EXHIBIT 13

GENZYME CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS

Page No.Consolidated Selected Financial Data

F-2Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations

F-5Report of Independent Registered Public Accounting Firm

F-65Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2008, 2007 and 2006

F-66Consolidated Balance Sheets as of December 31, 2008 and 2007

F-67Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006

F-68Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2008, 2007 and 2006

F-70Notes to Consolidated Financial Statements

F-71


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 (amounts in thousands):

CONSOLIDATED STATEMENTS OF OPERATIONS DATA

For the Years Ended December 31,2008

2007

2006

2005

2004Revenues:Net product sales

$
4,196,907

$
3,457,778

$
2,887,409

$
2,453,303

$
1,976,191Net service sales


366,091


326,326


282,118


261,379


212,392Research and development revenue


42,041


29,415


17,486


20,160


12,562Total revenues


4,605,039


3,813,519


3,187,013


2,734,842


2,201,145Operating costs and expenses:Cost of products sold(1,2)


913,267


715,504


536,388


462,177


448,442Cost of services sold(1)


235,295


211,826


199,283


170,475


140,144Selling, general and administrative(1,3)


1,338,190


1,187,184


1,010,400


787,839


603,851Research and development(1,4)


1,308,330


737,685


649,951


502,657


391,802Amortization of intangibles


226,442


201,105


209,355


181,632


109,473Purchase of in-process research and development(5)





106,350


552,900


29,200


254,520Charges for impaired intangible assets and goodwill(6)


2,036





219,245





Total operating costs and expenses


4,023,560


3,159,654


3,377,522


2,133,980


1,948,232Operating income (loss)


581,479


653,865


(190,509
)

600,862


252,913Other income (expenses):Equity in income (loss) of equity method investments


201


7,398


15,705


151


(15,624
)Minority interest


2,217


3,932


10,418


11,952


5,999Gain (loss) on investments in equity securities, net(7)


(3,340
)

13,067


73,230


5,698


(1,252
)Other


(1,861
)

(637
)

(2,045
)

(1,535
)

(357
)Investment income


51,260


70,196


56,001


31,429


24,244Interest expense


(4,418
)

(12,147
)

(15,478
)

(19,638
)

(38,227
)Total other income (expenses)


44,059


81,809


137,831


28,057


(25,217
)Income (loss) before income taxes(1)


625,538


735,674


(52,678
)

628,919


227,696(Provision for) benefit from income taxes(1,6)


(204,457
)

(255,481
)

35,881


(187,430
)

(141,169
)Net income (loss)(1)

$
421,081

$
480,193

$
(16,797
)
$
441,489

$
86,527Net income (loss) per share:Basic(1)

$
1.57

$
1.82

$
(0.06
)
$
1.73

$
0.38Diluted(1)

$
1.50

$
1.74

$
(0.06
)
$
1.65

$
0.37


F-2

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GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Selected Financial Data (Continued)

CONSOLIDATED BALANCE SHEET DATA

December 31,2008

2007

2006

2005

2004Cash and investments(8)

$
973,691

$
1,460,394

$
1,285,604

$
1,089,102

$
1,079,454Working capital


1,601,852


1,137,904


1,338,062


1,114,976


1,009,231Total assets


8,671,276


8,314,375


7,191,188


6,878,865


6,069,421Long-term debt, capital lease obligations and convertible debt, including current portion


131,907


810,373


816,029


820,113


940,494Stockholders' equity


7,305,993


6,612,937


5,660,711


5,149,867


4,380,156There were no cash dividends paid.


---

For the Years Ended
December 31,2008

2007

2006Cost of products and services sold

$
(27,555
)
$
(25,677
)
$
(21,430
)Selling, general and administrative


(102,745
)

(106,172
)

(121,822
)Research and development


(56,673
)

(58,101
)

(65,248
)Total


(186,973
)

(189,950
)

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


56,740


58,148


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

$
(130,233
)
$
(131,802
)
$
(142,169
)Net loss per sharebasic and diluted

$
(0.49
)
$
(0.50
)
$
(0.54
)


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F-3

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GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Selected Financial Data (Continued)



F-4

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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 disease, orthopaedics, cancer, transplant and immune disease, and diagnostic and predictive testing.

In
the fourth quarter of 2008, we changed our segment reporting structure to better reflect the way we manage and measure the performance of our businesses. Under the new reporting
structure, we are
organized into four financial reporting units, which we also consider to be our reporting segments:



Our
transplant business unit, which develops, manufactures and distributes therapeutic products that address pre-transplantation, prevention and treatment of graft rejection
in organ transplantation and other hematologic and auto-immune disorders, and our genetics business unit, which provides testing services for the oncology, prenatal and reproductive markets, were
formerly reported as separate reporting segments. Beginning with this report, we now include our transplant and genetics business units under the caption "Other." We also report the activities of our
diagnostic products, bulk pharmaceuticals and immune mediated disease business units under the caption "Other." These operating segments did not meet the quantitative threshold for separate segment
reporting.

F-5

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We
report our corporate, general and administrative operations and corporate science activities under the caption "Corporate." Effective January 1, 2008, as a result of changes in
how we review our business, certain general and administrative expenses that were formerly allocated amongst our reporting segments and "Other" are now allocated to "Corporate."

We
have reclassified our 2007 and 2006 segment disclosures to conform to our 2008 presentation.

MERGERS, ACQUISITIONS AND STRATEGIC TRANSACTIONS

2008 Strategic Transactions:

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

Strategic Alliance with Osiris

In October 2008, we entered into a strategic alliance with Osiris, whereby we obtained an exclusive license to develop and
commercialize Prochymal and Chondrogen, mesenchymal stem cell products, outside of the United States and Canada. Osiris will commercialize Prochymal and Chondrogen in the United States and Canada. We
paid Osiris a nonrefundable upfront payment of $75.0 million in November 2008, and will pay an additional $55.0 million nonrefundable upfront license fee on July 1, 2009. The
results of these programs are included in our immune mediated diseases business unit, which are reported under the category "Other" in our segment disclosures.

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



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

Strategic Alliance with PTC

On July 15, 2008, we entered into a collaboration agreement with PTC to develop and commercialize ataluren (formerly known as
PTC124), PTC's novel oral therapy in late-stage development for the treatment of nonsense-mutation-mediated Duchenne muscular dystrophy, or DMD, and nonsense-mutation-mediated cystic
fibrosis, or CF. Under the terms of the agreement, PTC will commercialize ataluren in the United States and Canada, and we will commercialize the treatment in all other countries. In connection with
the collaboration agreement, we paid PTC a nonrefundable upfront payment of $100.0 million, which we recorded as a charge to research and development expense for our Genetic Diseases segment in
our consolidated statements of operations during the third quarter of 2008. At its own expense, PTC will conduct and be responsible for the phase 2b trial of ataluren in DMD, the
phase 2b trial of ataluren in CF and two proof-of-concept studies in other

F-6

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indications
to be determined. Once these four studies have been completed, we and PTC will share research and development costs for ataluren equally. We and PTC will each bear the sales and
marketing and other costs associated with the commercialization of ataluren in our respective territories. PTC is eligible to receive up to $337.0 million in milestone payments as
follows:



PTC
is also eligible to receive tiered royalties from sales of ataluren outside of the United States and Canada. The results of our ataluren program are included in the results of our Genetic Diseases
segment disclosures.

Strategic Alliance with Isis

On January 7, 2008, we entered into a strategic alliance with Isis, whereby we obtained an exclusive, worldwide license to
develop and commercialize mipomersen, a lipid-lowering drug targeting apolipoprotein B-100, which is currently being developed for the treatment of familial hypercholesterolemia, or FH, an
inherited disorder that causes exceptionally high levels of LDL-cholesterol. In February 2008, we made a nonrefundable payment to Isis of $150.0 million, of which
$80.1 million was recorded as an other noncurrent asset in our consolidated balance sheets based on the fair value of the five million shares of Isis common stock we acquired in connection with
the transaction. Due to certain trading restrictions, we classify this investment as other noncurrent assets. We allocated the remaining $69.9 million to the mipomersen license, which we
recorded as a charge to research and development expense in our consolidated statements of operations during the first quarter of 2008.

In
June 2008, we finalized the terms of our license and collaboration agreement with Isis and paid Isis an additional $175.0 million upfront nonrefundable license fee. Under the
terms of the agreement, Isis will be responsible, at its own expense, for up to $125.0 million for the development of mipomersen. Thereafter, we and Isis will share development costs for
mipomersen equally. The initial funding commitment by Isis and shared development funding would end when the mipomersen program is profitable. In the event the research and development of mipomersen
is terminated prior to Isis completing their funding obligation, we are not entitled to any refund of our $175.0 million upfront
payment. Isis is eligible to receive up to $750.0 million in commercial milestone payments and up to $825.0 million in development and regulatory milestone payments.

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

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.

F-7

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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. The results of these diagnostic operations are included in our diagnostic products business unit, which is
reported under the category "Other" in our segment disclosures. 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.

Bioenvision

Effective October 23, 2007, we completed our acquisition of Bioenvision through the culmination of a two-step
process consisting of a tender offer completed in July 2007, and a merger approved in October 2007. We paid gross consideration of $366.5 million in cash, including $362.0 million for
the outstanding shares of Bioenvision common and preferred stock and options to purchase shares of Bioenvision common stock, and approximately $5 million for acquisition costs. The acquisition
of Bioenvision provided us with the exclusive, worldwide rights to clofarabine.

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.

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 significant judgments and estimates used in the preparation of our consolidated financial statements:



F-8

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Revenue Recognition

Product Sales

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

We
use a variety of data sources to determine the amount of inventory in the distribution channel. For most product lines, we receive data on sales and inventory levels directly from our
primary customers. For key product lines in our Cardiometabolic and Renal and our Genetic Diseases 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 Cardiometabolic and Renal and Genetic Diseases 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-9

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

2008

2007

2006

08/07 Increase/
(Decrease)
% Change

07/06 Increase/
(Decrease)
% ChangeProduct sales allowances:Contractual adjustments

$
505,027

$
377,852

$
298,274


34
%

27
%Discounts


23,390


20,037


17,541


17
%

14
%Sales returns


23,214


15,342


13,853


51
%

11
%Total product sales allowances

$
551,631

$
413,231

$
329,668


33
%

25
%Total gross product sales

$
4,748,539

$
3,871,009

$
3,217,077


23
%

20
%Total product sales allowances as a percent of total gross product sales


12
%

11
%

10
%


Total
product sales allowances increased $138.4 million, or 33%, in 2008, as compared to 2007, primarily due to an increase in overall gross product sales and changes in rebate
rates and product mix. The increase in sales returns allowances in 2008, as compared to 2007 is primarily due to increased sales returns allowances for our Cardiometabolic and Renal segment due to a
Renagel/Renvela price increase in August 2008 and revisions to our estimates of the volume of product returns for our Cardiometabolic and Renal segment as well as our Biosurgery segment. 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 growth in overall gross product and
to a lesser extent, changes in rebate rates or product mix.

Total
estimated product sales allowance reserves and accruals in our consolidated balance sheets increased 35% to approximately $210 million as of December 31, 2008, as
compared to approximately $155 million as of December 31, 2007, primarily due to increased product sales, price increases, higher rebate rates and changes in timing of certain payments.
Our actual results have not differed materially from amounts recorded. The annual variation has been less than 0.5% of total product sales for each of the last three years.

F-10

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Distributor Fees

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



We
record 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 (amounts in thousands):

Year Ended December 31,2008

2007

2006Distributor fees:Included in contractual adjustments and recorded as a reduction to product sales

$
13,502

$
12,445

$
8,956Charged to SG&A


13,514


13,190


10,550Total distributor fees

$
27,016

$
25,635

$
19,506


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

We recognize stock-based compensation in accordance with 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.

F-11

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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 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 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 the tax benefit and provision 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

F-12

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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 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
tax position will be sustained based on the technical merits of the tax position. The second step is the measurement of the tax benefit, which is the largest amount, using cumulative probability
measure, which is likely to be realized upon ultimate audit settlement, including resolution of related appeals or litigation processes, if any. 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 total inventories at
December 31, 2008 included $9.2 million of Myozyme and $3.5 million of Campath inventory, produced at our manufacturing facility in Belgium, that has not yet been approved for
sale. Our inventories as of December 31, 2007 did 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.

In
December 2008, we wrote off Myozyme inventory costs of $12.6 million related to terminated production runs during 2008 at our Belgium facility. Subsequent to
December 31, 2008, additional terminated production runs at our Belgium facility were identified. Therefore, we anticipate writing off additional Myozyme inventory valued at approximately
$9 million in the first quarter of 2009.

F-13

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Long-Lived and Intangible Assets

Property, Plant and Equipment

As of December 31, 2008, there was $2.3 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 materially impact our operating results. 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. As of December 31, 2008, capitalized validation costs, net of accumulated depreciation, were $32.9 million.

Goodwill and Other Intangible Assets

As of December 31, 2008, there was approximately $1.4 billion of net goodwill and $1.9 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.

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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 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 fair values, the carrying value of the goodwill must be written down to its implied fair value. We determine the fair values 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-process research and development represents the fair value assigned to incomplete technologies that we acquire through
business combinations, which at the time of acquisition, have not reached technological feasibility and have no alternative future use. For transactions that closed prior to 2009, the fair value of
such technologies is expensed upon acquisition. A technology is considered to have an alternative future use if it is probable that the acquirer will use the asset in its current, incomplete state as
it existed at the acquisition date, the asset will be used in another research and development project that has not yet commenced, and economic benefit is anticipated from that use. If a technology is
determined to have an alternative future use, then the fair value of the program would be recorded as an asset on the balance sheet rather than expensed. None of the incomplete technology programs we
have acquired through our business combinations have reached technological feasibility nor had an

F-15

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

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

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



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

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

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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.

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

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

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



Valuation Techniques

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

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RESULTS OF OPERATIONS

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

REVENUES

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

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% ChangeProduct revenue

$
4,196,907

$
3,457,778

$
2,887,409


21
%

20
%Service revenue


366,091


326,326


282,118


12
%

16
%Total product and service revenue


4,562,998


3,784,104


3,169,527


21
%

19
%Research and development revenue


42,041


29,415


17,486


43
%

68
%Total revenues

$
4,605,039

$
3,813,519

$
3,187,013


21
%

20
%


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:

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% Change(Amounts in thousands)Genetic Diseases:Cerezyme

$
1,238,977

$
1,133,153

$
1,007,036


9
%

13
%Fabrazyme


494,260


424,284


359,274


16
%

18
%Myozyme


296,176


200,728


59,238


48
%

>100
%Aldurazyme


151,321








N/A


N/AOther Genetic Diseases


45,595


8,314


410


>100
%

>100
%Total Genetic Diseases


2,226,329


1,766,479


1,425,958


26
%

24
%Cardiometabolic and Renal:Renagel/Renvela (including sales of bulk sevelamer)


677,729


602,670


515,119


12
%

17
%Hectorol


128,153


115,708


93,360


11
%

24
%Thyrogen


148,448


113,587


93,687


31
%

21
%Other Cardiometabolic and Renal


1,595


52





>100
%

N/ATotal Cardiometabolic and Renal


955,925


832,017


702,166


15
%

18
%Biosurgery:Synvisc/Synvisc-One


263,094


242,319


233,860


9
%

4
%Sepra products


133,663


104,318


85,338


28
%

22
%Other Biosurgery


48,931


34,793


28,020


41
%

24
%Total Biosurgery


445,688


381,430


347,218


17
%

10
%Hematologic Oncology


101,217


68,947


48,077


47
%

43
%Other product revenue


467,748


408,905


363,990


14
%

12
%Total product revenue

$
4,196,907

$
3,457,778

$
2,887,409


21
%

20
%


2008 As Compared to 2007

Genetic Diseases

Genetic Diseases product revenue increased 26% to $2.2 billion for 2008, as compared to 2007, due to continued growth in sales
of Cerezyme, Fabrazyme and Myozyme, the inclusion of Aldurazyme sales in our results of operations beginning on January 1, 2008 as a result of our restructured relationship with BioMarin and
BioMarin/Genzyme LLC, and the introduction of Elaprase in the Japanese market in the fourth quarter of 2007. Elaprase is an enzyme replacement therapy for the treatment of Hunter syndrome developed by
Shire Human Genetic Therapies Inc. Genzyme has rights to commercialize the product in Japan and other Asia Pacific countries under an agreement with Shire. Genzyme currently has marketing approval for
Elaprase in Japan, Australia and South Korea. Sales of Elaprase are included in other Genetic Diseases product revenue.

The
9% growth in sales of Cerezyme to $1.2 billion for 2008, as compared to 2007, is attributable to our continued identification of new Gaucher disease patients, particularly in
international markets. We implemented a 3% price increase for Cerezyme in the United States in November 2007 and a 4% price increase for Cerezyme in the United States in August 2008. These price
increases accounted for $12.2 million of the additional Cerezyme revenue for 2008, as compared to 2007. The strengthening of foreign currencies, primarily the Euro, against the U.S. dollar,
positively impacted Cerezyme revenue by

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$33.0 million
in 2008, as compared to 2007. 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.

