAS 142, we recorded as a liability, contingent consideration up to the amount of the negative goodwill. As contingent payments related to the acquisition of Verigen come due, we will apply the
payments against the contingent liability and contingent payments in excess of $5.7 million, if any, will be recorded as goodwill.

In-Process Research and Development

In connection with six of the acquisitions we completed since between January 1, 2004 and December 31, 2007, 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 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 technological feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products
before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our
results of operations could be materially adversely affected.

The
following table sets forth the significant IPR&D projects for companies and certain assets we have acquired between January 1, 2005 and December 31, 2007 (amounts in
millions):

|Company/Assets Acquired |  | Purchase Price |       | IPR&D(1) |   | Programs Acquired |                         | Discount Rate Used in Estimating Cash Flows(1) |    | Year of Expected Launch
|----------------------- |  | -------------- | ----- | -------- | - | ----------------- | ----------------------- | ---------------------------------------------- | -- | -----------------------
|Bioenvision (2007)      |  | $              | 349.9 |          | $ | 125.5             |                         | Evoltra (clofarabine)(2,3)                     |    | 17                     
|                        |  |                |       |          |   |                   |                         |                                                |    |                        
|AnorMED (2006)          |  | $              | 589.2 |          | $ | 526.8             |                         | Mozobil (stem cell transplant)                 |    | 15                     
|                        |  |                |       |          |   | 26.1              |                         | AMD070 (HIV)(4)                                |    | 15                     
|                        |  |                |       |          |   |                   |                         |                                                |    |                        
|                        |  |                |       |          | $ | 552.9             |                         |                                                |    |                        
|                        |  |                |       |          |   |                   |                         |                                                |    |                        
|Bone Care (2005)        |  | $              | 712.3 |          | $ | 12.7              |                         | LR-103 (secondary                              |    |                        
|                        |  |                |       |          |   |                   | hyperparathyroidism)(5) |                                                | 25 | %                      

---

F-93

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE C. MERGERS AND ACQUISITIONS (Continued)



Exit Activities

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

|                             |                       | Employee
Related
Benefits |       | Closure of
Leased
Facilities |   | Other
Exit
Activities |       | Total
Exit
Activities |      
|---------------------------- | --------------------- | ------------------------- | ----- | ---------------------------- | - | --------------------- | ----- | --------------------- | -----
|Balance at December 31, 2005 |                       | $                         | 2,249 |                              | $ | 199                   |       | $                     | 8,117
|                             | Acquisition(1)        |                           |       | 6,478                        |   |                       |      |                       |      
|                             | Revision of estimates |                           |       | (165                         | ) |                       | (132  | )                     |      
|                             | Payments              |                           |       | (2,457                       | ) |                       | (43   | )                     |      
|                             |                       |                           |       |                              |   |                       |       |                       |      
|Balance at December 31, 2006 |                       |                           | 6,105 |                              |   | 24                    |       |                       |     
|                             | Acquisition(2)        |                           |       | 2,601                        |   |                       |      |                       |      
|                             | Revision of estimates |                           |       | 931                          |   |                       | 2,593 |                       |      
|                             | Payments              |                           |       | (5,602                       | ) |                       | (453  | )                     |      
|                             |                       |                           |       |                              |   |                       |       |                       |      
|Balance at December 31, 2007 |                       | $                         | 4,035 |                              | $ | 2,164                 |       | $                     | 70   
|                             |                       |                           |       |                              |   |                       |       |                       |      

---

F-94

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE C. MERGERS AND ACQUISITIONS (Continued)

Pro Forma Financial Summary (Unaudited)

The following pro forma financial summary is presented as if the acquisition of Bioenvision was completed as of January 1, 2007 and 2006, and as if the
acquisition of AnorMED was completed as of January 1, 2006 and 2005. 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 these acquisitions, such as IPR&D charges, are included in the
pro forma financial summary for the year in which the acquisition occurred and the year prior to acquisition only. Specifically, the pro forma financial summary includes:



The
following table provides our pro forma summary for the years ended December 31, 2007, 2006 and 2005 (amounts in thousands, except per share amounts):

2007

2006

2005Total revenues

$
3,824,600

$
3,205,422

$
2,735,145Net income (loss)

$
457,675

$
(167,545
)
$
19,035Net income (loss) per share:Basic

$
1.73

$
(0.64
)
$
0.07Diluted

$
1.66

$
(0.64
)
$
0.07Weighted average shares outstanding:Basic


263,895


261,124


254,758Diluted


280,767


261,124


262,538


Pro
forma results are not presented for the acquisition of assets from DCL or the acquisitions of Equal Diagnostics, Bone Care or Verigen for the years ended
December 31, 2007 and 2006 because those acquisitions individually, and in the aggregate, did not have a material effect on our results of operations in those periods.

NOTE D. DERIVATIVE FINANCIAL INSTRUMENTS

We periodically enter into foreign currency forward contracts, all of which have a maturity of less than three years. These contracts have not been designated as
hedges and accordingly, unrealized gains or losses on these contracts are reported in current earnings. The notional settlement value of foreign currency forward contracts outstanding at
December 31, 2007 is $347.1 million. At December 31, 2007, these contracts had a fair value of $(15.1) million, representing an unrealized loss, which has been recorded in SG&A in
our consolidated statement of operations for the year ended December 31, 2007 and in accrued expenses in our consolidated balance sheet as of December 31, 2007. The notional settlement
value of foreign currency forward contracts outstanding at December 31, 2006 was $455.1 million. At December 31, 2006, these contracts had a fair value of $(1.5) million,
representing an unrealized loss, which has been recorded in SG&A in our consolidated statement of operations for the year ended December 31, 2006 and in accrued expenses in our consolidated
balance sheet as of December 31, 2006. At December 31, 2005, the fair value of these contracts was not significant.

F-95

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE E. ACCOUNTS RECEIVABLE

Our trade receivables primarily represent amounts due from distributors, healthcare service providers, and companies and institutions engaged in research,
development or production of pharmaceutical and biopharmaceutical products. We perform credit evaluations of our customers on an ongoing basis and generally do not require collateral. We state
accounts receivable at fair value after reflecting certain allowances for bad debts, chargebacks and prompt pay discounts. The allowances were $40.3 million at December 31, 2007 and
$52.6 million at December 31, 2006.

NOTE F. INVENTORIES

December 31,2007

2006(Amounts in thousands)Raw materials

$
120,409

$
100,698Work-in-process


130,812


119,510Finished goods


187,894


154,436Total

$
439,115

$
374,644


On
October 22, 2007, the FDA granted marketing approval for Renvela. At December 31, 2007, we had $22.8 million of Renvela inventory for which there is no similar
amount as of December 31, 2006.

In
2007, we recorded a total of $20.9 million of charges to cost of products sold to write off certain lots of our Thymoglobulin finished goods inventory that did not meet our
specifications for saleable
product, of which $11.8 million was recorded in September 2007 and $9.1 million was recorded in December 2007.

NOTE G. PROPERTY, PLANT AND EQUIPMENT

December 31,2007

2006(Amounts in thousands)Plant and equipment

$
846,974

$
734,669Land and buildings


931,916


763,072Leasehold improvements


265,242


239,268Furniture and fixtures


62,238


53,689Construction in progress


698,824


515,3072,805,194


2,306,005Less accumulated depreciation


(836,792
)

(695,412
)Property, plant and equipment, net

$
1,968,402

$
1,610,593


Our
total depreciation expense was $137.1 million in 2007, $122.0 million in 2006 and $103.0 million in 2005.

F-96

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE G. PROPERTY, PLANT AND EQUIPMENT (Continued)

Our
property, plant and equipment includes the following amounts for assets subject to capital leases (amounts in thousands):

December 31, 2007BuildingCorporate headquarters in Cambridge, Massachusetts

$
131,031Less accumulated depreciation


(37,385
)Assets subject to capital leases, net

$
93,646


We
capitalize costs we have incurred in validating manufacturing equipment and facilities for products which have reached technological feasibility. Capitalized validation costs, net of
accumulated depreciation, were $15.5 million at December 31, 2007 and $17.2 million at December 31, 2006.

Net
capitalized software totaled $15.5 million at December 31, 2007 and $14.2 million at December 31, 2006. Capitalized software development costs, a
component of construction in progress, were $43.0 million at December 31, 2007 and $19.0 million at December 31, 2006.

We
have capitalized the following amounts of interest costs (amounts in millions):

For the Years Ended December 31,2007

2006

2005$
14.5

$
9.2

$
8.9


As
of December 31, 2007, the estimated remaining cost to complete our assets under construction is approximately $900 million.