Our
results of operations are 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 27% of our total revenue in 2008, as compared to 30% in 2007. 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.

The
16% increase to $494.3 million for 2008 in sales of Fabrazyme, as compared to 2007, 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 and a 4% increase for Fabrazyme in the United States in August 2008. These price
increases accounted for $6.5 million of additional Fabrazyme revenue for 2008, as compared to 2007. The strengthening of foreign currencies, primarily the Euro, against the U.S. dollar,
positively impacted Fabrazyme revenue by $16.6 million in 2008, as compared to 2007.

Sales
of Myozyme were $296.2 million in 2008, as compared to $200.7 million in 2007. We launched Myozyme in the United States and Europe in April 2006 and in Canada in
September 2006. We are introducing Myozyme on a country-by-country basis outside of the European Union and United States, as pricing and reimbursement approvals are obtained.
Myozyme has received orphan drug designation in both the United States, which provides seven years of market exclusivity, and in the European Union, which provides ten years of market exclusivity. In
June 2007, we launched the product in Japan after receipt of marketing and reimbursement approvals. The strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, positively
impacted Myozyme revenue by $7.0 million for 2008, as compared to 2007.

We
currently manufacture Myozyme (alglucosidase alfa) in the United States using a 160L scale process at our manufacturing facility in Framingham, Massachusetts and using the 2000L scale
process at our manufacturing facility in Allston, Massachusetts. We have begun Myozyme fill-finish at our manufacturing facility in Waterford, Ireland. We have approval to sell Myozyme
manufactured using the 160L scale process in the United States and Myozyme produced using the 2000L scale process has been approved for sale in more than 40 countries outside the United States. The
product produced using the 160L scale process is reserved for infants and children because the smaller scale produces a limited supply of FDA-approved product for the U.S. market.

In
October 2007, we submitted a supplemental BLA to the FDA seeking approval of alglucosidase alfa produced using the 2000L scale process to help meet the demand for the product in the
U.S. market. In April 2008, the FDA concluded that alglucosidase alfa produced using the 160L scale process and using the 2000L scale process should be classified as two different products because of
analytical differences observed as part of the comparability efforts supporting the manufacturing change. As a result, the FDA required us to submit a separate BLA to gain U.S. approval for
alglucosidase alfa produced using the 2000L scale process, which we submitted in May 2008. In October 2008, the Endocrinologic and Metabolic Drugs Advisory Committee affirmed by a vote of
16 to 1 that our Late Onset Treatment Study, or LOTS study, established the clinical effectiveness of alglucosidase alfa produced using the 2000L scale process for the treatment of
patients with late-onset Pompe disease.

On
February 27, 2009, we received a complete response letter from the FDA regarding our 2000L application. In the letter, the FDA outlines the items that need to be addressed
before our application can be approved. These items include finalizing agreement with the FDA on the design of a post-approval verification study to demonstrate the clinical benefit of
alglucosidase alfa produced using

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the
2000L scale process, as required under the FDA's accelerated approval process, as well as a REMS for the product; finalizing label discussions with the FDA; and providing the FDA with information
regarding specific chemistry, manufacturing and controls (CMC) questions and with a safety update. In addition, before the FDA will approve the product produced using the 2000L scale process, we need
to resolve issues identified in a warning letter relating to our Allston manufacturing facility that we received along with the complete response letter. The warning letter is described in more detail
in Part I, Item 1 of this report under the heading "Government Regulation." If the product produced using the 2000L scale process is approved by the FDA, it will be marketed as Lumizyme
in the United States; the currently FDA-approved product produced using the 160L scale process will continue to be marketed as Myozyme.

The
decision by the FDA to treat alglucosidase alfa produced using the 160L and 2000L scale processes as separate products negatively impacted our 2008 Myozyme revenue growth by
approximately $45 million and costs related to Myozyme in 2008 were approximately $10 million more than originally expected because we continue to provide alglucosidase alfa produced
using the 2000L scale process free of charge to approximately 170 patients in the United States through a clinical access program. We anticipate that the delay in FDA approval of alglucosidase alfa
produced using the 2000L scale process will continue to negatively impact our 2009 earnings until this product is approved in the United States.

In
February 2009, we received approval from the European Commission to market Myozyme produced at our manufacturing facility in Belgium using a 4000L scale process. During January and
February 2009, there was widespread adult patient compliance with our request to adjust infusion schedules to preserve product supply for infants and children. With the approval of Myozyme produced
using the 4000L scale process, adult patients that adjusted their infusion schedules will now be able to resume their regular schedules and new patients will be able to initiate therapy outside of the
United States. Because of the approval we have received in the European Union, we expect Myozyme sales to accelerate starting in the second quarter of 2009 and to continue to increase throughout the
second half of 2009. We expect Myozyme sales for the first quarter of 2009 to be similar to sales in the fourth quarter of 2008. We anticipate filing for U.S. marketing approval of product produced
using the 4000L scale process in the first half of 2009.

In
December 2008, we wrote off Myozyme inventory costs of $12.6 million related to terminated production runs during 2008 at our Belgium facility. Subsequent to
December 31, 2008, additional terminated production runs at our Belgium facility were identified. Therefore, we anticipate writing off additional inventory valued at approximately
$9 million in the first quarter of 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 new agreements. BioMarin continues to manufacture Aldurazyme. We continue to purchase Aldurazyme exclusively from BioMarin and globally market and sell the product. Effective
January 1, 2008, instead of sharing all costs and profits of Aldurazyme equally, we began to record all sales of Aldurazyme and began paying BioMarin a tiered payment ranging from approximately
39.5% to 50% of worldwide net product sales of Aldurazyme. Aldurazyme product revenue was $151.3 million for 2008. Prior to January 1, 2008, we were commercializing Aldurazyme on behalf
of BioMarin/Genzyme LLC in the United States, Canada, the European Union, Latin America and the Asia-Pacific regions and continuing to launch Aldurazyme on a
country-by-country basis as pricing and reimbursement approvals were obtained. BioMarin/Genzyme LLC's Aldurazyme product revenue recorded by BioMarin/Genzyme LLC
was $123.7 million for 2007. The increase in Aldurazyme sales of $27.7 million for the year ended December 31, 2008, as compared to the same period of 2007, is primarily
attributable to increased patient identification worldwide as Aldurazyme was introduced into new markets. We also implemented a 3% price increase for Aldurazyme in the United States in November 2007
and a 4% price increase for Aldurazyme in the United States in August 2008. These price increases accounted for

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$1.0 million
of additional Aldurazyme revenue for 2008, as compared to 2007. The strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, positively impacted Aldurazyme
revenue by $3.0 million for 2008, as compared to 2007.

Other
Genetic Diseases product revenue increased in 2008, as compared to 2007 as sales of Elaprase were $45.6 million in 2008, as compared to $8.2 million in 2007. The
increase is due to the launch of Elaprase in Japan in the fourth quarter of 2007 and the continued identification of new patients.

Cardiometabolic and Renal

On October 22, 2007, the FDA granted marketing approval for Renvela, a second generation buffered form of Renagel. In March
2008, we launched Renvela for dialysis patients in the United States. We are currently pursuing regulatory approvals for Renvela in Europe, Latin America and other international markets.

Sales
of Renagel/Renvela, including sales of bulk sevelamer, increased 12% to $677.7 million for 2008, as compared to 2007, primarily due to increased end-user demand,
which accounted for $13.9 million of the additional revenue and a Renagel price increase in the United States, which accounted for $24.4 million of the additional Renagel revenue. The
strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, positively impacted Renagel revenue by $13.0 million. Sales of Renagel/Renvela, including sales of bulk
sevelamer, were 15% of our total revenues for 2008, as compared to 16% for the same period of 2007.

In
October 2007, an FDA advisory committee voted to recommend that the agency extend the indications for phosphate binders to include patients with hyperphosphatemia who have not
progressed to dialysis. In June 2008, we and two other companies submitted a position paper to the FDA regarding the expanded use of phosphate binders. We received written responses from the FDA and
we are in the process of responding to the agency. There is no PDUFA date associated with this expanded label process; however, we anticipate that this indication will be added to Renvela's label in
the United States by the middle of 2009. In addition, we have filed for approval of a powder form of Renvela to provide an additional option for physicians and patients that reduces pill burden and
assists patients that have difficulty swallowing tablets. While Renagel will remain available for a period of time, our goal is to transition patients in the United States to Renvela by the fourth
quarter of 2009. We also anticipate European approval of Renvela in the first half of 2009.

Sales
of Hectorol increased 11% to $128.2 million for 2008, as compared to 2007, primarily due to Hectorol price increases in the third quarter of 2007 and in the second and
fourth quarters of 2008, which accounted for $11.7 million of the additional revenue for 2008.

We
expect sales of Renagel/Renvela and Hectorol to continue to increase. Adoption rates for Renagel/Renvela are expected to trend favorably as a result of the recent introduction of
Renvela in the U.S. market, the potential label expansion to include hyperphosphatemic patients who are not on dialysis, and the introduction of a powder formulation expected in the first half of
2009. Adoption rates for Hectorol are expected to trend favorably as a result of growth in the CKD market and the anticipated launch of a 1 mg capsule form of Hectorol in the first half of 2009. In
addition, we expect adoption rates to increase for both Renagel/Renvela and Hectorol as a result of our recent expansion and redeployment of our sales force for these products.

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

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

Sales
of Thyrogen increased 31% to $148.4 million for 2008, as compared to 2007. We implemented a 9.7% price increase for Thyrogen in the United States in April 2007 and a 15%
price increase for Thyrogen in the United States in March 2008. These price increases accounted for $11.7 million of additional Thyrogen revenue for 2008. In addition, worldwide volume growth,
driven by a significant increase in the use of the product in thyroid remnant ablation procedures, positively impacted Thyrogen revenue by $24.2 million for 2008. The strengthening of foreign
currencies, primarily the Euro, against the U.S. dollar, positively impacted Thyrogen revenue by $3.1 million for 2008, as compared to 2007.

Biosurgery

Biosurgery product revenue increased 17% to $445.7 million for 2008, as compared to 2007. Seprafilm revenue increased
$27.7 million for the year ended December 31, 2008, as compared to the same period of 2007, primarily due to greater penetration of the product into the United States, Japanese and
European markets and expanded use of Seprafilm in C-sections and gynecological procedures.

We
received approval to market Synvisc-One, a single injection regimen, in the European Union in December 2007. In February 2009, we received marketing approval for
Synvisc-One in the United States.

The
combined revenues of Synvisc/Synvisc-One increased 9% to $263.1 million for 2008, as compared to 2007, primarily due to an expanded sales and marketing investment
and the initiation of direct sales of the product in Latin America.

The
strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, positively impacted Biosurgery product revenue by $1.1 million for 2008, as compared to 2007.

Other
Biosurgery product revenue increased 41% to $48.9 million for 2008, as compared to 2007 due primarily to $9.6 million of revenue for 2008, related to a dermal filler
we are developing with and manufacturing for sale to Mentor Corporation for which there was no comparable amount in 2007.

Hematologic Oncology

Hematologic Oncology product revenue increased 47% to $101.2 million for 2008, as compared to 2007, primarily due to the
addition of sales of clofarabine outside of North America, which rights we acquired in connection with our acquisition of Bioenvision in October 2007. Clofarabine, which is approved for the treatment
of relapsed or refractory pediatric ALL, is marketed under the name Clolar in North and South America and as Evoltra elsewhere in the world.

We
are developing the intravenous formulation of clofarabine for new indications, including first-line and relapsed or refractory adult AML. In November 2008, we filed a
supplemental New Drug Application with the FDA for the use of Clolar to treat previously untreated adults age 60 years or older with AML who have at least one unfavorable prognostic factor. FDA action
is expected by the

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middle
of 2009. A similar submission in Europe is expected during the first half of 2009. We are also developing an oral formulation of clofarabine and have initiated clinical trials for the treatment
of myelodysplastic syndrome, or MDS. Clofarabine has been granted orphan drug status for the treatment of ALL and AML in both the United States and the European Union.

Other Product Revenue

Other product revenue increased 14% to $467.7 million in 2008, as compared to 2007, primarily due to:





2007 As Compared to 2006

Genetic Diseases

Genetic Diseases product revenue increased 24% to $1.8 billion for 2007, as compared to 2006, due to continued growth in sales
of Cerezyme, Fabrazyme 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. 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.

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.

F-24

---



Sales
of Myozyme were $200.7 million in 2007, as compared to $59.2 million in 2006. We launched Myozyme in the United States and Europe in April 2006 and in Canada in
September 2006. In April 2007, Myozyme was approved for commercial sale in Japan and in June 2007 we launched the product after we received reimbursement approval. 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.

Cardiometabolic and 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 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.

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.

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.

Hematologic Oncology

Hematologic 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.

Other Product Revenue

Other product revenue increased 12% to $408.9 million in 2007, as compared to 2006, primarily due to



F-25

---





Service Revenue

We derive service revenues primarily from the following sources:



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

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% ChangeGenetic Diseases

$
363

$


$



N/A


N/ACardiometabolic and Renal


58


51





14
%

N/ABiosurgery


42,767


39,880


39,458


7
%

1
%Hematologic Oncology


1,682


980


1,102


72
%

(11
)%Other


321,221


285,415


241,558


13
%

18
%Total service revenue

$
366,091

$
326,326

$
282,118


12
%

16
%


2008 As Compared to 2007

Service revenue attributable to our Biosurgery reporting segment increased 7% to $42.8 million for 2008, as compared to 2007.
The increase is primarily due to higher demand for MACI, and a 6.5% price increase for Carticel in July 2008.

Other
service revenue increased 13% to $321.2 million for 2008, as compared to 2007. The increase was primarily attributable to continued growth in sales of genetic testing and
prenatal screening services as well as growth in demand for certain testing services for patients diagnosed with cancer.

The
strengthening of foreign currencies against the U.S. dollar for 2008, as compared to 2007, did not have a significant impact on service revenue.

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 other services increased 18% to $285.4 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.

F-26

---



International Product and Service Revenue

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

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% ChangeInternational product and service revenue


2,344,093


1,815,160


1,455,795


29
%

25
%% of total product and service revenue


51
%

48
%

46
%


2008 As Compared to 2007

The 29% increase to $2.3 billion for 2008 in international product and service revenue, as compared to 2007, is primarily due to
a $278.1 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. In addition, in 2008 we began to record worldwide Aldurazyme revenue and revenue for clofarabine sold outside North America. Revenue
generated outside the United States for Aldurazyme was $121.1 million 2008, which had been recorded as joint venture revenue by BioMarin/Genzyme LLC in 2007. Revenue generated outside
the United States for Evoltra was $25.8 million for 2008. There were no comparable amounts prior to our acquisition of Bioenvision in October 2007.

The
strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, positively impacted total product and service revenue by $89.7 million in 2008, as compared
to 2007.

International
product and service revenue as a percentage of total product and service revenue increased due primarily to the addition of revenue generated outside the United States for
Aldurazyme and outside North America for clofarabine as well as the strengthening of foreign currencies against the U.S. dollar, which positively impacted our total international revenue.

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.

F-27

---



Research and Development Revenue

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

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% ChangeGenetic Diseases

$


$
1,059

$
1,000


N/A


6
%Cardiometabolic and Renal


200


1,200


2,142


(83
)%

(44
)%Biosurgery


2,645


5,337


893


(50
)%

>100
%Hematologic Oncology


14,439


7,006


8,097


>100
%

(13
)%Other


23,524


13,199


4,982


78
%

>100
%Corporate


1,233


1,614


372


(24
)%

>100
%Total research and development revenue

$
42,041

$
29,415

$
17,486


43
%

68
%


2008 As Compared to 2007

Total research and development revenue increased $12.6 million in 2008, as compared to 2007, primarily due to increases in
revenue recognized by our Hematologic Oncology reporting segment and other research and development revenue. The increase in Hematologic Oncology research and development revenue primarily represents
a $6.0 million payment received in December 2008 from Shire plc related to the vesting of an assignment by AnorMED of certain product rights to Shire. This was the last milestone
payment due from Shire related to these product rights. Mozobil was granted approval by the FDA in December 2008. Other research and development revenue increased primarily due to our increase
in spending for the development of alemtuzumab under our collaboration with Bayer, and Bayer's reimbursement of a portion of these development expenses particularly in the multiple sclerosis
development program.

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 reporting segment and other research and development revenue. 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. Other research and development revenue in 2007 includes the reimbursement of research
and development expenses related to alemtuzumab for the treatment of multiple sclerosis, for which there are no similar amounts in 2006 and revenue related to our pharmaceuticals and cardiovascular
businesses.

F-28

---



MARGINS

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

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% ChangeProduct margin

$
3,283,640

$
2,742,274

$
2,351,021


20
%

17
%% of total product revenue


78
%

79
%

81
%Service margin

$
130,796

$
114,500

$
82,835


14
%

38
%% of total service revenue


36
%

35
%

29
%Total product and service gross margin

$
3,414,436

$
2,856,774

$
2,433,856


20
%

17
%% of total product and service revenue


75
%

75
%

77
%


Gross Profit and Product Margin

2008 As Compared to 2007

Our overall gross profit increased $541.4 million, or 20%, in 2008, as compared to 2007. This is primarily due
to:



Our
gross margin in the fourth quarter of 2008 was impacted by the favorable effect of foreign exchange rates in our manufacturing sites outside the United States as well as by the
timing of inventory produced in prior periods and sold in the fourth quarter.

Total
product margin as a percentage of product revenue decreased for 2008, as compared to 2007, due to the increase in sales of Myozyme and Elaprase, the addition of Aldurazyme to the
results, all of which have lower than average margins, to higher unit costs for Cerezyme and Fabrazyme and to the write off of Myozyme inventory costs of $12.6 million related to terminated
production runs during 2008 at our Belgium facility. These decreases in product margin as a percentage of product revenue were partially offset by a decrease in manufacturing-related charges recorded
in 2008, as compared to 2007.

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

F-29

---



2007 As Compared to 2006

Our overall gross profit 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.

Service Margin

2008 As Compared to 2007

Our overall service margin increased $130.8 million, or 14%, in 2008 as compared to 2007. The increases were primarily
attributable to increases in revenue from our genetic testing and prenatal screening services and the increase in demand for certain testing services for patients diagnosed with cancer.

Total
service margin as a percent of total service revenue increased by 1% for 2008, as compared to 2007, due to an increase in MACI and Carticel revenue and genetic testing revenue.

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 business unit.

F-30

---



OPERATING EXPENSES

Selling, General and Administrative Expenses

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

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% ChangeSelling, general and administrative expenses

$
1,338,190

$
1,187,184

$
1,010,400


13
%

17
%% of total revenue


29
%

31
%

32
%


2008 As Compared to 2007

SG&A increased $151.0 million in 2008, as compared to 2007, primarily due to spending increases of:



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

2007 As Compared to 2006

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



F-31

---





These
increases were partially offset in 2007 by decreases of:



Research and Development Expenses

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

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% ChangeResearch and development expenses

$
1,308,330

$
737,685

$
649,951


77
%

13
%% of total revenue


28
%

19
%

20
%


2008 As Compared to 2007

Research and development expenses increased $570.6 million in 2008, as compared to 2007, primarily due
to:



F-32

---





These
increases were partially offset by spending decreases in 2008 of:



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:



Amortization of Intangibles

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

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% ChangeAmortization of intangibles

$
226,442

$
201,105

$
209,355


13
%

(4
)%% of total revenue


5
%

5
%

7
%


F-33

---



2008 As Compared to 2007

Amortization of intangibles expense increased $25.3 million for 2008, as compared to 2007, primarily due to the acquisition of
technology in connection with our acquisition of Bioenvision in October 2007, and the acquisition of customer lists and trademarks in connection with our acquisition of diagnostic assets from DCL in
December 2007.

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.

Purchase of In-Process Research and Development

In connection with five of our acquisitions we completed between January 1, 2004 and December 31, 2008, we have acquired
various IPR&D projects. The following table sets forth IPR&D projects for companies and certain assets acquired since 2004 (amounts in millions):

Company/Assets Acquired

Purchase
Price

IPR&D

Programs Acquired

Discount
Rate Used in
Estimating
Cash Flows

Year of
Expected
Launch

Estimated
Cost to
CompleteBioenvision (2007)

$
349.9

$
125.5

Evoltra (clofarabine)(1,2)


17
%

2009-2013

$
41AnorMED (2006)

$
589.2

$
526.8

Mozobil (stem cell transplant)(3)


15
%

2009-2014

$
12526.1

AMD070 (HIV)(4)


15
%



$
$
552.9Avigen (2005)

$
12.0

$
7.0

AV201 (Parkinson's disease)


N/A


2016

$
100Verigen (2005)

$
12.7

$
9.5

MACI (cartilage repair)


24
%

2012-2014

$
30ILEX Oncology (2004)

$
1,080.3

$
96.9

Campath (alemtuzumab)(5)


11
%

2012

$
333113.4

Clolar (clofarabine)(2)


12
%

2009-2012

$
110$
210.3


---

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 2008 and 2007, we completed the required annual impairment tests for our $1.4 billion

F-34

---



of
goodwill that had been recorded as of September 30, 2008 and $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

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% Change(Amounts in thousands)Equity in income of equity method investments

$
201

$
7,398

$
15,705


(97
)%

(53
)%Minority interest


2,217


3,932


10,418


(44
)%

(62
)%Gains (losses) on investments in equity securities, net


(3,340
)

13,067


73,230


>(100
)%

(82
)%Other


(1,861
)

(637
)

(2,045
)

>100
%

(69
)%Investment income


51,260


70,196


56,001


(27
)%

25
%Interest expense


(4,418
)

(12,147
)

(15,478
)

(64
)%

(22
)%Total other income

$
44,059

$
81,809

$
137,831


(46
)%

(41
)%


2008 As Compared to 2007

Equity in Income of Equity Method Investments

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

Equity
in income of equity method investments decreased by 97% to $0.2 million in 2008, as compared to 2007 primarily due to $21.1 million of charges in 2007 related to our
investment in Bioenvision common stock, including a $19.1 million charge for IPR&D, representing our proportionate share of the fair value of the IPR&D programs of Bioenvision for which there
are no comparable amounts in 2008 because we completed our acquisition of Bioenvision in October 2007. These charges were offset in part by our portion of the net income of BioMarin/Genzyme LLC
of $30.1 million in 2007 for which there was no comparable amount in 2008 since, beginning January 1, 2008, as a result of our restructured relationship with BioMarin, we no longer
account for BioMarin/Genzyme LLC using the equity method of accounting.

Minority Interest

As a result of the restructuring of our relationship with BioMarin/Genzyme LLC, effective January 1, 2008, in accordance
with the provisions of FIN 46R, "Consolidation of Variable Interest Entities," we began consolidating the results of BioMarin/Genzyme LLC. We recorded BioMarin's portion of this joint
venture's income in 2008 as minority interest in our consolidated statements of operations.

Prior
to February 20, 2007, as a result of our application of FIN 46R, we consolidated the results of Dyax-Genzyme LLC and Excigen Inc. On
February 20, 2007, we agreed with Dyax to terminate our

F-35

---



participation
and interest in Dyax-Genzyme LLC. We recorded Dyax's portion of this joint venture's losses as minority interest in our consolidated statements of operations through
February 20, 2007. The results of Excigen were not significant.

Gains (Losses) on Investments in Equity Securities, net

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

2008

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

$
10,304

$
THP


1,063


10,848Other


1,892


2,219Total gains on investments in equity securities


13,259


13,067Less: charges for impaired investments


(16,599
)

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

$
(3,340
)
$
13,067


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

In
2007, we purchased an exclusive option to acquire equity of a private company for $10.0 million in cash. We terminated the option agreement prior to the deadline for exercise
and as a result, we recorded a charge of $10.0 million in 2008 to write off the purchase price of the option. We also recorded a charge of $6.6 million in 2008 to write down our
investments in certain equity securities and venture capital funds to fair value as the unrealized losses were determined to be other than temporary.

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

At
December 31, 2008, our stockholders' equity includes $25.8 million of unrealized gains and $0.3 million of unrealized losses related to our strategic investments
in equity securities.

Investment Income

Our investment income decreased 27% to $51.3 million for 2008, as compared to $70.2 million for 2007, primarily due to a
decrease in the average portfolio yield in the United States and lower average cash balances outside the United States, offset in part by higher average U.S. cash balances.

F-36

---



Interest Expense

Our interest expense decreased 64% to $4.4 million for 2008, as compared to $12.1 million for 2007, primarily due to a
$4.5 million increase in capitalized interest, which resulted in a decrease in interest expense. Additionally, there was a $2.2 million decrease in interest expense in 2008 related to
asset retirement obligations and a $1.0 million decrease in interest expense in 2008 due to the redemption of our $690.0 million in principal of 1.25% convertible senior notes in
December 2008.

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, 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.

Minority Interest

Prior to February 20, 2007, as a result of our application of FIN 46R, we consolidated the results of
Dyax-Genzyme LLC and Excigen Inc. In connection with our termination of our joint venture with Dyax on February 20, 2007, 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 (Losses) 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 (losses) 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.

In
2006 we recorded a $69.4 million gain on the sale of our entire investment in Cambridge Antibody Technology Group plc, or CAT.

F-37

---



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.

(Provision for) Benefit from Income Taxes

2008

2007

2006

08/07
Increase/
(Decrease)
% Change

07/06
Increase/
(Decrease)
% Change(Amounts in thousands)(Provision for) benefit from income taxes

$
(204,457
)
$
(255,481
)
$
35,881


(20
)%

>(100
)%Effective tax rate


33
%

35
%

(68
)%


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 31,2008

2007

2006Tax provision at U.S. statutory rate


35.0
%

35.0
%

(35.0
)%State taxes, net


1.5


0.7


(1.7
)Export sales benefits








(37.2
)Domestic manufacturing deduction


(2.1
)

(0.5
)

(15.5
)Goodwill impairment








19.6Legal settlements





3.0


Audit settlements


(1.3
)

0.5


(62.9
)Stock compensation


1.5


1.3


15.8Tax credits


(3.9
)

(3.5
)

(30.5
)Foreign rate differential


1.4


(2.1
)

76.0Other


0.6


0.3


3.3Effective tax rate


32.7
%

34.7
%

(68.1
)%


Our
effective tax rate for 2008 was impacted by:



F-38

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Our
effective tax rates for 2007 and 2006 were impacted by:



In
addition, our overall tax rate has changed significantly due to fluctuations in our income (loss) before taxes, which was $625.5 million in 2008, $735.7 million in 2007, and $(52.7)
million in 2006.

We
are currently under IRS audit for tax years 2006 and 2007. We believe that we have provided sufficiently for all audit exposures. Settlement of these audits or the expiration of the
statute of limitations on the assessment of income taxes for any tax year may result in 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, renal disease, transplant and immune diseases, orthopaedics, oncology and diagnostic and predictive testing. We also
conduct research in cardiovascular disease, neurodegenerative diseases 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.

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

Program

Program Description
or Indication

Development Status
at December 31, 2008

Year of
Expected
Product
LaunchFabrazyme

Fabry disease

Several post-marketing commitments in the United States are ongoing.

Product was launched in 2001Myozyme

Pompe disease

Several post-marketing commitments ongoing.

Product was launched in 2006GENZ-112638

Gaucher disease

Phase 2 study results due in the first half of 2009. Phase 3 trial expected to commence during the first half of 2009.

2013Aldurazyme

MPS I

Several post-marketing commitments ongoing.

Product was launched in 2003Renvela (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. We have filed for approval of the tablet formulation in Brazil and completed the European filing in the first quarter of 2008. We are preparing to file for approval in other key markets throughout 2009.
We anticipate approval of the tablet formulations for the control of serum phosphorus in patients with CKD not on dialysis by the middle of 2009 in the United States and in the first half of 2009 in the European Union.

Tablet formulation of product was launched in the United States in 2008 for the control of serum phosphorus in patients with CKD on hemodialysisAdvanced Phosphate Binder

Next-generation phosphate binder

We have filed an IND for an advanced phosphate binder (APB) and expect to begin a phase 2/3 trial in 2009.

2014Mipomersen(1)

Reduction of LDL cholesterol

Enrollment in Phase 3 clinical trials in patients with FH was completed in 2008. Top-line data expected in the first half of 2009.

2011


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Program

Program Description
or Indication

Development Status
at December 31, 2008

Year of
Expected
Product
LaunchSynvisc-One

Viscosupplementation products to treat osteoarthritis of the knee and other joints

Received marketing approval in the European Union for Synvisc-One for knee osteoarthritis pain in the fourth quarter of 2007. FDA approval received in the first quarter of 2009.

2009 in the United StatesSepra products

Next stage products to prevent surgical adhesions for various indications

Two clinical studies for Sepraspray are ongoing.

2009 through 2010Campath(2)

B-CLL

The FDA granted front-line approval of Campath for CLL in the United States in the third quarter of 2007 and in the European Union in the fourth quarter of 2007; phase 3 combination therapy trial in second-line
CLL completed enrollment in the fourth quarter of 2008.

2009 through 2011Mozobil(3)

Improve the efficacy of stem cell transplantation in patients with blood cancers

BLA and MAA submitted in June 2008. FDA approval was received in December 2008. European Union approval is expected in the second half of 2009. Registration in non-US countries is ongoing.

2009 through 2014Evoltra (clofarabine)EU and Asia(2)

Pediatric and adult leukemias

Phase 2 trial in pediatric acute leukemias completed in 2008; Phase 2 trial in adult leukemia completed enrollment in late 2007; long-term follow-up completed in 2008. Phase 3 study in adult leukemia
through cooperative group; enrollment commenced in 2006 and was ongoing in 2008. Additional cooperative group and investigator-sponsored studies committed to in 2008, but enrollment will begin in 2009.

Pediatric launched in the European Union; 2010 in the European Union for adult; 2010 through 2013 in Asia for pediatric and adult


F-41

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Program

Program Description
or Indication

Development Status
at December 31, 2008

Year of
Expected
Product
LaunchClolar (clofarabine)North and South America(2)

Pediatric and adult leukemias, myelodysplastic syndromes (MDS)

Phase 1/2 trial in pediatric acute leukemias completed enrollment in 2007. Phase 2 trial opened in late 2007 and enrollment continues. Phase 2 trial in adult leukemia completed enrollment in late 2007;
long-term follow-up is ongoing. Phase 3 trial in adult leukemia commenced in 2006 and enrollment continued throughout 2008 and is ongoing. Phase 2 trial in high-risk MDS commenced enrollment in 2007; enrollment is ongoing. Phase 1
trial of alternate dose and schedule in high-risk MDS commenced enrollment in 2008; enrollment is ongoing. Supporting multiple investigator-sponsored studies in various pediatric and adult leukemias.

Pediatric launched in U.S.; 2009 through 2013 in Canada/South America for pediatric; 2009 in U.S. for adult; 2010 through 2013 in Canada/South America for adult; MDS in 2014Alemtuzumab (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 is
2012.

2012


---

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

Costs incurred for the year ended December 31, 2007


$330.2Costs incurred for the year ended December 31, 2008


$401.6Cumulative costs incurred as of December 31, 2008


$1,867.7Estimated costs to complete as of December 31, 2008


$1,600 to $1,900


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, the EMEA 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

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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
$1.0 billion at December 31, 2008 and $1.5 billion at December 31, 2007.

The
following is a summary of our statements of cash flows for 2008 and 2007:

Cash Flows from Operating Activities

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

2008

2007Cash flows from operating activities:Net income

$
421,081

$
480,193Non-cash charges, net


428,709


556,341Decrease in cash from working capital changes (excluding impact of acquired assets and assumed liabilities)


(90,615
)

(117,862
)Cash flows from operating activities

$
759,175

$
918,672


Cash
provided by operating activities decreased by $159.5 million in 2008, as compared to 2007, primarily driven by:



Cash Flows from Investing Activities

Cash flows from investing activities were $(581.5) million in 2008, compared to $(591.1) million in 2007. In 2008, purchases of
other intangible assets, capital expenditures and the settlement of the appraisal demand with substantially all the Bioenvision dissenters accounted for significant cash outlays for investing
activities. During 2008, we used:



These
cash outlays were partially offset by $193.7 million of net sales of investments and cash proceeds from the sale of investments in equity securities.

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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 $205.6 million of cash received from the net sales of investments.

Cash Flows from Financing Activities

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

2008

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

$
318,753

$
285,762Repurchases of common stock


(143,012
)

(231,576
)Excess tax benefits from stock-based compensation


18,445


13,575Payments of notes receivable from stockholders


12,635


Payments of debt and capital lease obligations


(693,961
)

(5,909
)Decrease in bank overdrafts


25,760


(5,910
)Minority interest contributions


1,345


3,979Other financing activities


(6,208
)

4,702Cash flows from financing activities

$
(466,243
)
$
64,623


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 a three year period that began 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. In 2008, we repurchased a total of 2,000,000 shares of our common stock under the stock repurchase program at an average
price of $71.49 per share for a total of $143.0 million of cash, including fees. As of December 31, 2008, we have purchased a cumulative total of 5,500,000 shares of our common stock at
an average price of $68.09 per share for a total of $374.6 million in cash, including fees. As of December 31, 2007, we had repurchased a total of 3,500,000 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
December 2003, we issued $690.0 million of 1.25% convertible senior notes. In October 2008, we notified the holders of these notes that we planned to redeem the notes on
December 1, 2008 using available cash. Prior to the redemption date, $2.8 million in principal amount of notes were converted into 39,665 shares of our common stock. The remaining notes
were redeemed for $687.2 million cash plus accrued interest of $4.3 million and bank fees which were not significant.