Under
certain lease agreements for our worldwide facilities, we are contractually obligated to return leased space to its original condition upon termination of the lease agreement. At
the inception of a lease with such conditions, we record an asset retirement obligation liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. In
subsequent periods, for each such lease, we record interest expense to accrete the asset retirement obligation liability to full value and depreciate each capitalized asset retirement obligation
asset, both over the term of the associated lease agreement. Our asset retirement obligations were not significant as of December 31, 2007 or 2006.

F-97

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE H. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following tables contains the change in our goodwill during the years ended December 31, 2007 and 2006 (amounts in thousands):

|              |  | As of
December 31,
2006 |           | Acquisitions |   | Adjustments |  | As of
December 31,
2007
|------------- |  | ----------------------- | --------- | ------------ | - | ----------- |  | -----------------------
|Renal         |  | $                       | 305,528   |              | $ |            |  | $                      
|Therapeutics  |  |                         | 354,709   |              |   |            |  |                        
|Transplant(1) |  |                         | 157,591   |              |   |            |  |                        
|Biosurgery    |  |                         | 7,585     |              |   |            |  |                        
|Oncology(2)   |  |                         | 445,640   |              |   | 85,269      |  |                        
|Other(3)      |  |                         | 27,728    |              |   | 14,916      |  |                        
|              |  |                         |           |              |   |             |  |                        
|Goodwill      |  | $                       | 1,298,781 |              | $ | 100,185     |  | $                      
|              |  |                         |           |              |   |             |  |                        

|
|

|              |  | As of
December 31,
2005 |           | Acquisitions |   | Adjustments |  | Impairment |       | As of
December 31,
2006
|------------- |  | ----------------------- | --------- | ------------ | - | ----------- |  | ---------- | ----- | -----------------------
|Renal         |  | $                       | 304,492   |              | $ |            |  | $          | 1,036 |                        
|Therapeutics  |  |                         | 354,709   |              |   |            |  |            |      |                        
|Transplant(1) |  |                         | 128,511   |              |   | 29,080      |  |            |      |                        
|Biosurgery    |  |                         | 7,585     |              |   |            |  |            |      |                        
|Genetics(4)   |  |                         | 218,962   |              |   |            |  |            | 283   |                        
|Oncology      |  |                         | 445,640   |              |   |             |  |            |      |                        
|Other         |  |                         | 27,668    |              |   |            |  |            | 60    |                        
|              |  |                         |           |              |   |             |  |            |       |                        
|Goodwill      |  | $                       | 1,487,567 |              | $ | 29,080      |  | $          | 1,379 |                        
|              |  |                         |           |              |   |             |  |            |       |                        

---

We
are required to perform impairment tests related to our goodwill under FAS 142 annually, which we perform in the third quarter of each year, and whenever events or changes in
circumstances suggest that the carrying value of an asset may not be recoverable. For 2007, we completed the required annual impairment tests for our $1.3 billion of goodwill that had been
recorded as of September 30, 2007 and determined that no impairment charge was required. For 2006, we completed the required annual impairment tests for our $1.5 billion of goodwill that
had been recorded as of

F-98

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE H. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

September 30,
2006 and determined that the $219.2 million of goodwill assigned to our Genetics reporting unit was impaired. Such goodwill was derived as a result of our acquisitions of
substantially all of the pathology/oncology testing assets related to the Physician Services and Analytical Services business units of IMPATH in May 2004, Genetrix, Inc. in February 1996 and
the minority share of IG Laboratories, Inc. in October 1995.

We
determined the fair value of the net assets of our Genetics reporting unit by discounting, to present value, its estimated future cash flows. Due to the reduction of reimbursement
rates for certain test offerings and increased infrastructure costs, the discounted future cash flows of our Genetics reporting unit were negatively impacted causing the fair value of the net assets
of our Genetics reporting unit to be lower than the carrying value. We calculated the fair value and determined that the goodwill assigned to our Genetics reporting unit was fully impaired and we
recorded a pre-tax impairment charge of $219.2 million and $69.8 million of related tax benefits in September 2006. No additional impairment charges were required in 2006 for
the remaining $1.3 billion of goodwill related to our other reporting units.

Other Intangible Assets

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

|                       |  | As of December 31, 2007 |           | As of December 31, 2006
|---------------------- |  | ----------------------- | --------- | -----------------------
|
|Technology(1)          |  | $                       | 1,680,190 |                        
|Patents                |  |                         | 194,560   |                        
|Trademarks             |  |                         | 60,634    |                        
|License fees           |  |                         | 90,237    |                        
|Distribution rights(2) |  |                         | 307,260   |                        
|Customer lists(3)      |  |                         | 97,031    |                        
|Other                  |  |                         | 2,050     |                        
|                       |  |                         |           |                        
|Total                  |  | $                       | 2,431,962 |                        
|                       |  |                         |           |                        

---

F-99

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE H. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)



Net
technology includes $4.3 million at December 31, 2007 and $4.7 million at December 31, 2006 related to our acquisition of certain gene therapy assets from
Avigen in December 2005. In addition, we may be obligated to make up to approximately $38 million of potential milestone payments based on the development and approval of, and royalty
payments based on the sale of, products developed between now and 2020 that rely on the intellectual property purchased from Avigen.

All
of our other intangible assets are amortized over their estimated useful lives. The estimated future amortization expense for other intangible assets for the five succeeding fiscal
years and thereafter is as follows (amounts in thousands):

Year Ended December 31,

Estimated
Amortization
Expense(1)2008

$
224,7062009


228,9082010


241,2142011


259,6302012


200,692Thereafter


569,815




F-100

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)



NOTE I.  INVESTMENTS IN MARKETABLE SECURITIES AND EQUITY INVESTMENTS

Marketable Securities (amounts in thousands):

|                                                         |                          | December 31,
|-------------------------------------------------------- | ------------------------ | ------------
|
|
|Cash equivalents(1):                                     |                          |             
|                                                         | Money market funds       |             
|Short-term investments:                                  |                          |             
|                                                         | Corporate notes          |             
|                                                         | U.S. Government agencies |             
|                                                         | U.S. Treasury notes      |             
|                                                         |                          |             
|                                                         |                          |             
|Long-term investments:                                   |                          |             
|                                                         | Corporate notes          |             
|                                                         | U.S. Government agencies |             
|                                                         | Fixed income fund        |             
|                                                         | U.S. Treasury notes      |             
|                                                         |                          |             
|                                                         |                          |             
|                                                         |                          |             
|Total cash equivalents, short- and long-term investments |                          | $           
|                                                         |                          |             
|Investments in equity securities                         |                          | $           
|                                                         |                          |             

---

The
following table contains information regarding the range of contractual maturities of our investments in debt securities (amounts in thousands):

December 31,2007

2006Cost

Market Value

Cost

Market ValueWithin 1 year

$
741,046

$
741,093

$
343,370

$
342,6981-2 years


175,433


175,016


157,682


156,9442-10 years


333,902


337,921


519,142


516,596$
1,250,381

$
1,254,030

$
1,020,194

$
1,016,238


F-101

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE I.  INVESTMENTS IN MARKETABLE SECURITIES AND EQUITY INVESTMENTS (Continued)

Investments in Equity Securities

The following table shows the investments in equity securities of unconsolidated entities as of December 31, 2007 and 2006 (amounts in thousands):

|                            |                               | December 31, 2007 |        | December 31, 2006 |  
|--------------------------- | ----------------------------- | ----------------- | ------ | ----------------- | -
|
|Publicly-held companies(1): |                               |                   |        |                   |  
|                            | Dyax Corp.                    |                   | $      | 17,992            |  
|                            | ABIOMED, Inc(2)               |                   |        | 12,185            |  
|                            | Sirtris Pharmaceuticals, Inc  |                   |        | 4,500             |  
|                            | GTC Biotherapeutics, Inc.     |                   |        | 1,973             |  
|                            | Other                         |                   |        | 183               |  
|                            |                               |                   |        |                   |  
|                            | Total publicly-held companies |                   |        | 36,833            |  
|Private equity funds(3)     |                               |                   | 19,167 |                   |  
|Privately-held companies(4) |                               |                   | 5,291  |                   |  
|                            |                               |                   |        |                   |  
|Total                       |                               | $                 | 61,291 |                   | $
|                            |                               |                   |        |                   |  

---

Unrealized Gains and Losses on Marketable Securities and Investments in Equity Securities

We record unrealized holding gains and losses, net of tax, related to our investments in marketable securities and strategic investments, to the extent they are
determined to be temporary, in stockholders' equity. The following table sets forth the gross amounts recorded:

December 31,2007

2006Unrealized holding gains

$
34.1 million

$
21.9 millionUnrealized holding losses

$
2.6 million

$
5.1 million


We
also collaborate with or provide services to certain of the companies in which we hold or have held equity investments, including Dyax, Isis and BioMarin. Our
relationships with Dyax and Isis are described below. Our relationship with BioMarin is described in Note J., "Equity Method Investments."