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Revolving Credit Facility

In July 2006, we entered into a 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. We may request that our 2006 revolving credit facility 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 nature of the loan.

As
of December 31, 2008, 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, 2008, we were in compliance with these covenants.

Contractual Obligations

As of December 31, 2008, we had committed to make the following payments under contractual obligations (amounts in millions):

Payments Due by PeriodContractual Obligations

Total

2009

2010

2011

2012

2013

After 2013Long-term debt obligations(1)

$
24.9

$
1.5

$
1.6

$
1.6

$
1.7

$
1.8

$
16.7Capital lease obligations(1)


165.3


15.5


15.5


15.5


15.5


16.9


86.4Operating leases(1)


300.8


67.6


53.8


39.1


29.1


16.5


94.7Contingent payments(2)


75.0


75.0














Interest obligations(3)


10.1


1.2


1.1


1.1


1.0


0.9


4.8Defined pension benefit plans payments


20.6


1.0


1.1


1.2


1.5


1.7


14.1Unconditional purchase obligations


220.8


59.5


56.4


56.4


48.5





Capital commitments(4)


1,035.2


635.5


264.3


78.8


56.5





Total contractual obligations

$
1,852.7

$
856.8

$
393.9

$
193.7

$
153.8

$
37.8

$
216.7


---

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Location

Cost to
Complete at
December 31, 2008Framingham, Massachusetts, U.S. (approximately 47% for software development).

$
344.8Westborough, Massachusetts, U.S. (primarily software development)


147.1Lyon, France


87.5Geel, Belgium


28.1Waterford, Ireland


114.0Allston, Massachusetts, U.S.


170.5Ridgefield, New Jersey, U.S.


11.6Haverhill, United Kingdom


10.4Other


121.2Total estimated cost to complete

$
1,035.2


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:



F-46

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

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

Off-Balance Sheet Arrangements

We do not use special purpose entities or other off-balance sheet financing arrangements. We enter into guarantees in the
ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries. In addition, we have joint ventures and collaborations 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 regulatory or sales thresholds.

Recent Accounting Pronouncements

The following table shows recently issued accounting pronouncements and our position for adoption:

FASB Pronouncements

Relevant Requirements
of FASB Pronouncements

Issued Date/Our
Effective Dates

StatusFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115."

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.

Issued February 2007. Adopted January 2008.

We did not elect to measure any new assets or liabilities at their respective fair values and, therefore, the adoption of FAS 159 did not have an impact on our consolidated financial statements.


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FASB Pronouncements

Relevant Requirements
of FASB Pronouncements

Issued Date/Our
Effective Dates

StatusEITF Issue No. 07-1, "Accounting for Collaborative Arrangements."

Defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties, including
the appropriate income statement presentation and classification of, and the required disclosures related to, these arrangements.

Issued November 2007. Effective January 1, 2009, to be applied retrospectively for collaborative arrangements existing as of the effective date.

EITF Issue No. 07-1 is not expected to have a material impact on our consolidated financial statements.FAS 141 (revised 2007), "Business Combinations."

Modifies and prescribes new requirements for accounting for business combinations. Among other things, acquisition costs will be expensed as incurred; restructuring costs associated with a business combination will be
expensed subsequent to the acquisition date; noncontrolling interests will be valued at fair value; IPR&D will be recorded at fair value as an indefinite lived intangible asset; contingent purchase price payments will be measured at the date of
acquisition and re-measured in subsequent periods with an adjustment to earnings; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition will affect income tax expense.

Issued December 2007. Effective on a prospective basis for all business combinations for which the acquisition date is on or after January 1, 2009.

FAS 141 (revised 2007) standards will be applied prospectively to business combinations after January 1, 2009, and will significantly change our accounting and reporting of future business combination
transactions.FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51."

Requires ownership interests in subsidiaries, not held by the parent, to be clearly identified in the consolidated statement of financial position within equity, but separate from the parent's equity, and the minority
interest in net income needs to be identified on the consolidated statement of income. Additional disclosures are required.

Issued December 2007. Effective January 1, 2009, prospectively. Disclosure requirements to be applied retrospectively.

FAS No. 160 is not expected to have a material impact on our consolidated financial statements.


Market Risk

We are exposed to potential loss from exposure to market risks represented principally by changes in interest rates, foreign exchange
rates and equity prices. At December 31, 2008, we held a number of financial instruments, including derivative contracts in the form of foreign exchange forward contracts, and investments in
marketable securities. We do not hold derivatives or other financial instruments for speculative purposes.

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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, 2008 to be $5.7 million, as compared to $6.5 million at December 31, 2007.

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 and a fixed rate capital lease. 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.

On
this basis, we estimate the potential loss in fair value to be $6.2 million as of December 31, 2008, as compared to $3.3 million as of December 31, 2007.
The increase is primarily a result of a decrease in the amount and duration of the fixed income investment portfolio, which provides less of an offset to the increase in the fair value of our capital
lease.

Foreign Exchange Risk

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

As
of December 31, 2008, we estimate the potential loss in fair value of our foreign currency contracts and foreign equity holdings that would result from a hypothetical 10%
adverse change in exchange rates to be $26.9 million, as compared to $36.2 million as of December 31, 2007. The change from the prior period is due to a decrease in our net
foreign currency contracts. Since the contracts hedge mainly transactional exchange exposures, most changes in the fair values of the contracts would be offset by changes in the underlying values of
the hedged items.

Risk Factors

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

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

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

Our
ability to increase sales will depend on a number of factors, including:



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Part
of our growth strategy involves conducting additional clinical trials to support approval of expanded uses of some of our products, including Clolar/Evoltra and alemtuzumab for
multiple sclerosis, pursuing marketing approval for our products in new jurisdictions and developing next generation products, such as Genz-112638 and our advanced phosphate binder. The
success of this component of our growth strategy will depend on the outcome of these additional clinical trials, the content and timing of our submissions to regulatory authorities and whether and
when those authorities determine to grant approvals. Because the healthcare industry is extremely competitive and regulatory requirements are rigorous, we spend substantial funds marketing our
products and attempting to expand approved uses for them. These expenditures depress near-term profitability with no assurance that the expenditures will generate future profits that
justify the expenditures.

Our
growth strategy also depends on developing new products, such as mipomersen, Prochymal and ataluren, through entry into strategic alliances and collaborations. If we are unable to
manage these external growth opportunities successfully or if the product development process is unsuccessful, we will not be able to grow our business in the way that we currently expect.

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, and generic and biosimilar manufacturers, 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/Renvela
competes with several other products for the control of elevated phosphorus levels in patients with chronic kidney failure on hemodialysis. PhosLo®, a
prescription calcium acetate preparation sold by Fresenius Medical Care, is marketed in the United States with other branded and generic calcium preparations available worldwide.
Fosrenol®, a prescription lanthanum carbonate sold by Shire, is marketed in the United States, Europe, Canada and Latin America. A generic formulation of PhosLo was launched in the United
States in October 2008. Renagel/Renvela also competes with over-the-counter calcium carbonate products such as TUMS® and metal-based options such as aluminum and
magnesium.

UCB S.A.
has developed Zavesca®, a small molecule drug for the treatment of Gaucher disease, the disease addressed by Cerezyme. Zavesca, sold by Actelion Ltd.,
has been approved in the United States, European Union and Israel as an oral therapy for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement therapy is
unsuitable. In addition, Shire reported top-line data from a phase 1/2 clinical trial for its gene-activated glucocerebrosidase program, also to

F-50

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treat
Gaucher disease, and initiated phase 3 studies in July 2007. Protalix Biotherapeutics Ltd. initiated a phase 3 trial for a plant-derived enzyme replacement therapy to treat
Gaucher disease in the third quarter of 2007. Amicus Therapeutics, Inc., or Amicus, is conducting phase 2 trials for oral chaperone medication to treat Gaucher disease. We are also aware
of other development efforts aimed at treating Gaucher disease.

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

Myozyme
has marketing exclusivity in the United States until 2013 and in the European Union until 2016 due to its orphan drug status, although companies may seek to overcome the
associated marketing exclusivity. Amicus Therapeutics has completed two phase 1 clinical studies for a small molecule treatment for Pompe disease and initiated a phase 2 clinical trial
in June 2008. In February 2009, Amicus announced that the company had suspended enrollment for its phase 2 clinical trial and that it had received verbal notice from the FDA that the
trial is on clinical hold.

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

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

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

A substantial portion of our domestic and international revenue comes from payments by third party payors, including government health
administration authorities and private health insurers.

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Governments
and other third party payors may not provide adequate insurance coverage or reimbursement for our products and services, which could impair our financial results.

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



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

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



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



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

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

Our financial results are dependent on sales of Cerezyme.

Sales of Cerezyme, our enzyme-replacement product for patients with Gaucher disease, totaled $1.2 billion for the year ended
December 31, 2008, representing approximately 27% of our total revenue. Because our business is dependent on Cerezyme, negative trends in revenue from this product could have an adverse effect
on our results of operations and cause the value of our securities to decline. We will lose revenue if alternative treatments gain commercial acceptance, if our marketing activities are restricted, or
if coverage, pricing or reimbursement is limited. In addition, the patient population with Gaucher disease is not large. Because a significant percentage of that population already uses Cerezyme,
opportunities for future sales growth are constrained. Furthermore, changes in the methods for treating patients with Gaucher disease, including treatment protocols that combine Cerezyme with other
therapeutic products or reduce the amount of Cerezyme prescribed, could limit growth, or result in a decline, in Cerezyme sales.

We may encounter substantial difficulties managing our growth.

Several risks are inherent to our plans to grow our business. Achieving our goals will require substantial investments in research and
development, sales and marketing, and facilities. For example, we have spent considerable resources building and seeking regulatory approvals for our manufacturing facilities. 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.

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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 additional approvals in
sufficient time to meet product demand. For example, the FDA has concluded that alglucosidase alfa produced in our 2000 liter bioreactors is a different product than alglucosidase alfa produced in our
160 liter bioreactors and therefore required us to submit a separate BLA for the 2000 liter product. This delay in receipt of FDA approval has had an adverse effect on our revenues and earnings and
will continue to have an adverse effect until we receive regulatory approval.

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

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



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

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

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

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

In order to generate revenue from our approved products, we must be able to produce sufficient quantities of the products to satisfy
demand. Many of our products are difficult to manufacture. Our

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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. Problems with these manufacturing processes, even minor deviations, could result in product defects or manufacturing failures that result in lot
failures, product recalls, product liability claims and insufficient inventory. In the past, we have had to write down and incur other charges and expenses for products that failed to meet internal or
external specifications, including Thymoglobulin, or for products that experience terminated production runs, including Myozyme produced at the 4000L scale. Similar charges could occur in the future.

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

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

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. In addition, because are manufacturing processes are highly complex and are subject to lengthy regulatory approval processes, alternative qualified
production capacity may not be available on a timely basis or at all if we cannot produce sufficient commercial requirements of bulk product to meet demand.

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

Some materials necessary for commercial production of our products, including specialty chemicals and components necessary for
manufacture, fill-finish and packaging, are provided by unaffiliated third party suppliers. In some cases, such materials are specifically cited in our marketing applications with
regulatory authorities so that they must be obtained from that specific source unless and until the applicable authority approves another supplier. In addition, there may only be one available source
for a particular chemical or component. For example, we acquire polyalylamine (PAA), used in the manufacture of Renagel, Renvela, Cholestagel and WelChol, from Cambrex Charles City, Inc., and
N925, which is necessary to manufacture our LSD products from Invitrogen Corporation. These suppliers are the only sources for these materials currently qualified in our FDA drug applications for
these products. Our suppliers also may be subject to FDA regulations or the regulations of other governmental agencies outside the United States regarding manufacturing practices. We may be unable to
manufacture our products or to perform our services in a timely manner or at all if these third party suppliers were to cease or interrupt production or otherwise fail to supply sufficient quantities
of these materials or products to us for any reason, including due to regulatory requirements or actions, adverse

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financial
developments at or affecting the supplier, labor shortages or disputes, or contamination of materials or equipment.

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 us. Our inability to coordinate these efforts, the inability of a third party
contractor to secure sufficient source materials, the lack of capacity available at a third party contractor or any other problems with the operations of a third party contractor could require us to
delay shipment of saleable products, recall products previously shipped or impair our ability to supply products at all. This could increase our costs, cause us to lose revenue or market share and
damage our reputation. Furthermore, any third party we use to manufacture, fill-finish or package our products to be sold must also be licensed by the applicable regulatory authorities. As
a result, alternative third party providers may not be readily available on a timely basis.

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

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

In
2008, the change in foreign exchange rates had a net favorable impact on our revenues; however, this trend changed during the fourth quarter of 2008. Although we cannot predict with
certainty future changes in foreign exchange rates or their effect on our results, we do not expect the change in foreign exchange rates to have a positive impact on our revenues for 2009.

Guidelines, recommendations and studies 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, recommendations or studies 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, guidelines or studies that are followed by patients and healthcare providers could result in decreased use of our products. The perception by the
investment community or stockholders that recommendations, guidelines or studies 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.

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

Government agencies heavily regulate the production and sale of healthcare products and the provision of healthcare services. Our
success will depend on our ability to satisfy regulatory requirements. In particular, the FDA, the EMEA 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. We may not receive required regulatory approvals on a timely basis or at all.

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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, the EMEA and comparable foreign regulatory agencies may require post-marketing clinical trials or patient outcome studies. We have agreed with the FDA,
for example, to a number of post-marketing commitments as a condition to U.S. marketing approval for Fabrazyme, Aldurazyme, Myozyme, Clolar and Mozobil. In addition, regulatory agencies
subject a marketed therapy, its manufacturer and the manufacturer's facilities to continual review and periodic inspections. The discovery of previously unknown problems with a therapy or the facility
or process used to produce the therapy could prompt a regulatory authority to impose restrictions on us, or could cause us to voluntarily adopt such restrictions, including withdrawal of one or more
of our products or services from the market. For example, we received a warning letter from the FDA in September 2007 that addressed certain of our manufacturing procedures in our Thymoglobulin
production facility in Lyon. The FDA has accepted our response to that warning letter. In February 2009, we received a warning letter from the FDA related to inspectional observations by
the FDA at our Allston, Massachusetts facility, considered to be significant deviations from compliance with "Good Manufacturing Practices." We are currently reviewing that warning letter and
plan to respond to the FDA in writing.

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

We expect regulatory action on several matters during the next 12 months. For example, we anticipate regulatory action on our
marketing application for alglucosidase alfa produced at the 2000L scale in the United States; our marketing application for Mozobil in Europe; the expansion of labeling for clofarabine to include the
treatment of adults with AML in the United States and Europe; our marketing application for Renvela in Europe and a label expansion of Renvela in the United States to include the treatment of CKD
patients not on dialysis.

Regulatory
authorities denying or delaying these approvals would adversely impact our projected revenue and income growth. A regulatory authority may deny or delay an approval because it
was not satisfied with the structure or conduct of clinical trials or due to its assessment of the data we supply. A regulatory authority, for instance, may not believe that we have adequately
established a product's risk-benefit profile or adequately addressed negative safety signals. Clinical data are subject to varied interpretations, and regulatory authorities may disagree
with our assessments of our data. In any such case, a regulatory authority could insist that we provide additional data, which could substantially delay or even prevent commercialization efforts,
particularly if we are required to conduct additional pre-approval clinical studies. In addition, the FDA has failed to act on pending marketing applications by the response dates
prescribed in the Prescription Drug User Fee Act. We have encountered delays

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in
marketing in the United States for alglucosidase alfa produced at the 2000L scale, which has adversely impacted our financial results and resulted in a very tight product supply, and we could face
additional delays with this product or other products.

The current credit and financial market conditions may exacerbate certain risk affecting our business.

Sales of our products are dependent, in part, on the availability and extent of reimbursement from third party payers, including
governments and private insurance plans. As a result of the current volatility in the financial markets, third-party payers may delay payment or be unable to satisfy their reimbursement obligations. A
reduction in the availability or extent of reimbursement could negatively affect our product sales and revenue.

In
addition, we rely upon third parties for certain aspects of our business, including collaboration partners, wholesale distributors for our products, contract clinical trial providers,
contract manufacturers, and third-party suppliers. Because of the recent tightening of global credit and the volatility in the financial markets, there may be a delay or disruption in the performance
or satisfaction of commitments to us by these third parties, which could adversely affect our business.

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

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



We
are also currently involved in litigation matters and investigations that do not involve intellectual property claims and may be subject to additional actions in the future. For
example, the federal government, state governments and private payors are investigating and have filed 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.