F-102

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE I.  INVESTMENTS IN MARKETABLE SECURITIES AND EQUITY INVESTMENTS (Continued)

Dyax Corp.

In October 1998, we entered into a collaboration agreement with Dyax to develop and commercialize DX-88, one of Dyax's proprietary compounds for the
treatment of chronic inflammatory diseases. In 2003, we acquired a 49.99% interest in Dyax-Genzyme LLC, formerly known as Kallikrein LLC, a joint venture with Dyax for the
development of DX-88 for HAE and other chronic inflammatory diseases. As a result of the adoption of FIN 46, we consolidated the results of Dyax-Genzyme LLC.

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

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

In
August 2007, we received cash payments totaling $7.8 million from Dyax to settle the secured promissory note receivable from Dyax.

Strategic Alliance with Isis

On January 7, 2008, we entered into a strategic alliance with Isis, whereby we obtained an exclusive license to develop and commercialize mipomersen, a
lipid-lowering drug targeting apolipoprotein B-100, for the treatment of FH, an inherited disorder that causes exceptionally high levels of LDL-cholesterol. In
February 2008, we paid Isis $150.0 million to purchase five million shares of Isis common stock for $30 per share. We are working with Isis to finalize the contracts under which we will
develop and commercialize mipomersen.

NOTE J.  EQUITY METHOD INVESTMENTS

Our equity method investments are included in other noncurrent assets in our consolidated balance sheets and totaled $45.8 million at December 31,
2007 and $34.4 million at December 31, 2006.

The
following tables describe:



F-103

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE J.  EQUITY METHOD INVESTMENTS (Continued)



|                       |        | Our Portion of the Net Income (Loss) of Our Equity Method Investments |       | Total Income (Loss) of Our Equity Method Investments |  
|---------------------- | ------ | --------------------------------------------------------------------- | ----- | ---------------------------------------------------- | -
|
|
|
|BioMarin/Genzyme LLC   |        | $                                                                     | 30.1  |                                                      | $
|Bioenvision, Inc.(1)   |        |                                                                       | (21.1 | )                                                    |  
|MG Biotherapeutics LLC |        |                                                                       | (0.9  | )                                                    |  
|Other                  |        |                                                                       | (0.7  | )                                                    |  
|                       |        |                                                                       |       |                                                      |  
|                       | Totals |                                                                       | $     | 7.4                                                  |  
|                       |        |                                                                       |       |                                                      |  

---

Condensed
financial information for our equity method investees, excluding Bioenvision, is summarized below in aggregate:

For the Years Ended December 31,2007

2006

2005(Amounts in thousands)Revenue

$
124,203

$
97,060

$
76,698Gross profit


97,092


72,642


52,185Operating expenses


(46,656
)

(53,931
)

(62,361
)Net income (loss)


50,866


19,865


(16,251
)


|
|

December 31,2007

2006(Amounts in thousands)Current assets

$
109,936

$
96,727Noncurrent assets


1,098


2,297Current liabilities


15,359


16,245Noncurrent liabilities


4,168


7,878


BioMarin/Genzyme LLC

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



Under
the restructured relationship, BioMarin/Genzyme LLC will license all intellectual property relating to Aldurazyme and other collaboration products on a royalty-free basis to BioMarin
and us.

F-104

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE J.  EQUITY METHOD INVESTMENTS (Continued)

BioMarin
will hold the manufacturing rights and we will hold the global marketing rights. We will pay BioMarin a tiered payment ranging from 39.5% to 50% of worldwide net product sales of Aldurazyme.

Our
portion of the net income of BioMarin/Genzyme LLC is included in equity in income of equity method investments in our consolidated statements of operations.

NOTE K.  ACCRUED EXPENSES

December 31,2007

2006(Amounts in thousands)Compensation

$
204,912

$
169,350Rebates


90,437


62,166Bank overdraft


19,262


25,172Other


331,034


220,754Total

$
645,645

$
477,442


NOTE L. LONG-TERM DEBT AND LEASES

Long-Term Debt, Capital Lease Obligations and Convertible Debt

Our long-term debt, capital lease obligations and convertible debt consist of the following (amounts in thousands):

December 31,2007

20061.25% convertible senior notes due December 2023

$
690,000

$
690,000Revolving credit facility maturing in December 2006





Revolving credit facility maturing in July 2011





Notes payable


7,952


8,958Capital lease obligations


112,421


117,071Long-term debt, capital lease obligations and convertible debt, including current portion


810,373


816,029Less current portion


(696,625
)

(6,226
)Noncurrent portion

$
113,748

$
809,803


Over
the next five years and thereafter, we will be required to repay the following principal amounts of our long-term debt (excluding capital leases)
(amounts in millions):

2008

2009

2010

2011

2012

After 2012$691.0

$
1.1

$
1.1

$
1.1

$
1.2

$
2.5


1.25% Convertible Senior Notes

On December 9, 2003, we completed the private placement of $690.0 million in principal of 1.25% convertible senior notes due December 1,
2023. After deducting offering costs of $17.0 million, net proceeds from the offering were approximately $673.0 million. We pay interest on these notes on June 1st
and December 1st each year.

F-105

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE L. LONG-TERM DEBT AND LEASES (Continued)

The notes are convertible into shares of Genzyme Stock at an initial conversion rate, subject to adjustment, of 14.0366 shares per $1,000 principal amount of
notes (representing an initial conversion price of approximately $71.24 per share) in the following circumstances:



Furthermore,
on each of December 1, 2008, December 1, 2013 and December 1, 2018, holders of the notes may require us to purchase all or a portion of their notes at a
purchase price equal to 100% of the principal amount of notes to be purchased, plus any accrued and unpaid interest to, but excluding, the purchase date. As a result, we have included the
$690.0 million in principal outstanding under the notes as a component of current portion of long-term debt and capital lease obligations in our consolidated balance sheets as of
December 31, 2007. We may pay the purchase price, solely at our option, in cash, shares of Genzyme Stock or a combination of cash and shares of Genzyme Stock, provided that we pay any accrued
and unpaid interest in cash. The shares of Genzyme Stock will be valued at 100% of the average closing sale price of Genzyme Stock for the 10 trading days immediately preceding, and including, the
third business day immediately preceding the purchase date.

Interest
expense related to these notes was $11.9 million in each of 2007, 2006 and 2005. These amounts include $3.2 million in each year for amortization of debt offering
costs. The fair value of these notes was $810.4 million at December 31, 2007 and $716.8 million at December 31, 2006.

Revolving Credit Facility

In December 2003, we entered into our 2003 revolving credit facility. On July 14, 2006, we terminated our 2003 revolving credit facility and replaced it
with our 2006 revolving credit facility. The proceeds of loans under our 2006 revolving credit facility can be used to finance working capital needs and for general corporate purposes. Our 2006
revolving credit facility may be increased at any time by up to an additional $350.0 million in the aggregate, as long as no default or event of default has occurred or is continuing and
certain other customary conditions are satisfied. Borrowings under our 2006 revolving credit facility will bear interest at various rates depending on the type of loan. We are required to pay a
facility fee of between 7 to 20 basis points based on the aggregate commitments

F-106

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE L. LONG-TERM DEBT AND LEASES (Continued)

under
our 2006 revolving credit facility, and in certain circumstances a utilization fee of 10 basis points as follows:



As
of December 31, 2007, no amounts were outstanding under our 2006 revolving credit facility. The terms of our 2006 revolving credit facility include various covenants, including
financial covenants that require us to meet minimum interest coverage ratios and maximum leverage ratios. As of December 31, 2007 we were in compliance with these covenants.

Notes Payable

We assumed a $10.0 million note payable in July 2005 in connection with our acquisition of Equal Diagnostics. This note bears interest at 3.86% and is
payable to three former shareholders of Equal Diagnostics over eight years in equal annual installments of $1.3 million.

Capital Leases

We have non-cancelable capital lease obligations related to certain machinery and equipment, administrative offices and our corporate headquarters.