Some
of our products are prescribed by healthcare providers for uses not approved by the FDA, the EMEA or comparable regulatory agencies. Although healthcare providers 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 healthcare providers 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.

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

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



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

Our international operations accounted for approximately 51% of our consolidated product and service revenues for the year ended
December 31, 2008. We expect that international product and service sales will continue to account for a significant percentage of our revenues for the foreseeable future. In addition, we have
direct investments in a number of subsidiaries outside of the United States. Our international sales and operations could be limited or disrupted, and the value of our direct investments may be
diminished, by any of the following:



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

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

Our long-term success largely depends on our ability to market technologically competitive products. If we fail to obtain
or maintain adequate intellectual property protection in the United States or abroad, we may not be able to prevent third parties from using our proprietary technologies. Our currently pending or
future patent applications may not result in issued patents. Patent applications are typically confidential for 18 months following their earliest filing, and because third parties may have
filed patent applications for technology covered by our pending patent applications without us being aware of those applications, our patent applications may not have priority over patent applications
of others. In addition, our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products, or provide us with any competitive
advantage. If a third party initiates litigation regarding our patents, our collaborators' patents, or those patents for which we have license rights, and is successful, a court could declare our
patents invalid or unenforceable or limit the scope of coverage of those patents. Governmental patent offices and courts have not always been consistent in their interpretation of the scope and
patentability of the subject matter claimed in biotechnology patents. 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 collaborators. These individuals may breach these agreements and any remedies available to us may be
insufficient to compensate for our damages. Furthermore, our trade secrets, know-how and other technology may otherwise become known or be independently discovered by our competitors.

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

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

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

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Renagel,
Renvela and Hectorol are subjects of ANDAs containing Paragraph IV certifications. Renagel is the subject of three ANDAs containing Paragraph IV certifications.
One of the ANDAs contains a Paragraph IV certification that relates only to one of our Orange Book-listed patents, namely our patent that covers features of our tablet dosage form.
This patent expires in 2020, and the ANDA applicant alleged that its proposed product would not infringe that patent. We reviewed the Paragraph IV certification and did not initiate patent
infringement litigation within the 45-day statutory period. The other two ANDA applications contain Paragraph IV certifications challenging additional aspects of the Renagel patent
estate, including patents that expire in 2014 and 2013. Specifically, one ANDA applicant seeks to market its generic product prior to the expiration of all of Genzyme's Orange Book-listed
patents, while another seeks to market its generic product only after the expiration of Genzyme's Orange Book-listed patents that expire in 2013. We are evaluating these ANDA applications
and associated legal issues in advance of our March 2009 deadlines to initiate patent litigation and trigger the statutory 30-month stay of FDA approval for the ANDA. Renvela is the
subject of an ANDA in which the applicant has submitted a Paragraph IV certification seeking to market a generic sevelamer carbonate product after the expiration of Genzyme's Orange
Book-listed patents that expire in 2013. We also are evaluating this ANDA application and associated legal issues in advance of our April 2009 deadline to trigger the 30-month
statutory stay.

In
the case of Hectorol, the ANDA applicant has submitted a Paragraph IV certification alleging the invalidity of our patent related to the use of Hectorol to treat
hyperparathyroidism secondary to end-stage renal disease (which patent expires in 2014), and alleging non-infringement of our patent covering our highly purified form of
Hectorol (which patent expires in 2021). We initiated patent infringement litigation in February 2008, triggering the stay of FDA approval for the ANDA. We believe that our patents are valid. A trial
on the merits is scheduled for April 2010. The ANDA applicant also has submitted a Paragraph IV certification alleging the invalidity of our patent that claims specific aspects of our Hectorol
vial formulation. We are evaluating the merits of their position in advance of our April 2009 deadline for triggering the 30-month statutory stay.

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

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

We may be required to license patents 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
favorable

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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.

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. The pricing and reimbursement environment
for our products may change in the future and become more challenging due to among other reasons, policies advanced by the new presidential administration in the United States, new healthcare
legislation or fiscal challenges faced by government health administration authorities.

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

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

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



Furthermore,
payments we make under these arrangements may exacerbate fluctuations in our financial results. In addition, under some of our strategic alliances, we make upfront and
milestone payments well in advance of commercialization of products with no assurance that we will ever recoup these payments. We also may make equity investments in our strategic partners, as we did
with Isis Pharmaceuticals, Inc. in February 2008 and RenaMed Biologics, Inc., or RenaMed, in June 2005. Our strategic equity investments are subject to market fluctuations, access to
capital and other business events, such as initial public offerings, the completion of clinical trials and regulatory approvals, which

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can
impact the value of these investments. For example, in October 2006, RenaMed suspended clinical trials of its renal assist device which was being developed to treat patients with acute renal
failure, causing us to write off our entire investment in RenaMed. If other strategic equity investments decline in value and remain below cost for an extended duration, we may incur additional
charges.

Our investments in marketable securities are subject to market, interest and credit risk that may reduce their value.

We maintain a significant portfolio of investments in marketable securities. Our earnings may be adversely affected by changes in the
value of this portfolio. In particular, the value of our investments may be adversely affected by increases in interest rates, downgrades in the corporate bonds included in the portfolio, instability
in the global financial markets that reduces the liquidity of securities included in the portfolio, and by other factors which may result in other than temporary declines in value of the investments.
Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost. We attempt to mitigate these risks
with the assistance of our investment advisors by investing in high quality securities and continuously monitoring the overall risk profile of our portfolio.

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

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

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

As of December 31, 2008, we had $1.0 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:



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

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

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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, 2008 and 2007, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2008 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, 2008, 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
"Management's Annual Report on Internal Control over Financial Reporting" appearing under Item 9A. 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 O 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 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.

/s/
PricewaterhouseCoopers LLP

Boston,
Massachusetts
February 27, 2009

F-65

---





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

For the Years Ended December 31,2008

2007

2006Revenues:Net product sales

$
4,196,907

$
3,457,778

$
2,887,409Net service sales


366,091


326,326


282,118Research and development revenue


42,041


29,415


17,486Total revenues


4,605,039


3,813,519


3,187,013Operating costs and expenses:Cost of products sold


913,267


715,504


536,388Cost of services sold


235,295


211,826


199,283Selling, general and administrative


1,338,190


1,187,184


1,010,400Research and development


1,308,330


737,685


649,951Amortization of intangibles


226,442


201,105


209,355Purchase of in-process research and development





106,350


552,900Charge for impaired intangible assets and goodwill


2,036





219,245Total operating costs and expenses


4,023,560


3,159,654


3,377,522Operating income (loss)


581,479


653,865


(190,509
)Other income (expenses):Equity in income of equity method investments


201


7,398


15,705Minority interest


2,217


3,932


10,418Gain (loss) on investments in equity securities, net


(3,340
)

13,067


73,230Other


(1,861
)

(637
)

(2,045
)Investment income


51,260


70,196


56,001Interest expense


(4,418
)

(12,147
)

(15,478
)Total other income


44,059


81,809


137,831Income (loss) before income taxes


625,538


735,674


(52,678
)(Provision for) benefit from income taxes


(204,457
)

(255,481
)

35,881Net income (loss)

$
421,081

$
480,193

$
(16,797
)Net income (loss) per share:Basic

$
1.57

$
1.82

$
(0.06
)Diluted

$
1.50

$
1.74

$
(0.06
)Weighted average shares outstanding:Basic


268,490


263,895


261,624Diluted


285,595


280,767


261,624Comprehensive income (loss), net of tax:Net income (loss)

$
421,081

$
480,193

$
(16,797
)Other comprehensive income (loss):Foreign currency translation adjustments


(141,936
)

149,425


130,500Gain (loss) on affiliate sale of stock, net of tax





(72
)

817Pension liability adjustments, net of tax


5,772


1,056


(9,244
)Unrealized gains (losses) on securities, net of tax:Unrealized gains (losses) arising during the period, net of tax


5,039


18,050


41,504Reclassification adjustment for gains included in net income (loss), net of tax


(6,742
)

(8,586
)

(45,065
)Unrealized gains (losses) on securities, net of tax


(1,703
)

9,464


(3,561
)Other comprehensive income (loss)


(137,867
)

159,873


118,512Comprehensive income

$
283,214

$
640,066

$
101,715


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

F-66

---



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

December 31,2008

2007ASSETSCurrent assets:Cash and cash equivalents

$
572,106

$
867,012Short-term investments


57,507


80,445Accounts receivable, net


1,036,940


904,101Inventories


453,437


439,115Prepaid expenses and other current assets


208,040


166,817Deferred tax assets


188,105


164,341Total current assets


2,516,135


2,621,831Property, plant and equipment, net


2,306,567


1,968,402Long-term investments


344,078


512,937Goodwill


1,401,074


1,403,828Other intangible assets, net


1,654,698


1,555,652Deferred tax assets


269,237


95,664Investments in equity securities


83,325


89,181Other noncurrent assets


96,162


66,880Total assets

$
8,671,276

$
8,314,375LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
127,869

$
128,380Accrued expenses


765,386


645,645Deferred revenue


13,462


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


7,566


696,625Total current liabilities


914,283


1,483,927Long-term debt and capital lease obligations


124,341


113,748Deferred revenuenoncurrent


13,175


16,662Other noncurrent liabilities


313,484


87,101Total liabilities


1,365,283


1,701,438Commitments and contingencies (Note N)Stockholders' equity:Preferred stock, $0.01 par value





Common stock, $0.01 par value


2,707


2,660Additional paid-in capital


5,780,753


5,385,154Notes receivable from stockholders


(1,474
)

(15,670
)Accumulated earnings


1,247,796


826,715Accumulated other comprehensive income


276,211


414,078Total stockholders' equity


7,305,993


6,612,937Total liabilities and stockholders' equity

$
8,671,276

$
8,314,375


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

F-67

---





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

For the Years Ended December 31,2008

2007

2006Cash Flows from Operating Activities:Net income (loss)

$
421,081

$
480,193

$
(16,797
)Reconciliation of net income (loss) to cash flows from operating activities:Depreciation and amortization


374,664


338,196


331,389Stock-based compensation


187,596


190,070


208,614Provision for bad debts


12,983


9,665


10,050Purchase of in-process research and development





106,350


552,900Charge for impaired tangible and intangible assets


2,036





219,245Equity in income of equity method investments


(201
)

(7,398
)

(15,705
)Minority interest


(2,217
)

(3,932
)

(10,418
)(Gains) losses on investments in equity securities, net


3,340


(13,067
)

(73,230
)Deferred income tax benefit


(195,200
)

(106,140
)

(279,795
)Tax benefit from employee stock-based compensation


59,868


51,041


46,174Excess tax benefits from stock-based compensation


(18,445
)

(13,575
)

(7,114
)Other


4,285


5,131


(3,433
)Increase (decrease) in cash from working capital changes (excluding impact of acquired assets and assumed liabilities):Accounts receivable


(137,273
)

(105,230
)

(120,505
)Inventories


(4,700
)

(15,011
)

(37,632
)Prepaid expenses and other current assets


12,142


(23,897
)

(19,784
)Income taxes payable


(87,390
)

(132,314
)

50,123Accounts payable, accrued expenses and deferred revenue


126,606


158,590


54,487Cash flows from operating activities


759,175


918,672


888,569Cash Flows from Investing Activities:Purchases of investments


(420,867
)

(779,932
)

(913,159
)Sales and maturities of investments


608,994


985,546


926,327Purchases of equity securities


(88,656
)

(21,994
)

(7,577
)Proceeds from sales of investments in equity securities


8,594


20,712


140,165Purchases of property, plant and equipment


(597,562
)

(412,872
)

(333,675
)Acquisitions, net of acquired cash


(16,561
)

(342,456
)

(568,953
)Distributions from equity method investments


4,844


17,100


19,800Payment of note receivable from Dyax





7,771


Purchases of other intangible assets


(92,183
)

(60,350
)

(105,348
)Other


11,857


(4,581
)

6,008Cash flows from investing activities


(581,540
)

(591,056
)

(836,412
)


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

F-68

---



GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

(Amounts in thousands)



For the Years Ended December 31,2008

2007

2006Cash Flows from Financing Activities:Proceeds from issuance of common stock


318,753


285,762


158,305Repurchases of our common stock


(143,012
)

(231,576
)

Excess tax benefits from stock-based compensation


18,445


13,575


7,114Payments of debt and capital lease obligations


(693,961
)

(5,909
)

(4,501
)Increase (decrease) in bank overdrafts


25,760


(5,910
)

(21,124
)Payments of notes receivable from stockholders


12,635





Minority interest contributions


1,345


3,979


11,153Other


(6,208
)

4,702


1,210Cash flows from financing activities


(466,243
)

64,623


152,157Effect of exchange rate changes on cash


(6,298
)

(17,397
)

(4,104
)Increase (decrease) in cash and cash equivalents


(294,906
)

374,842


200,210Cash and cash equivalents at beginning of period


867,012


492,170


291,960Cash and cash equivalents at end of period

$
572,106

$
867,012

$
492,170Supplemental disclosures of cash flows:Cash paid during the year for:Interest, net of capitalized interest

$
1,799

$
5,490

$
11,990Income taxes

$
427,591

$
447,566

$
154,729Supplemental disclosures of non-cash transactions:Mergers, Acquisitions and Strategic TransactionsNote C.Property, Plant and EquipmentNote G.Capital lease obligation for Genzyme CenterNote L.Long-Term DebtNote L.


We
did not complete any acquisitions in 2008. In conjunction with acquisitions completed in 2007 and 2006, as described in Note C., "Mergers, Acquisitions and Strategic
Transactions," we assumed the following liabilities (amounts in thousands):

For the Years Ended December 31,2007

2006Net cash paid for acquisitions and acquisition costs

$
(342,456
)
$
(568,953
)Fair value of assets acquired


226,579


13,202Accrual for dissenting shares


(16,128
)

Acquired in-process research and development


125,500


552,900Goodwill


100,393


30,177Liabilities for exit activities and integration


(2,671
)

(6,348
)Income taxes payable


(72,461
)

Net deferred tax assets (liabilities)


(8,210
)

2,067Net liabilities assumed

$
10,546

$
23,045


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

F-69

---





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

Common StockNotes
Receivable
from
Stockholders



Accumulated
Other
Comprehensive
IncomeShares

Par
Value

Additional
Paid-In
Capital

Accumulated
Earnings
(Deficit)

Total
Stockholders'
EquityBalance, January 1, 2006


259,151

$
2,592

$
4,687,776

$
(14,445
)
$
329,456

$
144,488

$
5,149,867Stock issued through stock option and stock purchase plans


3,875


38


158,267











158,305Tax benefit from stock option exercises








46,174











46,174Stock-based compensation








215,419











215,419Change in unrealized gains and losses on investments, net of tax(1)

















(3,561
)

(3,561
)Gain on affiliate sale of stock, net of tax(2)

















817


817Foreign currency translation adjustments

















130,500


130,500Pension liability adjustment, net of tax(3)

















(8,564
)

(8,564
)Adoption of FAS 158, net of tax(4)

















(8,795
)

(8,795
)Other








(1,362
)

(612
)




(680
)

(2,654
)Net loss














(16,797
)




(16,797
)Balance, December 31, 2006


263,026


2,630


5,106,274


(15,057
)

312,659


254,205


5,660,711Stock issued through stock option and stock purchase plans


6,482


65


285,697











285,762Tax benefit from stock option exercises








27,654











27,654Stock-based compensation








189,661











189,661Adoption of FIN 48








6,933





33,863





40,796Repurchases of our common stock


(3,500
)

(35
)

(231,541
)










(231,576
)Foreign currency translation adjustments

















149,425


149,425Change in unrealized gains and losses on investments, net of tax(1)

















9,464


9,464Gain on affiliate sale of stock, net of tax(2)

















(72
)

(72
)Pension liability adjustment, net of tax(3)

















1,056


1,056Other








476


(613
)







(137
)Net income














480,193





480,193Balance, December 31, 2007


266,008


2,660


5,385,154


(15,670
)

826,715


414,078


6,612,937Stock issued through stock option and stock purchase plans


6,682


67


318,686











318,753Tax benefit from stock option exercises








31,526











31,526Stock-based compensation








187,596











187,596Repurchases of common stock


(2,000
)

(20
)

(142,992
)










(143,012
)Conversion of our convertible senior notes


40





2,825











2,825Payments of notes receivable from stockholders


(26
)




(1,974
)

14,609








12,635Foreign currency translation adjustments

















(141,936
)

(141,936
)Change in unrealized gains and losses on investments, net of tax(1)

















(1,703
)

(1,703
)Pension liability adjustment, net of tax(3)

















5,772


5,772Other








(68
)

(413
)







(481
)Net income














421,081





421,081Balance, December 31, 2008


270,704

$
2,707

$
5,780,753

$
(1,474
)
$
1,247,796

$
276,211

$
7,305,993


---

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

F-70

---





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 disease, orthopaedics, cancer, transplant and immune disease, and diagnostic and predictive testing.