Our
capital lease obligation related to our corporate headquarters in Cambridge, Massachusetts requires us to make monthly payments of $1.3 million, which will be adjusted to
$1.6 million in August 2013. We have recorded the value of the building and related obligations of $131.0 million in our consolidated balance sheets. The term of the lease is fifteen
years and may be extended at our option for two successive ten-year periods.

Over
the next five years and thereafter, we will be required to pay the following amounts under our non-cancelable capital leases (amounts in millions):

2008

$
15.52009


15.52010


15.42011


15.42012


15.5Thereafter


103.1Total lease payments


180.4Less: interest


(68.0
)Total principal payments


112.4Less current portion


(5.4
)Total

$
107.0


F-107

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE L. LONG-TERM DEBT AND LEASES (Continued)

Operating Leases

We lease facilities and personal property under non-cancelable operating leases with terms in excess of one year. Our total expense under operating
leases was (amounts in millions):

For the Years Ended December 31,2007

2006

2005$74.3

$
60.9

$
49.5


Over
the next five years and thereafter, we will be required to pay the following amounts under non-cancelable operating leases (amounts in millions):

2008

2009

2010

2011

2012

After 2012

Total$57.6

$
45.9

$
34.9

$
27.6

$
22.9

$
113.4

$
302.3


NOTE M. STOCKHOLDERS' EQUITY

Preferred Stock

|                                               |  | At December 31, 2007 |  | At December 31, 2006
|---------------------------------------------- |  | -------------------- |  | --------------------
|
|Series A Junior Participating, $0.01 par value |  | 3,000,000            |  |                    
|Undesignated                                   |  | 7,000,000            |  |                    
|                                               |  |                      |  |                     
|                                               |  | 10,000,000           |  |                    
|                                               |  |                      |  |                     

Our
charter permits us to issue shares of preferred stock at any time in one or more series. Our board of directors will establish the preferences, voting powers, qualifications, and
special or relative rights or privileges of any series of preferred stock before it is issued.

Common Stock

The following table describes the number of authorized and outstanding shares of our common stock at December 31, 2007 and 2006:

|                               |  |             |  | Outstanding at December 31,
|------------------------------ |  | ----------- |  | ---------------------------
|
|
|Genzyme Stock, $0.01 par value |  | 690,000,000 |  | 266,008,500                
|                               |  |             |  |                            

Stock Rights

Under our shareholder rights plan, each outstanding share of Genzyme Stock also represents one preferred stock purchase right. When the stock purchase rights
become exercisable, the holders of Genzyme Stock will be entitled to purchase one two-hundredth of a newly issued share of Series A Preferred Stock, $0.01 par value per share, for
$150.00.

F-108

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE M. STOCKHOLDERS' EQUITY (Continued)

Each
share of Series A Preferred Stock will be entitled to a minimum preferential quarterly dividend payment of $1 per share, but will be entitled to an aggregate dividend of 100
times the cash dividend declared per share of Genzyme Stock. Each share of Series A Preferred Stock will have 100 votes and will vote together with Genzyme Stock. In the event of any merger,
consolidation or other transaction in which Genzyme Stock is exchanged, each share of Series A Preferred Stock will be entitled to receive 100 times the amount received per share of Genzyme
Stock.

A
stock purchase right becomes exercisable either:



In
either case, the board of directors can extend the ten-day delay. These stock purchase rights expire in March 2009.

Directors' Deferred Compensation Plan

Each member of our board of directors who is not also one of our employees may defer receipt of all or a portion of the cash compensation payable to him or her as
a director and receive either cash or stock in the future. Under this plan, the director may defer his or her compensation until his or her services as a director cease or until another date specified
by the director.

Under
a deferral agreement, a participant indicates the percentage of deferred compensation to allocate to cash and stock, upon which a cash deferral account and a stock deferral account
are established. The cash account bears interest at the rate paid on 90-day Treasury bills with interest accruing quarterly. The stock account is for amounts invested in hypothetical
shares of Genzyme Stock. These amounts are converted into hypothetical shares quarterly at the average closing price of Genzyme Stock for all trading days during the quarter.

Distributions
are paid in a lump sum or in annual installments for up to five years. Payments begin the year following a director's termination of service or, subject to certain
restrictions, in a year elected by the participant. As of December 31, 2007, four of the seven eligible directors had established accounts under this plan, and three of these four directors are
currently deferring their compensation. We have reserved 105,962 shares of Genzyme Stock to cover distributions credited to stock accounts under the plan. We had not made any stock distributions under
this plan as of December 31, 2007. As of December 31, 2007, we have made cash distributions totaling $69,492 to one director under the terms of his deferral agreement.

Stock-Based Compensation

Equity Plans

The purpose of each of our equity plans is to attract, retain and motivate our key employees, consultants and directors. Awards granted under these plans can be
either incentive stock options (ISO), nonstatutory stock options (NSO), or RSU's, as specified in the individual plans. Shares issued as a result of stock option exercises are funded through the
issuance of new shares. In May 2007,

F-109

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE M. STOCKHOLDERS' EQUITY (Continued)

shareholders
approved a new 2007 Director Equity Plan, which allows for the granting of stock options, and RSUs. In May 2006, shareholders approved amendments to the 2004 Equity Incentive Plan that
allow for the granting of restricted stock and RSUs in addition to stock options. The following table contains information about our equity plans:

|                              |  |                                   |  |             |  | As of December 31, 2007
|----------------------------- |  | --------------------------------- |  | ----------- |  | -----------------------
|
|2004 Equity Incentive Plan(1) |  | All key employees and consultants |  | ISO/NSO/RSU |  | 35,068,397             
|2001 Equity Incentive Plan(1) |  | All key employees and consultants |  | ISO/NSO     |  | 8,956,311              
|2007 Director Equity Plan(2)  |  | Non-employee board members        |  | NSO         |  | 901,291                
|Assumed Options(3)            |  |                                   |  |             |  | 192,634                
|                              |  |                                   |  |             |  |                        
|                              |  |                                   |  |             |  | 45,118,633             
|                              |  |                                   |  |             |  |                        

---

In
2007 and 2006, we accounted for options granted to our employees and directors under the fair value method of accounting using the Black-Scholes valuation model to measure stock
option expense at the date of grant. All stock option grants have an exercise price equal to the fair market value of Genzyme Stock on the date of grant and generally have a 10-year term
and vest in increments, generally over four years from the date of grant, although we may grant options with different vesting terms from time to time. Upon termination of employment other than by
death, disability or change of control, unvested options are cancelled, and any unexercised vested options will expire three months after the employee's termination date. Excluding our directors who
are not employees, when an employee meets a retirement eligibility age of 60 with at least five years of service, upon termination (except for cause) the employee's options automatically become fully
vested and will expire three years after the employee's termination date or on the original expiration date set at the time the options were granted, whichever is earlier. When a director leaves the
board, unvested options are cancelled and any unexercised vested options will expire at the end of their term. We recognize stock-based compensation expense for each grant on a
straight-line basis over the employee's or director's requisite service period, generally the vesting period of the award. Additionally, stock-based compensation expense related to stock
options includes an estimate for pre-vesting forfeitures. Effective January 1, 2006, in connection with our adoption of FAS 123R, we recognize stock-based compensation
expense immediately for awards granted to retirement eligible employees or over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the
nominal vesting

F-110

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE M. STOCKHOLDERS' EQUITY (Continued)

period.
For stock-based compensation expense recognition purposes only, grants to retirement eligible employees prior to January 1, 2006 are not subject to accelerated vesting and expense is
recognized over the nominal vesting period.

We
award time-vested RSUs to employees that generally vest no sooner than one-third per year over three years on the anniversary of the date of grant, or upon the
third anniversary of the date of grant, provided the employee remains continuously employed with us. Shares of Genzyme Stock will be delivered to the employee upon vesting, subject to payment of
applicable withholding taxes. Time-vested RSUs awarded to our directors for service on our board of directors vest on the first anniversary of the date of grant, provided that the director
continues to serve on our board of directors through the vesting date. Shares of Genzyme Stock will be delivered to the director upon vesting. The fair value of all time-vested RSUs is
based on the market value of Genzyme Stock on the date of grant. We recognize compensation expense for our RSUs, including the effect of forfeitures, over the applicable service period.

ESPP

Our 1999 ESPP allows employees to purchase our stock at a discount. Under this plan, the purchase price per share of Genzyme Stock is 85% of the lower of the fair
market value of Genzyme Stock at the beginning of an enrollment period or on the purchase date. Employees working at least 20 hours per week may elect to participate in our ESPP during
specified open enrollment periods, which occur twice each year shortly before the start of each new enrollment period. New enrollment periods begin
on the first trading day of January and July and each enrollment period lasts two years. Employee contributions for each enrollment period are automatically used to purchase stock on behalf of each
participating employee on eight pre-determined purchase dates during the two-year enrollment period, which occur once every three months, in January, April, July and October.
We place limitations on the total number of shares of stock that employees can purchase under the plan in a given year. As of December 31, 2007, 7,329,391 shares of Genzyme Stock were
authorized for purchase under the ESPP, of which 1,445,791 remain available.

F-111

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE M. STOCKHOLDERS' EQUITY (Continued)

Adoption of FAS 123R

As a result of adopting FAS 123R, for the years ended December 31, 2007 and 2006, we recorded pre-tax stock-based compensation expense,
net of estimated forfeitures, which were allocated based on the functional cost center of each employee as follows (amounts in thousands, except per share amounts):

2007

2006Pre-tax stock-based compensation expense, net of estimated forfeitures(1):Cost of products and services sold

$
(25,677
)
$
(21,430
)Selling, general and administrative


(106,172
)

(121,822
)Research and development


(58,101
)

(65,248
)Total


(189,950
)

(208,500
)Less: tax benefit of stock options


58,148


66,331Stock-based compensation expense, net of tax

$
(131,802
)
$
(142,169
)Per basic and diluted share

$
(0.50
)
$
(0.54
)




At
December 31, 2007, there was $255.0 million of pre-tax stock-based compensation expense, net of estimated forfeitures, related to unvested
awards not yet recognized which is expected to be recognized over a weighted average period of 2.1 years.

Pro Forma Information for the Period Prior to Adoption of FAS 123R

Prior to the adoption of FAS 123R, we accounted for stock options granted to employees in accordance with APB 25 and provided the disclosures
required under FAS 123 only in the notes to our financial statements. As a result, no stock-based compensation expense related to our ESPP or stock options was reflected in our net income for
the year ended December 31, 2005 since all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

F-112

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE M. STOCKHOLDERS' EQUITY (Continued)

The
following table sets forth our historical disclosure of pro forma net income and net income per share data for the year ended December 31, 2005, as if compensation expense for
our stock-based compensation plans was determined in accordance with FAS 123 based on the individual grant date fair value of the awards (amounts in thousands, except per share amounts):

For the Year Ended
December 31, 2005Net income(1):As reported

$
441,489Add: employee stock-based compensation included in as reported, net of tax


280Deduct: pro forma employee stock-based compensation expense, net of tax


(112,808
)Pro forma net income

$
328,961Net income per share:Basic:As reported

$
1.73Pro forma

$
1.29Diluted:As reported

$
1.65Pro forma

$
1.24




Valuation Assumptions for Stock Option Plans and ESPP

The employee stock-based compensation expense recognized under FAS 123R and presented in the pro forma disclosure required under FAS 123 was
determined using the Black-Scholes option valuation model. Option valuation models require the input of subjective assumptions and these assumptions can vary over time. The weighted average
assumptions used are as follows:

For the Years Ended December 31,2007

2006

2005Risk-free interest rate

4
%
5
%
4
%Dividend yield

0
%
0
%
0
%Expected option life (in years)directors

7

7

5Expected option life (in years)officers

6

6

5Expected option life (in years)all other employees

4

4

5Volatility-stock options

28
%
39
%
46
%Volatility-ESPP

23
%
27
%
28
%


F-113

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE M. STOCKHOLDERS' EQUITY (Continued)

The
risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant. The dividend yield percentage is zero because we do not
currently pay dividends nor intend to do so during the expected option life. We used historical data from exercises of our stock options and other factors to estimate the expected option life (in
years), or term, of the share-based payments granted. We determined the volatility rate for our stock options based on the expected term of the equity award granted. We determine separate volatility
rates for each enrollment under our ESPP based on the period from the commencement date of each enrollment to each applicable purchase date. Stock option expense in future periods will be based upon
the Black-Scholes values determined at the date of each grant or the date of each purchase under our ESPP.

Stock Option Plan Activity

The following table contains information regarding our stock option activity for the years ended December 31, 2006 and 2007:

|                                                 |  | Shares Under Option |   | Weighted Average Exercise Price |       | Weighted Average Remaining Contractual Term (in years) |      | Aggregate Intrinsic Value
|------------------------------------------------ |  | ------------------- | - | ------------------------------- | ----- | ------------------------------------------------------ | ---- | -------------------------
|Outstanding at December 31, 2005                 |  | 32,345,317          |   | $                               | 47.71 |                                                        |      |                          
|Granted                                          |  | 7,821,546           |   |                                 | 59.16 |                                                        |      |                          
|Exercised                                        |  | (2,976,739          | ) |                                 | 39.57 |                                                        |      |                          
|Forfeited and cancelled                          |  | (866,861            | ) |                                 | 63.32 |                                                        |      |                          
|                                                 |  |                     |   |                                 |       |                                                        |      |                          
|Outstanding at December 31, 2006                 |  | 36,323,263          |   |                                 | 50.48 |                                                        |      |                          
|Granted                                          |  | 4,846,138           |   |                                 | 62.48 |                                                        |      |                          
|Exercised                                        |  | (5,615,041          | ) |                                 | 43.22 |                                                        |      |                          
|Forfeited and cancelled                          |  | (783,388            | ) |                                 | 68.20 |                                                        |      |                          
|                                                 |  |                     |   |                                 |       |                                                        |      |                          
|Outstanding at December 31, 2007                 |  | 34,770,972          |   | $                               | 52.94 |                                                        | 6.41 |                          
|                                                 |  |                     |   |                                 |       |                                                        |      |                          
|Vested and expected to vest at December 31, 2007 |  | 34,191,622          |   | $                               | 52.82 |                                                        | 6.38 |                          
|                                                 |  |                     |   |                                 |       |                                                        |      |                          
|Exercisable at December 31, 2007                 |  | 22,740,931          |   | $                               | 49.31 |                                                        | 5.42 |                          
|                                                 |  |                     |   |                                 |       |                                                        |      |                          

The
following table contains information regarding the pre-tax intrinsic value of our stock options, the estimated fair value of shares vested and the
weighted average grant date fair value
per share of stock granted under our stock option plans for the periods presented (amounts in thousands, except per share amounts):

|                                                                                               |  | For the Years Ended December 31,
|---------------------------------------------------------------------------------------------- |  | --------------------------------
|
|Pre-tax intrinsic value of options exercised                                                   |  | $                               
|Weighted average grant date fair value per share of stock granted under our stock option plans |  | $                               

F-114

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE M. STOCKHOLDERS' EQUITY (Continued)

For
the year ended December 31, 2007, we:



Time-Vested RSU Activity

We granted RSUs for the first time in connection with our 2007 general grant to employees. The following table contains information regarding our
time-vested RSUs for the year ended December 31, 2007 (shares are in thousands):

|                                                 |  | Shares Under
Award |   | Weighted
Average
Grant Date
Fair Value |       | Weighted
Average
Remaining
Contractual
Term (in
years) |      | Aggregate
Intrinsic Value
|------------------------------------------------ |  | ------------------ | - | -------------------------------------- | ----- | ------------------------------------------------------ | ---- | -------------------------
|Outstanding at December 31, 2006                 |  |                   |   |                                        |       |                                                        |      |                          
|Granted                                          |  | 1,348,003          |   | $                                      | 62.16 |                                                        |      |                          
|Released and issued                              |  |                   |   |                                        |      |                                                        |      |                          
|Forfeited and cancelled                          |  | (36,146            | ) | $                                      | 62.16 |                                                        |      |                          
|                                                 |  |                    |   |                                        |       |                                                        |      |                          
|Outstanding at December 31, 2007                 |  | 1,311,857          |   | $                                      | 62.16 |                                                        | 2.39 |                          
|                                                 |  |                    |   |                                        |       |                                                        |      |                          
|Vested and expected to vest at December 31, 2007 |  | 1,238,805          |   | $                                      | 62.16 |                                                        | 2.39 |                          
|                                                 |  |                    |   |                                        |       |                                                        |      |                          
|Issued at December 31, 2007                      |  |                   |   |                                        |       |                                                        |      |                          
|                                                 |  |                    |   |                                        |       |                                                        |      |                          

ESPP Activity

The following table contains information regarding our ESPP activity for the years ended December 31, 2006 and 2007:

Shares available and issued:Available for purchase as of December 31, 2005

1,712,481Shares purchased by employees

(898,756
)Available for purchase as of December 31, 2006

813,725Additional shares authorized

1,500,000Shares purchased by employees

(867,934
)Available for purchase as of December 31, 2007

1,445,791


Notes Receivable from Stockholders

In connection with our acquisition of Biomatrix, we assumed notes receivable from certain former employees, directors and consultants of Biomatrix. The notes are
full-recourse promissory notes that accrue interest at rates ranging from 5.30% to 7.18% and mature at various dates from May 2007

F-115

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE M. STOCKHOLDERS' EQUITY (Continued)

through
September 2009, at which point the outstanding principal and accrued interest for each note will become payable. As of December 31, 2007, there is a total of $15.7 million
outstanding for these notes, including $10.2 million of principal and $5.5 million of accrued interest, which we recorded in stockholders' equity because the notes were originally
received in exchange for the issuance of stock. The amount due in 2007 of $0.4 million and the amount that became due in January 2008 of $1.1 million, both of which include interest,
were not repaid, however, we are pursuing collection of these notes and the notes will continue to accrue interest until the outstanding principal and accrued interest are repaid. In the first half of
2008, an additional $8.3 million in principal will become due and payable with interest.