In
the fourth quarter of 2008, we changed our segment reporting structure to better reflect the way we manage and measure the performance of our businesses. Under the new reporting
structure, we are
organized into four financial reporting units, which we also consider to be our reporting segments:



Our
transplant business unit, which develops, manufactures and distributes therapeutic products that address pre-transplantation, prevention and treatment of graft rejection
in organ transplantation and other hematologic and auto-immune disorders, and our genetics business unit, which provides testing services for the oncology, prenatal and reproductive
markets, were formerly reported as separate reporting segments. Beginning with this report, we now include our transplant and genetics business units under the caption "Other." We also report the
activities of our diagnostic products, bulk pharmaceuticals and immune mediated disease business units under the caption "Other." These operating segments did not meet the quantitative threshold for
separate reporting.

We
report our corporate, general and administrative operations and corporate science activities under the caption "Corporate." Effective January 1, 2008, as a result of changes in
how we review our business, certain general and administrative expenses that were formerly allocated amongst our reporting segments and "Other" are now allocated to "Corporate."

We
have reclassified our 2007 and 2006 segment disclosures to conform to our 2008 presentation.

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

F-71

---



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. We have reclassified certain 2007 and 2006 data to conform to our 2008 presentation.

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.

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, 2008 but 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 or which are subject to trading
restrictions for more than one year 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.

F-72

---



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:



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.

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 10 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 interest. We depreciate these costs using the straight-line method.

F-73

---



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:



We
are required to perform impairment tests related to our goodwill under FAS 142 annually and whenever events or changes in circumstances suggest that the carrying value of an
asset may not be recoverable. We complete our annual impairment test in the third quarter of each year.

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. 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.

F-74

---



Translation of Foreign Currencies

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



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 $263.1 million at December 31, 2008 and $411.0 million at December 31, 2007. Gains and
losses, net of tax, 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 loss of $(18.3) million for fiscal year 2008, a net gain of $5.8 million for fiscal year 2007 and a net gain of $7.8 million for fiscal year 2006.

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 measure 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.

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



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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.

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.

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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." 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
cancelled after January 1, 2006, our adoption date. Compensation expense for the unvested portion of awards granted prior to our adoption date is:



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.

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

F-77

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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 the tax
position will be sustained based on the technical merits of the tax position. The tax benefits recognized in our consolidated financial statements from such a position are measured on the largest
amount, using the cumulative probability measure, which is likely to be ultimately realized. 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
amounts of accrued interest related to unrecognized tax benefits within our provision for income taxes for the years ended December 31, 2008 and 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, 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

The following table shows recently issued accounting pronouncements and our position for adoption:

FASB Pronouncements

Relevant Requirements
of FASB Pronouncements

Issued Date/ Our
Effective Dates

StatusFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115."

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.

Issued February 2007. Adopted January 2008.

We did not elect to measure any new assets or liabilities at their respective fair values and, therefore, the adoption of FAS 159 did not have an impact on our consolidated financial statements.EITF Issue No. 07-1, "Accounting for Collaborative Arrangements."

Defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties, including
the appropriate income statement presentation and classification of, and the required disclosures related to, these arrangements.

Issued November 2007. Effective January 1, 2009, to be applied retrospectively for collaborative arrangements existing as of the effective date.

EITF Issue No. 07-1 is not expected to have a material impact on our consolidated financial statements.


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FASB Pronouncements

Relevant Requirements
of FASB Pronouncements

Issued Date/ Our
Effective Dates

StatusFAS 141 (revised 2007), "Business Combinations."

Modifies and prescribes new requirements for accounting for business combinations. Among other things, acquisition costs will be expensed as incurred; restructuring costs will be expensed subsequent to the acquisition
date; non-controlling interests will be valued at fair value; IPR&D will be recorded at fair value as an indefinite lived intangible asset; contingent purchase price payments will be measured at the acquisition date and re-measured in subsequent
periods with an adjustment to earnings; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition will affect income tax expense.

Issued December 2007. Effective on a prospective basis for all business combinations for which the acquisition date is on or after January 1, 2009.

FAS 141 (revised 2007) standards will be applied prospectively to business combinations after January 1, 2009, and will significantly change our accounting and reporting of future business combination
transactions.FAS No. 160, "Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51."

Requires ownership interests in subsidiaries, not held by the parent, to be clearly identified in the consolidated statement of financial position within equity, but separate from the parent's equity, and the
minority interest in net income needs to be identified on the consolidated statement of income. Additional disclosures are required.

Issued December 2007. Effective January 1, 2009, prospectively. Disclosure requirements to be applied retrospectively.

FAS No. 160 is not expected to have a material impact on our consolidated financial statements.


F-79

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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 31,2008

2007

2006Net income (loss)

$
421,081

$
480,193

$
(16,797
)Effect of dilutive securities:Interest expense and debt fee amortization, net of tax, related to our 1.25% convertible senior notes


6,915


7,543


Net income (loss)diluted

$
427,996

$
487,736

$
(16,797
)Shares used in computing net income (loss) per common sharebasic


268,490


263,895


261,124Effect of dilutive securities(1):Shares issuable upon the assumed conversion of our 1.25% convertible senior notes


8,851


9,686


Stock options(2)


7,286


7,039


Restricted stock units


700


11


Other


268


136


Dilutive potential common shares


17,105


16,872


Shares used in computing net income (loss) per common sharediluted(1,2)


285,595


280,767


261,124Net income (loss) per share:Basic

$
1.57

$
1.82

$
(0.06
)Diluted

$
1.50

$
1.74

$
(0.06
)


---

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


9,686Shares issuable for options


6,881Other


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


16,578


---

For the Years Ended December 31,2008

2007

2006Shares of Genzyme Stock issuable upon exercise of outstanding options


3,816


12,262


11,840


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NOTE C.  MERGERS, ACQUISITIONS AND STRATEGIC TRANSACTIONS

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

2008:

Strategic Alliance with Osiris

In October 2008, we entered into a strategic alliance with Osiris, whereby we obtained an exclusive license to develop and
commercialize Prochymal and Chondrogen, mesenchymal stem cell products, outside of the United States and Canada. Osiris will commercialize Prochymal and Chondrogen in the United States and
Canada. We paid Osiris a nonrefundable upfront payment of $75.0 million in November 2008, and will pay an additional $55.0 million nonrefundable upfront license fee on July 1,
2009. The results of these programs are included in our immune mediated disease business unit, which are reported under the category "Other" in our segment disclosures.

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



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

Strategic Alliance with PTC

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



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PTC
is also eligible to receive tiered royalties from sales of ataluren outside of the United States and Canada. The results of our ataluren program are included in the results of our Genetic Diseases
segment disclosures.

Strategic Alliance with Isis

On January 7, 2008, we entered into a strategic alliance with Isis, whereby we obtained an exclusive, worldwide license to
develop and commercialize mipomersen, a lipid-lowering drug targeting apolipoprotein B-100, which is currently being developed for the treatment of FH, an inherited disorder that causes
exceptionally high levels of LDL-cholesterol. In February 2008, we made a nonrefundable payment to Isis of $150.0 million, of which $80.1 million was recorded as an other
noncurrent asset on our consolidated balance sheets based on the fair value of the five million shares of Isis common stock we acquired in connection with the transaction. Due to certain trading
restrictions, we classify this investment as other noncurrent assets. We allocated the remaining $69.9 million to the mipomersen license, which we recorded as a charge to research and
development expense in our consolidated statements of operations during the first quarter of 2008.

In
June 2008, we finalized the terms of our license and collaboration agreement with Isis and paid Isis an additional $175.0 million upfront nonrefundable license fee. Under the
terms of the agreement, Isis will be responsible, at its own expense, for up to $125.0 million for the development of mipomersen. Thereafter, we and Isis will share development costs for
mipomersen equally. The initial funding commitment by Isis and shared development funding would end when the mipomersen program is profitable. In the event the research and development of mipomersen
is terminated prior to Isis
completing their funding obligation, we are not entitled to any refund of our $175.0 million upfront payment. Isis is eligible to receive up to $750.0 million in commercial milestone
payments and up to $825.0 million in development and regulatory milestone payments.

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

2007:

Diagnostic Assets of DCL

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 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.

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Bioenvision

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

In
connection with the merger, holders of 2,880,000 shares of Bioenvision common stock, representing less than 5% of the outstanding shares of Bioenvision common stock on an
as-converted basis immediately before the merger became effective, submitted written demands for appraisal of their shares and elected not to accept the $5.60 per share merger
consideration. We referred to these holders as dissenters. In September 2008, the appraisal demand was resolved with substantially all of the dissenters for a total of $16.6 million in cash,
consisting of the merger price paid to all other Bioenvision stockholders, plus interest accrued. In total, we paid gross consideration of $366.5 million in cash, including
$362.0 million for the outstanding shares of Bioenvision common stock and preferred stock and options to purchase shares of Bioenvision common stock.

2006:

Our 2006 acquisition of AnorMED was accounted for as business combination and, accordingly, we included the results of operations of
AnorMED beginning on the date of acquisition. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the
date of acquisition. The excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed amounted to $32.3 million, which was allocated to goodwill. We
expect that substantially all of the amount allocated to goodwill will be deductible for tax purposes.

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Purchase Price Allocation Table

The purchase price for each of our 2007 and 2006 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, 2007

Year Ended
December 31,
2006DCL

Bioenvision

Total

AnorMEDTotal purchase price

$
54,084

$
349,941

$
404,025

$
589,173Cash and cash equivalents

$


$
45,186

$
45,186

$
20,220Accounts receivable


2,618


5,537


8,155


Inventory


5,179


1,684


6,863


Other current assets





5,130


5,130


6,340Property, plant and equipment


1,843





1,843


758Goodwill


15,124


85,269


100,393


32,349Other intangible assets(1,2,3)


29,827


172,441


202,268


3,500In-process research and development





106,350


106,350


552,900Deferred tax assetsnoncurrent


40





40


28,336Equity in net loss of Bioenvision pre-acquisition ownership





21,101


21,101


Other noncurrent assets





624


624


120Assumed liabilities:Income taxes payable





(72,461
)

(72,461
)

Deferred tax liabilities


(421
)

(7,829
)

(8,250
)

(25,288
)Liabilities for exit activities and integration





(2,671
)

(2,671
)

(8,882
)Other liabilities


(126
)

(10,420
)

(10,546
)

(21,180
)Allocated purchase price

$
54,084

$
349,941

$
404,025

$
589,173


---

In-Process Research and Development

We did not complete any business combination acquisitions in 2008. In connection with two acquisitions we completed between
January 1, 2006 and December 31, 2007, we acquired various

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

Company/Assets Acquired

Purchase Price

IPR&D

Programs Acquired

Discount
Rate Used
in Estimating
Cash Flows

Year of
Expected
LaunchBioenvision (2007)

$
349.9

$
125.5

Evoltra (clofarabine)(1,2)


17
%

2009-2013AnorMED (2006)

$
589.2

$
526.8

Mozobil (stem cell transplant)(3)


15
%

2009-201426.1

AMD070 (HIV)(4)


15
%

$
552.9


---

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

F-85

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are
confirmed or refined. The following table summarizes the liabilities established for exit activities related to these acquisitions (amounts in thousands):

Employee
Related
Benefits

Closure of
Leased
Facilities

Other
Exit
Activities

Total
Exit
ActivitiesBalance at December 31, 2006

$
6,105

$
24

$


$
6,129Acquisition


2,601





70


2,671Revision of estimates


(931
)

2,593





1,662Payments


(5,602
)

(453
)




(6,055
)Balance at December 31, 2007


2,173


2,164


70


4,407Revision of estimates


191








191Payments


(1,960
)

(787
)

(70
)

(2,817
)Balance at December 31, 2008(1)

$
404

$
1,377

$


$
1,781


---

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. 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:



We
did not complete any acquisitions in 2008. The following table provides our pro forma summary for the years ended December 31, 2007 and 2006 (amounts in thousands, except per
share amounts):

2007

2006Total revenues

$
3,824,600

$
3,205,422Net income (loss)

$
457,675

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

$
1.73

$
(0.64
)Diluted

$
1.66

$
(0.64
)Weighted average shares outstanding:Basic


263,895


261,124Diluted


280,767


261,124


Pro
forma results are not presented for the acquisition of assets from DCL for the years ended December 31, 2007 and 2006 because this acquisition did not have a material effect
on our results of operations in those periods.

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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 was
$349.5 million at December 31, 2008, $347.1 million at December 31, 2007 and $455.1 million at December 31, 2006. These contracts had a fair value of
$(1.4) million at December 31, 2008, $(15.1) million at December 31, 2007 and $(1.5) million at December 31, 2006, all representing unrealized losses and were
recorded in SG&A in our consolidated statements of operations and in accrued expenses in our consolidated balance sheets for the periods presented.

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. Accounts
receivable are booked net of certain allowances for bad debts, chargebacks and prompt pay discounts. The allowances were $40.4 million at December 31, 2008 and $40.3 million at
December 31, 2007.

NOTE F.  INVENTORIES

December 31,2008

2007(Amounts in thousands)Raw materials

$
96,986

$
120,409Work-in-process


141,094


130,812Finished goods


215,357


187,894Total

$
453,437

$
439,115


We
capitalize inventory produced for commercial sale, which may result in the capitalization of inventory prior to regulatory approval. If a product is not approved for sale, it would
result in the write off of the inventory and a charge to earnings. Our total inventories at December 31, 2008, included $9.2 million of Myozyme and $3.5 million of Campath
inventory, produced at our manufacturing facility in Belgium, that have not yet been approved for sale.

NOTE G.  PROPERTY, PLANT AND EQUIPMENT

December 31,2008

2007(Amounts in thousands)Plant and equipment

$
879,933

$
846,974Land and buildings


1,006,140


931,916Leasehold improvements


246,468


265,242Furniture and fixtures


63,241


62,238Construction in progress


1,015,497


698,8243,211,279


2,805,194Less accumulated depreciation


(904,712
)

(836,792
)Property, plant and equipment, net

$
2,306,567

$
1,968,402


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Our
total depreciation expense was $148.4 million in 2008, $137.1 million in 2007 and $122.0 million in 2006.

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

December 31,
2008BuildingCorporate headquarters in Cambridge, Massachusetts

$
131,031Less accumulated depreciation


(46,407
)Assets subject to capital leases, net

$
84,624


We
capitalize costs we have incurred in validating manufacturing equipment and facilities for products which have reached technological feasibility in plant and equipment. Capitalized
validation costs, net of accumulated depreciation, were $32.9 million at December 31, 2008 and $15.5 million at December 31, 2007.

Net
capitalized software costs, which are included in plant and equipment, totaled $25.8 million at December 31, 2008 and $15.5 million at December 31, 2007.
Capitalized software development costs, a component of construction in progress, were $89.8 million at December 31, 2008 and $43.0 million at December 31, 2007.

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

For the Years Ended December 31,2008

2007

2006$19.0

$14.5

$9.2


As
of December 31, 2008, the estimated remaining cost to complete our assets under construction is approximately $1.0 billion.

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, 2008 or 2007.

NOTE H.  GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

In 2008, we changed our segment reporting structure to better reflect the way we manage and measure the performance of our business. As
a result of this change, goodwill of $244.2 million was transferred from the Hematologic Oncology reporting segment to Other and goodwill of $15.9 million was transferred from the
Genetic Diseases reporting segment to the Cardiometabolic and Renal reporting segment based on their relative fair value. Prior year balances were adjusted to conform to our 2008 presentation.

F-88

---



The
following table contains the change in our goodwill during the year ended December 31, 2008 (amounts in thousands):

As of
December 31,
2007

Adjustments

As of
December 31,
2008Genetic Diseases

$
339,563

$


$
339,563Cardiometabolic and Renal


319,882





319,882Biosurgery


7,585





7,585Hematologic Oncology(1)


321,328


750


322,078Other(2)


415,470


(3,504
)

411,966Goodwill

$
1,403,828

$
(2,754
)
$
1,401,074


---

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 2008 and 2007, we completed the required annual impairment tests for our $1.4 billion and
$1.3 billion of goodwill that had been recorded as of September 30, 2008 and 2007, and determined that no impairment charge was required.