NOTE N. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

Through
June 30, 2003, we had three outstanding series of common stock, which we referred to as tracking stocks; Genzyme General Stock (which we now refer to as Genzyme Stock),
Biosurgery Stock and Molecular Oncology Stock. In 2003, four lawsuits were filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock for shares of Genzyme Stock in
connection with the
elimination of our tracking stocks in July 2003. Each of the lawsuits was a purported class action on behalf of holders of Biosurgery Stock. Three cases were filed in Massachusetts state court,
and one case was filed in the United States District Court for the Southern District of New York, which we refer to as the U.S. District Court. On June 4, 2007, the Massachusetts Supreme
Judicial Court reversed an order of the Massachusetts Appeals Court and affirmed dismissal of the first of the state court actions. The remaining two state court actions remained stayed while the
action filed in the U.S. District Court progressed. In that action, the U.S. District Court had denied our motion to dismiss the successive amended complaints and granted plaintiffs' motion to certify
a class. On August 6, 2007, we reached an agreement in principle with counsel for the plaintiff class to settle and dismiss that case for $64.0 million. The U.S. District Court entered
an order approving the settlement on December 30, 2007. Because the members of the class in the New York action released all claims, the settlement and its approval, as a practical matter,
resolved the two remaining actions in Massachusetts state court. Those two cases have been dismissed. As a result, we recorded a liability for the settlement payment of $64.0 million as a
charge to SG&A in our consolidated statement of operations in June 2007, which we subsequently paid in August 2007. We have submitted claims to our insurers for reimbursement of portions
of the expenses incurred in connection with these cases; the insurer has purported to deny coverage and therefore, we have not recorded a receivable for any potential recovery from our insurer. We
intend to vigorously pursue our rights with respect to insurance coverage and to the extent we are successful, we will record the recovery in our consolidated statements of operations.

We
periodically become subject to legal proceedings and claims arising in connection with our business. We believe we have meritorious arguments in our current litigation matters and our
view as of this report is that any outcome, either individually or in the aggregate, is not expected to be material to our financial position or results of operations.

F-116

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE O. INCOME TAXES

Our income (loss) before income taxes and the related income tax provision (benefit) are as follows:

For the Years Ended December 31,2007

2006

2005(Amounts in thousands)Income (loss) before income taxes:Domestic

$
753,987

$
4,158

$
558,434Foreign


(18,313
)

(56,836
)

70,485Total

$
735,674

$
(52,678
)
$
628,919Currently payable:Federal

$
313,136

$
119,037

$
105,542State


19,498


27,194


33,804Foreign


28,986


97,684


32,784Total


361,620


243,915


172,130Deferred:Federal


(75,931
)

(219,383
)

32,591State


(10,311
)

(29,048
)

(19,282
)Foreign


(19,897
)

(31,365
)

1,991Total


(106,139
)

(279,796
)

15,300Provision for (benefit from) income taxes

$
255,481

$
(35,881
)
$
187,430


Our
provisions for income taxes were at rates other than the U.S. federal statutory tax rate for the following reasons:

For the Years Ended December 31,2007

2006

2005Tax provision at U.S. statutory rate

35.0
%
(35.0
)%
35.0
%State taxes, net

0.7

(1.7
)
1.6Export sales benefits



(37.2
)
(2.8
)Domestic manufacturing deduction

(0.5
)
(15.5
)
(1.2
)Goodwill impairment



19.6

Legal settlements

3.0



Audit settlements

0.5

(62.9
)
Stock compensation

1.3

15.8

Tax credits

(3.5
)
(30.5
)
(4.1
)Foreign rate differential

(2.1
)
76.0

0.1Other

0.3

3.3

1.2Effective tax rate

34.7
%
(68.1
)%
29.8
%


F-117

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE O. INCOME TAXES (Continued)

Our
effective tax rate for 2007 was impacted by:



Our
effective tax rates for 2006 and 2005 were impacted by:



In
addition, our overall tax rate has changed significantly due to fluctuations in our income (loss) before taxes, which was $735.7 million in 2007, $(52.7) million in 2006, and
$628.9 million in 2005.

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

As
of December 31, 2007, we had approximately $41.8 million of total gross unrecognized tax benefits, of which approximately $32.0 million represents the amount of
unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate in future periods. Management has concluded that it is not reasonably possible that the total
amounts of unrecognized tax benefits will

F-118

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE O. INCOME TAXES (Continued)

significantly
increase or decrease within 12 months of the reporting date. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (amounts in thousands):

Balance as of January 1, 2007

$
36,515Additions to tax provisions related to the current year


9,634Additions to tax provisions related to prior years


829Reduction for tax provisions of prior years


(5,155
)Balance as of December 31, 2007

$
41,823


We
continue to recognize interest and penalties related to unrecognized tax benefits, which are not significant, within our provision for income taxes.

The
components of net deferred tax assets (liabilities) are described in the following table:

December 31,2007

2006(Amounts in thousands)Deferred tax assets:Net operating loss carryforwards

$
29,716

$
22,772Tax credits


15,071


14,770Inventory


66,868


76,004Depreciable assets


2,834


10,154Stock compensation


103,709


65,459Reserves, accruals and other


111,083


43,759Total deferred tax assets


329,281


232,918Deferred tax liabilities:Realized and unrealized capital gains


(6,292
)

(914
)Intangible assets


(62,984
)

(105,988
)Net deferred tax assets

$
260,005

$
126,016


Our
ability to realize the benefit of the net deferred tax assets is dependent on our generating sufficient taxable income. While it is not assured, we believe that it is more likely
than not that we will be able to realize all of our net deferred tax assets. The amount we can realize, however, could be reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.

At
December 31, 2007, we had for U.S. income tax purposes, net operating loss carryforwards of $6.2 million and tax credit carryforwards of $3.1 million. The net operating
loss carryforwards expire between 2009 and 2014 and the tax credits begin expiring after 2015. Ownership changes, as defined under Internal Revenue Code, may have limited the amount of net operating
loss carryforwards which may be utilized annually to offset future taxable income. We had foreign net operating loss carryforwards of $90.3 million as of December 31, 2007, which begin
expiring after 2013.

We
are currently under IRS audit for tax years 2004 to 2005. 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

F-119

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE O. INCOME TAXES (Continued)

provisions.
Any such benefit would be recorded upon final resolution of the audit or expiration of the applicable statute of limitations.

NOTE P. BENEFIT PLANS

Defined Contribution Plans

We have four defined contribution plans:



The
401(k) Plan was established effective January 1, 1988 to provide a long-range program of systematic savings for eligible employees. Employees of Genzyme
Corporation as well as our wholly-owned subsidiaries in the United States are eligible to participate in the 401(k) Plan. For 2007, eligible employees could elect, through salary reduction agreements,
to have up to 18% or a maximum of $15,500 of their eligible compensation contributed on a pre-tax basis to the 401(k) Plan. We made bi-weekly matching contributions to the
401(k) Plan equal to:



SG&A
includes the following charges related to the 401(k) Plan, representing our matching contributions incurred in each year:



Effective
December 31, 2000, the GSP Plan and the Biomatrix Plan were frozen and the participants in these plans became eligible to participate in the 401(k) Plan.

In
September 2003, in connection with the acquisition of SangStat, we terminated the SangStat Plan. In November 2004, we received approval for the termination from the IRS, at which time
all participants in the SangStat Plan became fully vested in their account balances and had the option of receiving a distribution, less applicable taxes and penalties, or transferring their balance
to another qualified fund. As of December 31, 2007, the SangStat Plan had not been fully liquidated.

F-120

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE P. BENEFIT PLANS (Continued)

Defined Benefit Plans

We have defined benefit pension plans for certain employees in countries outside the U.S. and a defined benefit post-retirement plan for one of our
U.S. subsidiaries, which has been frozen since 1995 and is not significant. These plans are funded in accordance with requirements of the appropriate regulatory bodies governing each plan.

The
following table sets forth the funded status and the amounts recognized for our defined benefit pension plans outside the U.S. (amounts in thousands):

December 31,2007

2006Change in benefit obligation:Projected benefit obligation, beginning of year

$
95,385

$
64,785Service cost


6,436


4,751Interest cost


5,064


3,487Plan participants' contributions


1,798


1,417Actuarial (gain) loss


(11,713
)

12,037Foreign currency exchange rate changes


2,395


10,265Benefits paid


(1,757
)

(1,357
)Projected benefit obligation, end of year

$
97,608

$
95,385Change in plan assets:Fair value of plan assets, beginning of year

$
63,603

$
46,752Return on plan assets


3,421


6,269Employer contribution


3,920


3,302Plan participants' contributions


1,798


1,416Foreign currency exchange rate changes


1,082


7,097Benefits paid


(1,437
)

(1,233
)Fair value of plan assets, end of year

$
72,387

$
63,603Funded status at end of year

$
(25,221
)
$
(31,782
)


Amounts
recognized in our consolidated balance sheets consist of (amounts in thousands):

December 31,2007

2006Noncurrent assets

$


$
Accrued expenses


(1,343
)

(1,297
)Other noncurrent liabilities


(23,878
)

(30,485
)Net amount recognized

$
(25,221
)
$
(31,782
)


F-121

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE P. BENEFIT PLANS (Continued)

The
incremental effect of applying FAS 158 on individual line items in our consolidated balance sheets as of December 31, 2006, was as follows (amounts in thousands):

December 31, 2006Before
Application
of FAS 158

FAS 158
Adjustments

After
Application
of FAS 158Accrued expenses

$
476,145

$
1,297

$
477,442Deferred tax liabilities


14,730


(3,821
)

10,909Other noncurrent liabilities


40,332


11,319


51,651Total liabilities


1,521,682


8,795


1,530,477Accumulated other comprehensive income


263,000


(8,795
)

254,205Total stockholders' equity


5,669,506


(8,795
)

5,660,711Total liabilities and stockholders' equity

$
7,191,188




$
7,191,188


Amounts
recognized in other comprehensive income (loss) consist of (amounts in thousands):

December 31,2007

2006Additional minimum pension liability, net of tax

$
1,056

$
(8,564
)


The
amounts recognized in accumulated other comprehensive income (loss) for net actuarial gains and losses, prior service costs and transition obligations were not significant for the
years ended December 31, 2007, 2006 or 2005. The estimated amounts that will be amortized from accumulated other comprehensive income (loss) at December 31, 2007 into net pre-tax
periodic pension costs in 2008 is also not significant.

We
recognized the underfunded status of our defined benefit pension plans in our consolidated balance sheets as of December 31, 2006, including $12.6 million of additional
minimum pension liabilities and $3.8 million of related deferred tax assets offset by an $8.8 million charge, net of tax, to accumulated other comprehensive income in stockholders'
equity.

The
weighted average assumptions used in determining related obligations of pension benefit plans are shown below:

December 31,2007

2006Weighted average assumptions:Discount rate

5.79
%
5.07
%Rate of compensation increase

4.81
%
4.42
%


For
the year ended December 31, 2007, the discount rate used to determine the benefit obligations for our plans was based on highly rated long-term bond indices and
yield curves that match the duration of each plan's benefit obligations. The bond indices and yield curve analyses include only bonds rated Aa or higher from reputable rating agencies. The discount
rate represents the average of the discount rates for each plan weighted by plan liabilities as of December 31, 2007. The discount rate reflects the rate at which the pension benefits could be
effectively settled.

F-122

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE P. BENEFIT PLANS (Continued)

The weighted average assumptions used to determine the net pension expense are shown below:

December 31,2007

2006

2005Weighted average assumptions:Discount rate

5.12
%
4.73
%
5.23
%Rate of return on assets

7.67
%
7.47
%
7.32
%Rate of compensation increase

4.44
%
3.93
%
3.92
%


The
components of net pension expense are as follows (amounts in thousands):

December 31,2007

2006

2005Service cost

$
6,436

$
4,751

$
2,983Interest cost


5,063


3,488


2,761Expected return on plan assets


(3,411
)

(6,269
)

(8,149
)Amortization and deferral of actuarial loss


(456
)

3,334


5,793Net pension expense

$
7,632

$
5,304

$
3,388


The
projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan
assets are as follows (amounts in thousands):

December 31,2007

2006Projected benefit obligation

$
97,608

$
95,385Accumulated benefit obligation


86,635


82,762Fair value of plan assets


72,387


63,603


At
December 31, 2007 and 2006, plan assets for our foreign defined pension benefit plans consist primarily of the assets of our U.K. Pension Plan. Defined pension
benefit plan assets for our other foreign subsidiaries as of December 31, 2007 and 2006 were not significant.

The
investment objective of our U.K. Pension Plan is to maximize the overall return from investment income and capital appreciation without resorting to a high risk investment strategy.
The plan has no employer-related investments. Our U.K. Pension Plan retains professional investment managers that invest plan assets primarily in equity securities, bonds, property, and cash and other
investments, which is consistent with the plan's liability profile. The weighted average asset allocations for our U.K. Pension Plan are as follows:

December 31,2007

2006U.K. equity securities

57
%
55
%Other overseas equity securities

26

27Bonds

9

8Real estate

4

6Other

4

4Total

100
%
100
%


F-123

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE P. BENEFIT PLANS (Continued)

The
assumption made for the expected return on assets is based on the benchmark allocation strategy for our U.K. Pension Plan. Returns for individual asset categories are
derived from market yields at the effective date, together with, in the case of equity-type assets, allowance for the additional future return expected from such assets compared to fixed
interest investments.

Contributions

We expect to contribute approximately $4 million to our U.K. Pension Plan in 2008.

Estimated Future Benefit Payments

We expect to pay the following benefit payments for our defined pension benefit plans outside the United States, which reflect expected future service, as
appropriate (amounts in thousands):

Estimated
Future
Benefit
Payments2008

$
1,3332009


1,5852010


1,5252011


1,6592012


2,0002013-2017


16,745Total

$
24,847


NOTE Q. SEGMENT INFORMATION

In accordance with FAS 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent
with the method we use to report this information to our management. Applying FAS 131, we have six reporting segments as described in
Note A., under the heading "Summary of Significant Accounting PoliciesBusiness," to these financial statements. As described in Note A., above, as a result of the
acquisition of Bioenvision in 2007, our Oncology business unit, which was formerly reported combined with "Other," now meets the criteria for disclosure as a separate reporting segment. This change in
presentation has been retrospectively applied for all periods presented. We have revised our 2006 and 2005 segment presentations to conform to our 2007 presentation.