Other Intangible Assets

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

As of December 31, 2008

As of December 31, 2007Gross
Other
Intangible
Assets

Accumulated
Amortization

Net
Other
Intangible
Assets

Gross
Other
Intangible
Assets

Accumulated
Amortization

Net
Other
Intangible
AssetsTechnology(1)

$
1,919,074

$
(692,235
)
$
1,226,839

$
1,680,190

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


194,560


(121,763
)

72,797


194,560


(104,413
)

90,147Trademarks


60,556


(42,194
)

18,362


60,634


(36,787
)

23,847License fees(2)


98,123


(39,824
)

58,299


90,237


(28,833
)

61,404Distribution rights(3)


399,768


(170,892
)

228,876


307,260


(125,678
)

181,582Customer lists


83,729


(34,271
)

49,458


97,031


(33,209
)

63,822Other


2,039


(1,972
)

67


2,050


(1,573
)

477Total

$
2,757,849

$
(1,103,151
)
$
1,654,698

$
2,431,962

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


---

F-89

---



Net
technology includes $4.0 million at December 31, 2008 related to the acquisition of certain gene therapy assets from Avigen in December 2005. 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(1,2)2009

$
226,4322010


244,3732011


258,3942012


200,5082013


125,983Thereafter


448,405


---

NOTE I.  INVESTMENTS IN MARKETABLE SECURITIES AND EQUITY INVESTMENTS

Fair Value MeasurementDefinition and Hierarchy

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

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

F-90

---



hierarchy
for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when
available.

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



Valuation Techniques

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

F-91

---



The
following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2008 (amounts in thousands):

Description

Total

Level 1

Level 2

Level 3Fixed income investments(1):

Cash equivalents:

Money market funds/other

$
357,680

$
357,680

$


$
Short-term investments:

U.S. Treasury notes


7,505


7,505





U.S. agency notes


10,328





10,328


Corporate notesglobal


39,674





39,674


Total


57,507


7,505


50,002


Long-term investments:

U.S. Treasury notes


75,040


75,040





Non U.S. Governmental notes


7,322





7,322


U.S. agency notes


121,707





121,707


Corporate notesglobal


140,009





140,009


Total


344,078


75,040


269,038


Total fixed income investments


759,265


440,225


319,040


Derivatives:

Foreign exchange contracts(2)


(1,434
)




(1,434
)

Equity holdings(1):

Publicly-traded equity securities


56,596


56,596





Total assets (liabilities) at fair value

$
814,427

$
496,821

$
317,606

$



---

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

F-92

---



Marketable Securities (amounts in thousands):

December 31,2008

2007Cost

Market
Value

Cost

Market
ValueCash equivalents:Money market funds

$
357,680

$
357,680

$
660,648

$
660,648Short-term investments:Corporate notes


41,457


39,674


47,095


47,114U.S. Government agencies


10,260


10,328


33,303


33,331U.S. Treasury notes


7,281


7,505





58,998


57,507


80,398


80,445Long-term investments:Corporate notes


143,674


140,009


274,861


274,862U.S. Government agencies


117,143


121,707


132,464


133,979Non U.S. Government notes


7,277


7,322


252


235U.S. Treasury notes


71,110


75,040


101,758


103,861339,204


344,078


509,335


512,937Total cash equivalents, short- and long-term investments

$
755,882

$
759,265

$
1,250,381

$
1,254,030Investments in equity securities

$
57,777

$
83,325

$
61,291

$
89,181


The
following table contains information regarding the range of contractual maturities of our cash equivalents and short- and long-term investments (amounts in thousands):

December 31,2008

2007Cost

Market
Value

Cost

Market
ValueWithin 1 year

$
416,678

$
415,187

$
741,046

$
741,0931-2 years


323,196


328,588


175,433


175,0162-10 years


16,008


15,490


333,902


337,921$
755,882

$
759,265

$
1,250,381

$
1,254,030


F-93

---



Investments in Equity Securities

The following table shows the investments in equity securities of unconsolidated entities as of December 31, 2008 and 2007
(amounts in thousands):

December 31, 2008

December 31, 2007Adjusted
Cost

Market
Value

Unrealized
Gain/(Loss)

Adjusted
Cost

Market
Value

Unrealized
Gain/(Loss)Publicly-held companies(1,2):Dyax

$
17,992

$
18,090

$
98

$
17,992

$
18,190

$
198ABIOMED, Inc(3)


12,185


37,893


25,708


12,185


35,861


23,676Sirtris Pharmaceuticals, Inc











4,500


9,038


4,538Other


871


613


(258
)

2,156


1,634


(522
)Total publicly-held companies


31,048


56,596


25,548


36,833


64,723


27,890Private equity funds(4)


18,684


18,684





21,953


21,953


Privately-held companies(5)


8,045


8,045





2,505


2,505


Total

$
57,777

$
83,325

$
25,548

$
61,291

$
89,181

$
27,890


---

Unrealized Gains and Losses on Marketable Securities and Equity Investments

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

December 31,2008

2007Unrealized holding gains

$
35.1

$
34.1Unrealized holding losses

$
6.3

$
2.6


We
also collaborate with or provide services to certain of the companies in which we hold or have held equity investments, including Dyax. Our relationship with Dyax is described below.

F-94

---



Dyax Corp.

In February 2007, we terminated our participation and interest in Dyax-Genzyme LLC, our joint venture with Dyax. 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. In August 2007, we received cash
payments totaling $7.8 million from Dyax to settle the secured promissory note receivable from Dyax.

NOTE J.  EQUITY METHOD INVESTMENTS

Our equity method investments are included in other noncurrent assets in our consolidated balance sheets and totaled $1.0 million at December 31,
2008 and $45.8 million at December 31, 2007.

The
following tables describe:



Our Portion of the Net
Income (Loss) of Our
Equity Method
Investments

Total Income (Loss) of
Our Equity Method
InvestmentsEquity Method Investment

2008

2007

2006

2008

2007

2006BioMarin/Genzyme LLC

$


$
30.1

$
18.5

$


$
60.2

$
37.1Bioenvision, Inc.(1)





(21.1
)







(9.6
)

Other


0.2


(1.6
)

(2.8
)

0.4


(9.4
)

(17.2
)Totals

$
0.2

$
7.4

$
15.7

$
0.4

$
41.2

$
19.9


---

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

For the Years Ended
December 31,2008

2007

2006Revenue

$


$
124,203

$
97,060Gross profit





97,092


72,642Operating expenses


326


(46,656
)

(53,931
)Net income


370


50,866


19,865




December 31,2008

2007Current assets

$
1,585

$
109,936Noncurrent assets





1,098Current liabilities


351


15,359Noncurrent liabilities





4,168


F-95

---



BioMarin/Genzyme LLC

Through December 31, 2007, our portion of the net income of BioMarin/Genzyme LLC was included in equity in income of
equity method investments in our consolidated statements of operations. 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. 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.

As
a result of the restructuring of our relationship with BioMarin/Genzyme LLC, effective January 1, 2008, in accordance with the provisions of FIN 46R, we began
consolidating the results of BioMarin/Genzyme LLC. Upon consolidation of BioMarin/Genzyme LLC, we recorded the assets and
liabilities of the joint venture in our consolidated balance sheets at fair value. The value of the intellectual property of the joint venture of approximately $480.5 million was recorded as an
intangible asset in our consolidated balance sheets. The consolidation also included a corresponding noncurrent liability for the same amount which represented the encumbered value of the intellectual
property which had been outlicensed to us and Biomarin for no consideration. The intangible asset and noncurrent liability are being amortized over a period of 20 years. We recorded BioMarin's
portion of the joint venture's losses, the amount of which was not significant for the year ended December 31, 2008, as minority interest in our consolidated statements of operations.

During
the quarter ended December 31, 2008, we determined that the amount of the intangible asset and the liability originally recorded were overstated. A portion of the liability
recorded was related to the license between BioMarin/Genzyme LLC and us and, because this was a liability between a consolidated subsidiary and us, it should have been eliminated in
consolidation. To correct the accounting, we have reduced the carrying value of the liability and, in accordance with FIN 46R, recorded a corresponding adjustment to the intangible asset.
Accordingly, we recorded adjustments to reduce other intangible assets, net and other noncurrent liabilities by $237.2 million, $234.2 million, and $231.2 million as of
March 31, 2008, June 30, 2008, and September 30, 2008, respectively, to correct for the overstatement of the intangible asset and corresponding noncurrent liability. The effect of
this revision had no impact on our consolidated statement of operations or consolidated statements of cash flows for any of the revised quarterly periods. Refer to Note R., "Quarterly Results,"
in these consolidated financial statements for further information on this revision.

F-96

---



NOTE K.  ACCRUED EXPENSES

December 31,2008

2007(Amounts in thousands)Compensation

$
232,363

$
204,912Rebates


132,905


90,437Bank overdraft


45,022


19,262License fees


65,188


Royalties


56,501


34,064Other


233,407


296,970Total

$
765,386

$
645,645


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 31,2008

20071.25% convertible senior notes due December 2023

$


$
690,000Revolving credit facility maturing in July 2011





Notes payable


6,916


7,952Mortgage payable


17,957


Capital lease obligations


107,034


112,421Long-term debt, capital lease obligations and convertible debt, including current portion


131,907


810,373Less current portion


(7,566
)

(696,625
)Noncurrent portion

$
124,341

$
113,748


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):

2009

2010

2011

2012

2013

After 2013$1.5

$
1.6

$
1.6

$
1.7

$
1.8

$
16.7


1.25% Convertible Senior Notes

In December 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 paid interest on these notes on
June 1st and December 1st each year.

The
notes were 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) under certain circumstances.

We
had the right to redeem the notes for cash, in whole or in part, at our sole option on and after December 1, 2008. In October 2008, we notified the holders of these notes that
we planned to redeem the notes on December 1, 2008 using available cash. Prior to the redemption date, $2.8 million in

F-97

---



principal
amount of notes were converted into 39,665 shares of our common stock. The remaining notes were redeemed for $687.2 million cash plus accrued interest of $4.3 million and bank
fees which were not significant.

Interest
expense related to these notes was $10.9 million in 2008 and $11.9 million in 2007 and 2006. These amounts include the amortization of debt offering costs of
$3.0 million in 2008 and $3.2 million in 2007 and 2006. The fair value of these notes was $810.4 million at December 31, 2007.

Revolving Credit Facility

In July 2006, we entered into our 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. We may request that our 2006 revolving credit facility 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 under our 2006 revolving credit
facility, and in certain circumstances a utilization fee of 10 basis points as follows:



As
of December 31, 2008, 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, 2008 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.

Mortgage Payable

In July 2008, we purchased land and a manufacturing facility we formerly leased in Framingham, Massachusetts, for an aggregate purchase
price of $38.9 million, including fees. We paid $20.8 million in cash and assumed the remaining $18.1 million in principal outstanding under
the existing mortgage for the facility, which bears interest at 5.57% annually and is due in May 2020. The balance on the mortgage was $18.0 million at December 31, 2008.

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 at the date of inception. The term of
the lease is fifteen years and may be extended at our option for two successive ten-year periods.

F-98

---



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):

2009

$
15.22010


15.52011


15.52012


15.52013


16.9Thereafter


86.4Total lease payments


165.0Less: interest


(58.0
)Total principal payments


107.0Less current portion


(5.9
)Total

$
101.1


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 31,2008

2007

2006$75.2

$
74.3

$
60.9


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

2009

2010

2011

2012

2013

After 2013

Total$67.6

$
53.8

$
39.1

$
29.1

$
16.5

$
94.7

$
300.8


NOTE M.  STOCKHOLDERS' EQUITY

Preferred Stock

At December 31, 2008

At December 31, 2007Series

Authorized

Issued

Outstanding

Authorized

Issued

OutstandingSeries A Junior Participating, $0.01 par value


3,000,000








3,000,000





Undesignated


7,000,000








7,000,000





10,000,000








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.

F-99

---



Common Stock

The following table describes the number of authorized and outstanding shares of our common stock at December 31, 2008 and 2007:

Outstanding at December 31,Series

Authorized

2008

2007Genzyme Stock, $0.01 par value


690,000,000


270,704,169


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.

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, 2008, five of the seven eligible directors had established accounts under this plan, and four of these 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, 2008. As of

F-100

---



December 31,
2008, we have made cash distributions totaling $69,492 to one director under the terms of his deferral agreement.

Stock Repurchase Program

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 a three year period beginning with the commencement of the program.
The program commenced 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. The manner of the purchase, the amount
that we spend and the number of shares we ultimately purchase will vary based on a range of factors, including share price. The program does not obligate us to acquire any particular amount of common
stock and the program may be suspended at any time at our discretion.

Since
June 2007, when we first began repurchasing shares of our common stock under this program, we have repurchased a cumulative total of 5,500,000 shares of our common stock at an
average price of $68.09 per share for a total of $374.6 million in cash, including fees. We recorded the repurchases in our consolidated balance sheets as a reduction to our common stock account for
the par value of the repurchased shares and as a reduction to our additional paid-in capital account.

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 RSUs, as specified in the individual plans. Shares issued as a result of stock option exercises are
funded through the issuance of new shares. The following table contains information about our equity plans:

As of December 31, 2008Plan Name

Group
Eligible

Type of
Award
Granted

Awards
Reserved for
Issuance

Awards
Outstanding

Awards
Available
for Grant2004 Equity Incentive Plan(1)

All key employees and consultants

ISO/NSO/RSU


33,150,266


26,559,318


6,590,9482001 Equity Incentive Plan(1)

All key employees and consultants

ISO/NSO


7,549,240


7,531,521


17,7192007 Director Equity Plan(2)

Non-employee board members

NSO/RSU


821,391


632,270


189,121Assumed Options(3)






112,968


112,968


41,633,865


34,836,077


6,797,788


---

F-101

---



In 2008, 2007 and 2006, we accounted for options granted to our employees and directors 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. 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 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 if the
employee has reached the retirement eligibility threshold, 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
date of the next annual meeting of shareholders following 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.

F-102

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Stock-Based Compensation Expense, Net of Estimated Forfeitures

As a result of the adoption of FAS 123R, 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):

For the Years Ended December 31,2008

2007

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

$
(27,555
)
$
(25,677
)
$
(21,430
)Selling, general and administrative


(102,745
)

(106,172
)

(121,822
)Research and development


(56,673
)

(58,101
)

(65,248
)Total


(186,973
)

(189,950
)

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


56,740


58,148


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

$
(130,233
)
$
(131,802
)
$
(142,169
)Per basic and diluted share

$
(0.49
)
$
(0.50
)
$
(0.54
)


---

At
December 31, 2008, there was approximately $250 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 years.

Valuation Assumptions for Stock Option Plans and ESPP

The employee stock-based compensation expense recognized under FAS 123R 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 31,2008

2007

2006Risk-free interest rate


2
%

4
%

5
%Dividend yield


0
%

0
%

0
%Expected option life (in years)directors


7


7


7Expected option life (in years)officers


6


6


6Expected option life (in years)other senior managers


5


4


4Expected option life (in years)all other employees


4


4


4Volatility-stock options


27
%

28
%

39
%Volatility-ESPP


27
%

23
%

27
%


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

F-103

---



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 year ended December 31, 2008:

Shares Under
Option

Weighted Average
Exercise Price

Weighted
Average
Remaining
Contractual
Term (in years)

Aggregate
Intrinsic ValueOutstanding at December 31, 2007


34,770,972

$
52.94Granted


3,280,482


69.14Exercised


(5,716,398
)

46.74Forfeited and cancelled


(484,904
)

75.30Outstanding at December 31, 2008


31,850,152

$
55.39


5.95

$
389,220,467Vested and expected to vest at December 31, 2008


31,662,014

$
55.33


5.93

$
388,675,461Exercisable at December 31, 2008


22,850,538

$
52.14


5.10

$
355,896,477


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 31,2008

2007

2006Pre-tax intrinsic value of options exercised

$
176,048

$
153,772

$
81,928Weighted average grant date fair value per share of stock granted under our stock option plans

$
19.24

$
19.39

$
25.01


F-104

---



Time-Vested RSU Activity

We granted RSUs for the first time in connection with our 2007 general grant to employees and our 2008 annual grant to non-employee
directors. The following table contains information regarding our time-vested RSUs for the year ended December 31, 2008:

Shares Under
Award

Weighted
Average
Grant Date
Fair Value

Weighted
Average
Remaining
Contractual
Term (in years)

Aggregate
Intrinsic ValueOutstanding at December 31, 2007


1,311,857

$
62.16


2.39Granted


1,788,795


68.51Vested and issued


(10,476
)

62.16Forfeited and cancelled


(104,251
)

64.94Outstanding at December 31, 2008


2,985,925

$
65.87


1.89Vested and expected to vest at December 31, 2008


2,876,668





1.88

$
190,924,461Cumulative shares issued at December 31, 2008


10,476


ESPP Activity

The following table contains information regarding our ESPP activity for the years ended December 31, 2007 and 2008:

Shares available and issued: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


1,445,791Additional shares authorized


Shares purchased by employees


(936,105
)Available for purchase as of December 31, 2008


509,686


Notes Receivable from Stockholders

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

In
2008, we received a total of $12.6 million of cash, including $0.3 million for the reimbursement of collection costs, and shares of Genzyme Stock valued at
$2.0 million as payment in full for all but two of the outstanding notes, both of which mature in 2009. In January 2009 we received a total of $1.2 million as payment for one of
the outstanding notes. The amount of principal and accrued interest due under the remaining note is not material.