F-124

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE Q. SEGMENT INFORMATION (Continued)

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

|                                                      |                 | For the Years Ended December 31, |  
|----------------------------------------------------- | --------------- | -------------------------------- | -
|
|Revenues:                                             |                 |                                  |  
|                                                      | Renal(1)        |                                  | $
|                                                      | Therapeutics    |                                  |  
|                                                      | Transplant(1)   |                                  |  
|                                                      | Biosurgery      |                                  |  
|                                                      | Genetics        |                                  |  
|                                                      | Oncology(1)     |                                  |  
|                                                      | Other           |                                  |  
|                                                      | Corporate(1)    |                                  |  
|                                                      |                 |                                  |  
|                                                      |                 | Total                            |  
|                                                      |                 |                                  |  
|Depreciation and amortization expense:                |                 |                                  |  
|                                                      | Renal(1)        |                                  | $
|                                                      | Therapeutics    |                                  |  
|                                                      | Transplant(1)   |                                  |  
|                                                      | Biosurgery      |                                  |  
|                                                      | Genetics        |                                  |  
|                                                      | Oncology(1)     |                                  |  
|                                                      | Other           |                                  |  
|                                                      | Corporate(1)    |                                  |  
|                                                      |                 |                                  |  
|                                                      |                 | Total                            |  
|                                                      |                 |                                  |  
|Equity in income (loss) of equity method investments: |                 |                                  |  
|                                                      | Renal           |                                  | $
|                                                      | Therapeutics    |                                  |  
|                                                      | Transplant      |                                  |  
|                                                      | Biosurgery      |                                  |  
|                                                      | Genetics        |                                  |  
|                                                      | Oncology        |                                  |  
|                                                      | Other           |                                  |  
|                                                      | Corporate       |                                  |  
|                                                      |                 |                                  |  
|                                                      |                 | Total                            |  
|                                                      |                 |                                  |  
|Income (loss) before income taxes:                    |                 |                                  |  
|                                                      | Renal(1)        |                                  | $
|                                                      | Therapeutics(2) |                                  |  
|                                                      | Transplant(1)   |                                  |  
|                                                      | Biosurgery      |                                  |  
|                                                      | Genetics(3)     |                                  |  
|                                                      | Oncology(1)     |                                  |  
|                                                      | Other           |                                  |  
|                                                      | Corporate(1,4)  |                                  |  
|                                                      |                 |                                  |  
|                                                      |                 | Total                            |  
|                                                      |                 |                                  |  

---

F-125

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE Q. SEGMENT INFORMATION (Continued)



|Acquisition |  | Date Acquired    |  | Business Segment(s) |  | IPR&D Charge  
|----------- |  | ---------------- |  | ------------------- |  | --------------
|Bioenvision |  | October 23, 2007 |  | Oncology            |  | $125.5 million
|AnorMED     |  | November 7, 2006 |  | Transplant          |  | $552.9 million
|Bone Care   |  | July 1, 2005     |  | Renal/Corporate     |  | $12.7 million 



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

|                   |               | December 31,
|------------------ | ------------- | ------------
|
|Segment Assets(1): |               |             
|                   | Renal         |             
|                   | Therapeutics  |             
|                   | Transplant(2) |             
|                   | Biosurgery    |             
|                   | Genetics(3)   |             
|                   | Oncology(4)   |             
|                   | Other(5)      |             
|                   | Corporate(6)  |             
|                   |               |             
|                   |               | Total       
|                   |               |             

---

F-126

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE Q.  SEGMENT INFORMATION (Continued)

Amount

Business SegmentCash and cash equivalents

$
20.2

CorporateOther tangible assets


35.6

TransplantGoodwill and other intangible assets


35.8

TransplantTotal

$
91.6


Amount

Business
SegmentCash and cash equivalents

$
45.2

CorporateGoodwill and other intangible assets


257.7

OncologyOther tangible assets


13.0

OncologyTotal

$
315.9


Amount

Business
SegmentGoodwill and other intangible assets

$
44.9

OtherOther tangible assets


10.0

OtherTotal

$
54.9


F-127

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE Q.  SEGMENT INFORMATION (Continued)

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

December 31,2007

2006

2005Cash, cash equivalents, short- and long-term investments in debt securities

$
1,460,394

$
1,285,604

$
1,089,102Deferred tax assets, net


260,005


136,925


170,443Property, plant & equipment, net


1,240,992


1,036,182


826,221Investments in equity securities


89,181


66,563


135,930Other


342,918


318,439


311,024Total

$
3,393,490

$
2,843,713

$
2,532,720


Geographic Segments

We operate in the healthcare industry and we manufacture and market our products primarily in the United States and Europe. Our principal manufacturing facilities
are located in the United States,
United Kingdom, Switzerland, Republic of Ireland, France, Belgium and Germany. The following tables contain certain financial information by geographic area (amounts in thousands):

For the Years Ended December 31,2007

2006

2005Revenues:United States

$
1,996,764

$
1,728,497

$
1,517,000Europe


1,238,360


990,745


858,913Other


578,395


467,771


358,929Total

$
3,813,519

$
3,187,013

$
2,734,842


|
|

December 31,2007

2006

2005Long-lived assets:United States

$
1,067,918

$
928,547

$
915,107Europe


1,044,901


801,767


611,657Other


11,644


7,014


5,444Total

$
2,124,463

$
1,737,328

$
1,532,208


Our
results of operations are highly dependent on sales of Cerezyme. Sales of this product represented 30% of our total revenue in 2007, 32% of our total revenue in 2006 and 34% of our
total revenue in 2005. We manufacture Cerezyme at our facility in Allston, Massachusetts and perform certain fill-finish activities at our facility in Waterford, Ireland. We sell this product directly
to physicians, hospitals and treatment centers as well as through an unaffiliated distributor. Distributor sales of Cerezyme represented 17% of Cerezyme revenue in 2007, 21% in 2006 and 23% in 2005.
We believe that our credit risk associated with trade receivables is mitigated as a result of the fact that this product is sold to a large number of customers over a broad geographic area.

F-128

---



GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE Q.  SEGMENT INFORMATION (Continued)

Sales
of Renagel, including sales of bulk sevelamer, represented 16% of our total revenue in both 2007 and 2006 and 15% of our total revenue in 2005. A substantial majority of the sales
of Renagel are to wholesale distributors.

NOTE R.  QUARTERLY RESULTS (Unaudited)

|                      |         | 1st Quarter
2007 |         | 2nd Quarter
2007 |   | 3rd Quarter
2007 |      | 4th Quarter
2007
|--------------------- | ------- | ---------------- | ------- | ---------------- | - | ---------------- | ---- | ----------------
|
|Total revenues        |         | $                | 883,183 |                  | $ | 933,419          |      | $               
|Operating income(1)   |         |                  | 195,562 |                  |   | 128,434          |      |                 
|Net income(1,2)       |         |                  | 158,187 |                  |   | 83,794           |      |                 
|Net income per share: |         |                  |         |                  |   |                  |      |                 
|                      | Basic   |                  | $       | 0.60             |   | $                | 0.32 |                 
|                      | Diluted |                  | $       | 0.57             |   | $                | 0.31 |                 

|
|

|                             |         | 1st Quarter 2006 |         | 2nd Quarter 2006 |   | 3rd Quarter 2006 |      | 4th Quarter 2006 |        
|---------------------------- | ------- | ---------------- | ------- | ---------------- | - | ---------------- | ---- | ---------------- | -------
|
|Total revenues               |         | $                | 730,842 |                  | $ | 793,356          |      | $                | 808,574
|Operating income (loss)(3)   |         |                  | 128,208 |                  |   | 112,719          |      |                  | (47,882
|Net income (loss)(3)         |         |                  | 100,974 |                  |   | 134,497          |      |                  | 15,966 
|Net income (loss) per share: |         |                  |         |                  |   |                  |      |                  |        
|                             | Basic   |                  | $       | 0.39             |   | $                | 0.52 |                  | $      
|                             | Diluted |                  | $       | 0.37             |   | $                | 0.49 |                  | $      

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F-129

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GENZYME CORPORATION AND SUBSIDIARIES

Notes To Consolidated Financial Statements (Continued)

NOTE R.  QUARTERLY RESULTS (Unaudited) (Continued)



F-130

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Report of Independent Registered Public Accounting Firm on  Financial Statement Schedule

To
the Board of Directors and Shareholders
of Genzyme Corporation:

Our
audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 29, 2008
appearing in the 2007 Genzyme Corporation Annual Report (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also
included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

|/s/ PricewaterhouseCoopers LLP                                     |  | 
|------------------------------------------------------------------ |  | 
|PricewaterhouseCoopers LLP
Boston, Massachusetts
February 29, 2008 |  | 

F-131

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GENZYME CORPORATION

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

|Column A                      |                                | Column B |   | Column C   |  | Column D |            | Column E
|----------------------------- | ------------------------------ | -------- | - | ---------- |  | -------- | ---------- | --------
|
|
|Year ended December 31, 2007: |                                |          |   |            |  |          |            |         
|                              | Accounts receivable allowances |          | $ | 52,563,000 |  | $        | 9,664,000  |         
|                              | Rebates                        |          | $ | 62,166,000 |  | $        |           |         
|Year ended December 31, 2006: |                                |          |   |            |  |          |            |         
|                              | Accounts receivable allowances |          | $ | 46,127,000 |  | $        | 10,050,000 |         
|                              | Rebates                        |          | $ | 50,304,000 |  | $        |           |         
|Year ended December 31, 2005: |                                |          |   |            |  |          |            |         
|                              | Accounts receivable allowances |          | $ | 42,397,000 |  | $        | 9,444,000  |         
|                              | Rebates                        |          | $ | 33,464,000 |  | $        |           |         

F-132

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