F-105

---



NOTE N.  COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

Through
June 30, 2003, we had three outstanding series of common stock, which we referred to as tracking stocks; Genzyme General Stock (which we now refer to as Genzyme Stock),
Biosurgery Stock and Molecular Oncology Stock. On August 6, 2007, we reached an agreement in principle to settle for $64.0 million lawsuits related to our 2003 exchange of Genzyme Stock
for Biosurgery Stock. We recorded a liability for the settlement payment of $64.0 million as a charge to SG&A in our consolidated statement of operations for the quarterly period ended
June 30, 2007. We paid the settlement in August 2007. The court approved the settlement in October 2007. We have submitted claims to our insurers for reimbursement of portions of the expenses
incurred in connection with these cases; the 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. Although we cannot predict the outcome of these additional proceedings and claims,
we do not believe the ultimate resolution of any of these existing matters would have a material adverse effect on our consolidated financial position or results of operations.

F-106

---



NOTE O.  INCOME TAXES

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

For the Years Ended December 31,2008

2007

2006Income (loss) before income taxes:Domestic

$
655,550

$
753,987

$
4,158Foreign


(30,012
)

(18,313
)

(56,836
)Total

$
625,538

$
735,674

$
(52,678
)Currently payable:Federal

$
347,100

$
313,136

$
119,037State


26,212


19,498


27,194Foreign


26,345


28,986


97,684Total


399,657


361,620


243,915Deferred:Federal


(153,183
)

(75,931
)

(219,383
)State


(13,588
)

(10,311
)

(29,048
)Foreign


(28,429
)

(19,897
)

(31,365
)Total


(195,200
)

(106,139
)

(279,796
)Provision for (benefit from) income taxes

$
204,457

$
255,481

$
(35,881
)


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 31,2008

2007

2006Tax provision at U.S. statutory rate


35.0
%

35.0
%

(35.0
)%State taxes, net


1.5


0.7


(1.7
)Export sales benefits








(37.2
)Domestic manufacturing deduction


(2.1
)

(0.5
)

(15.5
)Goodwill impairment








19.6Legal settlements





3.0


Audit settlements


(1.3
)

0.5


(62.9
)Stock compensation


1.5


1.3


15.8Tax credits


(3.9
)

(3.5
)

(30.5
)Foreign rate differential


1.4


(2.1
)

76.0Other


0.6


0.3


3.3Effective tax rate


32.7
%

34.7
%

(68.1
)%


Our
effective tax rate for 2008 was impacted by:



F-107

---





Our
effective tax rates for 2007 and 2006 were impacted by:



In
addition, our overall tax rate has changed significantly due to fluctuations in our income (loss) before taxes, which was $625.5 million in 2008, $735.7 million in 2007, and $(52.7)
million in 2006.

Effective
January 1, 2007, we adopted the provisions of FIN 48. 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, 2008, we had approximately $52.1 million of total gross unrecognized tax benefits, of which approximately $50.7 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 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 December 31, 2006

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


9,634Additions to tax provisions related to the prior years


829Reduction for tax provisions of prior years


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


41,823Additions to tax provisions related to the current year


8,445Additions to tax provisions related to prior years


10,029Reduction for tax provisions of prior years


(8,232
)Balance as of December 31, 2008

$
52,065


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

F-108

---



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

December 31,2008

2007Deferred tax assets:Net operating loss carryforwards

$
49,587

$
29,716Tax credits


18,831


15,071Inventory


75,314


66,868Depreciable assets


3,331


2,834Stock compensation


133,847


103,709Intangible amortization


75,051


Reserves, accruals and other


103,887


111,083Total deferred tax assets


459,848


329,281Deferred tax liabilities:Realized and unrealized capital gains


(2,506
)

(6,292
)Intangible assets





(62,984
)Net deferred tax assets

$
457,342

$
260,005


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, 2008, we had for U.S. income tax purposes, no significant net operating loss carryforwards and tax credit carryforwards of $18.7 million, primarily
for state income tax purposes. The tax credits begin expiring after 2019. We had foreign net operating loss carryforwards of $169.6 million as of December 31, 2008, which begin expiring
after 2013, and unlimited tax credit carryforwards of $6.7 million as of December 31, 2008.

We
are currently under IRS audit for tax years 2006 to 2007. We believe that we have provided sufficiently for all audit exposures. Settlement of these audits or the expiration of the
statute of limitations on the assessment of income taxes for any tax year may result in 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.

NOTE P.  BENEFIT PLANS

Defined Contribution Plans

We have two defined contribution plans:



Prior
to November 1, 2007, we were the sponsor of the Genzyme Surgical Products Corporation Savings and Investment Plan, which we refer to the GSP Plan. Effective
November 1, 2007, the GSP Plan was merged into the 401(k) Plan and the net assets of the GSP Plan were transferred to the 401(k) Plan.

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-

F-109

---



owned
subsidiaries in the United States are eligible to participate in the 401(k) Plan. For 2008, eligible employees could elect, through salary reduction agreements, to have up to 60% 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 Biomatrix Plan was frozen and the participants in this plan became eligible to participate in the 401(k) Plan.

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.

F-110

---



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 31,2008

2007Change in benefit obligation:Projected benefit obligation, beginning of year

$
97,608

$
95,385Service cost


6,313


6,436Interest cost


5,468


5,064Plan participants' contributions


2,073


1,798Actuarial gain


(21,372
)

(11,713
)Foreign currency exchange rate changes


(23,150
)

2,395Benefits paid


(1,618
)

(1,757
)Projected benefit obligation, end of year

$
65,322

$
97,608Change in plan assets:Fair value of plan assets, beginning of year

$
72,387

$
63,603Return on plan assets


(16,155
)

3,421Employer contribution


4,486


3,920Plan participants' contributions


2,073


1,798Foreign currency exchange rate changes


(17,640
)

1,082Benefits paid


(1,396
)

(1,437
)Fair value of plan assets, end of year

$
43,755

$
72,387Funded status at end of year

$
(21,567
)
$
(25,221
)


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

December 31,2008

2007Accrued expenses

$
(1,234
)
$
(1,343
)Other noncurrent liabilities


(20,333
)

(23,878
)Net amount recognized

$
(21,567
)
$
(25,221
)


The
amounts recognized in accumulated other comprehensive income (loss) for net actuarial gains and losses and prior service costs were not significant for the years ended
December 31, 2008, 2007 or 2006. The estimated amounts that will be amortized from accumulated other comprehensive income (loss) at December 31, 2008 into net pre-tax
periodic pension costs in 2009 is also not significant.

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

December 31,2008

2007Weighted average assumptions:Discount rate


6.42
%

5.79
%Rate of compensation increase


4.12
%

4.81
%


For
the year ended December 31, 2008, 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

F-111

---



the
discount rates for each plan weighted by plan liabilities as of December 31, 2008. The discount rate reflects the rate at which the pension benefits could be effectively settled.

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

December 31,2008

2007

2006Weighted average assumptions:Discount rate


5.78
%

5.12
%

4.73
%Rate of return on assets


7.61
%

7.67
%

7.47
%Rate of compensation increase


4.81
%

4.44
%

3.93
%


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

December 31,2008

2007

2006Service cost

$
6,313

$
6,436

$
4,751Interest cost


5,468


5,063


3,488Expected return on plan assets


(5,607
)

(3,411
)

(6,269
)Amortization and deferral of actuarial gain (loss)


827


(456
)

3,334Net pension expense

$
7,001

$
7,632

$
5,304


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 31,2008

2007Projected benefit obligation

$
65,322

$
97,608Accumulated benefit obligation


48,618


86,635Fair value of plan assets


43,755


72,387


At
December 31, 2008 and 2007, 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, 2008 and 2007 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 31,2008

2007U.K. equity securities


56
%

57
%Other overseas equity securities


25
%

26
%Bonds


11
%

9
%Real estate


4
%

4
%Other


4
%

4
%Total


100
%

100
%


F-112

---



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 2009.

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 Payments2009

$
1,2472010


1,1792011


1,2752012


1,5282013


1,7282014 - 2018


13,622Total

$
20,579


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, in the fourth quarter of 2008, we changed our segment reporting structure to better reflect the way we
manage and measure the performance of our businesses. Under the new reporting structure, we are organized into four reporting segments as described in Note A., under the heading "Summary of
Significant Accounting PoliciesDescription of Business," to these financial statements. We have revised our 2007 and 2006 segment presentations to conform to our 2008 presentation.

F-113

---



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

For the Years Ended December 31,2008

2007

2006Revenues:Genetic Diseases(1)

$
2,226,692

$
1,767,538

$
1,426,958Cardiometabolic and Renal


956,183


833,268


704,308Biosurgery


491,100


426,647


387,569Hematologic Oncology(2)


117,338


76,933


57,276Other


812,465


707,518


610,529Corporate


1,261


1,615


373Total

$
4,605,039

$
3,813,519

$
3,187,013Depreciation and amortization expense:Genetic Diseases

$
46,683

$
40,379

$
18,191Cardiometabolic and Renal


83,309


83,454


95,598Biosurgery


76,327


71,512


73,788Hematologic Oncology(2)


42,708


23,728


19,851Other


59,347


60,803


62,097Corporate


66,290


58,320


61,864Total

$
374,664

$
338,196

$
331,389Equity in income (loss) of equity method investments:Genetic Diseases

$
300

$
30,110

$
18,534Cardiometabolic and Renal


(115
)

(852
)

(1,814
)Biosurgery








Hematologic Oncology





(21,101
)

Other





(45
)

(26
)Corporate


16


(714
)

(989
)Total

$
201

$
7,398

$
15,705Income (loss) before income taxes:Genetic Diseases(3,4)

$
1,339,073

$
1,177,477

$
996,095Cardiometabolic and Renal(5)


138,923


280,345


181,969Biosurgery


99,553


60,082


40,734Hematologic Oncology(2)


(95,028
)

(202,533
)

(53,270
)Other(6,7)


(135,477
)

8,977


(744,666
)Corporate(8)


(721,507
)

(588,674
)

(473,540
)Total

$
625,537

$
735,674

$
(52,678
)


---

F-114

---





Acquisition

Date Acquired

Business Segment(s)

IPR&D ChargeBioenvision

October 23, 2007

Hematologic Oncology

$125.5 millionAnorMED

November 7, 2006

Hematologic Oncology

$552.9 million




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

December 31,2008

2007

2006Segment Assets(1):Genetic Diseases(2)

$
1,520,586

$
1,147,256

$
1,020,345Cardiometabolic and Renal


1,366,970


1,523,296


1,434,094Biosurgery


497,813


458,239


477,334Hematologic Oncology(3,4)


700,563


738,939


525,829Other(5,6)


1,097,169


1,041,134


889,873Corporate(7)


3,488,175


3,405,511


2,843,713Total

$
8,671,276

$
8,314,375

$
7,191,188


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F-115

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Amount

Business
SegmentCash and cash equivalents

$
45.2

CorporateGoodwill and other intangible assets


257.7

Hematologic OncologyOther tangible assets


13.0

Hematologic OncologyTotal

$
315.9


Amount

Business
SegmentCash and cash equivalents

$
20.2

CorporateOther tangible assets


35.6

Hematologic OncologyGoodwill and other intangible assets


35.8

Hematologic OncologyTotal

$
91.6


Amount

Business
SegmentGoodwill and other intangible assets

$
44.9

OtherOther tangible assets


10.0

OtherTotal

$
54.9


F-116

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

December 31,2008

2007

2006Cash, cash equivalents, short- and long-term investments in debt securities

$
973,691

$
1,460,394

$
1,285,604Deferred tax assets, net


457,342


260,005


136,925Property, plant & equipment, net


1,524,442


1,240,992


1,036,182Investments in equity securities


83,325


89,181


66,563Other


449,375


354,939


318,439Total

$
3,488,175

$
3,405,511

$
2,843,713


Geographic Information

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, Republic of Ireland, France and Belgium. The following tables contain certain financial information by geographic
area (amounts in thousands):

For the Years Ended December 31,2008

2007

2006Revenues:United States

$
2,259,086

$
1,996,764

$
1,728,497Europe


1,587,318


1,238,360


990,745Other


758,635


578,395


467,771Total

$
4,605,039

$
3,813,519

$
3,187,013




December 31,2008

2007

2006Long-lived assets:United States

$
1,374,708

$
1,067,918

$
928,547Europe


1,099,916


1,044,901


801,767Other


11,429


11,644


7,014Total

$
2,486,053

$
2,124,463

$
1,737,328


Our
results of operations are dependent on sales of Cerezyme. Sales of this product represented 27% of our total revenue in 2008, 30% of our total revenue in 2007 and 32% of our total
revenue in 2006. 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 unaffiliated distributors. Distributor sales of Cerezyme represented 15% of Cerezyme revenue in 2008, 17% in 2007 and 21% in
2006. 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.

Sales
of Renagel/Renvela, including sales of bulk sevelamer, represented 14% of our total revenue in 2008 and 16% of our total revenue in both 2007 and 2006. A substantial portion of the
sales of Renagel/Renvela are to wholesale distributors.

F-117

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NOTE R.  QUARTERLY RESULTS (Unaudited)

1st Quarter
2008

2nd Quarter
2008

3rd Quarter
2008

4th Quarter
2008(Amounts in thousands, except per share amounts)Total revenues

$
1,100,061

$
1,171,134

$
1,160,284

$
1,173,560Gross profit(1)


819,819


862,093


865,674


866,850Net income(1)


145,271


69,564


119,596


86,650Net income per share:Basic

$
0.54

$
0.26

$
0.44

$
0.32Diluted

$
0.52

$
0.25

$
0.42

$
0.31




1st Quarter
2007

2nd Quarter
2007

3rd Quarter
2007

4th Quarter
2007(Amounts in thousands, except per share amounts)Total revenues

$
883,183

$
933,419

$
960,159

$
1,036,758Gross profit(2)


671,608


710,359


706,247


768,560Net income(2,3)


158,187


83,794


159,313


78,899Net income per share:Basic

$
0.60

$
0.32

$
0.61

$
0.30Diluted

$
0.57

$
0.31

$
0.58

$
0.29


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F-118

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The
following quarterly selected consolidated financial data have been derived from the consolidated financial statements for the periods indicated which have not been audited. We have
revised our quarterly consolidated balance sheets as of March 31, 2008, June 30, 2008, and September 30, 2008 for the correction of an error related to the carrying amount of
other intangible assets, net and other noncurrent liabilities recorded as a result of the consolidation of Biomarin/Genzyme LLC, effective January 1, 2008. This is further discussed in
Note J., "Equity Method Investments," to these consolidated financial statements.

The
effect of this revision had no impact on our consolidated statements of operations or consolidated statements of cash flows for any of the revised quarterly periods. We have
determined that these adjustments are not material to our consolidated financial statements for any of the quarterly periods affected; therefore, no revisions have been made to the 2008 consolidated
financial statements included in our previously filed Form 10-Qs for this matter (amounts in thousands):

March 31, 2008
As Revised

June 30, 2008
As Revised

September 30, 2008
As RevisedTotal current assets

$
2,780,389

$
2,629,830

$
2,810,106Other intangible assets, net(1)

$
1,745,488

$
1,755,918

$
1,703,793Total assets

$
8,845,806

$
8,948,608

$
9,184,344Total current liabilities

$
1,475,663

$
1,492,143

$
1,476,028Other noncurrent liabilities(1)

$
295,472

$
291,121

$
332,772Total liabilities

$
1,897,815

$
1,907,204

$
1,948,460Total stockholders' equity

$
6,947,991

$
7,041,404

$
7,235,884Total liabilities and stockholders' equity

$
8,845,806

$
8,948,608

$
9,184,344


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F-119

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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 27, 2009
appearing in the 2008 Annual Report to Shareholders of Genzyme Corporation (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

Boston,
Massachusetts
February 27, 2009

F-120

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GENZYME CORPORATION        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006

Column A

Column B

Column C

Column D

Column EAdditionsDescription

Balance at
Beginning
of Period

Charged to
Costs and
Expenses

Charged to
Other
Accounts

Deductions

Balance at
End of
PeriodYear ended December 31, 2008:Accounts receivable allowances

$
40,287,000

$
12,933,000

$
14,071,000

$
26,916,000

$
40,375,000Rebates

$
90,437,000

$


$
203,333,000

$
160,865,000

$
132,905,000Year ended December 31, 2007:Accounts receivable allowances

$
52,563,000

$
9,664,000

$
10,964,000

$
32,904,000

$
40,287,000Rebates

$
62,166,000

$


$
149,967,000

$
121,696,000

$
90,437,000Year ended December 31, 2006:Accounts receivable allowances

$
46,127,000

$
10,050,000

$
13,627,000

$
17,241,000

$
52,563,000Rebates

$
50,304,000

$


$
115,500,000

$
103,638,000

$
62,166,000


F-121

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